Government Policy on Attraction of Foreign Investment

The Department of Investment Affairs, an autonomous structural subdivision of the Ministry of the Economy, is responsible for formulating government policy on investment. The Department formulates investment policy principles and mechanisms, and devises measures aimed at encouraging, attracting and making efficient use of domestic and foreign investment with a view to creating conditions conducive to sustainable economic growth.

The key policy document that sets forth investment policy in Belarus is the National Program for the Attraction of Investment into the Economy of the Republic of Belarus Through 2010, which was approved by the Belarussian Government in 2002. The Program sets forth the strategy and mechanisms to be used to attract domestic and foreign capital, and establishes legislative, organizational and economic measures required to foster a favorable investment environment. The Program's aim is to attract at least USD 1 billion into the economy each year starting in 2003, and to reach a target figure of more than USD 10 billion by 2010.

In formulating mechanisms for the attraction of foreign capital, Belarus has relied heavily on the experience of countries in Central and Eastern Europe, East and South East Asia, and Latin America. These countries have achieved impressive success records in the efficient use of foreign investment to develop their economic potential. With a view to creating a favorable investment climate in the country, the Belarussian Government plans to resort to such widely used measures as preferential investment regimes, government support for effective investment projects through exemptions, guarantees, and access to centralized resources, the establishment and development of free economic zones, the involvement of foreign investors in the privatization process, the improvement of the investment legislation, and the provision of information and organizational support to investors.

Belarus accords particular importance to ensuring a sound legal foundation for investment activity; the Investment Code adopted in 2001 provides a framework in this regard. The Code establishes key guarantees that are enjoyed by all investors: protection of ownership rights and lawful interests; equal and stable rights regardless of form of ownership; freedom to dispose of profits (income), including unimpeded repatriation abroad; immunity from confiscatory nationalization or requisition; and protection from unlawful actions on the part of the state. In the event of the adoption of new regulatory and legislative acts that have the effect of impairing the business environment for investors, the Code guarantees foreign investors the right to be governed for a period of five years by the laws in place at the date the foreign investor organization was registered.

Work is continuing on the improvement of the investment legislation. The National Assembly of the Republic of Belarus has passed in the first reading a draft law "Concerning the Introduction of Amendments and Additions into the Investment Code of the Republic of Belarus", which widens the definition of what a foreign investor is and the forms foreign investment activity can take, improves the procedure for collecting customs and tax dues on property imported as a charter capital contribution, and widens the organizational and legal forms that commercial organizations with foreign investment, and other entities, can take.

In terms of international law, the investment sphere is governed by bilateral agreements on foreign investment and Belarus' accession to international multilateral conventions. 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 around 50 bilateral agreements on collaboration and the mutual protection of investments with such countries as Germany, Switzerland, the Netherlands, the United Kingdom, Finland, Italy, the Czech Republic, China, Turkey, Egypt, Cyprus, and others. Belarus has also signed more than 40 dual tax avoidance treaties.

The Belarussian Government plays an active role in the investment process, providing state support to business entities in the Republic.

State support to investors can take the following forms:

• Belarussian Government guarantees (for loans to finance investment projects);

• Preferential tax and customs treatment (in the form of tax and customs deferrals);

• Access to centralized investment resources (interest bearing, fixed term, repayable finance allocations available on condition that the investor provides at least 20% of the total investment finance).

Investment agreements may be concluded with investors in the case of investment projects of priority importance to the national economy. Such projects primarily include projects involving the creation and development of manufacturing facilities based on new and high technologies, projects to improve the competitiveness of Belarussian products and increase Belarussian exports, and projects aimed at resolving problems in the social sphere. In order to be eligible, the total value of the investment project must be at least USD 5 million. Investment agreements offer investors additional guarantees regarding the economic and legislative conditions of investment project implementation.

The activities of the Foreign Investment Advisory Council constitute a key element of Belarussian investment policy. The collective experience accumulated by the Advisory Council's member companies and organizations as regards international investment can be used by Belarus to tailor effective measures aimed at raising the country's investment potential and fostering an attractive investment climate. In the near future, the Advisory Council will examine such key draft laws as the Land Code, the Customs Code, the Law "Concerning Companies", the Law "Concerning Foreign Economic Activity", and others. The Advisory Council also plans to take action with a view to improving the coverage given to the country's investment climate and fostering a favorable image for the country in the eyes of potential investors.

Attention is also accorded to ensuring information support to the international business community. A database concerning the investment climate has been created to provide information to foreign investors on key aspects of investment activity in Belarus. The database includes information on the investment proposals of Belarussian enterprises and the legal aspects of investing in Belarus. The database can be consulted at the Ministry of the Economy's website
www.main.gov.by/ministry/economy.nsf.

Belarus' open economy is required to meet the imperatives of the world markets. Supporting and raising the competitive edge of Belarussian goods and services is the key to securing sustainable economic growth in Belarus. With that in mind, and with a view to developing the country's existing manufacturing base, the Government has identified priority spheres in which foreign investment is particularly sought.

These include machine engineering and instrument manufacturing, petrochemicals, agricultural produce processing, telecommunications, forestry, timber and paper, and tourism. The Belarussian Government is prepared to lend its support to investment in the high-technology sector and to job creation.

One of the most promising vectors for attracting foreign investment concerns allowing foreign investors to participate in the privatization process. There are several ways for foreign investors to participate in the privatization process in Belarus. For example, foreign investors can participate in the creation of open joint stock companies by making cash or property contributions to the charter capital of not less than USD 20,000. Foreign investors can also buy government owned shares in existing open joint stock companies by bidding at investment tenders. Foreign investors can also buy shares from additional share placements organized by open joint stock companies to finance specific investment projects.

More of the country's investment potential will be released with the receipt of a sovereign credit rating in 2004. This year, the Council of Ministers of the Republic of Belarus plans to adopt a resolution on the appointment of a financial consultant with a view to obtaining that rating. An agreement will be concluded between the Belarussian Government and the financial consultant. A positive assessment of Belarus' creditworthiness will allow greater access to cheaper foreign loans, and make it easier for banks in particular to facilitate borrowing on the international capital markets. It will also improve the country's appeal in the eyes of foreign direct investors.

Thus, Belarus has formulated and is carrying out a long-term investment policy. Much remains to be done however to improve the country's investment appeal. In the future, we plan to focus particularly on the creation of a clear and predictable economic and legal environment. This will be embodied in more consistent Government actions and more consistent legislation in the sphere of investment activity. In the macroeconomic sphere, the Belarussian Government is continuing to work on reducing inflation, interest rates, and the tax burden, and on further liberalizing pricing policy. Plans are also afoot to create a more active role for the Advisory Council, to work on providing publicity support to investors, enhancing the appeal of the free economic zones, and resolving other issues related to the fostering of a favorable investment climate and investment image.