Foreign Investment: Startups and innovations or loans

Maria Akulova


Although the government’s plans to raise foreign financing were fulfilled, the results of 2017 were ambiguous in this respect. The private sector and, especially, hi-tech startups generated investors’ profound interest. Investments in the public sector were provided by the state through external borrowing and redistribution of funds raised this way. The public sector thus remains unattractive for investors, but, in fact, it seeks state subsides, rather than investments.

In 2017, the government took a number of important steps to improve the regulatory framework for investment and to stimulate business ventures.

Plans to raise foreign financing are executed

In 2017, foreign investment totaled approximately USD 2,544 billion against 378.6 million a year back.

Belarus planned to raise at least 1.4 billion in foreign direct investment (FDI). 1 Actual data for 2017 show that the target was basically achieved: FDI increased 2% year-on-year to USD 1,274 billion 2 (1,246 billion in 2016). Most of FDI was composed of reinvested incomes of foreign owners (670 million), rather than the appearance of new players and technologies in the market (396 million). Foreign investment in 2017 consisted almost equally of FDI and portfolio investment, thanks to the successful placement of two issues of Eurobonds on foreign markets for a total of USD 1.4 billion.

In 2017, the foreign debt increased by nearly 21.9% to USD 17.26 billion, 34.3% of GDP as of January 1, 2018, against 14.15 billion and 28.5%, respectively, in 2016. The negative trend towards an increase in the debt burden on GDP observed in 2016 remained. Gross external debt grew by 6.4% to USD 37.5 billion as of January 1, 2017. By 2018, it reached nearly 39.9 billion.

Public sector privatization: no transactions

As in 2016, the government did not entertain hopes for privatization deals or sudden investment interest in state-owned assets. In March 2017, the State Property Committee (SPC) announced one more privatization plan and listed 41 enterprises to be sold. Only few of them can be classified as large. The assets intended for privatization were subject to a number of terms and conditions that no one would wish to meet. Naturally, the result was predictable: no bids at all.

Privatization remains frozen, mainly due to the lack of protection of property rights, overestimation of the real value of assets and their non-viability. Besides, state administration bodies are not motivated to sell state property whatsoever.

In late 2017, amendments to the Law on Privatization removed some of the obstacles, but did not solve the problem comprehensively.

Private sector: technological companies show best development dynamics

The private sector was successful in attracting foreign capital, which is proved by a number of closed M&A deals. The IT segment remains the most dynamic and attractive in terms of investment, among other things, being one of the key foreign exchange generators in the country. For the first time in the history of the High-Tech Park (HTP), in 2017, HTP’s exports totaled USD 1.25 billion. The year 2017 thus saw a considerable number of deals with various startup projects.

The Belarusian investment company VP Capital, investment fund Larnabel Enterprises and startup Banuba (mobile applications based on augmented reality technologies) made a deal worth USD 5 million. The startup PandaDoc engaged in workflow automation raised USD 15 million from Rembrandt Ventures Partners. American Solbeg Group invested in the startup Wandle (smart filtering service for notifications on smartphones). Medical startup Flo raised around USD 5 million from the venture fund Flint Capital. The startup Healthy Networks received USD 100,000 from Spacemind Capital.

Belinfond (Russian-Belarusian Venture Investment Fund) signed its first deal to support the startup Triniti, which is developing a post-stroke recovery trainer with USD 400,000. The agro-startup Onesoil (computer-aided learning for higher efficiency in agriculture) signed a USD 500,000 financing agreement with Haxus venture fund. Belarusian Banuba and Iventain launched the startup Camera First with around USD 1 million in investment to design augmented reality-based mobile games. RocketBody received USD 1 million from Quattro Capital to develop a mobile application that monitors metabolic processes. American Mapbox and Belarusian Mapdata have agreed to set up an R&D center in Minsk to develop unmanned technologies.

Several agreements concluded by the private equity fund Zubr Capital can be pointed out. In March 2017, the fund acquired a blocking stake in the online hypermarket In April 2017, it bought a blocking stake in auto advertisement site and united it with competing Finally, in August 2017, Zubr Capital raised financing for Uniflex company, which produces flexible packaging and self-adhesive labels. The amounts of all three transactions are standard for the fund ranging from USD 3 to 8 million. The exact amounts have not been disclosed.

In the Greenfield investment bloc in 2017, the agreement reached by the joint Polish-Ukrainian company MOT and the administration of the Free Economic Zone Brest on the construction of a metalware line is of interest. Preliminary, investments are said to be USD 500 million. Chinese DRex Food Group and Xinronqji Holding Group intend to invest around USD 1 billion in the construction of plants to produce packing and foods in the Great Stone Park, and the construction of a dairy farm. The Chinese are likely to consider a purchase of shares in various Belarusian companies and all or a part of stocks in state-owned Moscow-Minsk Bank. Another project involves investment of USD 30 million in the construction of an engineering bureau in the Great Stone Park. American IPG Photonics will be the anchor investor.

Portfolio investment

In 2017, Belarus planned to float sovereign Eurobonds worth around USD 800 million, and exceeded the target.

In June, the country placed 1.4 billion dollars’ worth Eurobonds in two tranches: 800 million with a yield of 7,125% will mature in 2023, and 600 million with a yield of 7,625% will be redeemed in 2027. The previous issue was paid off on time allowing Belarus to float the next one on more favorable terms than in 2010-2011. However, if there was a loan program with the IMF by the time of placement, the rates would be similar to the current interest rate set at 5% to 6% for domestic loans of the Ministry of Finance.

