“Each country should compete for investments- that’s a global trend”

 

Lithuania is probably one of the most active countries in terms of investments among Baltic “neighbours” of Belarus. Vidmantas Verbickas, commercial attache of Lithuanian Embassy, in Belarus in conversation with the partners - consulting and investment company EnterInvest - spoke about former, present day and future Lithuanian investments to Belarusian economy.

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Vidmantas, you have been working in Belarus for quite a long time. Could you tell us whether there were periods of rapid growth of Lithuanian investments to Belarus? What were the reasons for it?

In fact, at the beginning of 2013 Lithuanian investments to Belarus amounted to LTL 276 million, which is a bit more than USD 100 million. With this result Belarus is the 8th by the amount of Lithuanian investments abroad. There has been an upward trend in investments for the last 10-12 years but for a short period of recession in 2008-2009 due to the world crisis.

It is worth noting that the official statics does not always give an idea of the real situation. It is not infrequent that the project is known as Lithuanian business but the investments come from the Netherlands. This happens due to the capital flow resulting from moving holding structures to more hospitable countries in terms of taxation and investment climate. And that is why part of Lithuanian capital is registered in the Netherlands.

Lithuanian companies became active on foreign markets after the 2008 crisis. They understood that it was high time to consider diversification of their actions, to look for new approaches. Some domestic market segments were saturated, first of all building and construction, logistics and retail. It was necessary to move services outside the country.

In Belarus we observe so to say net Lithuanian investments which come here to “work”. The most interesting industries for Lithuania in your country are construction, manufacture and retail trade.

Lithuanian companies became more active in building industry in 2009- 2010. First they operated through the offices of Belarusian partner companies, and then started to develop on their own. Nowadays one can find about 8-9 Lithuanian construction and engineering companies.

The second most popular sphere in Belarus is retail. According to some information, in the nearest future food retail chains with Lithuanian capital are about to appear. By the way it is not retail chains that act as investors but their shareholders as individuals.

There is also interest of Lithuanian business to manufacture in Belarus. This sector in Lithuania is at issue due to cost of labour power and other resources. After the world crisis some companies started to invest into new technologies, the rest moved their manufacture to other countries in order to cut expenses. The government for its part tries to attract capital investments with a focus on service sector, banks, bio- and IT-technologies. Global players come to Lithuanian market while local players are seeking for new ways of developing manufacture and in neighbouring countries in particular.

Are there any examples of such investment projects where Belarus was seen as a kind of marketing opportunity for Lithuanian business?

Such projects were considered in 2009, for example the project to extend logistic chain via Belarus further to the CIS. That quite a lump for transportation services business. But after a while companies gave up the idea.

Belarus has recently entered into common economic space with Russia and Kazakhstan within the Customs Union. Does it have any influence on the attitude of Lithuanian business towards Belarus as a member of the CU?

Sure and the investment project of Vakarų medienos grupė and Mebeline FLLC on cabinet veneer furniture production in Mogilev is an example of taking advantage of Belarus and Russia having single market. As you know, the capacities were built in order to meet the demands of IKEA stores in Russia. There are also other plans and in most cases they are focused on manufacture.

Counter tendency is also observed: the investments go to Russia to satisfy the needs of Belarusian market.

What factors in your opinion put the brakes on attraction of Lithuanian investments to Belarus?

Each country should compete for investments – that’s a global trend. Figuratively speaking, a country should take the investor by the hand and bring to home market displaying the most favorable opportunities ever. There are two main streams in the area: Go global - for companies wanting to expand and go beyond their domestic markets; and vice versa - there are segments that local companies are unable to satisfy to full extent due to the lack of knowledge, technologies and money. In such a case a foreign investor is attracted.

There are a number of examples when a major player announces about his intention to invest abroad and after that a real fight begins. Eventually, he chooses to invest somewhere with the most advantageous conditions. Peculiarities of taxation are thoroughly inspected: profit tax, social taxes, etc. If the conditions are more or less equal then the investors evaluate bonuses the governments are ready to offer. There are various programs that offer payments to business for investments as a means of encouragement. In Lithuania for example resources are given for professional interests of employees. If we speak about FEZ, there is preferential treatment, in small towns there is preferential taxation.

