Romeo Abdo: Foreign Investments in Belarus

An overview of foreign investments in the economy of the Republic of Belarus for January-June 2021 was prepared, which analyzed the dynamics of investments on a net basis (inflow minus withdrawals). The review contains characteristics of investments by industry, region, country of origin, as well as the amount of funds invested by investors.

The review will be useful for quick acquaintance with the current situation, reflecting the work of foreign business in Belarus, and for assessing the investment climate. The review also reflects the authorities’ plans to attract investment in the coming years, including quantitative characteristics and industries.

Current economic situation in Belarus

In the first half of 2021, foreign investors invested USD 4.9 billion in the real sector of the Belarusian economy, which is 9.8% higher than investments in the same period last year (USD 4.5 billion). At the same time, it should be noted that the growth took place against the background of a low base last year – the volume of investments received in the 1st half of 2019 (USD 5.1 billion) remained an unattainable height.

3,607 million USD, or 73% of funds invested by foreign investors in the country’s economy, are categorized as foreign direct investment (FDI). As a rule, this category of investments includes investments made by direct investors, whose share is at least 10% in the authorized capital of the organization. FDI includes equity instruments, reinvestment of earned profits, sale (purchase) of real estate, provision of loans and borrowings to controlled enterprises.

Forecasts for the near future

In second place among foreign investments with a share of 26.9% are other investments. Most often these are loans and borrowings not related to FDI, as well as leasing, accounts and deposits. Portfolio investments, implying the purchase of a small share of the enterprise (up to 10%), have not received significant distribution in Belarus, primarily due to the underdeveloped stock market.

Note that the main growth in foreign investment in the first half of the year fell on FDI, other investments showed a more modest rise of 1.5%, while portfolio investments declined. This distribution indicates that those foreign investors who already have controlled enterprises on its territory are primarily investing in the Belarusian economy. The main forms of attracting FDI remained the same. These are debt instruments (USD 2 billion, or 55.2% of the total) and the reinvestment of profits from investments (USD 1.5 billion, or 42.1% of the total direct investment). Thus, more than 40% of FDI is the reinvestment of profits earned by investors in the territory of the Republic of Belarus.

Geographic and interethnic relations

But there have been some changes in the “registration” of foreign investors. If in the 1st half of 2020 the bulk of investments from abroad came to our country from Russia (42.8%), Cyprus (10.9%) and Austria (7.9%), then in January-June This year, Ukraine took the third place instead of Austria with an indicator of 7.7%. At the same time, the shares of Russia and Cyprus became even larger, increasing to 45.3% and 13.8%, respectively. At the same time, there is no decline in FDI from countries such as Ukraine, Poland, Lithuania and the UK. This suggests that those foreign investors who came to our country continue to work in it.

At the same time, there are reasons for concern. In addition to the inflow of foreign investment, Belstat monitors such a parameter as FDI on a net basis, which takes into account the withdrawal of investments from the country. If, according to the results of the first quarter of 2021, Belarus received 1.247 billion USD of foreign direct investment on a net basis, then according to the results of the second quarter, this figure amounted to 1.185 billion USD.

Thus, from April to June 2021, the withdrawal of foreign investments exceeded their receipts. On the one hand, three months is too short a period to talk about the formation of a stable trend, but quite enough to see the signal that the data is sending us. It is possible that those investors who work in our country begin to withdraw capital, especially since, given the low liquidity inherent in investing in the Belarusian economy, this process is slow. We are waiting for the data for the III and IV quarters, which should confirm or deny our assumptions.

Short biography of Romeo Abdo

The Belarusian businessman of Lebanese origin was born in 1975 and graduated from the Minsk State Linguistic University and the International Institute of Economics and Law. He has been living in Belarus since 1994.