16.11.2012 / 13:10

Foreign Investments Weaken Belarusian Regimes Grip

Today the Belarusian Investment Forum opens in Minsk. In recent years, Belarus significantly improved its ranking in the Doing Business Report of the World Bank Group. This year it went two positions higher, and on two parameters even made it into top-10.

Participanst of the Belarusian Investment Forum

Yet state plans on attracting foreign investments keep failing year after year. Perhaps some in the ruling elite understand that the stronger the foreign investors in Belarus are, the weaker the Belarusian regime is.

This year, the government planned to attract USD 3.7 billion in direct foreign investment, yet by September 1 only a quarter of this sum USD 956.5 million has been registered. The problems are evident not only in statistical data. Once and again Belarusian government starts talking about large-scale ambitious projects and ends up proposing investors just land.

Problems in the West

Just small scale investors and adventurers come to try their fortune in Belarus, commented recently economist Mikhal Zalieski on the sad investment situation for Radio Liberty. He emphasised that though investment laws in Belarus looked smooth, yet investors had questions about political stability. Nobody knows who will run the country after Lukashenka and which direction the nation goes then. Moreover, as Jaraslau Ramanchuk said commenting a series of Belarusian investment forums two years ago, the government itself blocks foreign investments.

In November 2010, at the Belarusian Investment Forum in Frankfurt am Main, Belarusian Metal Works (BMZ) has signed with Italian firm Danieli a memorandum on intent to build a new production facilities. The project could reach USD 1-1.5 billion. Yet nothing has been implemented as Daniele was willing to help find a billion dollars only if it got shares in the BMZ. And the government wanted to retain all 100% of shares it owns.

In July 2010, Minsk Regional Executive Committee and German company Enertrag AG signed investment agreement to build a wind power park with capacity 160 W. It could cost about 360 million euro and provide with electricity two districts. The Defense Ministry blocked the project claiming that wind generators interfere with its radars.

At the first Belarusian Investment Forum in London in 2008, the Energy Ministry and Polish company Kulczyk Holding signed a preliminary agreement to construct in Belarusian Zelva a coal power plant. Planned investments should have reached USD 1.3-1.8 billion. The richest Polish businessman Jan Kulczyk wanted to supply the power plant with mostly Polish coal and export part of electricity to the EU.

Two years of negotiations ended in zero result and were broken up after 2010 Belarusian presidential elections and subsequent deterioration of relations with the EU. Kulczyk explained, Such big projects should be done together with banks. Because of current atmosphere around Belarus, it would be difficult to finance the project.

Hunting for estates of Arab monarchs

The problems, however, exist not only with Western businessmen. Belarus remains problematic place for post-Soviet and Eastern entrepreneurs as well. Many of them Russians, Polish, Iranians, Arabs tried to find common language with Lukashenka and gave up.

Influential Russian oil and gas company Itera pledged to build a residential area and business centre Minsk-City on the territory of the old Minsk airport. The amount of investments should have achieved about USD 5 billion. Yet soon Itera put the project on hold and until now it invested less than one per cent of promised money and constructed only some quite ordinary panel houses. In February, the government cancelled the agreement with Itera.

In July, Omani State Reserve Fund renounced the investment project in centre of Minsk. In 2009, Lukashenka granted Omani businessmen favorable conditions to build in historical area of the capital. They planned to construct a residential complex, a business centre and a five-star hotel for about USD 150 million.

Last year, visiting Qatar, Lukashenka solemnly declared a project of Qatar Island in Europe. Belarusian officials explained that it should be a business and industrial centre of Arab countries and it should be built in Brest region. The only registered follow-up of these designs was revealing in September a document issued by Minsk Regional Executive Committee. It secretively regulated giving land plots to members of Qatar ruling family to build hunting estates and facilities in the vicinity of Minsk.

Arab investors are known for being not eager to undertake industrial production projects. Yet there hardly could be more stark contrast in September than between two post-Socialist nations dealing with Arab investors. While Belarus tried to lure Qatar emir to hunt in Belarus, Belgrade concluded investment deal with United Arab Emirates which enabled it to revive Serbian aircraft industry.

Serious investors with twenty thousand euros

In opaque bureaucratic mechanism of the Belarusian state even the murkiest business is possible. In 2007, Belarusian government gave a concession to the Luxembourg company Polar Stars Group. It included two lignite deposits and two deposits of oil shale. The declared volume of investment was USD 2-3 billion.

I would say frankly, we are not going to study the investors' history and look whose money they use, said Lukashenka in 2007 and added that he has information which confirms serious reputation of the company's owner.

The owner regularly called on highest Belarusian officials till 2010. Finally, however, media revealed that Polar stars has been founded in 2006 and its registered capital makes up only about 20 thousand Euros. In 2010, the Belarusian government cancelled this dubious agreement.

In the absence of noise scandal the Belarusian society got very little to know about this incident. It reminds of a similar incident in 1991. Then, the Prime Minister Kiebich granted one shrewd Italian a status of Belarusian Ambassador to all nations of the world as well as gave him office in the centre of Minsk. The Italian just promised Kiebich to find loans badly needed by the Belarusian government. Only after the opposition vigorously criticised this affair, the government reviewed its decision.

The Belarusian government has serious problems in handling foreign investments. It manages to combine contradictory attitudes. On one hand, it enforces rather strict and inflexible rules. On the other, it lets doubtful firms to do serious business in Belarus.

Meanwhile, Belarus has no choice but to attract foreign investments. It survived these years economically because of Russian subsidies which according to some calculations made up in these years about 15 per cent of the Belarusian GDP. They are quite unpredictable, dangerous and tend to diminish.

Belarus has to replace these subsidies which are also the foundation of Lukashenka's rule. Yet not with other subsidies the EU definitely is not going to take over this role of Belarusian sponsor. Minsk has to reform economy and create new production facilities and sources of revenues. For that, it needs serious investors. Any Belarusian government aware of national interests will have to deal with this task.

Only when this mission will be accomplished, the Belarusian independence and democratic transition will be firm. To scare foreign investments away from Belarus means to strengthen Lukashenka's regime and Russia's dominance in the country.

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