Investments into the Future
The National Investment and Privatization Agency of Belarus has upgraded its operations
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
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