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BELARUSBRINGSITSELFTOTHEFORE
78Belarus may be unfamiliar to many Westerners but the eastern European country plans to boost its profileby leveraging its location and ease of doing business credentials to ramp up investment.
Q&A:PAVELKALLAUR
82fDi talks to the chairman of the board of the National Bank of the Republic of Belarus about preservingfinancial stability, diversifying the country’s export split, and catching up with neighbours such as Poland.
WHATTHEBRIBRINGSTOBELARUS
83Belarus’s Great Stone Industrial Park is another ambitious Belt and Road Initiative venture, designed toevolve into a smart city and industrial hub. But what are the benefits for Belarus or China?
Q&A:VLADIMIRMAKEI
86The minister of foreign affairs for Belarus talks about why the country is keen to join the World TradeOrganization and strengthen economic relations with the Commonwealth of Independent States.
BELARUSLOOKSTOHITTECHTARGET
88Belarus is climbing up the innovation league table thanks to an official decree to establish a favourableenvironment for start-ups. Initiatives such as tech parks and tax-friendly conditions are attracting foreign
companies and reversing the country’s brain drain.
FREEANDEASY
91Besides perks such as tax breaks, Belarus’s six free economic zones offer investors convenient logistics and,for companies from neighbouring Ukraine and Russia, a geopolitical safe place to do business.
MAKINGITBIGINBELARUS–ANDBEYOND
92With its keen workforce and generous free zones, Belarus is attracting plenty of manufacturing investment.Moreover, it is bullish about its prospects, as local companies expand into Europe and further afield.
BYTHENUMBERS
95FDI trends for Belarus.
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EVERY YEAR, ON AVERAGE ABOUT 1% OF[BELARUS’S] GDP SHIFTS FROM THE PUBLICSECTOR TO THE PRIVATE SECTOR
BELARUS
Belarus frequently confoundsinvestors’ expectations. Whilerelics of the Soviet era can be
seen in the Stalinist architectureand statues of the capital, Minsk, thecountry is embracing the future bybuilding relationships with its EUneighbours to the west, itsCommonwealth of IndependentStates (CIS) allies to the east andfriends such as China further afield.
Belarusians often say few outsid-ers know where Belarus is or haveheard of it. For the uninitiated, itis a land-locked country in easternEurope bordered by Poland,Lithuania, Latvia, Russia andUkraine. Crossed by two trans-European transportation corridors
(west-east and north-south), every year morethan 100 million tonnes of European cargotravel through Belarusian territory, 90% of itbetween Russia and the EU.
Driving into Minsk from the airport andalong the wide Soviet-style boulevards, visitorsare often struck by how little traffic there is fora capital city. But it is not just these roads thatare clean and congestion free; according toBelarus’s investment authorities, the country’stransport corridors run at 25% to 40% of maxi-mum capacity.
At the crossroadsBelarus hopes to leverage its location at thecrossroads of east and west to become a loca-tion of choice for firms looking to expand theirfootprint in eastern Europe. It is also seen as akey part of the Chinese Belt and Road
Initiative, both as a transport gateway linkingChina with the EU and CIS countries, as wellas an investment destination for firms in themanufacturing and hi-tech sectors.
According to the World Bank 2019 Easeof Doing Business index, Belarus ranks 37th,just 13 places behind economic powerhouseGermany and ahead of China (46th), Italy (51st)and Hungary (53rd). Investors report thatinvestment in infrastructure, the establish-ment of free economic zones, support for busi-ness and a stable economy have helped createa favourable climate.
“The Belarus of today is quite different tothat of five years ago,” says Alexander Pivovarsky,head of Belarus at the EBRD. “There’s a growingprivate sector and, every year, on average about1% of GDP shifts from the public sector to theprivate sector. There are low corruption levelsfor the region, and you virtually never hear ourclients talking about corruption as a reason thatthey cannot operate.”
Stable currencyEBRD statistics reveal that there has beenmacro-economic stabilisation in Belaruswith inflation at a historic low: the ConsumerPrice Index level is down from 18% in 2014 to5% in 2018. The exchange rate has been stablesince the switch to a flexible exchange rate in2015, and the Belarusian ruble rate haschanged little against the US dollarbetween 2016 and 2019.
Structural transformations have led to pri-vate sector growth, and there has also been ashift to a service-based economy, particularlythrough ICT. There is also a lower reliance onexports. Additionally, regulatory reforms –
Belarusbringsitself to the fore
SUPPLEMENTBELARUS
BELARUS MAY BE UNFAMILIARTO MANY WESTERNERS BUTTHE EASTERN EUROPEANCOUNTRY PLANS TO BOOST ITSPROFILE BY LEVERAGING ITSLOCATION AND EASE OF DOINGBUSINESS CREDENTIALS TORAMP UP INVESTMENT FROMBOTH EAST AND WEST.WENDY ATKINS REPORTS
78 www.fDiIntelligence.com August/September 2019
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such as financial liberalisation, pro-entrepre-neurship policies and reviews of utility tariffs– are also having an impact.
“Government foreign economy policyis recognised as open and of a multi-vectornature,” says Nikolai Snopkov, deputy headof the Belarus Presidential Administration.“Exports are one of the key priorities in thedevelopment of the economy, making up morethan a half of country’s GDP.”
Investors from neighbouring countriesand further afield tend to be impressed by thehigh-quality workforce, the low cost of labourand the improving environment for sectorssuch as IT, pharmaceuticals, woodwork, agri-culture and food, transport and logistics,mechanical engineering, banking andfinance, chemicals and petrochemicals,tourism and textiles.
They can turn to the National Agency ofInvestment and Privatization (NAIP) for assis-tance when contemplating a move into thecountry. Its services include providing infor-mation about investment opportunities, pref-erential treatment and benefits, and indus-tries and legislation. The agency also selectsand presents land and premises options;
searches for and negotiates with potentialpartners; organises visits and helps withobtaining visas; represents investors innegotiations with government agencies;and offers post-investment support.
A techhotbedWhen asked to name tech powerhouses fewwould come up with Belarus, but accordingto the NAIP the country performs well againstits competitors, ranking 32nd in the 2017 ICTDevelopment Index by the UN’s InternationalTelecommunication Union (the US came 16th,Lithuania 41st, Russia 45th and India 134th).Furthermore, the agency says 61 of the world’s200 largest Fortune companies, such as Apple,Intel, IBM, Exxon Mobile and Facebook, use theservices of Belarusian companies.
The NAIP adds that the pharmaceuticalsector is being driven by the large capacityof the five Eurasian Economic Union (EAEU)countries (Armenia, Belarus, Kazakhstan,Kyrgyzstan and Russia), highly skilled person-nel and tax incentives for investors.Additionally, Belarus has harmonised itsmedicinal products laws with those of the EU.
Belarus’s vast forests and woodlands
Stable economy: the Belarusian ruble rate changed little against the US dollar between 2016 and 2019
79August/September 2019 www.fDiIntelligence.com
have traditionally made woodwork one of themost important sectors in its economy. Morerecently, the sector has capitalised on newopportunities in the manufacture of semi-fin-ished products as a supplier of raw materialsfor hi-tech foreign production, such as productlines for Swedish furniture giant IKEA.
The agricultural sector attracts both for-eign and national investors and benefits fromthe large EAEU market. According to the NAIP,it is characterised by strong price regulationfor agricultural raw materials, which increasesthe profitability of the food industry. The coun-try is a major trader in dairy products.
Sectoral strengthsBelarus’s mechanical engineering sector isa priority for foreign investment. Belarusiancompanies are interested in establishing jointproducts to preserve export positions, gainnew experience, introduce innovations andexpand product lines.
Foreign investors have been attracted tothe automotive industry through the crea-tion of joint ventures, the privatisation ofcertain state organisations and the creationof international alliances in auto compo-nents production, agricultural machinerymanufacturing and truck assembly. Thereare also opportunities to export to foreignmarkets such as the CIS.
