Foreign investment: Measures to improve the investment climate

Maria Akulova


In 2016, potential investors’ interest in Belarus continued to decline. The problem of access to financing in the form of loans was growing, affecting the possibility of floating sovereign Eurobonds internationally. There were signs that the government finally realized that the country needed a better image to foster investment and issued a number of bills to facilitate raising funds.

General results

In 2016, the government planned to obtain around USD 4.3 billion in foreign investments, including 3.2 billion in loans from foreign banks. Actual data on the financial account of the balance of payments in 2016 showed unsatisfactory results in attracting foreign capital.

Over the past year, foreign direct investment amounted to USD 1.234 billion, 1 being down 25% year-on-year (1.652 billion were raised in 2015). The main proportion was made up by reinvested earnings (706 million), rather than new technologies or production (377 million).

FDI and privatization

Last year, Belarus did not rely on raising significant amounts, especially through FDI and privatization. In early 2016, the State Property Committee published one more list of enterprises put up for sale, which included virtually all assets planned for sale as far back as 2015. The outcome of the sale was unsatisfactory as before.

The lack of privatization deals and low investment activity were caused by a number of factors, particularly the difficult economic situation, disputable protection of property rights, and a vague strategy of selling state property. The government cannot choose what can be sold, and what assets should be classified as strategic. Intricate methods of determining the price of assets impeded the process (a resolution that regulates the market-value appraisal of state-owned assets was only adopted in mid-August), as well as demotivation of the management and additional requirements for privatization transactions. The financial standing of assets is also important, because nonviable enterprises are often put up for sale.

A number of M&A transactions involving foreign capital were completed despite the above difficulties. The private sector thus proved more successful, and the IT sector remained one of the key currency generators in the country. According to estimates of the High-Tech Park (HTP), its residents raised around USD170 million in 2016. EPAM Systems acquired the Chinese software developer Dextrys. Wargaming bought the Finnish mobile studio Boomlagoon. The Belarusian developer of football applications was acquired by the Russian sports channel Neither acquisition value has been disclosed.

The joint decision of VP Capital and Larnabel Enterprises to invest in the American innovative IT company Astro Digital 2 was a landmark event in the IT sector.

Among other high-profile events are the acquisition of a controlling stake in the Belarusian-Dutch company Farmland (blood plasma preparations producer) by Russian Rostec for 1.7 billion Russian rubles. Russian A1 bought 48.3% of Polyplastic (polymer pipes), and the building of Kempinski Hotel was sold to Sberbank of Russia for symbolic BYN 1.99 on condition that that the hotel will be commissioned by the end of 2018. It will require USD 100 million to complete the construction.

Lithuanian capital played an important role in the Greenfield segment. Modus Group, which already financed the construction of a solar power plant in 2014–2016, decided to expand its presence in Belarus. The new project involves the construction of a network of biogas plants, the total amount of investment standing at EUR 100 million. Another Lithuanian company, Enerstena, plans to spend EUR 6 million to build a biofuel boiler facility.

Turkish TEYO is going to invest around USD 950 million in the construction of a calcified salt plant. The Belarusian government and the Northern Environmental Finance Corporation (NEFCO) agreed on the construction of two pig complexes. Investments to the project amount to EUR 50 million. German SMS Group plans to invest around EUR 200 million in the construction of a metal rolling plant, and Finnish FortumPlc will invest EUR 100 million in the construction of an energy generator, which will use solid municipal waste.

Also, Belarus and Russia created a joint venture investment fund of USD 23 million, which will finance first projects as soon as 2017.

Portfolio investment

The year 2016 did not see any significant events related to the portfolio investment market. Belarus intended, but failed to float sovereign Eurobonds to raise USD 1 to 1.5 billion.

The lifting of EU sanctions against a number of Belarusian companies and individuals in February triggered a certain increase in Eurobond quotations. The minimum values ​​of the price and profitability reported in January were at USD 102.3 and 7.68%, and the maximum was reached in August: USD 105.7 and 4.85%, respectively. In January and July 2016, timely payments were made on coupons of seven-year Eurobonds floated in 2011 for a total of USD 71.6 million. This also positively affected the quotation of securities.

Difficulties in access to foreign capital stimulated commercial banks to actively issue corporate bonds to raise extra funds. The annual bond offering totaled USD 1.53 billion. The proportion of Belarusbank constituted 61.7%, Belagroprombank 17.5% and the Development Bank of the Republic of Belarus 8.6%.

The Eurobond offering plans for 2017 were adjusted downwards. Budget revenues from Eurobonds are expected at around USD 800 million. Domestic placement of debt securities will continue as an alternative to external borrowing.

