Updated at 11:50,16-10-2017

October elections key for investment in Belarus

by Riccardo Dugulin, Global Risk Insights

With elections coming up in October 2015, transparency will be key in attracting investors to Belarus, and helping the country lessen its dependence on neighboring Russia

On September 17th, European Union (EU) diplomatic sources stated that the EU may lift sanctions that impose travel bans on approximately 200 Belarusian officials, and restrict the access of 25 Belarusian companies to European capital markets and export credit insurance. This comes against the backdrop of the liberation of six political prisoners in August 2015.

EU officials have stated that the potentially positive signals sent by Minsk may lead to a rapprochement, if the planned presidential elections of October 2015 are held in a transparent fashion.

The aforementioned developments follow a year during which President Alexander Lukashenko increasingly tried to assert Belarus as an essential player in the EU-Russia dialogue, as exemplified by the role played by Minsk during the ongoing Ukrainian crisis.

While the political situation in the country is unlikely to change drastically in the foreseeable future, the economic environment of Belarus presents potentially fertile ground for foreign investments.

The landscape of the capital, Minsk, is quickly evolving via large-scale construction and development projects made possible by the inflow of foreign capital. The Mayak Minsk residential complex, built by Serbias Dana Holdings investment fund, and the Qatar-sponsored luxury multi-sport centre development in the heart of the capital, are among the most recent examples of this trend.

In addition, the $5 billion Chinese investment to build a large-scale industrial complex hosting 155,000 workers in the Minsk region highlights the governments intention to leverage its strategic geographic position as a hub between the EU and Russia and expand its international partnerships.

These projects follow growth in the construction of residential housing and infrastructure, such as the Minsk National Airport (MSQ), driven by hosting preparations of the 2014 international hockey championship (IIHF). The IIHF also led to a temporary easing of travel restrictions, as the Belarusian government lifted visa-requirements for all those heading to Belarus for the sporting event.

These developments underscore the governments gradual willingness to open up the countrys economy to foreign investments in an attempt to attract badly needed capital and progressively steer away from the countrys current over-reliance on the Russian economy.

While the government pursues a diversified foreign investment strategy, Belarus offers major opportunities in capital-intensive projects mainly linked to the construction and industrial sectors. However, a far-reaching set of reforms is still needed for Belarus to be a competitive foreign investment proposition in the region.

As exemplified by Christine Lagarde comments during her meeting with President Lukashenko in New York, Belarus has come a long way in solidifying its economic structure, but now needs to undertake comprehensive reforms aimed at providing long-term stability to the national economic and financial structure. These reforms should be sponsored both by local authorities and by foreign institutional actors.

The Belarusian government is responsible in the short-term for the following: improving the overall economic environment in the country; for simplifying access to capital regulations; increasing the protection of foreign minority investors; and facilitating cross-border trade.

In fact, in 2014, Transparency Internationals Corruption Perceptions Index (CPI) ranked Belarus 119th out of 175 countries surveyed worldwide with a score of 31 out of 100, making it an economic environment highly exposed to corruption. In 2015, the World Bank Group Doing Business Index ranks Belarus 57th out of 189 economies.

According to this ranking, Belarus offers a relatively safe economic environment in which contractual laws are well enforced and the general cost of labor is low in comparison to the rest of the region. At the same time, the state of the local capital market, the over-reaching level of corruption, and obstacles linked to export-import laws make the Belarusian market an area in need of government-led reforms.

To improve the capability of local authorities to carry out such reforms, European civil society organizations and the EU have a role to play in facilitating trade between eastern and western Europe. Plans by lobbies such as the non-governmental Office for Democratic Belarus (ODB) to push for a simplification of the EU and Belarus visa-policy are an essential part of an overall effort to facilitate the regional integration of Belarus.

The potential for the progressive liberalization of the Belarusian market to foreign investments remains intrinsically linked to domestic political and geopolitical factors. The manner in which Octobers presidential elections will be conducted, along with the evolution of the countrys relations with Russia, remain the defining elements in the way the EU deals with Minsk over the coming years.