In­vest­ments into the Fu­ture

The National In­vest­ment and Pri­va­ti­za­tion Agency of Be­larus has up­graded its op­er­a­tions

Economy of Belarus - - CONTENTS - lilia KRAPIV­INA

The National In­vest­ment and Pri­va­ti­za­tion Agency of Be­larus has

up­graded its op­er­a­tions

Mr. Klevzhits, the long-awaited National In­vest­ment and Pri­va­ti­za­tion Agency has re­sumed op­er­a­tions af­ter re­struc­tur­ing. What are the Agency’s goals and ob­jec­tives? Have any prin­ci­pally new ap­proaches been adopted?

The com­pe­ti­tion for for­eign in­vest­ments is get­ting tougher in the world. In­deed, a coun­try can-

The National In­vest­ment and Pri­va­ti­za­tion Agency was es­tab­lished fol­low­ing Pres­i­den­tial De­cree No. 273 of 25 May 2010. In line with De­cree No. 173 of 22 April 2011 it was re­or­ga­nized into a govern­ment agency reporting di­rectly to the Econ­omy Min­istry. The char­ter of the Agency was reg­is­tered in June this year. Di­rec­tor of the Agency Dmitry Klevzhits has up­dated the Econ­omy of Be­larus Mag­a­zine on the goals and mis­sion of the Agency, its ef­forts to raise for­eign in­vest­ments and at­tract ef­fi­cient man­agers for Be­laru­sian com­pa­nies. Dmitry Klevzhits is a grad­u­ate of the Be­laru­sian State Univer­sity; he has ac­com­plished a post grad­u­ate course at the In­sti­tute of World Econ­omy and In­ter­na­tional Re­la­tions of the Rus­sian Academy of Sciences, PH.D. in Eco­nomics.

not make a ma­jor break­through us­ing solely its in­ter­nal re­serves and ca­pac­i­ties. There­fore, all coun­tries around the globe are try­ing re­ally hard to raise as much for­eign in­vest­ment as pos­si­ble.

It is well-known that these in­vest­ments in­clude not only mone­tary as­sets, but also ex­per­tise and knowl­edge in a form of tech­nolo­gies, in­tel­lec­tual prop­erty, new man­age­ment meth­ods and ad­vanced busi­ness so­lu­tions. Be­sides, an in­vestor can im­prove the lo­gis­tics of sup­ply­ing raw ma­te­ri­als and mar­ket­ing prod­ucts, fa­cil­i­tate in­te­gra­tion into the global pro­duc­tion net­works. All this makes for­eign in­vest­ments a key mech­a­nism of eco­nomic ad­vance of any state.

Coun­tries around the world set up in­vest­ment pro­mo­tion agen­cies. The In­ter­na­tional As­so­ci­a­tion of For­eign In­vest­ments has reg­is­tered over 240 in­vest­ment agen­cies, in­clud­ing national and supra­na­tional ones. All of them seek to raise for­eign in­vest­ments into the do­mes­tic econ­omy.

Be­larus is no ex­cep­tion. Our coun­try is will­ing to com­pete for in­vest­ments with many coun­tries of the world, first of all, with Euro­pean ones. I think we should keep an eye not only on the Euro­pean mar­ket, but also on the global cap­i­tal mar­ket. No mat­ter what is hap­pen­ing, money never sleeps. It works 24 hours a day. There­fore, we are go­ing to fo­cus on the global mar­ket to raise as much in­vest­ment as pos­si­ble in their best form – in­tel­lect,

cut­ting-edge tech­nolo­gies and sci­ence-in­ten­sive cap­i­tal.

We are draft­ing a rel­e­vant strat­egy to guide us in meet­ing these chal­lenges. The strat­egy will be based on a set of ideas that will shape the Be­laru­sian econ­omy in the fu­ture. We re­al­ize that what we are do­ing now will in­flu­ence the eco­nomic per­for­mance sev­eral years and even decades ahead.

