Investment Climate
A favourable investment climate of Belarus is determined by absolute and comparative advantages:
- advantageous geographic location in the centre of Europe;
- advantageous natural and climate conditions;
- political, social and economic stability;
- highly skilled personnel and relatively cheap labour forces;
- high scientific-technical and industrial potential;
- capacious home market;
- integrated customs space with the Russian Federation;
- legislative and organizational support of investment process.
A developed banking system, growing market of financial and insurance services are characteristics of the country’s economy.
Today, the Republic economy has entered the stage of multiplicative reproduction of investment resources which is the most important prerequisite for stable and dynamic development.
According to estimates, the investment in the fixed assets is to increase 2.15-fold by 2010 compared to 2005 and its share in the GDP is to increase from 23.3% in 2005 to 30 % in 2010.
The growth dynamics of foreign investments remains positive. In 2008, the total amount of attracted foreign investments into the national economy made 6.5 billion US dollars. In 2008, foreign direct investments (FDI) made 2.28 billion US, or 1.7 times against 2007.
The international statistics (data of the UNCTAD (United Nations Conference on Trade and Development) ) also reflects positive country's dynamics in FDI indicators. Belarus has moved forward by 30 positions in the FDI UEI2: from the 125th place in 2006 up to the 95th place in 2007. By the FDI API, Belarus has moved up by 2 positions: from the 50th place up to the 48th place.
The improvement of the business climate was also fixed in the report of the World Bank "Doing Business 2009". The Republic of Belarus was ranked 85th among 181 countries in terms of doing business, having occupied the 4th place among the best countries-reformers.
The fact of awarding the Republic of Belarus in 2007 of a sovereign credit rating (B+ in foreign currency liabilities, BB in national currency liabilities and B in short-term liabilities) was another very important confirmation of stable socioeconomic development of the country. In 2008, the rating awarded to Belarus by international agencies remained unchanged.
Estimates of the investment climate made by joint and foreign companies operating in Belarus are also taken into account. They are annually polled by the Advisory Board on Foreign nvestments, headed by the Prime Minister of the Republic of Belarus. The Board includes representatives of both national enterprises and state organizations and of the foreign organizations operating in the territory of the country. Its mission is to draft recommendations on elimination of negative impacts on the investment climate and improvement of the business environment. The recommendations of the Board are taken into account by the Government.
A poll conducted by the Advisory Board in 2008 showed that despite the consequences of the global financial crisis, 57.5% of the respondents, who were doing business with involvement of foreign capitals, had plans to expand it in Belarus. It is convincing evidence of a favourable investment climate as a whole.
Another evidence of the interest in Belarus from foreign business is the growth of the number of organizations with foreign capital operating in the country. In recent years, this number was on a permanent rise: from 2082 in 2002 to 4218 as of January 1, 2008.
The investment policy prioritizes attraction of investment funds into the production sphere and channeling them for implementation of export-oriented/ import-substituting investment projects with high science-intensive and resources-saving technologies. Such projects are to be implemented with the governmental support in the forms stipulated by the legislation.
In the agricultural sector, investment funds are to be spent for developing agricultural townships, creating highly efficient and ecology-friendly food technologies, reconstructing and modernizing agricultural processors by using state-of-the-art processes.
In the construction sector, investments are to be attracted into export-oriented and import-substitution production facilities, housing construction and also development and implementation of resources/energy saving technologies.
Investment funding by the state is to be continued and used for developing the material and technical basis of the social sphere lacking alternative funding sources.
In the recent years, a stable trend in growth of foreign capital inflow has emerged in the country. Since 2002, the Belarusian economy has already received over USD 14.82 billion of foreign investments including nearly USD4.4 billion of direct foreign investments.
Currently, the following advantages may be highlighted to beneficially invest in the Belarusian economy:
• Advantageous economic, geographical and geopolitical location. Belarus has an advantageous economic-geographic and geopolitical location in the eastern part of Europe. The Republic is situated at the crossing of railways and highways, oil, gas and product pipeline systems, means of communications between Western Europe and regions of Russia and Asian countries.
The way from Europe to Russian through Belarus is 1.5-fold shorter as compared to the way through the Baltic States in the north or the Ukraine in the south. In this connection, Belarus can become a kind of foothold for foreign investors in terms of development of new prospective markets of the CIS.