The banking sector in Belarus is developingrapidly, with the assets and capital of domesticbanks increasing at a rate significantly higherthan the growth in GDP and investment in fixedassets. Interest in the sector has been growing,attracting capital from Germany, Russia,Austria, Ukraine, the UK, the Netherlands,Switzerland, Luxembourg, Kazakhstan,Latvia, Ireland, the US and the Czech Republic.
The NAIP reports that the country’s pros-pects are good both in terms of increasingresources and introducing new banking prod-ucts. It adds: “Considering the forthcomingprivatisation of state-owned banks, one canexpect an increase in the flow of FDI into thebanking system of Belarus, which will increasethe competitiveness and capitalisation ofBelarusian banks.”
The chemical and petrochemical industryaccounts for 12% of Belarus GDP and is animportant source of foreign exchange, gener-ating almost 20% of the country’s exports. Itis heavily dominated by state-owned produc-ers, but the government is seeking foreignpartners and investors to improve productiv-ity and profitability.
Also important to the Belarusianeconomy, the textile industry includesthe manufacture of knitwear, hosiery andother products. About 170 companies areinvolved in the sewing industry, producingmany different kinds of garments. The largestclothing factories have a portfolio of brandsthat are exported to CIS countries as well asto the UK, Denmark, Poland, the US, the
Netherlands and the Czech Republic.Tourism is also starting to expand and visi-
tor numbers are growing as Belarus builds areputation as an intriguing destination inEurope, thanks to its reputation of being afriendly country with a lively café and artsscene. The opening of a second runway atMinsk Airport earlier in 2019 will help toincrease passenger traffic, and moves to liftvisa restrictions for many international travel-lers will also make it easier for people to visitthe country for short trips.
“Changes to visa regulations have two ben-efits: they make it easier for tourists to visitand clients and potential clients can now cometo our premises and see what we are doing sothey can be confident in their decision to workwith us,” says one investor.
International tiesAn estimated 60 countries have already investedin Belarus, and at the beginning of 2019 therewere about 7000 companies with foreign invest-ments in the country. Mr Snopkov at theBelarus Presidential Administration reportsthat for the past few years Russia and the EUhave invested the most. Due to traditional lan-guage and geographical ties, Russia has beenthe main FDI donor, although Belarus is contin-uing an FDI diversification policy, he says. “Dueto the high level of strategic co-operation withChina, we see a steady growth of FDI inflowsfrom China and have a substantial potentialto increase it much more,” adds Mr Snopkov.
Investors say they have chosen Belarusbecause of its strategic location. It providesdirect access to the EAEU countries of Russia,Kazakhstan, Armenia and Kyrgyzstan, whichhave a common customs territory and singlecustoms tariff; free movement of goods, ser-vices, capital and workforce; equal businessconditions, including the costs of principalenergy resources; and common technical,sanitation, veterinary and phytosanitary regu-lations. It is on the doorstep of the EU, andalthough Belarusian-based businesses sellinginto EU markets face more hurdles when trad-ing with the bloc than if they were located ina member state, they report that Belarusremains a competitive location for them.
Doing business in Belarus is not withoutits challenges, however. Investors report thatalthough certain requirements do not blocktheir work, they do make it more expensive tooperate in the country. For example, there arerequirements for additional people to dealwith administration, and there are still cur-rency control issues, which firms say are get-ting better but have dragged on. Furthermore,time and resources can often be wasted onacquiring additional permits, statistical report-ing and bureaucratic accounting procedures.
Privatisation andPPPWith assistance from the World Bank, theNAIP is rolling out a pilot project to support
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Many businesses in Belaruscite the country’s goodinfrastructure as a contributingfactor to its attractiveness toinvestors.
Sitting between two majoreconomic centres – Russia andthe EU – Belarus is dependenton its infrastructure to makethe most of its geographicallocation. “Belarus is animportant artery in theEurasian region,” saysNikolai Snopkov, deputyhead of Belarus PresidentialAdministration. “More than100 million tonnes of Europeanfreight comes through theterritory annually. Our countryfully ensures efficiency andsafety of this transit. Newopportunities will follow withinthe [Belt and Road Initiative].”
The EBRD has beeninvolved in a number ofinfrastructure projects in thecountry, including making a€42.45m sovereign loan to theMinistry of Transport for thereconstruction of a 15-kilometresection of Minsk’s outer ringroad. The EBRD says the projectis important for Belarusbecause it will improve roadlinks within the country,including to key industrialareas as well as providing betteraccess to recreational areasin the Minsk region.
Travellers on Belarusianrailways and the country’surban, regional, inter-regionaland international rail networkreport that it is clean, safe andreliable, and air travel is takingoff, with an increasing numberof international travellers. Themain public airport, MinskInternational Airport, has seenpassenger numbers into Belarusgrow,most recently encouragedby changes to the county’s visarules. According to AirportsCouncil International, in 2018,passenger numbers grew byalmost 10% on 2017, and aircraftoperations expanded by 6.5%.
The 2019unveiling of a3.7-kilometre-long, 60-metre-wide second runway inMinskInternational Airport is alsoopeningupopportunities forbigger aircraft. Thenational
GETTINGBELARUS’SINFRASTRUCTURERIGHT
81
privatisation. Its goal is to create an institu-tional framework for an individually targetedand transparent approach to privatisation thatmeets international standards while servingthe interests of the Belarusian state. Theagency aims to attract strategic investors thatcan ensure the further development of thecompany whose shares are offered for sale.
Public-private partnerships (PPPs) areanother possible route for investors intoBelarus. The PPP Centre was established in2014 and since 2016 has been part of the NAIP.The list of projects considered for PPP includesthe reconstruction of the M-10 highway fromthe border of Russia to the cities of Gomel andKobrin; the building of kindergartens in theMinsk region; and the construction of abypass in Gomel.
The talent treadmillBelarus is proud of its high-quality workforce.Although there are concerns among somebusiness leaders that there has been a braindrain, the general feeling is that there isstill plenty of talent generated by thecountry’s considerable universities system,enabling firms to scale up when they makea new investment.
“The national education system is develop-ing, which is proven by the growth of the shareof highly qualified personnel in the total num-ber of workforce from 25.4% in 2010 up to 33%in 2018,” says Mr Snopkov.
Most investment in the country uses local
workers. International workers report thatthere is not much of an expat scene, althoughthis is not necessarily a bad thing since theyfind it easy to integrate with locals, access localservices and also enjoy free time outside ofwork. Some firms report that although it isquite easy to bring foreign workers in, it canbe difficult to attract international workers tomove to Belarus, mainly because they know solittle about the country.
Philipp Brunner, CEO of rail companyStadler Minsk, says when his company waslocating to Minsk, people had safety concernsand questions about living standards. Havingmoved to the capital himself, he has sinceembarked on a Belarus promotional tourinside the Stadler company to spread theword about his positive experiences andwhy the country is a good place to be based.
Young people in Minsk also say they enjoythe capital’s lifestyle, a key factor helping toencourage local talent to stay. “I’ve worked inMoscow, but it’s much better here,” says onelocal, who adds: “It’s super-clean, safe, andwe’re proud of our city. It’s easy to get aboutlocally by bike, tram, metro and car, and it’salso easy to travel further afield to other partsof the country as well as over the border toneighbouring countries such as Lithuania,Ukraine and Russia. There’s a good musicscene with plenty of local and internationalartists performing here. It’s also young andvibrant with hipster bars and pop-up venuesfor evening and weekend entertainment.” ■
Picture perfect: Belarus is finding that its tourism industry is taking off
August/September 2019 www.fDiIntelligence.com
carrier, Belavia BelarusianAirlines, has beenexpandingits fleet andbroadening itsroutenetwork, addingMunichInternational Airport to its list ofdestinations in July 2019. “Thegrowthof the airport and airport-related services showshowpopularMinsk is becoming,” saysone frequent traveller betweenLondonandMinsk. “It’s becomingharder to find a seat on a last-minute direct flight betweenthe two cities in July now.”
