When the International Ice Hockey Federation World Championship was held in Minsk earlier this year, Belarus was not only competing on the ice, but also hoping to score points for its hospitality. The event was a chance to show a friendlier face to the world and to counter its image as a closed, Soviet-style outpost.
“It was a great event for Belarus and for the Belarusian people,” says the chief manager at the Minsk Arena, which hosted the final match, in which Russia prevailed over Finland. “And it showed how open and hospitable we are.”
The championship saw a new attendance record set, with almost 650,000 people attending over the course of the tournament and with sports fans visiting the country from Europe and America. This was helped by a free-visa entry for anyone with a match ticket.
However, Belarus’s efforts to improve its openness and hospitality are not restricted to the sports domain, and the country is now focusing on bringing in business from abroad.
Doors wide open
The openness to business is at odds with Belarus's political isolation from much of the Western world, due to its lack of democratic credentials and the heavy-handed nature of its autocratic government under long-standing president Alexander Lukashenko. Last October, EU sanctions against Belarus were extended for another year, with Brussels expressing its disappointment in the lack of progress in instilling human rights, rule of law and democratic principles in the country. The annual review updated the list of those targeted with a travel ban and a freezing of their assets within the EU. More than 200 Belarusian individuals and 25 entities remain subject to EU sanctions. The US has also extended its sanctions against various Belarusian officials.
Against this backdrop, a push to increase international trade and investment links goes on.
“Belarus has always been open to foreign markets,” says deputy foreign minister Aleksandr E Guryanov. “Even being part of the Soviet Union, the country was like a production facility for the whole USSR and most of the union’s exports came from Belarus. In recent years, the figures [have gone] up and down but exports have always constituted more than 60% of our GDP.”
At the end of the 2000s, the government decided to diversify its trade markets, but Russia remains Belarus's most important trading partner, absorbing almost half of the country’s international trade. According to the European Commission, however, the EU-Belarus bilateral trade in goods has been growing steadily in recent years and the EU is now Belarus’s second main trade partner, with almost a one-third share in the country's overall trade.
“In order to be able to sell more to foreign markets, Belarus’s companies need to be more competitive,” says Pavel Laschenko, country managing partner for Belarus at Ernst & Young. “We need to finish modernising the economy first. Now only the oil industry is competitive enough as it was modernised first.”
The private model
Such modernisation could be done through privatisation, given that private investors typically bring new technologies, know-how and access to new markets, but it has taken Belarus almost two decades to start privatising state-owned companies.
“We are working on a joint privatisation project with the World Bank. Its goal is to create a model example,” says Natalia Nikandrava, director of Belarus's National Agency of Investment and Privatisation. “One investment is at its final stage and all the documents will soon be submitted to the president’s administration, who makes the ultimate decision about privatisation. Four state-owned companies have passed the pre-sale stage and are ready for sale.”
Some companies are already competitive. BelAZ, a state-owned automotive company, exports 95% of its production and owns 48% of the global market in 130-tonne mine trucks. For BelAZ, its success can be largely attributed to it finding a lucrative niche.
“Only five companies produce similar equipment and we successfully compete with the Americans, Germans and Japanese,” says Aleh Stsiapuk, first deputy director at BelAZ. “For our consumers it is not important where the product is manufactured.”
Vladimir Rybakov, deputy general director at Belarusian roller shutter systems producer Alutech, understands that for his company to be competitive, it is important to work to global market principles and follow the best global practices. The company has recently acquired a factory in Germany, has another one in Austria and a logistics centre in the Czech Republic. It sells its products to some 40 countries.
“Sometimes we still invite our partners to show what we can produce in Belarus, and it usually takes about four years to convince our clients to work with us, even though we have modern equipment and machines and all the necessary quality certificates, and sometimes even additional ones,” says Mr Rybakov.
But such examples of state-of-the-art production facilities are not Belarus’s only assets. According to the European Commission, there are about 500,000 students enrolled at Belarus’s 55 higher education institutions each year, an impressive number bearing in mind the country’s relatively small population of about 10 million.
Although getting credit, paying taxes and trading across borders can still be an obstacle for companies operating in Belarus, according the World Bank’s Doing Business 2014 ranking, the country was placed 63rd in the ranking and is therefore more business friendly than some EU economies, such as Greece or the Czech Republic.
Currently, the government is working on internet communication between government agencies and business to be able to process all the necessary administrative procedures online. “Once we complete that, we’ll be in the ranking’s top 30 countries,” says economy minister Nikolai Snopkov.
“In the mid- to long-term, small and medium-sized businesses will be the driver of our economy. There is a lot of discussion about innovation but we forget that the basis for innovation is entrepreneurship and initiative. When both of them are missing, there cannot be any innovation, that is why my target is to create a comfortable and proper environment for entrepreneurship and use it as a basis to boost an innovative economy,” he adds.
A gateway to the East
According to the country’s National Statistical Committee, in 2013 there were almost 92,600 small and medium-sized companies, more than twice as many as in 2007. Also, the number of registered companies with foreign capital doubled to reach 7000 last year. Within the past five years, foreign companies have invested almost $10.5bn.
In 2012, Stadler, a Swiss producer of light railway vehicles, set up a joint venture with a local partner in the Minsk Free Economic Zone, one of the six such zones in Belarus, which hosts almost 140 companies from the UK, the US, Germany and even as far as New Zealand.
“The factory in Minsk will be used to supply the [Commonwealth of Independent States] market, especially Russia. One of the first orders we acquired was the construction of 25 double-decker multiple-unit trains for the Russian company Aeroexpress,” says Vladimir Korol, chief executive at Stadler Belarus.
Austrian IT company Kapsch had a similar goal when the company first looked to the Belarusian market. After a few years of preparation to sign an investment agreement and then building the infrastructure, the company started operating the national electronic toll collection system in August 2014, thus running the first public-private partnership (PPP) in Belarus.
“Around the world, PPP has a wide application, but in Belarus we haven’t established the regulatory and administrative framework. Now we are working on it,” says Sergei Roumas, CEO of the Development Bank of the Republic of Belarus.
Safe and sound
The lack of necessary regulations, administration hierarchy and decision-making processes can be challenging, but is also an opportunity to negotiate individual incentives, benefits and privileges, such as in the case of Kapsch.
“You have to be very patient because everything might seem very complicated at the beginning, especially if you have a Western-minded approach, but everything is possible,” says Sergey Boury, marketing manager at Kapsch.
“The truth is that Western investors are hesitating whether to come over here and investors from the East are not. That is why they start occupying the niches which could be taken by investors from the West,” says Kiryl Rudy, economic advisor to the President Lukashenko.
Dmitry Matveev, a partner at law firm Aleinikov & Partners, confirms Belarus is a legally safe place to do business. “The country is a member of the Multilateral Investment Guarantee Agency and the International Centre for Settlement of Investment Disputes. So far, for example, there have been 12 cases against Ukraine, three against Poland and none against Belarus,” he says.
Belarus is working hard to reverse its long-standing negative reputation and seems very committed. Mr Rudy says: “If the hockey championships weren’t enough, we will undertake other measures to change that image of Belarus in the West. We have a clear message, we welcome Western partners and we do not see any reasons for them not to come to our country.”