Cancellation of the No 1 investment deal: an investment trend in Belarus
Belarus is advertised as a country with a favorable investment climate and transparent business environment. However, a series of contract terminations with investors from different countries casts doubts about the declared positive attitude to foreign capital and becomes a warning signal to other potential investors in Belarus.
Minsk authorities sent a notice to the Lithuanian Ukio Banko Investicij Grupe (UBIG) investment group about termination of the investment agreement. Investor is preparing to file a lawsuit in the International Court of Arbitration in Stockholm, demanding compensation.
Last week, Belarus decided to terminate two iconic investment projects. Minsk City Council was requested to terminate the investment agreement between Belarus and JV “Minsk-City”, also a termination notice has been sent to a Lithuanian investment group Ukio Banko Investicij Grupe (UBIG) regarding previously investment agreement signed.
The two events make several important points.
Firstly, smooth implementation of a project can be guaranteed neither by a company’s international reputation, nor by personal relationships with the head of state. Irrelevant of the fact that behind the JV “Minsk-City” was a well-known Russian company “Itera” and its management had often met with President Lukashenko personally, the investment agreement was terminated. Absolutely the same applies to the second case.
Secondly, investments in industry are extremely rare. There are examples of successful projects, but they are rare. There were seven major projects of the kind implemented in Belarus. For a country with 9.5 million population and favorable geographical location it is nothing. As a rule, investments are in commercial and residential real estate construction, which experience problems due to the global crisis and local financial problems. This nature of investment is responsible for a high speculative component when projecting the incoming capital.
Thirdly, the local authorities strongly inhibit the relations with potential investors. Most of all, officials look at investors as ‘milking’ cows and a way to solve local problems. They do not want a long-term co-operation. Small and medium investors face with striking examples of inconsistencies between the economic expediency and the requirements of the local authorities. Add to this the extreme intransigence on global projects due to various problems. Neither global nor local crisis exists for the local officials in Belarus, changes are not allowed, even if the economic benefits from the project are not feasible any more.
Therefore it is a vicious circle. Large capital investment, which could contribute to the modernization of the economy, is not coming to Belarus due to a very special attitude towards investors, and the coming investments are designed to make profit as fast as possible because of the high risk projects. And there is no way this circle could be broken.
The Belarusian authorities regard the Catholic conference as yet another international event to promote Minsk as a global negotiating platform. Minsk’s proposal to organise a meeting between the Roman-Catholic Church and the Russian Orthodox Church is rather an image-making undertaking than a serious intention. However, the authorities could somewhat extend the opportunities for the Roman-Catholic Church in Belarus due to developing contacts with the Catholic world.
Minsk is attempting to lay out a mosaic from various international religious, political and sportive events to shape a positive image of Belarus for promoting the Helsinki 2.0 idea.
Belarus’ invitation to the head of the Holy See for a meeting with the Patriarch of the Russian Orthodox Church should be regarded as a continuation of her foreign policy efforts in shaping Minsk’s peacekeeping image and enhancing Belarus’ international weight. The Belarusian authorities are aware that their initiative is unlikely to find supporters among the leadership of the Russian Orthodox Church in Moscow. In Russia, isolationist sentiments prevail.
In addition, for domestic audiences, the authorities make up for the lack of tangible economic growth with demonstrations of growth in Minsk’s authority at international level through providing a platform for religious, sportive and other dialogues.