Some young people inMinsk say that travelling directlyfrom the capital by air can still bevery expensive; instead theytravel cheaply and quickly viathe rail and bus network toVilnius in Lithuania to pickup a low-cost flight to onwarddestinations.
The EBRD says thathistorically the transportinfrastructure in Belarus hasbeen funded by the state andrun by the public sector. This,it says, is likely to change,explaining that: “Increasedprivate participation will resultin financial savings for thegovernment and bring advancedengineering and organisationalknow-how to the road sector.”It is already assisting thegovernment of Belarus,working with it to implement alegislative framework for public-private partnerships in the roadsector to facilitate theimplementation of theNational Infrastructure Plan.
Belarus is well servedby telecoms and internetconnections. According to the2017Measuring InformationSociety Report from theInternationalTelecommunication Union,it expects the successfulimplementation of thegovernment’s state programmeon “the development of thedigital economy and informationsociety” to enable the countryto improve andmaintain itsposition in the 2017 ICTDevelopment Index rankingsvia a further rollout of long-termevolution networks, anddevelopment of fibre-opticnetworks, satellitecommunications, digitaltelevision and cloudtechnologies.
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WENDY ATKINS TALKS TOPAVEL KALLAUR, CHAIRMANOF THE BOARD OF THENATIONAL BANK OF THEREPUBLIC OF BELARUS,ABOUT PRESERVING FINANCIALSTABILITY, DIVERSIFYING THECOUNTRY’S EXPORT SPLIT, ANDHOW IT CAN CATCH UP WITHNEIGHBOURS SUCH AS POLAND
Belarus’sbalancingactQHowwould you describe
the current state of theBelarus economy?
A Our current situation can bedescribed as balanced, sustaina-
ble and inclusive economic growth.Our actual economic growth corre-sponds with our potential economicgrowth. We have financial and budg-etary stability. We estimate eco-nomic growth will be about 2.9% in2019, and the projection for 2020 is2.5%. When it comes to inflation,our target for the current year andnext year is 5%. After that, we’replanning an inflation target of 4%.
These objectives are similar tothose of our neighbours in Russia,Ukraine and Kazakhstan. It is acommon consensus among politi-cians and academics that 4% infla-tion is a reasonable target in devel-oping countries because there is aneed to align certain prices andwork towards eliminating certainbenefits, for example, housing andutility tariffs.
When talking about growth, it isimportant for Belarus to ensure thatit catches up with countries such asPoland, and this can be achievedthrough structural changes. We areworking with international organi-sations such as the World Bank toachieve these goals. We have a clearunderstanding of the need to attainprecisely balanced sustainablegrowth. In addition, we’re co-operat-ing closely with the UN to ensurethat our economic growth meansinclusive growth and that weadhere to its 17 sustainable goals.
QHow are you supportingWorldTrade Organization [WTO]
accession plans?
AWe are actively participating innegotiations, and I don’t see any
problems in terms of the issues thatfall within the National Bank’s com-petence and which could be thecause of stumbling blocks.
We’ve been involved in bilateralnegotiations with the EuropeanCommunity and the US, and I wouldanticipate that, based on progressso far, WTO membership could beachieved by 2020 or 2021. This isimportant to us because it is notsimply about the development ofexports but export diversificationas well, which is key for Belarus.
It is a well-known fact that weas a country are very dependent onour neighbours for exports, so thetask for export promotion is toachieve a reasonably even three-way split of about 33% of exports toeach of Russia, Europe and placesfurther afield.
QWhat is yourmessage topotential investors?
ABelarus has been doing a lot toimprove the investment climate
for a number of years. You can seefrom our World Bank Doing Businessranking and our [work on the UN’s]Sustainable Development Goals thatwe are continuing to improve theinvestment climate.
Our economic potential has beenslightly underestimated. It is clearthat in the past, certain events suchas high inflation and devaluationcontributed to this image. Investorsassess risks, but we want to demon-strate that the macro-economic sta-bility that we’ve achieved is a long-term [matter].
It is worth remembering that in2014, when we were going throughan extremely difficult period due tofinancial crisis, [currency] devalua-tion and sanctions with Russia, theNational Bank and governmentworked together to implement poli-cies aimed at achieving price stabil-ity of 5% to improve the investmentclimate. At the time, people called usdreamers for aiming for this target,but we achieved what many thoughtwas impossible. That’s why I wouldencourage investors to believe in theongoing improvement in Belarus’sbusiness environment. ■
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Q&A: PAVEL KALLAUR
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www.fDiIntelligence.com August/September 2019
2014National Bankof theRepublicof BelarusChairman of the boardPreviouslyBank BelVEB, chairman ofthe board
CURRICULUMVITAEPAVEL KALLAUR
IT IS IMPORTANTFORBELARUSTOCATCHUPWITHCOUNTRIESSUCHASPOLAND. THISCANBEACHIEVEDTHROUGHSTRUCTURALCHANGES
83
BELARUS’S GREAT STONE INDUSTRIALPARK IS ANOTHER AMBITIOUS BELTAND ROAD INITIATIVE VENTURE,DESIGNED TO EVOLVE INTO A SMARTCITY AND INDUSTRIAL HUB. BUT WHATARE THE BENEFITS FOR BELARUSOR CHINA? JACOPO DETTONIANDWENDY ATKINS REPORT
What theBRIbrings toBelarus
Dozens of Chinese andBelarusianmanufacturersfilled a brandnew exhibition
centre located at the heart of theGreat Stone Industrial Park in July2019 to attend the first Belt and RoadForum for Regional Co-operationandDevelopment. After listening toauthorities fromboth countries out-lining the opportunities for co-opera-tion between the two countries, theysigned dozens of agreements to fill upthe numerous industrial plots thatcover a total area of 91.5 square kilo-metres around the exhibition centre.
First envisioned back in 2010,Great Stone Industrial Park, located25 kilometres outside capital cityMinsk, is shaping up as a keyEuropean link in China’s Belt andRoad Initiative (BRI). Set up under a
special economic zone (SEZ) regime,Belarus’s industrial parks offerChinese companies viable businessenvironments to find partners andset up operations locally.
A few dozen companies arealready active at Great StoneIndustrial Park, featuring, amongothers, global Chinese names suchas telecommunications companiesHuawei and ZTE, holding companyChina Merchants and diesel pro-ducerWeichai, which has teamedup with one of themost well-knownBelarusian brands, heavy-duty vehi-cle manufacturer MAZ, to producediesel engines and gearboxes insidethe Great Stone Industrial Park.
Phase one“Great Stone Industrial Park isan ambitious project,” says KirillKoroteev, first deputy general directorat the park, as he looks out fromhisoffice to a hotel and other new build-ings in the immediate foreground.
“We’re in phase one at themoment, but when the whole park iscompleted in the 2060s, according tothemasterplan, the territory of thepark [will cover] 112.4 square kilome-tres. Since we started the project in2012, we’ve been positioning our-
selves as the city of the future. Inaddition to the traditional businessand industrial areas, residential andrecreational areas are in the pipe-line. In fact, the first residents willbemoving into apartments in phaseone later in 2019.”
Mr Koroteev explains that GreatStone’smodel is different from thetraditional free economic zones inBelarus. “We’ve used a public-privatepartnershipmodel, and our share-holders aremajor Chinese partnersand oneGermanpartner, reflectingour position on the Belt and Roadlinking ChinawithGermany,” he says.
“We’ve spent a lot of money oninfrastructure already – the roads,water, sewerage and electricity areall here – so it’s easy for investors tocome in and connect. Developmentof the park [has driven] the develop-ment of Minsk airport, includingupgrading the runway so it is capa-ble of handling bigger aircraft,which in turn is cutting the timeit takes to fly fromMinsk to China.