The mis­sion of the Agency is to im­ple­ment the govern­ment pol­icy in in­vest­ments and pri­va­ti­za­tion, to shape a fa­vor­able in­vest­ment im­age of the coun­try, to bring to­gether govern­ment agen­cies and lo­cal au­thor­i­ties and in­vestors, to set up and main­tain a sin­gle data­base, in­clud­ing a reg­is­ter of projects in­volv­ing for­eign di­rect in­vest­ments. This ap­proach al­lows avoid­ing the du­pli­ca­tion of re­spon­si­bil­i­ties with other govern­ment bod­ies.

What in­dus­tries are ex­pected to get the bulk of in­vest­ments?

We will at­tract for­eign in­vest­ments pri­mar­ily into three blocks of in­dus­tries. The first one com­prises biotech­nol­ogy, phar­ma­ceuti- cal pro­duc­tion, bio­chem­istry, bio­physics and medicine. The sec­ond one deals with the de­vel­op­ment of new ma­te­ri­als in chem­istry, me­tal­lurgy and power en­gi­neer­ing. The third one is in­for­ma­tion and com­mu­ni­ca­tion tech­nolo­gies. These in­dus­tries gen­er­ate the high­est level of added value and will keep do­ing it in the decades to come. I would like to em­pha­size their high level of con­ver­gence, which means that the projects in these in­dus­tries are likely to pro­duce a sig­nif­i­cant syn­er­getic ef­fect. A fore­sight car­ried out by in­ter­na­tional re­search cen­ters has re­vealed that the phar­ma­ceu­ti­cal in­dus­try, for ex­am­ple, will heav­ily rely on in­for­ma­tion tech­nolo­gies and new so­lu­tions gen­er­ated by the bio­chem­i­cal, bio­phys­i­cal and other in­dus­tries.

How­ever, we will not shift our fo­cus from Be­larus’ tra­di­tional in­dus­tries that are the core of the national econ­omy. For ex­am­ple, we are go­ing to give a boost to the ma­chine-build­ing in­dus­try by re­duc­ing its ma­te­rial in­ten­sity and re­plac­ing heavy me­tals with new, stronger and lighter ma­te­ri­als. The op­ti­miza­tion op­por­tu­ni­ties here are vir­tu­ally un­lim­ited.

All our ef­forts are based on in­tel­lect. To at­tract it to Be­larus, we need to make our coun­try ex­traor­di­nar­ily ap­peal­ing for know-how and R&D. This will al­low us to de­velop high tech­nolo­gies and set up new pro­duc­tions to ad­vance the national econ­omy. The pri­or­ity will be given to ma­jor global cor­po­ra­tions that have a great sci­en­tific and man­u­fac­tur­ing po­ten­tial.

For in­stance, Rus­sia has at­tracted a ma­jor Swiss phar­ma­ceu­ti­cal com­pany to build a plant there worth half a bil­lion dol­lars. This com­pany’s in­vest­ment pro­gram ex­ceeds $1.5 bil­lion. Un­for­tu­nately, so far we have failed to lure this kind of in­vestors in Be­larus. There­fore we have to work more to bring global cor­po­ra­tions to Be­larus.

I am sorry to ad­mit but so far we are not re­garded as a promis­ing in­vest­ment desti­na­tion even as a coun­try that makes part of the Cus­toms Union with a di­rect ac­cess to the vast mar­ket of the three Sin­gle Eco­nomic Space mem­ber-states. I mean so far for­eign in­vestors have not been pay­ing due at­ten­tion to this fact as we would like them to. There­fore our Rus­sian part­ners are ahead of us in at­tract-

ing big high-tech in­vestors. I be­lieve that the National In­vest­ment and Pri­va­ti­za­tion Agency will promptly build up hu­man re­sources, de­velop a strat­egy and a mar­ket­ing plan and things will go faster (given the Agency has every­thing it needs for smooth op­er­a­tion).

The Agency has two main re­spon­si­bil­i­ties: to at­tract for­eign in­vest­ments and to carry out pri­va­ti­za­tion. How is the sec­ond one planned to be re­al­ized?