The practice of placing government securities in the domestic market was continued. In 2017, the country raised USD 395 million, EUR 51 million and BYN 200 million.

The total annual placement of bank bonds totaled USD 903.5 million. Belagroprombank led with 28.6%. It was followed by Belarusbank (22.6%), BPS-Sberbank (16.9%), BelVEB Bank (8.9%) and ‘Alfa-Bank’ (7.9%).

The corporate segment also tried to attract additional capital by placing foreign exchange and ruble bonds on the domestic market worth USD 988.1 million. Topping the list were Belarusian Railways (13.2%), Minsk Tractor Plant (9.6%), Smolevichi-Broiler (8.9%), Mozyr Refinery (6.6%) and Conte Spa (6.5%).

Other foreign liabilities

Net volumes of other external liabilities in 2017 decreased by USD 48.3 million. As a year before, the public administration sector acted as the main borrower.

The net increase in liabilities on the external public debt in 2017 amounted to USD 1.6 billion, whereas a decrease was reported with respect to central bank liabilities and liabilities on non-residents’ loans.

In 2017, Belarus received three tranches of a loan from the Eurasian Fund for Stabilization and Development under an agreement signed in 2016. The fourth and fifth tranches (USD 300 million each) were received in April and June 2017, and one more (USD 200 million) came in October. The remaining USD 400 million are expected in 2018, provided that requirements of the credit program regarding economic reform are met.

Belarus continued talks with the IMF on a new three-year lending program started as far back as 2015. The country is hoping for USD 3 billion at 2.28% per annum for 10 years. It was said in July 2017 that the negotiations had been suspended because of divergent views. In particular, the sides failed to agree on changing the corporate governance system, restructuring the public sector, reforming the tariff policy for housing and public utilities, and ensuring equal conditions for the operation of all forms of business. As a result, the loan talks were put on hold and may be resumed in 2020-2021 once the country has carried out reforms prescribed by the Program of Socioeconomic Development for 2016-2020. 3

As for external borrowings by economic entities, the following agreements are worth noting. The World Bank lent USD 60 million to the Development Bank of the Republic of Belarus under government guarantees to support private medium, small and micro companies. Belarusbank and Austrian Kontrollbank signed an agreement on a EUR 30 million loan. The European Bank for Reconstruction and Development lent USD 15 million to the large private leasing company Raiffeisen-Leasing.

Measures to improve the investment climate

The poor interest on the part of foreign investors causes the national authorities to take measures to enhance Belarus’ attractiveness and facilitate doing business in the country. Like 2016, the year 2017 saw a number of landmark bills aimed at intensification of external investment.

Decree No.7 on the development of entrepreneurship 4

On November 23, 2017, Alexander Lukashenko signed decree No.7 aimed at improving the business climate in the country. It simplified licensing procedures and reduced state intervention, made it possible to start a business upon notification of the authorities, and introduced self-regulation mechanisms. This inspires hope that the envisaged measures will be implemented at all management levels.

Amendments to the Law on Privatization 5

Amendments to the Law on Privatization were passed by the House of Representatives on December 14, 2017 in the first reading. They are meant to create additional tools to protect property rights in privatization, abolish privatization plans, reduce the action limitation period in privatization transactions from ten to three years, and improve procedures for evaluation of state assets.

Decree No.370 on the Entrepreneurship Development Council 6

This decree signed on October 10, 2017 replaced 60% of the Council members, giving more seats to representatives of small, medium and large businesses together with additional powers to improve the business climate and protect interests of the private sector. The decree enabled the Council to submit recommendations on legislative matters (mandatory for consideration) to the Council of Ministers and the Ministry of Economy, and instructed the government to coordinate bills with the Council.

Decree No.8 on the development of the digital economy 7

Signed on December 21, 2017, the decree expands privileges of the High-Tech Park, gives more benefits to food companies, expands the list of activities, which make it possible to become an HTP resident, and reduces bureaucratization in relation to operations of HTP residents. Also, the decree abolishes subsidiary liability and exonerates founders from property liability in the event of bankruptcy, stimulates venture investment in startup projects and facilitates visa and migration procedures for foreign employees and founders of HTP companies. It also creates conditions for the blockchain technology and the use of crypto-currencies in Belarus. On top of that, it introduces English law and expands the list of contracts that HTP residents may conclude with third parties.


Decrees No.7 and 8 give an important signal to foreign investors, manifesting the willingness to enter into a dialogue with them. The decrees seek to simplify entering into Belarusian business for foreign buyers and stimulate their interest. It is likely that, despite economic difficulties, the situation with investments will not look deplorable. However, it first of all concerns greenfield investments or IT projects as relatively protected investments. Privatization is unlikely, despite the adoption of the amendments to the Law on Privatization. A more systematic and flexible approach is needed, because investors’ trust is still not great.

In 2018, the government will continue issuing and placement of foreign exchange bonds on the domestic market. Issues of Eurobonds are also planned. The government plans to raise at least USD 600 million in this way.

The government still lacks the political will to initiate structural reforms of the economy that continues to be the main obstacle to foreign investment, technologies and innovation. Positive shifts would allow launching a credit program with the IMF and contribute to the stability and competitiveness of the economy.