“We now have 56 companiesresident in the park and theirinvestment totals $1.1bn,” adds MrKoroteev. “Our focus is on export-ori-ented companies that are attractedto us because of our location at the
BRI cornerstone: Great Stone Industrial Park is 25 kilometres from Minsk and has been in development since 2010
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84
widening its scope and eventuallyenabling more Chinese FDI into thehost countries, as opposed to an ini-tial phase characterised by much-needed, but often debt-loaded, infra-structure developments that haveraised concerns over financial sus-tainability. “These industrial zonesare an extension of more typicalBRI infrastructure projects,” saysRichard Bolwijn, head of investmentresearch at Unctad.
“First, Chinese companies come inand develop the infrastructure of theindustrial zones. Once the industrialpark is ready [and the SEZ regime andincentives are in place], host countrieshope to gain access to Chinese manu-facturers and thus get hooked toglobal value chains. These zones havea lower debt burden than more tradi-tional infrastructure projects and putthe host countries in a position toattract more equity investment.”
According to figures fromChina’s Ministry of Commercerepublished by the World Bank ina recent report on the economicsof the BRI, Chinese companies haddeveloped some 75 industrial parks
under an SEZ regime in 24 BRIcountries as of October 2017, aboutfour years after Chinese presidentXi Jinping first referenced hisvision of a new Silk Road in aspeech in Kazakhstan.
“Many countries are looking atthese SEZs as the next stage of theBRI,” says Henry Tillman, founderand CEO of China InvestmentResearch, a firm that tracks Chineseoutbound investment. “There wereonly 13 of these projects in 2015.Now there are dozens, and someof them are enormous.”
Mixed resultsChinese-sponsored SEZs in BRI corri-dors often bring with them greatambitions in terms of industrialdevelopment and Chinese directinvestment, giving authorities inhost countries political capital tospend to sell these projects to theircitizens. However, evidence regard-ing their performance is rare andmostly anecdotal (as is often thecase with SEZs in general).
According to the World Bank,there are some are good performers,
junction of the EU and the EurasianEconomic Union [EAEU]. Goodsmade in the industrial park can befreely imported into any of the EAEUcountries – a market of 183 millioncustomers – without any customsduties, customs borders and otherbarriers. Additionally, a visa-freeregime is applied to park visitors.
“We have a one-stop shop to helpwith the process of setting up a busi-ness here, covering everything fromcompany registration, permits andmaintenance agreements to leaseor purchase agreements and otheradministrative services. Additionally,any legal entity can be createdwithin one day.”
Mr Koroteev says companies canbuy or lease any plot connected to thenecessary infrastructure as well asstandard manufacturing plant, build-ings and offices. “We find that compa-nies from the West tend to prefer topurchase the plot but those from theEast tend to prefer to lease,” he says.
Links in theBRI chainSuch projects have sprung up acrossBRI corridors in the past few years,
Historic meeting: Chinese president Xi Jinping and president of Belarus Alexander Lukashenko at the launching of the Great Stone project in 2015
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WENOWHAVE56COMPANIESRESIDENT INTHEPARKANDTHEIRINVESTMENTTOTALS$1.1BN
which include Long Jiang IndustrialPark (in Vietnam), Sino-Thai RayongIndustrial Park (Thailand),Karawang Industrial New City(Indonesia), China–Egypt TEDA SuezEconomic and Trade Co-operationZone (Egypt), and the CentralEuropean Trade and LogisticsCo-operation Zone (Hungary).
“A common factor [of success] isthe sound infrastructure and strongconnectivity in the zones and sur-rounding areas. Other key factorsinclude a stable and conducivemacro environment, proper plan-ning and industrial positioningbased on local comparative advan-tages, the availability of skills, andamarket-based sustainable businessmodel,” says theWorld Bank report.
On the other hand, “laggingzones face challenges regarding poorinfrastructure or connectivity, riskymacro-economic and business envi-ronments, a lack of commitmentand support from the host govern-ments, a shortage of skills, difficultyin raising capital, and lack of opera-tional experience and a sustainablebusiness model”, the report adds.These are all factors that one wayor another have hampered the devel-opment of other SEZs such as theChina-Lao Mohan-Boten EconomicCo-operation Zone, or the Sino-Kazakhstan Khorgos InternationalBorder Co-operation Centre.
Great Stone Industrial Park is
park has been slow to prove itself,but Great Stone’s journey has justbegun and it has a powerful guaran-tor on the road ahead.”
However, the nature of investmentfromChina is being viewed differ-ently by some. “We think it’s timeto evolve our co-operation,” BelarusfinanceministerMaksimYermolovichtold fDiMagazine in January.
“In the previous stage we hada co-operation where China was act-ing as a creditor of the country, pro-viding credit lines to our companiesand the budget to finance specialprojects through the Export-ImportBank of China and ChinaDevelopment Bank. Nowwe wantto change the scheme of such invest-ments, which should now come inthe form of FDI. Themain idea isthat Chinese investors will be bear-ing some of the risks of these invest-ments. This is a significant changein paradigm.”
The aims of China and host coun-tries appear to be aligned, particu-larly when it comes to the success ofindustrial parks scattered along BRIcorridors. But for a real shift fromdebt to FDI, BRI industrial parksmust also be fertile grounds forChinese companies to develop suc-cessful business operations. Politicalsupport maymitigate the risks, butlong-term success will eventuallyhinge on the parks’ ability to com-pete within the global market.■
only now taking its first stepstowards the 130,000-people smartcity and industrial cluster that poli-cymakers are envisioning it willbecome. The total number of residentcompanies climbed to 56 in July, andits brand new exhibition centre,alongside an equally new businesscentre occupied by ChinaMerchantsjust across the road, are a testamentto the park’s rapid progress.
So far, companies have investedsome $60m in Great Stone, accord-ing to figures reported by Chinesestate news agency Xinhua, and thereis still a lot of room for new invest-ment. Back in 2013, the Chineseembassy in Belarus estimated thattotal Chinese FDI into the parkwould be between $2bn and $5bn ina best-case scenario – in addition tothe $2bn needed to bring the parkinfrastructure to full capacity.
Thepolitics of FDIWhile Great Stone’s progress mayappear to be a little slower thansome had envisaged, the politicalelement behind it should guaranteeits long-term success. “The GreatStone Industrial Park possesses sym-bolic value as a project supportedby the Chinese president, and it isunlikely that Beijing would everlet Great Stone flounder,” JacobMardell, a researcher at Berlin-basedthink tank Mercator Institute forChina Studies, wrote in April. “The
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THE MINISTER OF FOREIGNAFFAIRS FOR BELARUS TELLSWENDY ATKINSWHY THECOUNTRY IS KEEN TO JOIN THEWORLD TRADE ORGANIZATIONAND STRENGTHEN ECONOMICRELATIONS WITH THECOMMONWEALTH OFINDEPENDENT STATES
LookingbothwaysQHow deeply is Belarus inte-
grated into the internationaltrading system?
ABelarus has an open economy.We export 65% to 70% of our
GDP.Wemaintain trade and eco-nomic relations with 210 countries[and nations], and Belarusian prod-ucts are exported to 185 countries.
Wehave established themostadvanced trade and economic rela-tionswith partnerswithin theEurasian EconomicUnion [EAEU]. In2014, Belarus, Kazakhstan andRussiasigned the Treaty on the EurasianEconomicUnion, andwewere laterjoined byArmenia andKyrgyzstan.The EAEU’s goal is the formation ofa genuine economicunionwithoutexemptions and restrictions, andwithcommon industrial, agricultural,transport, energy andother policies.