First of all, I would like to re­place the term ‘pri­va­ti­za­tion’ with the phrase ‘merger and ac­qui­si­tion for the pur­pose of rais­ing ef­fi­ciency’. As for many peo­ple pri­va­ti­za­tion has a neg­a­tive con­no­ta­tion and is of­ten as­so­ci­ated with the Rus­sian oli­garchic pri­va­ti­za­tion craze of the early 1990s. There­fore the only way to pri­va­ti­za­tion should be through a max­i­mally open, trans­par­ent and ac­ces­si­ble process so that in­vestors should know what they are buy­ing. There should be no ‘skele­tons in the closet’. Once a com­pany de­cides in fa­vor of pri­va­ti­za­tion, it will get a new lease on life. And by that I mean new man­age­ment sys­tems, new mar­kets, in­creased pro­duc­tiv­ity, and new op­por­tu­ni­ties to make money, which is cru­cial for their em­ploy­ees. We are fo­cused on smart merg­ers and ac­qui­si­tions and strate­gic in­vestors.

The Agency has re­cently an­nounced a joint pi­lot project with the World Bank to at­tract in­vestors and sell shares of ten open joint-stock com­pa­nies of Be­larus. They are pre­dom­i­nately small com­pa­nies. What was the se­lec­tion cri­te­rion and what kind of in­vestors do you tar­get?

In­deed, the Agency has been sup­port­ing a small num­ber of com­pa­nies in their pri­va­ti­za­tion process. Un­der the rec­om­men­da­tion of the World Bank we have been fo­cus­ing on small and medium-sized com­pa­nies. First of all, we do it to set the ex­am­ples of step-by-step pri­va­ti­za­tion. To tell the truth, it is eas­ier and cheaper to build some­thing new than to re­store some­thing old. Nor do in­vestors like the busi­nesses charged with mar­ginal as­sets that en­tail additional risks. There­fore it is very dif­fi­cult to sell such a busi­ness.

The ten com­pa­nies se­lected for the World Bank project are the busi­nesses that ei­ther have no mar­ginal as­sets or a very small num­ber of them. Nor are they ma­jor em­ploy­ers in their re­spec­tive ar­eas. They em­ploy up to one thou­sand peo­ple. We did not opt for highly prof­itable com­pa­nies ei­ther. We se­lected busi­nesses with zero prof­itabil­ity which we be­lieve is the re­sult of poor man­age­ment. This is the main prob­lem of many Be­laru­sian com­pa­nies and that is why we pre­pare them for pri­va­ti­za­tion. We should not be afraid of strate­gic in­vestors. They will not in­stantly fire the ex­ec­u­tive di­rec­tor as no­body knows bet­ter than him/ her the lo­cal busi­ness environment. As a rule, new in­vestors of­fer a con­tract for sev­eral years to the ex­ec­u­tive di­rec­tor and some­times for even longer.

With the as­sis­tance of the World Bank, the National In­vest­ment and Pri­va­ti­za­tion Agency has to set an ex­am­ple of a smart pri­va­ti­za­tion process in con­form­ity with in­ter­na­tional stan­dards of merger and ac­qui­si­tion when a po­ten­tial in­vestor gets all the nec­es­sary in­forma-

tion about the com­pany and is fully aware of all pros and cons. Based on the op­er­a­tion ac­tiv­i­ties and fi­nan­cial in­di­ca­tors (tak­ing into ac­count the IFRS) an in­vestor can make a good es­ti­mate of how much he needs to in­vest. More­over, a strate­gic in­vestor does not con­sider a com­pany a mere busi­ness prop­erty, but sees it as a source of additional in­vest­ments. The value of a com­pany can range from $5 mil­lion to $10 mil­lion but the in­vestor knows that by se­cur­ing $15 mil­lion more he can set up a new pro­duc­tion fa­cil­ity and raise the ex­port po­ten­tial of the com­pany. These are the in­vestors that we are in­ter­ested in.

There­fore the pur­pose of our Agency is to make an ex­em­plary pri­va­ti­za­tion case based on the best merger and ac­qui­si­tion deals. At the same time the Agency will be ac­tively en­gaged in pri­va­ti­za­tion of other com­pa­nies given it has all the rel­e­vant per­mits. There is a state prop­erty pri­va­ti­za­tion plan for 20112013 in place. Over the next three years we are set to sell 244 com­pa­nies. It is clearly a tough ob­jec­tive as the pri­va­ti­za­tion process still lacks trans­parency. We have to boost ad­ver­tis­ing of com­pa­nies slated for pri­va­ti­za­tion in or­der to raise the aware­ness of po­ten­tial in­vestors.

