Belarus - a lucrative investment

TD Vinnikova
Former Chair of the Board, National Bank of Belarus

A new sovereign state appeared on the world's political map in August 1991: the Republic of Belarus, in the heart of Europe. Although small in size and population (208,000 square km and 10.3 million people), it immediately made its presence felt as an industrial and intellectual force. Belarus is a sovereign state, a benevolent and good neighbour and business partner and a lucrative place to invest.


Belarus embarked upon a number of free-market programmes as early as 1992. Since then it has made steady progress towards structural reform and privatisation. It is also pursuing macroeconomic stabilisation, scoring notable successes by 1995 and 1996. Inflation is down from 40 per cent in 1994 to 2.1 per cent a month now, and the refinancing rate is down to 35 per cent a year.

The private sector accounted for about 15 per cent of GDP in early 1996.

Privatisation of state sector enterprises began back in 1991, when Belarus still had Soviet legislation. A voucher privatisation scheme was launched in July 1994, but since only 70 per cent of the population has applied for its vouchers, the issue deadline has been moved back to 1997.

There has been more success in privatising small businesses, including subsidiaries of major state sector companies, than in selling off the big ones. Most privatisation has been in the service, trade and transport sectors, and, to date, privately run small businesses account for a somewhat lesser proportion of output and employment in Belarus than in neighbouring countries.

But at the same time nearly one-third of the housing stock has been privatised and in most cases title has passed to former tenants. It should be pointed out that a decree by Belarussian President Aleksandr Lukashenko allows the sale or long-term lease of land to foreign investors for industrial projects from 1996.

To date, there have not been any claims for ownership rights to be restored. This is not a major issue in Belarus unlike, for example, the Baltic Republics, which switched from capitalism to socialism in the 1940s.

A more urgent job - re-structuring state sector enterprises - is currently at the initial phase of being tackled. A bankruptcy law was passed in 1992 but it was never applied in practice. In 1996, therefore, a new law came in, under which bankruptcy is made a specific legal status.

Markets and trade

Most producer prices were liberalised in early 1992, but wholesale and retail price ceilings were then brought in to hold down inflation. These ceilings were abolished in November 1994.

Food and agricultural produce prices were liberalised in 1994/95 under an agreement with the International Monetary Fund (IMF). In July 1995, public utility rates were increased to cover 60 per cent of the cost of provision. Domestic prices for oil and gas cover the cost of importing these fuels.

A state anti-monopoly committee was created in 1991, with the corresponding legislation and administrative regulations passed in 1992/93. The committee's first move was to break up a large trading association. It oversees and regulates monopolies and also monitors the profit margins of businesses that account for nearly 30 per cent of manufacturing output.

Wholesale trade monopolies were broken up in 1994 and 1995, and end-user prices charged by natural monopolies (numbering about 50, mostly utilities) remain under regulation. The committee only investigates other businesses when there is evidence of monopolistic practices, and it has won several court cases. Its brief was widened in 1996, when it was re-organised into the Ministry of Enterprise and Investment.

In May 1994 Belarus and Russia carried out a large-scale merger of their customs systems for exports and imports, which resulted in average tariff rates of 15-20 per cent. Under a customs agreement in January 1995, Russia and Belarus form a single customs zone allowing duty-free movement of goods across a vast territory.

The national currency, the Belarussian rouble, is internally convertible. The minimum wage is set by Parliament and periodically adjusted in line with inflation. In 1996 it was 100,000 roubles a month. Interest rates have been positive throughout the banking sector since December 1994 .

Financial Institutions

Banking reform

The 1990 laws on 'the National Bank' and on 'Banks and Banking' enabled the National Bank of Belarus to function as the Republic's central bank. Five banks were created from the Belarus branches of the former Soviet Union's specialised banks, and licences were issued to just over 40 new banks. There are fewer new banks appearing now and most of them result from banks in Russia, Ukraine and the Baltic Republics opening offices in our country.

Over 80 per cent of all capital and lending funds were concentrated in the hands of Belarusbank, Belpromstroibank (Belarus Industry and Construction Bank), Vneshekonombank (Foreign Trade Bank) and other large former state banks. In January 1996, the National Bank ordered all banks to increase their authorised capitals to at least the equivalent of ECU two million. For foreign banks the minimum was set at ECU five million. The seven largest banks, which are mostly owned and controlled by the state, account for nearly 90 per cent of all banking assets. Foreign banks and banks with foreign investment account for less than one per cent.

