Investment Climate and Prospects for Involvement of Foreign Investments

The main macroeconomic conditions for the creation of advantageous investment climate include the reduction of inflation. In 2004, the rate of inflation in the country was reduced to 14.4 percent, which was the lowest indicator over the entire period of the independent Belarusian state.

Investment incentives

The advantageous economic and geographical as well as the geopolitical position between new borders of the expanding industrialised European Union and the Russian Federation possessing huge raw material resources.

The Republic of Belarus is at the crossroads of railways and motor-roads, oil, gas and product pipelines and communication systems between East and West.

The Republic of Belarus is connected with CIS countries historically and economically, which gives potential opportunities for Belarusian goods entering traditional markets of Russia and CIS countries:

developed markets for sale of products;

skilled and relatively cheap labour resources;

developed scientific, technological, industrial and export capacities;

political and social stability;

legislative and organisational support of the investment process.

Foreign investments

Direct investments are most interesting for the country. They do not encumber the state debts and allow mobilising and using the entire potential of the foreign partners of Belarus, i.e. financial, production and intellectual potential.

Over the period of 2002-2004, the country received more than 3.5 billion US dollars worth of foreign investments, including US$ 1.8 billion of direct investments.

Thus, in 2004, the country received over US$ 1.5 billion $ of foreign investment, including about US$ 860 million of direct investments. The rates of growth of investments into basic capital in 2003 and 2004 were 120.8 percent and 120.2 percent, respectively.

The most attractive sectors for foreign investors in the Republic of Belarus are: machine building and metalworking, light, chemical and petrochemical, woodworking, food industries, as well as trade activities, communications, transport, and medicine.

About 3000 companies have been set in our countries with participation of investors from 77 countries of the world. The five leading investor countries are: Switzerland (34.1 percent), Russia (20.2 percent), Germany (7 percent), Great Britain (6.6 percent) and USA (5.5 percent).

Belarus successfully cooperates with the world leading manufacturers including transnational corporations. Joint ventures and foreign enterprises have been organised with participation of MAN (Germany) (automotive machinery) and Karl Zeiss (optical equipment). Other foreign companies are successful in Belarus, such as: Coca-Cola Beverages Byelorussia (Netherlands), MacDonald’s restaurants (refreshment drinks and public meals), Unomedical (disposable medical items), Chess Bell (oil refinery), Inco Food (meat products).

Today, the country successfully implements, with involvement of foreign investments, a number of large projects in different sectors of the economy. In industry, these are: the project for reconstruction of the polyester treads plant at the RUE “Svetlogorsk PA Khimvolokno”, the project for output of automobile and tractor 4- and 6-cylinder engines at the RE “Minsk Engine Plant”, the project for technical update of the plant for organisation of production facilities for manufacture of automotive machinery according to norms EURO-3 at the RUE “Minsk Automobile Plant”. In the infrastructure sector, the largest investments are related to implementation of projects for organisation of cellular radio telephone communications at the “Mobile Digital Communications” Ltd, and “Mobile TeleSystems”.

For 2005, the Government sets the task to increase the investment capacity of the banking sector through involvement of external capital. It is planned to increase, by the end of the year, the quota for participation of foreign capital in the banking system of Belarus. It is also planned to carry a step-by-step emission of shares (stocks) of some domestic banks with the share of the State provided these shares are sold to foreign investors.

Specific targeted programmes are also developed concerning the most promising types of tourism (environmental, rural, hunting and transit tourism), and conditions are created for investment projects for the development of the tourist infrastructure in historical towns having cultural heritage facilities which form a sort of a “Golden Ring” of Belarus.

The work will be continued to harmonise customs and tariff systems of Belarus and Russia, and liberalise foreign trade relations of Belarus related to accession to WTO. Accession of the Republic of Belarus to WTO will increase attractiveness of the country for foreign companies.

The investment climate

The Republic of Belarus is the only CIS country which adopted in 2001 the Investment Code, a fundamental document regulating national and foreign investments in the territory of the country. The Investment Code gives foreign investors the following: equal rights with the national investors; opportunity to buy property and protect it against illegal expropriation; State support to the investment projects through guarantees of the Government of foreign credits and credits of Belarusian banks.

Foreign investors have the right to make investment agreements with the Republic of Belarus so as to get support of the State when they implement individual investment projects having priority importance for the national economy and the cost of the project cost is not less than 5 million US dollar equivalent. Signing of the agreement gives foreign investors additional guarantees by the State.

In 2005, the investment legislation of the Republic of Belarus will be further improved through the simplification of the state registration of commercial organisations with foreign investments, extended organisational and legal forms of business activities for foreign investors, and guarantees by the State not to change the legislation for foreign investors. Special attention will be paid to further protection of interests of investors and to the creation of advantageous conditions for attraction of international investors to the securities market of the Republic of Belarus.

To improve the investment climate in Belarus, the following measures will be taken:

signing of international taxation agreements and treaties preventing double taxation of incomes;

improvement of information support for the investment process through the organisation of an integrated system of collection and subsequent processing of information on all aspects of selection and follow-up of investment projects and activities of investors and entrepreneurs;

creation of the credit guarantee fund for small businesses giving guarantees and security for credits provided by banks.

Work will be continued to improve the institution of private property for land in the process of destatisation and privatisation and implementation of investment projects, including organisation of the primary market for rights of property, as well as the right to lease land.

An important role in the creation of the favourable investment climate in the Republic of Belarus belongs to the Consulting Board on Foreign Investments, which includes representatives of state entities, international organisations, as well as foreign investors operating in the Belarusian market. The work of this entity allows defining the main tasks and measures for improvement of the investment climate in the country and rapid solution of problems of foreign investors related to their activities in Belarus. The Consulting Board tackles issues of further improvement of investment legislation, development of free economic zones, and improvement of tax and customs conditions of operation in the Belarusian market.

A perspective source of strategic investments into the national economy is the establishment of contractual relations between the State and investors on the basis of concessions. To make this form of investments broadly used, it is planned to develop in the near future a list of facilities owned exclusively by the State that can be available for concession. Also, it is necessary to approve the rules on the preparation of concession proposals and concession auctions.

For effective use of investment sources for funding purposes, the list of investment projects has been defined for the period till 2010 that have national significance and ensure a new qualitative level of economic development with maximum use of its competition advantages.

It is planned to use investment resources in 2005 for the update of the petrochemical production facilities, microelectronic sector, manufacture of agricultural machinery, forestry, woodworking and paper and wood pulp sector, manufacture of medical preparations, modern transport communication facilities, telecommunication and tourist services, construction of housing accommodations, and other lines of economic development.

Great attention is paid to information support of international business circles, including organisation of seminars, international conferences on investment activities and foreign investments.

To provide foreign investors with operative information about principles of investment activities in the Republic of Belarus, a database was developed on the investment climate. It includes information about investment needs of Belarusian enterprises as well as legal conditions for investment of foreign capital into the economy of the country; this information is placed on the Internet site of the Ministry of Economy (www.main.gov.by) and on official information site of state governing authorities of the Republic of Belarus (www.main.gov.by).