The Agency sees its role in learn­ing every­thing about a com­pany and elab­o­rat­ing a proper de­vel­op­ment strat­egy to boost the com­pany’s cap­i­tal­iza­tion and mar­ket value. Although it goes with­out say­ing that in­vestors will bar­gain for cheaper prices. Such is the mar­ket.

It is also worth men­tion­ing that af­ter get­ting the pres­i­den­tial ap­proval for the ‘pi­lot ten’ we ex­pect to get the World Bank in­ter­na­tional grant. These funds will be used to hire spe­cial­ists with solid ex­pe­ri­ence in pri­va­ti­za­tion. We have al­ready started hir­ing with­out wait­ing for the grant. The Agency needs a res­i­dent ad­viser in pri­va­ti­za­tion who will be in­volved in all the projects. This will be an in­di­vid­ual with work­ing ex­pe­ri­ence in the coun­tries where pri­va­ti­za­tion pro­cesses were car­ried out suc­cess­fully.

As a rule, we have more in­for­ma­tion about pri­va­ti­za­tion in Rus­sianspeak­ing states, such as Rus­sia and Ukraine. How­ever we know lit­tle about pri­va­ti­za­tion in Western coun­tries. For in­stance, the pri­va­ti­za­tion process in Ser­bia in­volv­ing ma­jor cor­po­ra­tions in the sec­ond half of the 20th cen­tury, is highly com­mended by many ex­perts. We have to look for bench­marks there, find out how the pri­va­ti­za­tion was car­ried out and learn from the best ex­am­ples.

There are not so many lu­cra­tive as­sets on the 2011-2013 pri­va­ti­za­tion plan. Do you have any sug­ges­tions on how to at­tract in­vest­ments into these enterprises and put them into the hands of new ef­fi­cient own­ers?

In­deed, many com­pa­nies have poor pri­va­ti­za­tion prospects. In this re­gard, the Agency will of­fer a va­ri­ety of so­lu­tions. In par­tic­u­lar, to­day we are work­ing jointly with the Econ­omy Min­istry on a modern sys­tem of in­te­grat­ing enterprises into hold­ing com­pa­nies un­der the um­brella of one man­age­ment com­pany. For ex­am­ple, in ev­ery oblast there are small util­i­ties com­pa­nies en­gaged in dif­fer­ent lines of busi­ness, for ex­am­ple, road-build­ing. To make pri­va­ti­za­tion hap­pen, it would make sense to bring them to­gether into a large com­pany. Of course, we are not try­ing to cre­ate a mo­nop­oly and sell it to a strate­gic in­vestor, although there is noth­ing wrong with that. The main thing is to make sure that the mo­nop­o­list will at­tract not only money but in­vest even more in its fur­ther de­vel­op­ment.

We have lit­tle ex­pe­ri­ence in this area and need to learn the ropes. The Agency has ex­perts who know how to do it right. So we will be work­ing on this.

It is clear that the National In­vest­ment and Pri­va­ti­za­tion Agency should be a kind of ‘one-stop shop’ for an in­vestor who will be taken good care of at all stages start­ing from prepa­ra­tion of an in­vest­ment con­tract to its im­ple­men­ta­tion. Or your mis­sion is much big­ger?

In­deed, our job is to cre­ate com­fort­able con­di­tions for an in­vestor. We want to be a ‘one-stop shop’ for an in­vestor, his re­li­able part­ner. Many so­cial fac­tors come into play here, too. We should fore­see every­thing and ex­clude any neg­a­tive things that can scare off an in­vestor.

We are also plan­ning to ex­tend our reach abroad. It is im­por­tant that we should have of­fices in such places which are con­sid­ered in­tel­lec­tual and tech­no­log­i­cal hubs, and

where there is ac­cess to big fi­nan­cial re­sources.

