Russia and Cyprus lead in foreign investment in Belarus
<p> MINSK, Feb 22 – PrimePress. The net inflow of foreign direct investments (FDI) increased by 6.6% year on year in Jan-Dec 2020 to $1.415 billion (excluding debt to direct investor for goods, works and services), Belarus’ National Statistics Agency (Belstat) said in a report. </p> <p> Belarus defines foreign direct investments as those made by direct investors, whose stake in the statutory capital is at least 10%. </p> <p> Belarus’ net FDI inflow in the real economy sector totalled $1.112 billion in Jan-Dec 2020, up 8.8%, banking sector – up 9.8% year on year to $225.6 million. </p> <p> Belarus’ processing industries received $504.338 million in net FDI in Jan-Dec 2020 (up 57.5% yr on yr); financial and insurance institutions – $190.431 million (down 39%); information and communication companies – $128.913 million (up 19.9%); wholesale trading companies – $147.723 million (up 42.6%); food, drinks and tobacco producers – $71.2 million (up 96%); coke and refined petroleum products - $59.173 million (up 16.2 times), metallurgical production, manufacture of fabricated metal products, except machinery and equipment - $69.321 million (up 2.5 times). </p> <p> Belarus recorded a net outflow of foreign direct investments to the tune of $1.495 million (to compare with an inflow of $6.76 million in 2019) in electrical equipment manufacturing; electricity, gas, steam, hot water and air-conditioning supply – net outflow of $1.881 million (to compare with an inflow of $18 million in 2019). </p> <p> Net FDI from Russia (largest investor in Belarus) increased 16.6% yoy to $307.273 million; Cyprus (second largest investor in Belarus) – down 7.6% to $251.031 million; the Netherlands – up 5.9-fold to $118.667 million; Germany – up 100% to $76.906 million; Lithuania - $37.315m (up 80%); the UK – down 4.4% to $26.242 million; USA – down 3.8% to $42.212 million; Poland – down 0.1% to $21.209 million; China – down 4.3 times to $23.674 million; Turkey – up 2.3 times to $12.3 million, Israel – down 49% to $6.6 million. </p> <p> In January-December 2020 there was a net outflow of FDI from Austria in the amount of $12.203 million (net inflow of $21.344 million in Jan-Dec 2019), from Luxembourg in the amount of $2.718 million (positive value of $4.129 million), Bulgaria - $5.446 million (minus $11m in 2019). </p> <p> Net FDI inflow from the EU countries grew by 19.6% in Jan-Dec 2020 to reach $583.342 million, EEU countries – up 16.6% to $314.571 million. </p> <p> </p> <h4>Commentary</h4> <p> The official forecast for net FDI inflow in 2020 was for at least $ 1.7bn and did not materialize. The actual net inflow of foreign direct investment was as follows: $1.456 billion in 3 months, $1.355 billion in 6 months, $1.292 billion in 9 months and $1.415 billion for the whole year. We can see that in the second and third quarters there was an outflow of net investment from the Belarusian economy. This can be attributed to the consequences of the global crisis, as well as the events during and after the presidential election campaign in Belarus. </p> <p> In the first quarter, reinvestments are reflected in the statistics. Reinvestment according to the Belarusian methodology is a part of profit in proportion to the share of the direct investor in the authorized capital of the entity, not transferred to the direct investor, but left in the entity. </p> <p> In 2020, the real economy attracted $1.112 billion in net foreign investment on a net basis, while the banking sector attracted $226 million and other investment amounted to $78 million. With a high probability, almost all of these investments represent reinvestments. </p> <p> In the second and third quarters there was a net withdrawal of foreign investment from the real sector (minus $91.6 million and $82.2 million). The net withdrawal of investment from the banking sector continued for three consecutive quarters (Q2 - minus $25 million, Q3 - minus $1 million, Q4 - minus $0.6 million). To no small extent, foreign shareholders of Belarusian banks were influenced by the events surrounding Belgazprombank. </p> <p> For several years in a row, official statistics have recorded virtually no privatisation revenues. The amount of investment in the line "value of sold stakes (representing more than 10% in the authorized capital) owned by the state (according to the State Property Committee)" in 2014 was $15.8m. After 2014, the volume of such revenues for the year is either zero or fluctuates within a few hundred thousand dollars. </p> <p> In particular, in 2019, the proceeds from the sold blocks of shares (which constitute more than 10% of the authorised capital) owned by the state were zero, while in 2020 they amounted to $103 thousand. </p> <p> Notably, in April 2020, the State Property Committee announced the sale of a 99.83% stake in Paritetbank to Beristore Holdings Limited, a Cypriot company whose main beneficiary is Russian businessman Said Gutseriyev. This transaction, for some reason, was not reflected in the data on foreign direct investments in the form of purchases of state property. The market valuation of Paritetbank's capital is notoriously higher than $103 thousand. </p> <p> In 2020, about 78.6% of net foreign direct investment in the Belarusian economy was invested in five types of