As to things that put the block on the way of investments to Belarus, the more incomprehensible business environment is, the more uncertain an investor feels, no matter whether it is a major player or a small company. In this context, it would be interesting to see a new law on investments in Belarus.

Another hot issue is the opportunity of the government to intervene into private companies, even if they do not have state share in their equity capital.

Amendments to the Law on Privatization, where the right to protect minority shareholders is included, are also rather debatable. All of this makes business environment less and less clear for investors. That is why the latest tendency is to establish solely greenfields.

Another barrier is unemployment rate in Belarus, which is announced to be about 0,8 - 0,4%. When a company studies the market and sees that the unemployment rate is less than 1% it understands that the number of free man power is rather small. Surely, consultants might explain to investors that official statics is not the kind of information you can fully rely on. Nevertheless, several investment projects have proved that there are problems with human resources in Belarus. If you need not 20, but 1300 people and you won’t be able to hire them, then your investments lose their efficiency ratio.

Another problem is the ability to work. There were examples when an investor offered wages amounting to Br 5 million while the market average was Br 3 million, trained the beginner. And 3 months later an employer would hand in resignation letter, when asked for the reasons why he quit the job with higher wages, he would answer: one HAVE TO WORK there. As a result some investors come here not only with top managers but also with professionals and plain specialists. If speak about such industries as logistics, retail and construction, the specialists there in Belarus leave much to be desired.

There are some non-tax payments as part of social responsibility of companies. There is nothing shocking in it, the same things we can observe in Lithuania. But it would be desirable that it was on voluntary basis and the investors had the right to choose whether they would arrange a festival as part of culture program or fund cattle farm. There are issues everywhere, Belarus has some problems, and other countries have other.

Still it should be remembered that if business is mobile and its favorable conditions are defaulted then the investments will go to Ireland, Netherlands or Virgin islands.

What can you tell us about interest of Lithuanian financial institutions? Can we expect that companies offering insurance, leasing or bank services would come to Belarus?

I suppose that is not the most attractive sector for investors. There is a borderline between things that a private company and a state organisation can do in financial sector in Belarus. Investors do not consider such conditions appropriate for they do not offer an opportunity to extend range of services.

What tendency can we observe in opposite investments - from Belarus to Lithuania?

By the beginning of the year Belarusian investments to Lithuania amounted to LTL140 million. This is 2 times less than the amount of Lithuanian investments. The penetration rate of investments has remained on fixed level during last few years. However several years ago certain steps were made by companies that come to appreciate an interesting opportunity to work both with CU and EU markets.

There were some high-profile projects, Belaruskaliy, for example, purchased part of Lithuanian company in Klaipeda port, Freshmarket retail chain with Belarusian capital involvement is being established. Amkodor has declared of his further expansion in EU market. I think that there will more such announcements in the near future, for your companies that are focused on European market would asses Lithuania in terms of extension of their chains to Europe.

There is an opinion that considering the necessity of entering WTO, Belarusian companies will contemplate over an opportunity to move part of their manufacture or processes to European countries in order to get the opportunity to define their goods as European Union products and sell them within the EU. In this circumstances Lithuania might be suitable for Belarusian companies.

Do you know any examples when before entering Belarusian market Lithuanian companies would go to consultants? Were they Lithuanian or Belarusian consultants?

There are different business owners. Some owners think they know everything and are able to do anything. While other who would even like to get market review but would rather save on professional services. Wise owners understand that they are newcomers in this market and businesses in various countries have a lot of nuances. Such companies spend on consultants. They might be Lithuanian consultancies with the branch in Belarus or Belarusian partners of Lithuanian consultancies. I, personally, recommend Lithuanian business to seek for professional advisory services and I am always eager to help with the list of professionals in the area.