This needs to be done if we want to at­tract in­vestors, de­velop fur­ther co­op­er­a­tion with them. You know the work does not stop once an in­vest­ment con­tract is signed. We con­tinue to en­gage in di­a­logue, mon­i­tor progress, and lis­ten to an in­vestor, his sug­ges­tions, and prob­lems. If we see that an in­vestor comes to Be­larus to stay, we work with him very closely so that he would not change his plans. An in­vestor has our sup­port from his first step in Be­larus and for many years to come. It is im­por­tant for us to know which prob­lems an in­vestor en­coun­ters and help him re­solve them.

Over the past two or three years Be­larus has cre­ated quite a fa­vor­able environment for in­vestors. Work con­tin­ues on pol­ish­ing up the In­vest­ment Code, other new reg­u­la­tions. Is the Agency en­gaged in law-mak­ing?

Of course, we want to con­trib­ute to the leg­isla­tive ef­fort. We have our own ini­tia­tives in this area. The In­vest­ment Code is cur­rently in force. But work is al­ready un­der­way on a new law on in­vest­ments, which will sig­nif­i­cantly im­prove the Be­laru­sian in­vest­ment leg­is­la­tion. The thing is the cur­rent In­vest­ment Code con­tains many ref­er­ence stan­dards. There­fore, it is dif­fi­cult to use it and ex­plain its ad­van­tages to the in­vestors’ com­mu­nity. This doc­u­ment should be clear and in­tel­li­gi­ble for us and for for­eign part­ners as well. There­fore we need to cre­ate a mech­a­nism, which should be spelled out in a sin­gle le­gal doc­u­ment. And this should be the law, which will stip­u­late the nec­es­sary guar­an­tees, rights, op­por­tu­ni­ties for in­vestors.

We now be­lieve that do­mes­tic and for­eign in­vestors should have the same rights. Only if we en­sure equal rights for them, we will be able to cre­ate modern in­vest­ment laws. We should cre­ate a smart sin­gle plat­form and level the play­ing field for all.

More than 30

com­pa­nies par­tic­i­pated in the Vitebsk City In­vest­ment Fo­rum.

They pre­sented in­vest­ment projects

and prod­ucts. Par­tic­i­pat­ing in the fo­rum were also del­e­ga­tions from Rus­sia, Ger­many,

Latvia and Is­rael

Pres­i­dent of Be­larus Alexan­der Lukashenko in­vited for­eign in­vestors to take part in new min­ing projects when meet­ing with a group of ex­ec­u­tives from Boulle Min­ing Group

Amethyst Metal

Group has in­vested $9.8 mil­lion in a project to build a plant for rolled steel elec­tric-welded

cir­cu­lar and rec­tan­gu­lar pipes. The first phase of the plant was com­pleted in the

Free Eco­nomic Zone Brest on 29 June. The pipes

pro­duced by Amethyst Metal

Group will be used in fur­ni­ture pro­duc­tion, in the

man­u­fac­ture of frames, fur­ni­ture

ac­ces­sories, con­struc­tion and forg­ing in­dus­tries

The sec­ond phase of the Brest waste re­cy­cling plant will reach its de­sign ca­pac­ity soon. The new me­chan­i­cal and bi­o­log­i­cal in­stal­la­tion based on ad­vanced tech­nol­ogy of Ger­man com­pany STRA­BAG can an­nu­ally process 100,000 tonnes of solid waste. The plant will ex­tract not only sec­ondary raw ma­te­ri­als from waste but also the bi­o­log­i­cal frac­tion that will then be used to pro­duce bio­gas. The project in Brest is a pi­lot one and has no ana­logues in Be­larus and the rest of the CIS

About $30 mil­lion

was in­vested in Per­fume and Cos­met­ics Fac­tory

Sontsa (town of Osipovichi, Mogilev Oblast). The fac­tory will pro­duce up to 50,000 tonnes of pow­der de­ter­gents and up to 40,000

tonnes of liq­uid de­ter­gents per year. The pro­duc­tion of

wash­ing pow­der “Mara” in card­board

boxes weigh­ing 400g was launched

on 8 June. In Oc­to­ber, the fac­tory

is set to start pro­duc­ing liq­uid

de­ter­gents

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