Non-bank financial institutions account for less than ten per cent of all assets in the financial sector. There are 70 insurance companies with an estimated annual income of US$ six million, with the state insurance company accounting for 30 per cent of this sum.

A law on commercial papers and stock exchanges was passed in 1992. Trading sessions at the Belarus Stock Market are held once a week, with only ten companies - mainly banks - actively taking part.

Fiscal system and social welfare


Tax revenues comprise up to 30 per cent of GDP (40 per cent when revenues to extra budgetary funds are included). Tax rates set by law tend to be high, but there are numerous exemptions, particularly for foreign investors.

Compliance with tax rules is relatively good, mainly because the state sector forms a large proportion of GDP. More than a quarter of all revenues come from VAT, which has a starting rate of 20 per cent. VAT is calculated according to original value, which is favourable for importers but not for exporters. A further 25-30 per cent of revenues come from profit tax, which has a base rate of 30 per cent (this is the top rate of personal income tax).


Unemployment fell gradually until January 1996 due to cautious social and market reform. According to national figures it presently stands at 3.1 per cent. As in other countries, the main strands in welfare policy are provision of employment, education and healthcare. Private companies pay a 35 per cent payroll tax (30 per cent for agricultural producers) towards the cost of this. A further 12 per cent tax is levied to cover the costs of the relief operation in the wake of the Chernobyl disaster.

Investment climate

Belarus, a founding and full member of the United Nations (UN), has an essentially open economy (about 80 per cent of finished products and services go to export); the country has to gear itself to the world market and is busy re-structuring an economy burdened by some resource and energy intensive industries.

The creation of modern and competitive industry entails heavy investment, which domestic sources are often unable to provide. According to the Belarus Ministry of the Economy, the country's external financing requirement is about US$ five billion a year.

Belarus has scored some notable successes in creating an attractive investment climate. It has laid the essential legislative framework with the customary range of guarantees, including nationalisation and expropriation safeguards, and full and free right to repatriate profits, personal incomes and investments in foreign currency. Special clauses to protect foreign investment are contained in bilateral treaties on encouragement and mutual protection of such investment, and on treaties to avoid dual taxation.

Two main trends can be identified in Belarus' collaboration with the IMF: the first is the disbursement of loans for terms of between ten and 20 years. IMF credits are mainly channelled into the finance and lending sector. By 1996, the Fund had issued Belarus with systemic transformation credits of $200 million. The second is technical assistance. As part of this facility, the IMF is now helping the Belarussian Finance Ministry to establish a Treasury.

In addition to the above, Belarus has also received a number of loans via the International Bank for Reconstruction and Development (IBRD):

  • on 13 August 1993 Belarus signed a credit agreement (Institutional Development Project) with the IBRD, under which it received a $8.3 million loan towards the cost of reforming its system of state governance;
  • on 5 August 1993 the republic signed a memorandum on mutual understanding with the IBRD for a loan to restore imports, under which it was allocated $120 million;
  • on 25 August 1994 an agreement was signed for loan finance to develop the forestry and timber industry for a total of $41.9 million.

Belarus has a dynamic relationship with the EBRD. A memorandum on mutual understanding signed on 19 February 1993 set out the main principles of the Bank's co-operation with the Republic and the following core projects are now being implemented:

  • a telecommunications upgrade ($38.8 million);
  • establishment of a wholesale market for agricultural produce in Minsk ($12.75 million);
  • modernisation of a heat and power station at Orsha;
  • reconstruction of the Ml/E30 highway from Brest to the Russian border via Minsk (ECU155 million);
  • finance for medium and small businesses ($30 million);
  • structural reform of the road transport industry ($26.65 million);
  • development of the timber processing industry.

Although it is attracting foreign loans, nonetheless Belarus aims to preserve its financial independence.

Drawing on the support of international financial organisations, Belarus seeks to boost foreign direct investment. The impressive results achieved by foreign capital in 1995 (foreign direct investment that year came to $14.7 million) shows that considerable investment inflows can be painlessly absorbed. The Belarussian Government's desire to maintain this process is not only reflected in the shaping of a regulatory and legal framework to attract foreign investment, but also in its creation of the appropriate institutional system. In 1996 the Republic established an Agency for the Support of Foreign Investment.

National Bank of the Republic of Belarus, 220080 Minsk, Pr-t F. Skorina, 20, Minsk, 8, Bank, Republic of Belarus. Tel: (0172) 276-431

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