• Macroeconomic stability. In 2002, a stable growth of investment in the fixed assets began (2003 –120.8%, 2004 – 120.2%, 2005 – 123.2%) and in 2006 it reached 132.2%. This is the highest rate indicator over the entire history of the investment activity of sovereign Belarus. In 2007, nearly $12 billion, or115.1% were attracted in the fixed assets;
The growth of main economic indicators can be noted year by year
• Developed industrial, scientific/technical and export potential. Currently, the industrial sector produces about one third of the GDP. Belaruskaliy, MTZ, MAZ, BelAZ, BEP, Gomselmash and other large-sized enterprises are symbols of the national industrial progress and products with their brand are reputed worldwide. The High Technologies Park for developing software of information and communication and other technologies to increase competitiveness of the national economy and attract local and foreign investments in this sphere has been established in Belarus. The Park’s residents are entitled to a range of privileges, including exemption from profit tax, value-added tax, etc.;
• Highly qualified workforce having experience of working at modern enterprises. Out of each thousand of people employed in real sector of the economy 400 workers have higher or secondary education. The number of those in services sector reaches 580-690 workers depending on the branch.
High educational level of the country’s population and high level of workers’ skills has been accomplished thanks to a strong system of personnel preparation is such branches as automotive industry, tractor and agricultural machine-building, optics, radioelectronics, accurate instrument-making etc.
The country has a developed technical-scientific base for conducting research and development activities in different spheres of academic and applied knowledge. There are 300 scientific organizations operating in the Republic. R&D activities are the function of more than 30 thousand of persons, with more than 830 Doctors of Science and 3690 Doctors of Philosophy included. The developments of Belarusian scientists in the fields of laser and nuclear physics, atomic power engineering, powder metallurgy, optics, software, biotechnologies etc. have obtained international recognition.
The country links its economy development prospects to mobilization of information resources. Belarus intents to achieve accelerated development of biotechnologies and medical and biological researches in order to create up-to-date profitable agriculture, competitive food branch; reach the level of the 21century for its pharmacology and medicine.
• The common customs area with Russia. Investing in Belarusian economy, a foreign investor has an opportunity to access not only to Russian markets, but the markets of other CIS countries as well (the territory and population of Russia, Kazakhstan, Ukraine exceeds those in Europe several times).
The EU is currently planning to create a common economic space with Russia, which will be most effective only with the active participation of Belarus, which is located between the EU and Russia. Belarus is the most important trading partner of Russia.
• Developed transport infrastructure. The country uses all basic types of transport: railway, automobile, river, air, pipeline transports. Belarus takes the 12th place among the European countries in terms of stretch of its roads and the 15th in terms of national roads density. Total stretch of Belarus’s automobile routes makes 125 thous. km, including 93.3 thous. km of hard-surface roads.
The 2007 share of railway transport in cargo turnover made 71.2%, in passenger transportations – 39.1%.
The share of vehicular transport makes 28% in cargo transportations, 39.1% in passenger transportations. The main transit motorway is the highway Brest-Minsk-Russia’s border (592 km), having the European status and being the continuation of the European motorway Cork-London-Berlin-Warsaw. This is an essential transport link connecting countries of Western Europe with Russia and Asian states. The above motorway is the shortest and cheapest way from the EU to Russia and Asian countries.
River navigable routes in Belarus stretch 2 thous. km. the country has 9 river ports and 3 quays. Regular air transportations are carried out by 21 air lines, including those to the largest European countries. There are 7 air ports having the status of being international ones operating in the country.
• Low production costs (lease, telecom, communications, electric power, infrastructure). These provide a good opportunity for a foreign investor to implement investment projects, launch joint productions on manufacturing of export-oriented products, create enterprises with a 100% share of foreign capital, open representation offices, offices, storage facilities, demonstration halls.
Thus, if more than 50% of value added of a JV produced in Belarus, products will be exported to Russian without payment of duty.
• Free economic zones. Belarus has formed and now develops 6 free economic zones (FEZ) with broad economic climate. Their creation and development is one of the priority trends of the Belarus’s state investment policy. Preferential tax and customs regimes are applied for FEZ located in regional centers. The main foreign investors on the territory of the FEZ are as follows: Germany, Great Britain, Czechia, Italy, the USA, Poland, Switzerland, and Russia. The most prominent creditors are presented by the USA, Israel, Latvia, Holland, Czechia and Switzerland.
• Advantages for companies with foreign participation. Following benefits and preferences are provided for foreign and joint ventures:
- exemption from income tax for a period of three years. In case such organizations manufacture products of special importance for the Republic, income tax rate will be decreased by 50% for another three years;
- exemption from customs duties and value added tax in case of fixed assets export on the territory of the Republic to form statutory fund;
- licence-free export of self made products and licence-free import of products for own manufacturing;
- free management of profits gained as a result of self made products export after taxation and other compulsory payments;
- free choice of products supplier and pricing of self made products;
- maintenance of legal regime for a period of 5 years since the date of registration of an enterprise with foreign investments regardless of alterations to the legislation of the Republic of Belarus.