activities - manufacturing, trade, transport, information and communication, as well as finance and insurance. </p> <p> Some increase in investments in manufacturing compared to 2019 is related to oil refining, food processing, wood processing, metallurgy and the production of non-metallic mineral products. Investments in trade increased due to both the wholesale and retail segments. </p> <p> Information and communication investments for 2020 decreased by 2019 at the expense of telecommunication activities. In early 2021, Telekom Austria Group published its financial report for 2020, which shows that parent company A1 reduced its capital investment in the Belarusian asset by €78.3 million for 2020. A1 explained this by a combination of factors that had an adverse effect on the investment appeal of Belarus. </p> <p> In particular, A1 highlighted such negative factors as the suspension of some services from August to November in connection with the implementation of orders of authorized government bodies or for reasons beyond the control of the company, the uncertainty in the licensing and allocation of the frequency range for the deployment of 5G networks and the increase in the profit tax rate for mobile operators provided for by changes in the Tax Code of Belarus. </p> <p> In 2020, foreign direct investment from Russia and Cyprus accounted for 50.2% of total investment in the Belarusian economy. </p> <p> Over the past six years, the share of Russia and Cyprus has never dropped below 50%. </p> <p> In the case of Russia, this is due to the continued deep attachment of the Belarusian economy to the Russian economy. In 2020, investment from the Russian Federation accounted for 97.7% of net foreign direct investment from the EEU and 93.5% of investment from the CIS region. It can be said that the integration of Belarus in the post-Soviet space is in fact limited to the development of mutual penetration of the economies with the Russians only. Investments from other ex-Soviet countries (except the Baltic States) are marginal and unsustainable. </p> <p> Formally, Cypriot investments are in reality driven mainly by the movement of Belarusian and Russian capital. The jurisdiction of Cyprus is convenient for tax optimization. </p> <p> Despite the government's assurances of "all-weather friendship" and "iron brotherhood" with China, foreign direct investment from China in 2020 amounted to only $24 million (4 times lower than in 2019). The main flow of resources from China comes in the form of tied loans, which are debt instruments. </p> <p> It is also worth noting that in 2020, China ranked second after the Russian Federation in terms of the negative balance of trade in goods for Belarus. While for Russia the negative balance amounted to $3.255bn, for China it was $3.002bn. </p> <p> For 2020 as a whole, the investment patterns of previous years remained the same. Investments in the Belarusian economy come mostly through reinvestments. The share of resources invested in new projects does not exceed $200-300 million per year, according to our estimates. Foreign direct investments go to the Minsk agglomeration, while the regions remain little attractive for foreign business. </p> <p> Privatisation in Belarus is virtually frozen. Under such conditions, investments come from Russia and offshore Cyprus. Interest from other countries is marginal, with flows from the EU linked to companies with Belarusian and Russian capital. Investments from offshore jurisdictions such as the British Virgin Islands, the Isles of Man and Jersey, etc. contribute to some part. </p> <p> It is symptomatic that, for the first time in several years, the text of the presidential ordinance on the official forecast for 2021 does not include an indicator for attracting foreign direct investment on a net basis. </p> <p> It seems that even the government is aware that after the 2020 elections, real investment flows from abroad will significantly diminish. Calls by President Alexander Lukashenko at the All-Belarusian People's Congress to "sort out" private business that "meddles in politics" do not add to optimism. In such an atmosphere of fear and intimidation, large flows of funds to Belarus are unlikely, but rather the opposite - investments will start flowing out of the country with greater force. </p> <p> The European Bank for Reconstruction and Development (EBRD) sent a negative signal to investors. In November, the EBRD said that after the election it had curtailed lending to the public sector in Belarus and focused on investing in private business. The bank's shareholders are concerned about the political and economic situation in Belarus, so the process of adopting a new country strategy has been postponed indefinitely. </p> <p> The budget plan for 2021 does not include revenues from privatisation of state-owned assets. Therefore, it will only be possible to maintain some investment close to 2020 this year through capital reinvestment. </p> <p> </p> <p> </p>
2021-02-22
Primepress
Russia and Cyprus lead in foreign investment in Belarus
MINSK, Feb 22 – PrimePress. The net inflow of foreign direct investments (FDI) increased by 6.6% year on year in Jan-Dec 2020 to $1.415 billion (excluding debt to direct investor for goods, works and services), Belarus’ National Statistics Agency (Belstat) said in a report.
