Investors Voice Their Verdict to Lukashenka

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Is there a connection between economy and politics, legitimacy of power and investment? The question is far from theory. Answers to it depend on ideological preferences or purely business considerations.

The ruler of Belarus clearly expressed his opinion on this matter during the "elections". "This investor doesn't care what happens to the "parliament" here," Lukashenka said. - They need a normal investment climate. Name one case, when we haven't protected foreign investments". Therefore, if the "president" personally guarantees the protection of business, it is quite enough. "If we are interested in the project, we will support it, the ruler believes. - It is essential for an investor, not how Lukashenka and you will form the Belarusian "parliament".

Such guarantees and "targeted" benefits are enough for some investors. One can find a lot of "carrots" in various decrees and orders. But the "stick" of risks always hides behind them. Promises, privileges and calls to trust and invest do not reduce risks.

In various polls, local and foreign entrepreneurs constantly name relations with officials as one of the main factors of success in doing business in Belarus. However, investors try to secure themselves just in case. It is not so complicated: it is enough to choose projects with the shortest payback period, to invest the minimum of one's own money and to attract loans under the guarantees of the authorities who promise protection. As a result, there are enough projects with foreign capital for propaganda, but they are not enough for a decent growth rate of the economy.

The attraction of foreign investments is one of the key points of the government's recent five-year program. Moreover, they are direct investments in the authorized capital of enterprises. It would be great if reliable corporations come to us, bring advanced technologies, create jobs, and ensure exports. Without this, there is little chance of accelerating economic growth, improving the trade and payment balance and the welfare of the population.

It is all that we need: the government and the ruble are stable, and inflation hits record-low. According to international ratings, such as Doing Business, we have not gone up much, but still, we are not outsiders. In recent years, packages of "liberalization" regulations have been adopted. For some reason, GDP and investments do not grow.

Figures are the best evidence of investor unrest. Since the beginning of 2019, foreign investments in the Belarusian economy have amounted to more than $7 billion. Perhaps this figure will increase by the end of the year. But in 2012-2013 it was twice as much. Unfortunately, even during the first 9 months of 2018, the volume of foreign investments exceeded the current one by 8.3%. Direct investments ($5.19 billion) dropped by 15.6% compared to January-September 2018. In particular, direct investments in the industry dropped by 6.9%, in trade - by 25.8%, information and communication - by 7.8%. It is noteworthy that more than 2/3 of these direct investments are debt instruments (credits, loans, accounts payable for goods and services), and more than 25% are reinvestment of profits, a great part of which exists only on paper. At the same time, net direct investments (i.e. excluding debt -) amounted to only $1.11 billion during 9 months this year, which is 22.8% less than during the same period last year.

By the way, net direct investments are one of the parameters of the economic development forecast and one of the KPI of the government. Once the authorities had plans: to get 6.5-6.7 billion a year. Then ambitions decreased to 2.5 billion, and in recent years to 1.6 - 1.7 billion. The government has no illusions about investors' confidence in the domestic business climate and the level of protection.

The authorities' attempts to improve the business climate are often barely predictable and inconsistent. Recently, there have been so many special investment regimes in the republic that the general rules of the game are sometimes difficult to formulate. Meanwhile, access conditions to benefits open many ways for corruption and power abuse, and only those who enter high offices can join benefits. Such an investment climate cannot be considered normal. It rather discourages capital than attracts it.

The problem is that the personal guarantees of the highest authority are much less credible than the existence of stable institutions such as the rule of law, an independent judiciary, the inviolability of private property and the real separation of powers.

Investors accustomed to work in such a legal environment are more concerned about this kind of protection. Sometimes it is even scary. They are a nervous people. But the Belarusian "vertical" is increasingly worried about the prospect of establishing the rule of law. After all, if it appears, an independent court will put an end to the power abuse, parodies of elections, and "manual" management within a few months.

The entire "vertical" will fall apart, and its top will part with the power, no matter how hard it clings to it. The head of the "vertical" is perfectly aware of all this and tries to prevent it by all means. To distract attention, he tries to assure the public of impotence of democracy, the irrelevance of civil rights, Western tricks and the benefits of dictatorship. It is a bit rude, but the public tolerates it.

In addition, not only the state media but also an ensemble of trained businessmen working off their income and freedom, advertise "dictatorship with a digital face". There is also a corps-de-ballet of scientists, who carefully explain urbi et órbi. They say that the country located in the center of Europe has an exclusively Asian institutional matrix, where a human is nothing, and the state is everything.

Of course, we cannot compete with Russia which has scandals with foreign investors. But still, we have some "achievements". We can recall an old "confectionery" story, the exile of Motor Sich, a large-scale increase of the state's share in the once-privatized JSC, the quiet withdrawal of Ford and several other Western companies. Stories of some domestic businessmen are even sadder. Their fates and investment projects have fallen apart because of the state's will. The lists of the "richest and most influential" are regularly updated not with capital growth, but with criminal chronicles. There is a reason why Belarus is almost the only country in Europe, where no one can voice the number of legal millionaires and billionaires.

If there are doubts about the legitimacy of this power, risks grow higher. After all, the illegitimate power will someday be replaced by another one - more, or maybe less legitimate. Then all agreements and guarantees devalue in a moment. One will have to agree with the new leadership or lose everything previously invested and not transferred abroad in time. This is another reason why foreign corporations prefer to create cost centres in the republic. However, domestic businessmen also try to keep the bulk of their capital and profits away from the country.

But some are ready to build relations here and now based on personal agreements with the authorities. Especially if one can get preferences, which are rarely offered in countries with democratic institutions in power. Everything depends on the will of officials here. It costs much. At the request of the authorities, one will have to sponsor sports events or a holiday, or another palace, or collective farms. It requires a very good margin to agree to everything without complaining. However, the reputation of such investors is sometimes vague, and the results of their projects are doubtful. But is it important when it comes to increasing the growth rate of key indicators?

Leonid Fridkin, lfriedkin.com