Belarus is For Sale (Investors Be Cautious!)

2007 New Year oil and gas conflict with Russia could cost Aleksandr Lukashenko more than simply a budget deficit. Belarusian Economy Ministry has prepared a vast program of state enterprises privatization. Talks with investors have started on some of enterprises. Belarus is getting ready for considerable foreign loans. So why should foreign investors be cautious?

2006 was finished with a credit balance deficit of $1.663 billion, or about 4.5% of GDP by Belarus. Gas price hike from $46.7 to $100 per cubic metre and imposing an oil duty for oil to Belarus by Russia ($53 per cubic ton) would cost $2-2.5 billion for the country, Belarusian economists believe. That’s why Belarusian Economy Ministry offers to hold contests on selling large oil refineries and chemical enterprises in 2007, including “Naftan” oil refinery, Mozyr oil refinery “Polimir”, “Belshyna”, Grodno “Azot”, Mogilev “Khimvolokno”.

Also a possibility of converting enterprises into joint-stock companies with the further aim of selling to strategic investors largest Belarusian unitary enterprises, like Minsk Automobile Plant, Beltelekom (monopolist on communications and Internet market), Belarusian cement plant, Grodno tobacco factory “Nyoman” is offered for consideration. A possibility of selling state parcels of shares of large enterprises of food industry like Minsk Plant of Sparkling wines, Gomel fat-products industrial complex, Skidzel Sugar Industrial Complex, Haradzeja Sugar Industrial Complex, Zhabinka Sugar plant. It is supposed to sell 30-40% of shares of largest breweries, joint stock company Krynitsa and malt joint stock company Belsolad.

But analysts believe that in reality the development of such a vast privatization program was rather “a panic reaction” of Economy Ministry to the consequences of energy resources prices because Belarus is not ready for any foreign investment at all. Belarus remains a country which is very inhospitable for foreign investments. According to the national law, government can get control over earlier privatized enterprises back any time. That is why any “hard-driving” privatization campaign would be impossible without Belarusian legislation alteration first.

Under Aleksandr Lukashenko, who holds office since 1994, privatization has a pinpoint character in Belarus. All large enterprises are owned by the state. If implemented, the program of Economy Ministry would mean a radical change of economical policy of Belarus in general. Is it possible to invest in the country with no future profit guaranties? Where the main economic policy is: “You invest – But I (Lukashenko) and my pocket government, we’ll pocket all your profits!”

As was mentioned once by the former Minister for External Economic Relations Mikhail Marinich:

“To attract foreign investors, to make the domestic output competitive and to realize the country’s economic potential, radical modernization of industry, new system of management, training of new managers, property rights guarantees are required. These ideas seem revolutionary to the present Belarusian authorities and I doubt that they are able to implement them. The issues of investment in Belarus economy have no perspective if the present power system and legislation remain untouched.”