Belarus defines foreign direct investments as those made by direct investors, whose stake in the statutory capital is at least 10%.
Belarus’ net FDI inflow in the real economy sector totalled $1.112 billion in Jan-Dec 2020, up 8.8%, banking sector – up 9.8% year on year to $225.6 million.
Belarus’ processing industries received $504.338 million in net FDI in Jan-Dec 2020 (up 57.5% yr on yr); financial and insurance institutions – $190.431 million (down 39%); information and communication companies – $128.913 million (up 19.9%); wholesale trading companies – $147.723 million (up 42.6%); food, drinks and tobacco producers – $71.2 million (up 96%); coke and refined petroleum products - $59.173 million (up 16.2 times), metallurgical production, manufacture of fabricated metal products, except machinery and equipment - $69.321 million (up 2.5 times).
Belarus recorded a net outflow of foreign direct investments to the tune of $1.495 million (to compare with an inflow of $6.76 million in 2019) in electrical equipment manufacturing; electricity, gas, steam, hot water and air-conditioning supply – net outflow of $1.881 million (to compare with an inflow of $18 million in 2019).
Net FDI from Russia (largest investor in Belarus) increased 16.6% yoy to $307.273 million; Cyprus (second largest investor in Belarus) – down 7.6% to $251.031 million; the Netherlands – up 5.9-fold to $118.667 million; Germany – up 100% to $76.906 million; Lithuania - $37.315m (up 80%); the UK – down 4.4% to $26.242 million; USA – down 3.8% to $42.212 million; Poland – down 0.1% to $21.209 million; China – down 4.3 times to $23.674 million; Turkey – up 2.3 times to $12.3 million, Israel – down 49% to $6.6 million.
In January-December 2020 there was a net outflow of FDI from Austria in the amount of $12.203 million (net inflow of $21.344 million in Jan-Dec 2019), from Luxembourg in the amount of $2.718 million (positive value of $4.129 million), Bulgaria - $5.446 million (minus $11m in 2019).
Net FDI inflow from the EU countries grew by 19.6% in Jan-Dec 2020 to reach $583.342 million, EEU countries – up 16.6% to $314.571 million.
Commentary
The official forecast for net FDI inflow in 2020 was for at least $ 1.7bn and did not materialize. The actual net inflow of foreign direct investment was as follows: $1.456 billion in 3 months, $1.355 billion in 6 months, $1.292 billion in 9 months and $1.415 billion for the whole year. We can see that in the second and third quarters there was an outflow of net investment from the Belarusian economy. This can be attributed to the consequences of the global crisis, as well as the events during and after the presidential election campaign in Belarus.
In the first quarter, reinvestments are reflected in the statistics. Reinvestment according to the Belarusian methodology is a part of profit in proportion to the share of the direct investor in the authorized capital of the entity, not transferred to the direct investor, but left in the entity.
In 2020, the real economy attracted $1.112 billion in net foreign investment on a net basis, while the banking sector attracted $226 million and other investment amounted to $78 million. With a high probability, almost all of these investments represent reinvestments.
In the second and third quarters there was a net withdrawal of foreign investment from the real sector (minus $91.6 million and $82.2 million). The net withdrawal of investment from the banking sector continued for three consecutive quarters (Q2 - minus $25 million, Q3 - minus $1 million, Q4 - minus $0.6 million). To no small extent, foreign shareholders of Belarusian banks were influenced by the events surrounding Belgazprombank.
For several years in a row, official statistics have recorded virtually no privatisation revenues. The amount of investment in the line "value of sold stakes (representing more than 10% in the authorized capital) owned by the state (according to the State Property Committee)" in 2014 was $15.8m. After 2014, the volume of such revenues for the year is either zero or fluctuates within a few hundred thousand dollars.