• Protection of rights of a foreign investor. The Investment Code and other legislative enactments guarantee stability of an investor’s rights. In case investments are put in the branches of Belarusian economy of special importance, the Belarusian Government is entitled to sign a contract directly with a foreign investor, which provides additional benefits.
Our country pays a great attention to legal enforceability of investment activity, the basis of which is laid by the Investment Code adopted in 2001.
The Code stipulates guarantees crucial for all investors:
- protection of property rights and legitimate interests;
- equality and stability of rights regardless of form of their ownership and stability;
- protection from non-repayable nationalization or revision, and illegal actions of the State.
If adoption of new regulatory legal acts may worsen the conditions for an investor’s activity, the Code guarantees application of the legislation, acting when a company with foreign participation was registered, for a period of 5 years.
In 2008 alone, about 40 normative legal acts were adopted, which considerably improved the business climate, namely:
• The application principle of state registration and liquidation of commercial entities was fixed, the terms and the list of documents to be presented for these purposes were reduced;
• The procedure of issuance of special permits (licenses) on the licensed types of activity was simplified;
• The procedure of customs clearance was simplified for the commercial organizations awarded with the status "diligent participant of foreign trade activities";
• The procedure was simplified of the title transition on a land plot, if the title on the capital structure located thereon passes over to another person;
• The terms of granting land plots were reduced;
• The number of various administrative procedures was made smaller.
An important aspect of improving the investment climate was cancellation of the institution of the so-called "golden share", which had caused permanent criticism of international organizations and foreign companies, since, in their opinion, it restricted the inflow of foreign capitals. And as a result – sustainable growth of investments, the annual surplus of which is double the GDP surplus. During the recent decade, the total amount of investments more than tripled.
• International legal regulation of investment sphere. The republic of Belarus is a signatory of the 1965 Washington Convention “On the Settlement of Investment Disputes between States and Nationals of Other States.” Belarus is also a signatory of the 1985 Seoul Convention Establishing the Multilateral Investment Guarantee Agency.
Belarus has also signed 48 bilateral agreements on collaboration and the mutual protection of investments, 5 multilateral agreements and conventions. Almost all of them underwent intrastate reconciliation procedure and came into force.
• Positive experience of foreign enterprises in terms of investment projects implementation. Among those enterprise that operate in Belarus successfully we can mention German companies such as Carl Zeiss (optics, electronic visualization systems), “Fresenius” (production of medical equipment), and the Danish “Maersk Medical” etc.
• Relations with international financial organizations. The Republic of Belarus is a member of the European Bank for Reconstruction and Development, International Monetary Fund, World Bank (including International Bank for Reconstruction and Development), and International Financial Corporation.
Expansion of Belarus’s investment capabilities is assisted by positive dynamics in holding negotiations on accession to the World Trade Organization.
• Stable politic and social environment. The country doesn’t have conflicts on ethnic or religious basis; it reports low crime and corruption rates. The number of individuals arriving to a permanent place of residence is higher than the number of those who emigrate.
• Favourable investment climate with the developed investment legislation. The Consultative Council for Foreign Investments headed by the Prime Minister is functioning in the country. Six Free Economic Zones with preferential business conditions operate in Belarus. The National Investment Agency has been established.
Belarus managed to create favourable legal conditions for investors’ activities. According to “Doing Business 2009” report issued by the World Bank, the Republic is one of the leaders to perform legal reforms targeted to business conduct facilitation. Belarus climbed to the 4th place in the list of countries carrying out reforms in regulatory field. In order to encourage foreign investments to Belarus’s economy the following documents were adopted:
- the Decree №1 of the President of the Republic of Belarus “On stimulation of production and sales of products (works, services)” dated January 28, 2008;
- the Decree №42 of the President of the Republic of Belarus “On introduction of supplements and alterations to some Decrees of the President of the Republic of Belarus on the matters of free economic zones activity” dated January 28, 2008;
The Decree №44 of the President of the Republic of Belarus is also targeted to activation of a new investment form “On adoption of the Register of objects, proponed for the transferring to the concession using” dated January 28, 2008.
2008 saw investment climate improved following the Plan of measures adopted for 2008 on improvement of investment activity and business sphere.
The country intends to implement the new trend – accelerated development of small and medium towns of the Republic – called by the Belarusian President the priority one. In this connection, there has been signed the State Complex Programme for Development of Regions, Small and Medium Urban Settlements in 2007-2010. The Programme is aimed at resolving unemployment issue, increasing level and status value of living in such localities. It embraces 187 inhabited localities. There are plans to implement nearly 100 of investment projects there, which presuppose allocation of $2.5 bn. for these purposes.