At the same time,we are deepen-ing trade and economic relationswithCommonwealth of Independent States[CIS] countries. In 2011, theCIS FreeTradeAgreement [FTA]was signedbyArmenia, Belarus, Kazakhstan,Kyrgyzstan,Moldova, Russia,Tajikistan andUkraine. Today,workis underway on an agreement onfree trade for services and investment.Once it comes into force, thiswill com-plete the establishment of theCIS’seconomic area covering the freemove-ment of goods, services and capital.
We take an interest in themarketsof different countries. Therefore, anEAEUdelegation isworkingon con-cluding FTAs betweenEAEUmembersand third states. In 2016, such anagreementwithVietnamcame intoforce – the EAEU’s first preferentialtrade agreementwith a third country.In 2018, the EAEUEconomicCo-operationAgreementwithChinaandan interimagreement aimedatcreating a free-trade zonebetweentheEAEUand Iranwere signed. Theseagreements are close to coming into
force. FTAswith Serbia andSingaporeare in the final stages of preparation.Work is underway to conclude agree-mentswithEgypt, Israel and India.
QTell us about Belarus’s plans tojoin theWorld Trade Organ-
ization [WTO].
AAccession to theWTO is crucialfor Belarus. The process began
in the 1990s. Over the past threeyears we have managed to get to thefinal stage. Since 2017, five officialmeetings of the working party havebeen held in Geneva. By the end ofthis year we plan to hold onemoremeeting in Geneva. Bilateral negoti-ations are advancing. There havebeen several dozens of rounds ofnegotiations onmarket access forgoods and services in Geneva,Brussels, Washington and Kiev,which have resulted in the signingof protocols with 10WTOmembers.
Our legislationhas been closelyaudited by keyWTOmembers. Being amember of the EAEU, Belarus alreadyfollowsmost of theWTO’s rules andregulations. However, certain laws stillneed revision.Weunderstand that thenegotiationprocess is an opportunityfor us to revise existing regulations.Improving individual elements ofnational trade policywill favourablyaffect the development of individualeconomic sectors andwill have a posi-tive effect on the development of theeconomy in general.
QWhat is the value for Belarusof joiningWTO?
AMembership of theWTO is asso-ciatedwith the strengthening of
our economic security. The govern-ment aims to complete the negotia-tions by the 12thWTOMinisterialConference in June 2020. So far weare on schedule. However, not every-thingwill depend on us. Thewilling-ness of our negotiation partners tohear us and seekmutually acceptablesolutions is also important. Belarus’smembership of theWTOwill help tostrengthen the entiremultilateraltrading system, build trade and eco-nomic ties between Belarus andWTOmembers, and between the EAEU andWTOmembers.■
ACCESSION TO THEWTO IS CRUCIAL FORBELARUS. THE PROCESS BEGAN IN THE 1990s
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Q&A: VLADIMIRMAKEI
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2012BelarusMinister of foreign affairsPreviouslyBelarusian embassy in France,counsellor; secretary of severalgovernment departments
CURRICULUMVITAEVLADIMIR MAKEI
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BELARUS IS CLIMBING UP THEINNOVATION LEAGUE TABLE THANKSTO AN OFFICIAL DECREE TO ESTABLISH AFAVOURABLE ENVIRONMENT FOR START-UPS. INITIATIVES SUCH AS TECH PARKSAND TAX-FRIENDLY CONDITIONS AREATTRACTING FOREIGN COMPANIES ANDREVERSING THE COUNTRY’S BRAINDRAIN, ASWENDY ATKINS REPORTS
The roll call of locations thataim to be a tech hub grows ona yearly basis, and one of the
latest is Belarus. Taking advantageof a high skill base and favourableinvestment conditions, the countryis rising up the rankings as a placefor innovation and entrepreneur-ship, and is building its credentialsas the Silicon Valley of easternEurope and the Commonwealthof Independent States.
Innovation is in evidence through-out capital cityMinsk, fromordering
a taxi from the airport via the Yandexapp, to sharing apps based onQRcodeswhenhiring the bikes ande-scooters located throughout the city.
Belarus is a global playerwhen itcomes to software production, and itsexport figures per capita for softwareand computer services are alsoworld-leading. Indeed, according toUNtrade bodyUnctad, in 2018 Belarusexported $168 per capita in softwareand computer services comparedwiththeUS’s $73, India’s $41, Russia’s $28and Japan’s $24.
AHTP success storyThe creation of Hi-Tech Park (HTP)Belarus – which provides a speciallegal and preferential tax regime forIT and hi-tech companies – has beenan important factor in the growth ofthe country’s tech sector. Until 2049,residents of the HTP can take advan-tage of select tax benefits such as 0%VAT, profit tax, offshore duty andcustoms duties; 0% income tax inequity carve outs; 0% tax in the sales
of shares in an HTP resident com-pany and 0% tax on revenues of for-eign companies; 9% income tax; and7% average deductions for socialsecurity. There are also incentives forcryptocurrencies until 2023, includ-ing 0% VAT and no profit tax onmin-ing, buying/selling and exchangingcryptocurrencies and other transac-tions with tokens.
TheHTP also acts as an intermedi-ary between government and IT firms.“TheHTP links directly to the presi-dent of Belarus,” says Kirill Zalessky,director of global co-operation officeat HTP Belarus. “Thismeans there is avery low level of bureaucracy, which isessential because the techworld ismoving very fast.”
Unlikemore traditional businessparks, HTP residents are not con-fined to a physical geographic loca-tion, but can be located anywherein the country. Residents of the HTPinclude EPAM Systems, Wargaming.net and Rakuten Viber as well asother names from the worlds of arti-
Favourable climate: residents of Hi-Tech Park Belarus can take advantage of tax benefits until 2049
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Belarus looks tohit tech target
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ficial intelligence, games develop-ment, R&D, software and hardware.
Mr Zalessky says there has beena tremendous growth in exports ofsoftware and computer services byHTP residents in recent years. In2013 there was $447m. By 2016, thishad risen to $821m, by 2017 it was$1.03bn and by 2018 it was $1.41bn.“At the same time, there has been anexplosive growth in companies andstart-ups in the HTP, and by June2019 we had 563 member compa-nies,” adds Mr Zalessky.
Technopark’s happy customersMinsk City Technopark is anotherinitiative catering to innovativefirms. Located on the site of a formermeat-processing plant, it providesfavourable conditions for new com-panies operating in the hi-tech sec-tor, including offering firms prefer-ential rates on leases.
“Residents of Technopark pay a10% tax on profits and are exemptfrom land and real estate tax. Wealso provide ongoing support for res-ident firms, including informationsupport and access to resources,”says Vladimir Davidovich, directorat Minsk City Technopark.
Contact engineering companyKG Impex, which is based in theTechnopark, is happy with the spe-cial taxation regime and the govern-ment support for innovative business
year-on-year growth since 2010.“Investors in our global companyinclude many international namesand that’s testament to their confi-dence in our biggest delivery centrein Belarus,” he adds.
Tech start-up Kino-moTechnologies, which trades asHyperVSN, was set up in Londonin 2011 and focuses on 3D holo-graphic technology. The companyemploys 160 people in Minsk and20 others around the world. “Whatwe offer today is a combination ofhardware and software productsthat allow the projection of 3D visu-als floating in mid-air anywhereon the planet, and you don’t needglasses for it,” says Kiryl Chykeyuk,founder of HyperVSN.
“We decided to set up our R&D inBelarus because the engineering tal-ent you can get here is [better than]what you can get in the UK for thesame money. I am from Belarus andI did my Bachelor’s degree here. I didmy PhD at Oxford, and when youlook at prices here in Belarus com-pared with in the UK, you can get alot more here for the same amount.”
Mr Chykeyuk stresses he is notthe only Belarusian to be attractedback home. “A lot of tech is comingto Minsk at the moment because thetalent is here, and having access tothe HTP with its tax incentives is alsoimportant,” he adds.
that it provides, says a spokesperson.Nina Sergeeva, CEO at fire protectionsolutions company ODO Pranas, alsoresident at the Technopark, says:“We’ve had a lot of support in termsof premises and exhibition organis-ing, as well as with contacts withleading innovators. We would neverhave dared to start our project with-out this support.”