In particular, in 2019, the proceeds from the sold blocks of shares (which constitute more than 10% of the authorised capital) owned by the state were zero, while in 2020 they amounted to $103 thousand.
Notably, in April 2020, the State Property Committee announced the sale of a 99.83% stake in Paritetbank to Beristore Holdings Limited, a Cypriot company whose main beneficiary is Russian businessman Said Gutseriyev. This transaction, for some reason, was not reflected in the data on foreign direct investments in the form of purchases of state property. The market valuation of Paritetbank's capital is notoriously higher than $103 thousand.
In 2020, about 78.6% of net foreign direct investment in the Belarusian economy was invested in five types of activities - manufacturing, trade, transport, information and communication, as well as finance and insurance.
Some increase in investments in manufacturing compared to 2019 is related to oil refining, food processing, wood processing, metallurgy and the production of non-metallic mineral products. Investments in trade increased due to both the wholesale and retail segments.
Information and communication investments for 2020 decreased by 2019 at the expense of telecommunication activities. In early 2021, Telekom Austria Group published its financial report for 2020, which shows that parent company A1 reduced its capital investment in the Belarusian asset by €78.3 million for 2020. A1 explained this by a combination of factors that had an adverse effect on the investment appeal of Belarus.
In particular, A1 highlighted such negative factors as the suspension of some services from August to November in connection with the implementation of orders of authorized government bodies or for reasons beyond the control of the company, the uncertainty in the licensing and allocation of the frequency range for the deployment of 5G networks and the increase in the profit tax rate for mobile operators provided for by changes in the Tax Code of Belarus.
In 2020, foreign direct investment from Russia and Cyprus accounted for 50.2% of total investment in the Belarusian economy.
Over the past six years, the share of Russia and Cyprus has never dropped below 50%.
In the case of Russia, this is due to the continued deep attachment of the Belarusian economy to the Russian economy. In 2020, investment from the Russian Federation accounted for 97.7% of net foreign direct investment from the EEU and 93.5% of investment from the CIS region. It can be said that the integration of Belarus in the post-Soviet space is in fact limited to the development of mutual penetration of the economies with the Russians only. Investments from other ex-Soviet countries (except the Baltic States) are marginal and unsustainable.
Formally, Cypriot investments are in reality driven mainly by the movement of Belarusian and Russian capital. The jurisdiction of Cyprus is convenient for tax optimization.
Despite the government's assurances of "all-weather friendship" and "iron brotherhood" with China, foreign direct investment from China in 2020 amounted to only $24 million (4 times lower than in 2019). The main flow of resources from China comes in the form of tied loans, which are debt instruments.
It is also worth noting that in 2020, China ranked second after the Russian Federation in terms of the negative balance of trade in goods for Belarus. While for Russia the negative balance amounted to $3.255bn, for China it was $3.002bn.
For 2020 as a whole, the investment patterns of previous years remained the same. Investments in the Belarusian economy come mostly through reinvestments. The share of resources invested in new projects does not exceed $200-300 million per year, according to our estimates. Foreign direct investments go to the Minsk agglomeration, while the regions remain little attractive for foreign business.
Privatisation in Belarus is virtually frozen. Under such conditions, investments come from Russia and offshore Cyprus. Interest from other countries is marginal, with flows from the EU linked to companies with Belarusian and Russian capital. Investments from offshore jurisdictions such as the British Virgin Islands, the Isles of Man and Jersey, etc. contribute to some part.
It is symptomatic that, for the first time in several years, the text of the presidential ordinance on the official forecast for 2021 does not include an indicator for attracting foreign direct investment on a net basis.
It seems that even the government is aware that after the 2020 elections, real investment flows from abroad will significantly diminish. Calls by President Alexander Lukashenko at the All-Belarusian People's Congress to "sort out" private business that "meddles in politics" do not add to optimism. In such an atmosphere of fear and intimidation, large flows of funds to Belarus are unlikely, but rather the opposite - investments will start flowing out of the country with greater force.
The European Bank for Reconstruction and Development (EBRD) sent a negative signal to investors. In November, the EBRD said that after the election it had curtailed lending to the public sector in Belarus and focused on investing in private business. The bank's shareholders are concerned about the political and economic situation in Belarus, so the process of adopting a new country strategy has been postponed indefinitely.
The budget plan for 2021 does not include revenues from privatisation of state-owned assets. Therefore, it will only be possible to maintain some investment close to 2020 this year through capital reinvestment.