Belarus: a Reason for Cautious Optimism

My newest article in the Belarusian newspaper Nasha Niva, here translated into English (blame Google Translator for the errors! )) ):

Belarus: a Reason for Cautious Optimism



"For me there is no such country as Belarus," a British business coach told me three years ago. The man was proud to have taught in almost all European countries. More precisely, all except Belarus.

An isolated island between the EU and the more-less globalized Russia, Belarus just did not exist then for the international business.

Many things have changed since then. Belarusian authorities have started trying to diversify their foreign relations, to attract investments and privatize large enterprises. However, Belarus still remains a terra incognita for the international investment community.

The responsibility can be put on the global financial crisis, in the midst of which Belarus has entered the information field as an eventual investment target. The crisis dramatically reduced the number of investors and increased the number of objects for investment in countries with much lower risk than in Belarus.

One should still praise the Belarusian Government for its efforts: the economic liberalization goes on, even though sometimes strangely or slowly. There were statements as to Belarusian companies entering Western capital markets. There are negotiations on a tender among foreign investment banks to advise the Government of Belarus on privatization issues. Private investors are establishing joint ventures in the country. And at the beginning of the month the news came out that Beltelecom, the telecommunications monopoly, may be either offered for sale or transformed to joint stock company before the end of the year.


The backlog is growing every day

Despite the increase in the overall rating according to WB's Doing Business report, Belarus, according to the same study, has the world's worst (!) taxation system and is located in the bottom of the rating as to level of investment protection. As long as there is no progress there and as long as the government is using Soviet-times economic policies, especially related to price regulation, no investors will come to the country.

The Belarusian government seems to have set a formal goal of correcting two or three paragraphs of Doing Business each year: last year there was a sharp spurt in property registration and issuance of building permits, this year we saw a progress as to company registration. Hopefully by fall of 2010 we may expect progressive changes in the taxation system, international trade or protection of investors - the key framework characteristics to be improved by Belarus.

Besides that, it seems that the progress of market reforms is more concerned with implementation of formal criteria for Doing Business and is motivated by pressure from the International Monetary Fund rather than by the awareness of the necessity of these reforms for Belarus.

This applies to privatization, where the government is slow to pass key legislative acts. Negotiations on the partial privatization of MAZ, BelAZ, and a number of unprofitable enterprises are being held behind the scenes and opaque. Can the investor have certainty in this situation? There are two and a half months left till year end, and the public had not yet received a report about how the planned privatization of state companies is going on for 2009 - as it has newer seen a report on realization of the privatization programme for the year 2008.

Soviet culture of management, even in large enterprises, the inability to operate in a free market, and even poor English language skills - in these important aspects of Belarus remains if not the most backward country in Europe. The backlog is growing every day that the company is not sold to private investors who could modernize the business. With the growth of the backlog, the eventual privatization price goes down and so does the potential revenue for the deficit Belarusian state budget.


Belshyna on the Warsaw Stock Exchange

For the success of economic reforms Belarus needs an Agency for privatization and attracting of foreign investment, which would advise foreigners and inform the public about the progress in privatization of state industry.

It is not clear what the result was given an undisclosed amount spent on the British PR agency of Lord Timothy Bell. Interviews organized by the agency in the western media were rather some curious and exotic dictator interviews, but it is difficult to speak of their positive effect on investment attractiveness of Belarus. Perhaps the PR effect was the fact of signing a contract with Bell itself. Another effect was the sense that before engaging in PR you need to create something that would actually require this PR.

It would be interesting if the government of Belarus would organize at least one IPO of a big company, for example, the tire producer Belshyna on a stock exchange close to Belarus, for instance, the Warsaw Stock Exchange. The country should have enough resources to afford listing at least one state enterprise. In parallel, in such a case study would be to debug the legislation, which would allow to maximize the potential price of assets sold on the market in the future.

Belarus should use the experience of its neighbours and attract successful Eastern European reformers like Mart Laar, Vaclav Klaus or Kakha Bendukidze as advisers. Moreover it should make use of internationally recognized Belarusian economists like Jaraslau Ramanchuk or Aleh Tsyvinski. Unfortunately, it does not seem realistic that the government would do so.


Step into irreversibility

One shouldn't expect the return of politically motivated sponsorship of Belarus from Russia, therefore there is no alternative for Belarus but to attract foreign investment and to mobilize the entrepreneurial potential of the nation. The latter is possible only through economic freedom.

It is generally believed that economic freedom leads to political freedom. In fact, the demand for political freedom can appear only once there will be a group of wealthy entrepreneurs independent of the state. We have the example of modern Russia, where the regarding human rights, according to international organizations, is not much better than in Belarus, but where business conditions are much more favourable.

The Belarusian authorities have the opportunity to revise the social contract in the direction of stimulation of private entrepreneurship, refocusing on active and young people, as it is now in Russia. It is an uneasy but potentially very promising goal for the government of Belarus.

If the transformation of the economy will be conducted properly and if the country will avoid major economic shocks, the current regime will have time to adjust to new conditions and, possibly, to prepare for a step-by-step introduction of a pluralist democracy that will be demanded by its Western partners. With the progress of the reforms the Belarusian bureaucracy will adapt to them and start being interested in them.

Reforms in Belarus did not obtain the proper tempo, shape and transparency, but there is still reason for optimism: they have probably become irreversible. The effects of political and economic decisions are not felt immediately. But there is hope that after the past lost fifteen years, the country has entered a path towards constructive development.

// http://nn.by/index.php?c=ar&i=30692