Belarus scores highly with innova-tors who have developed home-grownbusinesses in Minsk before expandingglobally, including domestic entre-preneurs who moved overseas tostudy and have been drawn homeby the opportunities and lifestyle onoffer, as well as with internationalcompanies that appreciate Belarus’sadvantages as a business location.
Minskmeets PrincetonEnterprise software firm EPAMSystems grew out of an idea that twoclassmates came up with, and wasstarted simultaneously in Minsk andPrinceton in the US in 1993. Today,the company is fully export orientedwith main markets in Europe and theUS, and employs more than 30,000people worldwide. It floated on theNew York Stock Exchange in 2012.
Andrei Shubaderov, director ofpeople operations at EPAM Belarus,says it has hundreds of Fortune 500and Fortune 1000 companies amongits clients and it has achieved 20%
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Pivotal decreeTheDecember 2017 presidentialdecree – TheDecree on theDevelopment of Digital Economy– is seen bymany as pivotal inBelarus’s tech sector’s continuingdevelopment. “Three pointswerecrucial forme as a company owner,”says SlavaMazai, founder of precisionfarming data platformOneSoil. “First,the ability for companies that do notyetmakemoney to join the BelarusHTP. Second, the ease of paperworkbetween Belarus and foreign coun-tries thatwas impossible to imaginebefore. That hasmade itmuch easierfor specialist workers to relocate.Third, better tax conditions.”
Tech firms are generally satisfiedwith the quality of talent in Belarus.According to the HTP, 50-plus univer-sities, more than 300,000 studentsand over 15,000 science, technology,engineering andmathematicsgraduates a year provide the basisfor the development of the hi-techindustry in Belarus. Additionally,HTP resident companies have accessto visa-free entry and exemptionfrom all kinds of special procedureswhen it comes to the employment offoreigners.
“I would say that we have quitea good level of education for IT engi-neers, thanks to the university systemthat we inherited from the Sovietera,” saysMrMazai. “But a lot of ITspecialists are leaving for Europe andthe US. For instance, none ofmy uni-versity friends live in Belarus any-more. The brain drain is a real issue. Ihave to deal with it when looking forpeople for the OneSoil team.We havealready had to relocate some special-ists fromRussia andUkraine and Ianticipate that wewill have to do itevenmore often in the future.”
“Last year, EPAM employed 200foreigners here in Belarus,” says Mr
Shubaderov. “They weremainly fromRussia, Kazakhstan and Ukraine.Conditions created by both the HTPand EPAM are favourable for employ-ing skilled foreignworkers.We alsohave skills development programmesfor our employees. They can progressfrom being designers to being ana-lysts, so they can change their profes-sion but not leave the company.Weknow that the world is open and peo-ple look for better conditions, so wetry to create an environment wherepeople can develop professionallyandwill want to stay with us.”
Collaboration and challengesTech firms report that there aremany opportunities in Belarus forcollaboration between businesses,universities and other stakeholders.“We have our own laboratories inabout 18 Belarusian universities, andour engineers teach there,” says MrShubaderov at EPAM. “We also run
an eKids programme to train chil-dren on the basics of programming.Additionally, we’ve run hackathons,where government representativeshave presented their most acutechallenges and our engineers havehad 24 hours to find a solution.”
Although innovators say Belarushas taken big steps towards providingfirm foundations for tech firms toestablish themselves and grow, theyreport that bureaucracy can still bean issue. “Among the disadvantagesis the complexity of all the importingand exporting processes,” saysMrMazai. “At OneSoil, we produceweather sensors, and it is quite diffi-cult to get all the details we need fromabroad. It is the samewith licensing;it takes a lot of time and effort.”
Mr Chykeyuk at Kino-mo agrees:“Sometimes things take longer thanyou’d expect in othermarkets, andshipments can costmore.Whenwe’reprototyping, engineers need hard-ware quickly. It can take awhile to getthese things, butwe’ve received a lotof help from theHTP in this regard.”
Tech firms should be confidentin Belarus, saysMr Shubaderov.“Investors vote with theirmoneyand our international investors havevoted for a company thatmaintainsits biggest delivery centre in Belarus.The environment for the develop-ment of digital technologies is uniquehere,” he says. “The situation is inter-esting, because some of the sectorsare only at the beginning of digitalisa-tion, so they can apply unique solu-tions that aremade locally and thesecan deliver good results.”■
WEKNOWTHAT THEWORLD ISOPEN, SOWE TRY TOCREATE ANENVIRONMENTWHERE PEOPLECANDEVELOP PROFESSIONALLY
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Lighter burden: residents of Minsk City Technopark are exempt from land and real estate tax
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Many investors in Belarus choose to set up business in a free economic zone
(FEZ) to take advantage of the tax savings and business support these areas offer.
According to the Belarus Ministry of Economy, six FEZs have been established in the country: FEZ Brest (in 1996), FEZ Vitebsk (1999), FEZ Gomel-Raton (1998), FEZ Grodnoinvest (2002), FEZ Minsk (1998) and FEZ Mogilev (2002). It esti-mates that more than 280 resident companies operate in the zones, employing over 61,000 people.
FEZ resident companies enjoy a special legal regime for the first few years of registration, including tax-free profits on all goods and services; no land tax; no real estate tax; and no customs duties and taxes on imported equipment and goods to be used in the FEZ. Manufactured goods can be freely exported.
An array of goodsFEZ Minsk comprises sites in the Minsk region and provides opportu-
nities for investment in sectors including machinery manufacture and metal working; automotive; woodwork; building materials pro-duction; electronics; polygraphy; and packing.
“We now have 115 enterprises, including 65 companies from 21 countries with foreign investments,” says Dmitry Rudchenko, head of administration at FEZ Minsk. “Exports from FEZ Minsk total more than $10bn. Our residents use advanced technologies and modern equipment, making them competi-tive in global markets. In fact, prod-ucts manufactured by our compa-nies are successfully exported to 89 countries globally.”
Alexander Kornev is deputy head of FEZ Gomel-Raton administration, located in south-east Belarus.
“We sit on 4000 hectares of land and have 70 companies from more than 16 countries here. Being close to the Ukraine and Russian borders, we are attractive to businesses focused on these markets,” he says. “Residents in our FEZ are export-
orientated and they are engaged in production. In particular, we have producers of chemicals, metalwork, glass, furniture, machinery and wir-ing. We also have companies that produce products from precious metals and diamonds.
Mr Kornev says that the FEZ, located as it is so close to a geopoliti-cal hotspot, acts as a buffer zone for some of the problems in the region. “Ukrainian equipment can come here, and Russian companies can locate here and make sales with no limitation. Companies that come to our FEZ win: they can be safe and develop their business irrespective of any political issue,” he says.
Well locatedMaksim Touz, first deputy head of the administration of FEZ Mogilev, says that the zone contains 18 land plots with a total area of 3340 hec-tares. The plots are located in Mogilev itself – the administrative centre of Mogilev Region in eastern Belarus – as well as in towns around the region.
“According to the statistics for 2018, the residents of FEZ Mogilev have made a significant contribu-tion to regional economic perfor-mance,” says Mr Touz. “They account for 62.8% of attracted FDI, 48.7% of exports and 35.8% of indus-trial output of the region. In large measure this has been possible because of the decision that was made in 2010 to make about $30m-worth of budget investments in one of FEZ Mogilev land plot’s infrastructure development. This has already helped us attract $900m of foreign investment in project finance since then.
“Due to our advantageous geo-graphical location, the convenience of our logistics, extensive infrastruc-ture and the availability of forests, we have a lot of companies that have located here and are successfully car-rying out their activity in the wood processing sector.”