Other foreign liabilities

In 2016, net foreign liabilities decreased by USD 539.3 million. The public administration sector thus acted as the main borrower. The net foreign public debt liabilities increased by USD 1 billion, while other items (central bank liabilities, liabilities to non-residents on loans and credit lines) reduced.

A new loan program with the Eurasian Fund for Stabilization and Development (EFSD) for two years with 10-year maturity at 4.06% per annum was signed in early 2016. The total amount of USD 2 billion will be provided in seven tranches as soon as certain conditions are met. In 2016, 1.1 billion dollars were expected in three tranches.

The first tranche of USD 500 million was received in March and the second tranche of USD 300 million was transferred in July 2016. Another 300 million dollars were expected by the end of the year, but the third tranche has not been transferred so far 3 due to Belarus’ failure to comply with some requirements stipulated by the agreement. This particularly concerns a number of macroeconomic indicators and economic reform.

Structural reforms include an improvement of the efficiency of public administration, increase in unemployment benefits and transfer of loss-making companies into trust management. Progress in resolving these issues will be a determining factor for further tranches.

Belarus is still in talks with the IMF on a new credit program. The IMF wants tariffs on housing and communal services changed and the public sector reformed. The parties have not reached a consensus so far.

Arrangements to raise foreign financing and improve the investment climate

Since foreign investors do not manifest much interest in projects in Belarus, the government has to redouble its efforts to improve the investment climate. The past year was record-breaking in terms of the number of regulatory documents aimed at fostering investment.

1. Resolution No. 1008 of December 8, 2016 4 issued by the Council of Ministers outlines a number of measures to enhance the efficiency of the economy, with a special emphasis on improving corporate governance in JSCs having state-owned shares.

2. Resolution No. 639 of August 16, 2016 5 issued by the Council of Ministers describes a market mechanism for determining the price of assets for sale on condition that the market price is determined by a state appraiser.

3. Resolution No. 657/20 of August 19, 2016 6 issued by the National Bank jointly with the Council of Ministers of Belarus requires the adoption of International Financial Reporting Standards (IFRS) from January 1, 2017.

4. The bill ‘On Investment Funds’ 7 passed by the House of Representatives of the National Assembly in the first reading on December 13, 2016 and sent for further consideration to the president and the Council of Ministers will have a positive impact on the development of the Belarusian stock market, and enable fostering domestic investment.

5. Decree No. 84 8 is supposed to facilitate foreign investment by allowing investors making acquisitions in line with their legislation.

6. Decree No. 8 ‘On the Establishment of the Visa-Free Entry and Exit Procedure for Foreign Nationals’ 9 of January 9, 2016 establishes a visa-free regime for a period of up to five days for citizens of 80 countries. This measure can serve as an additional signal for potential investors that the country opens its borders and seeks cooperation.

7. Law No. 345-3 ‘On Public-Private Partnership’ 10 of March 3, 2016 came into force in July. One of its main goals is to raise capital for the economy. It defines all legal aspects of public-private partnership in the country.

In addition to the above, it is planned to make a number of amendments to the laws ‘On Privatization of State-Owned Companies’ and ‘On Investments’ in 2017. Presumably, the time limit for filing a claim for recognizing a privatization transaction void will be reduced from 10 to 3 years that will enhance the protection of investors’ rights. It is planned to work out a mechanism for protecting investors and paying compensation in case an acquired asset is nationalized.

There is a possibility that the state will not have judicial immunity in the event of failure to fulfill its obligations to an investor. Also, in all likelihood, the issue of the adoption of the trust management practice will be resolved.


Plans for 2017 involve raising at least USD 1.4 million in FDI. Various documents signed in 2016 testify to the authorities’ interest in foreign investments and demonstrate qualitative changes in comparison with previous years. Measures to strengthen the protection of investors’ rights, the introduction of IFRS standards, changes in the assessment mechanism, and adoption of corporate governance procedures have already been repeatedly mentioned by various international organizations among the key requirements.

On the other hand, privatization continues to be perceived as a secondary fundraising option. Moreover, the decision of the Ministry of Finance to stop publishing financial statements of joint-stock companies and bond issuers 11 will complicate the sale of state assets.

Attempts to float sovereign Eurobonds will resume in 2017. The authorities expect to obtain around USD 800 million this way. However, the success of this endeavor directly depends on the results of extended facility negotiations with the IMF. A positive decision will not only lower the floating rate, but will also have a positive impact on the country’s investment image.

Structural reform of the economy remains a stumbling block, on the way of investment, technologies and innovations coming to Belarus. Positive developments in this area will not only make it possible to rely on financing from the IMF and EFSD, but will also serve as a basis for increasing competitiveness and strengthening the position of Belarus in the world.