Oleg Andreyev, a managing director of Investment Banking department at EnterInvest, analyzed the new law on investments in terms of the most important problems of investors in our country to be solved.

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On January 24, 2014 the Law on investments in Belarus, which was approved by the Parliament on July 28, 2013, came into effect. Over the period the advantages and disadvantages of the law had been thoroughly analyzed, the law was also compared to the Investment Code of the Republic of Belarus that had been in force for almost 13 years.

The law was elaborated together with the representatives of the International Finance Corporation (World Bank Group). This cooperation as well as the final result intended to have shown foreign and local investors that Belarusian government worked towards ensuring their rights and extending cooperation on clear and transparent basis in accordance with international standards. Pursuant to the authors the adoption of the law should have drawn a line under complicated relations between investors and Belarusian authorities, especially in the context of series of scandals that had risen around the virtual nationalization of Komunarka JSC, Spartak JV JSC, Sukno JSC.

Oleg Andreyev, a managing director of Investment Banking department at EnterInvest, analyzed the new law in terms of the most important problems of investors in our country to be solved.

-A new document was expected to be a clear answer to a number of questions of the existing and potential investors who are eager at their own risk to invest in the economy of the Republic of Belarus. And what is the greatest concern of investment business today?

First of all, it is Belarusian legislation that is constantly changing. It is supposed, in authors’ opinion, to introduce “progressive” novelties even past factum. These are measures aimed at increasing household income, sudden export/import restrictions, directive maintenance of Belarusian goods assortment in retail chains, as well as changes in financial and banking activities regulations, etc. The new law has many references to other legislative acts and does not provide a rough idea of defense of rights for investors in Belarus and that causes the necessity to follow the changes in a number of other documents over and over again.

Secondly, it is rather difficult to assert investors’ rights in examinations with state business and state institutions. The new law on the one hand gives an opportunity to protect investors’ rights at International Centre for Settlement of Investment Disputes. On the other hand, it suggests rather vague and ambiguous wording for nationalization, which is “possible only for social necessity’s sake and provided that the cost of nationalized property and other losses caused by nationalization are compensated timely and to full extent”. Neither mode of compensation settlement, nor specification of “social necessity’s sake” is given in the law.

Thirdly, government policy on attracting investments is unclear. In this context, priority areas for capital investment have not been defined. Moreover, there is no intelligible policy on privatization though up to 70% of country’s GDP is generated by enterprises that are either directly or indirectly controlled by the state.
Meanwhile the Law introduces abstract restrictions on investment activities and it gives even more uncertainty. For example, it is defined in the Law herein that “Restrictions on investment activities can be put on the ground of acts of legislation for the sake of national security (including environmental protection, historical and cultural values conservation), public order, protection of morals and health of population, rights and freedoms of other people”.

Unstable Belarusian economy: continuous devaluation of national currency, high inflation rate, etc.
2011 crisis undermined confidence of investors, first of all, and also of population in Belarusian economic model. Belarusian bank system stability, as well as reputation of the National Bank of the Republic of Belarus were damaged enormously, the investors had to (and still do) increase capital to meet the requirements of the regulator. That is why most of backbone banks have been bearing losses according to IFRS. After 2011 events, Belarusian economy was considered to be hyperinflationary, the country was in the 7th risk group by ОECD classification (along with Afghanistan, Congo, Ethiopia, Iraq, Kosovo, Libya, Ukraine, etc.), and consequences for economy and loss of confidence of investors followed. The adopted law should have referred to first of all mechanisms of investors’ rights protection in case of such events. But there aren’t any.

The only progressive step of the Law is that it has introduced for the first time the equality between local and foreign investors. Before now only non-residents were admitted as potential investors.
As for the rest the adoption and implementation of the Law by no means influences investment climate change in Belarus and will not affect investment attractiveness of the country. The document has not become a breakthrough and has not introduced fundamental changes to the current system of relations. Once again only intentions were set and declared.