Mr Touz highlights how success breeds success. “We find that if we have a large investor, it will attract other companies that are able to make related products. For example, one company that is located here supplies companies that make prod-ucts for IKEA with cardboard packag-ing. Using this as an effective mecha-nism for attracting investors, we have started to host conferences in the FEZ as well.” ■
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BESIDES PERKS SUCH AS TAX BREAKS, BELARUS’S SIX FREE ECONOMIC ZONES OFFER INVESTORS CONVENIENT LOGISTICS AND, FOR COMPANIES FROM NEIGHBOURING UKRAINE AND RUSSIA, A GEOPOLITICAL SAFE PLACE TO DO BUSINESS. WENDY ATKINS REPORTS
Free and easyWell trained: rail manufacturer Stadler has a facility at FEZ Minsk
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WITH ITS KEEN WORKFORCE ANDGENEROUS FREE ZONES, BELARUSIS ATTRACTING PLENTY OFMANUFACTURING INVESTMENT.MOREOVER, IT IS BULLISH ABOUT ITSPROSPECTS, AS LOCAL COMPANIESEXPAND INTO EUROPE AND FURTHERAFIELD.WENDY ATKINS REPORTS
Making it big inBelarus–andbeyond
Belarus is building on itsreputation formanufacturinginnovation among both
home-grown entrepreneurs andinternational firms.
Manufacturing represents a sig-nificant part of the country's econ-omy, as befits its heritage as the for-mer engineering powerhouse of theSoviet Union. Today, manufacturingand innovation firms are setting upin greenfield and brownfield sitesthroughout the country.
Built onwood“Themanufacturing sector remainsimportant to the economy,” saysAlexander Pivovarsky, head ofBelarus at the EBRD. “In 2018, itaccounted for 22% of GDP and 20%of employment.”
Recentmajor FDI projects in
Belarus's manufacturing sectorinclude Lithuanian firm VakaruMedienos Grupe (VMG) Industry’sinvestment in a wood processing fac-tory in the Mogilev Free EconomicZone; Stadler’s investment in a rail-way rolling stock factory in Minsk;and Kronospan’s investment inwood-processing facilities through-out the country.
“Kronospan Smorgon andKronospan Mogilev are ownedby Kronospan Group, one of theworld’s leadingmanufacturersof wood-based panels,” says MrPivovarsky. “The EBRD provided€140m in loans to KronospanSmorgon between 2011 and 2014,and €100m to Kronospan Mogilev in2013 for the construction and subse-quent expansion of a particle board/MDF plant in Smorgon and an ori-ented strand board plant in Mogilev.These projects are among the largestgreenfield FDI projects ever imple-mented in Belarus.”
The rail dealStadler Minsk, a wholly ownedsubsidiary of Stadler Rail Group, isbased in the Minsk Free EconomicZone. It received a €26m senior loanwith a 10-year tenor from the EBRDfor the construction of a greenfield
rolling stock plant in Fanipol in theMinsk region.
“We received our first order fromBelarussian Railways in 2009, and by2012 we could see the potential fordelivering additional volume to thefirm, but this required local input,”says Philipp Brunner, CEO of StadlerMinsk. “At the time, we analysed dif-ferent opportunities in the formerSoviet world, especially the EurasianCustoms Union [EACU], and becauseof our good relationship with ourclient and the great conditions ofthe free economic zone, we decidedto take the next step and invest inthe country.”
The deal began life as an invest-ment in certain parts of a local state-owned company. “The state investedassets as an in-kind contribution inour company and took ownership of40% of the firm. Since then, we’vebought back the shares and we arenow 100% the owner of StadlerMinsk,” says Mr Brunner. Today, thecompany serves the world from itsMinsk premises and has an orderbook with clients from as farafield as Latin America, theCommonwealth of IndependentStates (CIS) and Norway.
Stadler Minsk is in direct compe-tition with the company’s factories
Highly specialised: Adani manufactures hi-tech products such as X-ray systems and analytical instruments for security, healthcare and science
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in Poland, the Czech Republic andHungary. “For a long time duringour ramp-up phase we couldn’t keepup with the competition,” says MrBrunner. “But we now have a bettercost structure, we aremore competi-tive and we offer the same quality aselsewhere in the Stadler world. Andthese competitive advantages over-come the additional admin andlogistics costs associated withbeing in Belarus.
“Back in 2012-13, our plan was toaccess the EACU from [Belarus], butwe lost a lot of volume from thosecountries in 2015-16 because orderswere either delayed or disappearedcompletely. We used the period toconsolidate, but very soon we foundwe were getting lots of orders fromEurope. In fact, today about 70% ofour production goes to Europe andotherWestern countries.”
With somuch of the firm’sbusiness directed into the EUmarket,is Belarus still a good location forStadler?Mr Brunner says it is.“Although the cost of labour inPoland is not a lot higher than here,we have all the benefits of the freeeconomic zone.We also have accessto the EACU,which enables us toenter into agreements with othercountries. Due to tax reasons, it’s ben-
eficial tomake a profit in Belarus.”Another Belarusian FDI success
story is VMG Industry, a whollyowned subsidiary of VakaruMedienos Grupe (Lithuania), andone of the largest wood-processingcompanies in the Baltic region. Itreceived a €26.5m long-term loanin 2011 and a €50m long-term loanin 2018 from the EBRD to build andthen expand a greenfield integratedwood-processing complex in theMogilev Free Economic Zone. “Thisproject was the first greenfield FDIof its scale in the Belarusian wood-processing sector, highlighting thepotential of Belarus as an attractiveinvestment destination,” says theEBRD’s Mr Pivovarsky.
Adani’s homecomfortsAdani demonstrates how adomestic company can thrive bothat home and overseas. “We wereformed in 1991 when the SovietUnion collapsed, and there was anopportunity to do something new,”says Elena Lineva, executive direc-tor at Adani.
The company, which was estab-lished by nuclear physics professorand inventor Vladimir Linev, spe-cialises in hi-tech products such asX-ray systems and benchtop analyti-
TODAY ABOUT 70%OFOUR PRODUCTIONGOESTO EUROPE ANDOTHERWESTERNCOUNTRIES
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cal instruments for the security, health-care and scientific industries.
“We started out with 26 employees,and our first big project was an auto-mated radionuclide foodmonitor todetect radiation in food and water sup-plies for food safety controls in Belarus,Ukraine and Russia after the Chernobyldisaster,” says Ms Lineva. “By 1996, wehad launched scanning equipment formedical and security applications, andwe now have clients all over the worldfor this technology.”
The companymaintains its head-quarters in Belarus but also has facilitiesin China, Russia, the US and the UK.“We now have 650 employees globallyand have plans to continue expanding,including opening ourselves up to inves-tors in international markets throughan initial public offering,” says Ms Lineva.
Adani continues to see advantages inmaintaining its Belarus headquarters.“We have several premises throughoutthe country,” says Ms Lineva. “At themoment we are in the process of gettingapproval to build another facility in theMinsk Free Economic Zone. It makessense to continue most of our functionsfrom here because we have very goodopportunities in terms of tax savings onprofits, plus we don’t pay customs dutieswhen we receive components fromabroad for Adani products for export,
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WEWERE ABLE TO PROVETHATWEWERE ASGOODASOURCOMPETITORS, SOWEHAVE PROVED THIS IS AGOODPLACE TO BE BASED
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and labour costs are lower herethan in the US.
“Because of these lower costsand because we have a full cyclefrom R&D to manufacture, Adanican be more competitive. For exam-ple, we recently won a tender wherewe were significantly cheaper thanour competitors, and could thereforesave our client €2.5m.”
Alutech’s outward viewAlutech Group has been operatingin the CIS market for more than 20years and is the dominant providerof door and shutter systems to cli-ents in the Belarus, Ukraine andRussian markets. Over the years, ithas also gained a foothold in Europeand further afield.
Today, the group has more than3000 employees and has nine subsid-iaries and business units in locationssuch as Russia, Ukraine and theCzech Republic. In 2018, Hörmannacquired a 75% stake in the com-
pany. Alutech’s strong position in itsEastern and European markets werekey factors that contributed toHörmann’s decision to invest.
“[Belarus] continues to be agood location for our company,” saysStanislav Kuzmitsky, deputy directorof marketing at Alutech. “Workersare highly motivated, the govern-ment has a good focus on business,and you can make a return on capi-tal. Being a European firm, we haveEuropean values, making it easierfor our clients to enter into dialoguewith us than if they were partneringwith an Asian company.”
Alutech export manager YuryGrishin reports that breaking intothe western European market wasnot easy. “Initially we faced chal-lenges in our European marketsbecause people had an expectationthat because we are from Belaruswe would have lower standards. Butbecause our clients visited our pro-duction facilities – and because weused benchmarking tools to com-pare ourselves with our competitors– we were able to prove that we wereas good, or better, than our competi-tors, so we have proved this is a goodplace to be based.”
Manufacturing talentBusiness leaders in Belarus havemixed views about the availabilityof talent for their firms. For MsLineva at Adani, recruiting quali-
fied specialists is difficult. “A lotof young people left the countrywhen they had the opportunity.Also, fewer people want to becomeengineers today – most young peo-ple want to go into IT,” she says.“However, we have a very loyal teamof staff, and many people who cometo work with us are still here manyyears later.”
Mr Kuzmitsky at Alutech agrees,saying: “It’s getting harder to findgood younger people who are inter-ested in innovations other thantheir smartphone. But we’re creat-ing good links with local universi-ties to offer internships for someof the brightest students.
Meanwhile, Mr Brunner atStadler says working morale is veryhigh. “Our labour force at StadlerMinsk is one of the best that we haveworldwide. We have lots of compe-tences, ranging from low-skilledassembly workers to highly skilledengineers, and in all these areas wehave a solid, competent and disci-plined workforce," he adds.
“There’s a good labour marketand employer-friendly labour laws.In 2018-19, we hired 500 people insix months. This is a growth spurtthat [should be] impossible in theStadler world, but we’ve found com-petent people who are educated tothe right level and we have managedto integrate them into our workforcewithin a short timeframe.” ■
Made of metal: Alutech has more than 3000 employees and in 2018 welcomed substantial investment from Hörmann
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By thenumbers: keyFDI trends for BelarusB etween January 2003 and May
2019 a total of 294 greenfieldFDI projects were recorded in
Belarus. These projects represent atotal estimated capital investment of$12.92bn, which is an average invest-ment of $43.9m per project. Duringthe period, an estimated 4883 jobswere created.
Data service fDi Markets tracked244 companies as having invested inBelarus between January 2003 andMay 2019.
Communications comes topOut of a total of 33 sectors, commu-nications accounted for 13.6% of pro-jects. Project volume in this sectorpeaked during 2003, with seven pro-jects tracked. Capital investment inthis sector was estimated at $1.78bn.
Communications also has thehighest total investment among sec-tors, while automotive OEM has thehighest average investment at$131.2m per project.
Manufacturing risesManufacturing is the top businessactivity, accounting for one-third of
projects tracked. Project volume inthis business activity peaked during2018, with 16 projects tracked.
Manufacturing also generatedthe greatest investment volume,with a total of $5.61bn in invest-ment. Electricity and manufacturinghave the largest project size on aver-age in terms of investment and jobscreation, respectively.
Chinese sourcesWith an average project size of$53.6m, projects originating inChina are approximately 1.2 timeslarger than the average across allsource countries. Ranked second inoverall projects recorded with 28 intotal, China created $1.5bn capitalinvestment.
Nevertheless, Russia is the topsource country accounting, for morethan one-fifth of projects tracked.Project volume in this source coun-try peaked during 2010, with 13 pro-jects tracked.
Russia has provided the highesttotal investment total by volume,while China has the highest averageinvestment at $53.6m per project.
August/September 2019 www.fDiIntelligence.com
SUPPLEMENTBELARUS
NumberofFDIprojects294Total jobscreated44,573Averageproject size (jobs)151Total capital investment$12,917.91mAverageproject size$43.9m
Note: jobs and capex figures includeestimates.
Source: fDiMarkets
HEADLINE FIGURES2003-19
fDi Markets isan online databasetracking crossbordergreenfield investment.It follows and profilescompanies investingoverseas, providingreal-time monitoringof investment projectsand job creation. Forfurther informatione-mail [email protected].
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RECENT INVESTMENTSINBELARUSRecomFrance-based solar technology pro-ducer Recom has announced plansto build a photovoltaic moduleman-ufacturing facility in Minsk. It willproduce 300megawatts of high-efficiencymodules annually. Theplant is scheduled for completionin October 2019.
CiplaIndia-based pharmaceutical com-pany Cipla has invested $1m in anew facility in Minsk. It will be dedi-cated to the production of solidmed-icines. The project will be completedin collaboration with the NationalAcademy of Sciences of Belarus. Full-cycle production is expected by theend of 2020.
Gabi-BelGabi-Bel, a subsidiary of Poland-basedfurnituremakerGabi Group, is set tobuild a factory in theGrodno SpecialEconomic Zone. The 20,000-square-metre facilitywill include awood-working area and a pellet productionworkshop. The new facilitywill create170 jobs, and is to servemarkets in EUandCommonwealth of IndependentStates countries.
KazakhExportKazakhstan-based KazakhExport,an export insurance company, hasannounced plans to open a newoffice in Belarus. It forms part ofan expansion plan to open sevenoffices in Russia, China, Tajikistan,Kyrgyzstan and Belarus by the endof 2019.
WiseasyChina-based intelligent businesshardware providerWiseasy hasfounded a subsidiary and branchoffice in Minsk. The new entity,Wiseasy International (Belarus),is located in the Great StoneIndustrial Park to the east of Minsk,and will serve Belarus and otherEurasian Economic Communitycountries. The opening forms partof the company’s internationalexpansion plan.
PetosevicSerbia-based Petosevic, a provider ofintellectual property services, hasestablished a new office in Minsk. Ithas created three new jobs, and themove follows an increasing demandfor the company’s services.■
SUPPLEMENTBELARUS
www.fDiIntelligence.com August/September 2019
SECTOR NUMBEROF CAPITAL INVESTMENTPROJECTS TOTAL ($M) AVERAGE ($M)
Communications 40 1,781.80 44.50Financial services 36 1,105.40 30.70Software and IT services 23 255.10 11.10Transportation 22 1,197.20 54.40Food and tobacco 20 749.40 37.50Business services 16 86.00 5.40Metals 12 191.10 15.90Woodproducts 12 918.20 76.50Chemicals 11 511.60 46.50AutomotiveOEM 10 1,311.80 131.20Other sectors 92 4,810.30 52.30Total 294 12,917.90 43.90Source: fDiMarkets
SECTOR NUMBEROF CAPITAL INVESTMENTPROJECTS TOTAL ($M) AVERAGE ($M)
Russia 66 3,135.70 47.50China 28 1,499.50 53.60Germany 21 1,030.00 49.00US 17 544.90 32.10Poland 16 328.80 20.60Lithuania 14 507.50 36.30Austria 12 390.20 32.50Czech Republic 12 427.90 35.70Ukraine 12 169.40 14.10UK 9 103.20 11.50Other countries 87 4,780.70 55.00Total 294 12,917.90 43.90Source: fDiMarkets
FDI TRENDSBYSECTOR
MOTIVE %OFPROJECTS
Domesticmarket growth 44%Skilledworkforceavailability 36%Regulatory environment 24%Proximity tomarketsor customers 20%Lower costs 8%Transport infrastructure 4%Government support 4%Source: fDiMarkets
INVESTORMOTIVES
FDI TRENDSBYSOURCECOUNTRY
