Ukraine's northern neighbor makes great strides in global investment climate rankings
If President Viktor Yanukovych wants some tips on how to improve the business climate and boost foreign investment, he may benefit from taking a look north at Belarus.
Despite being run as a dictatorship by its president, Alexander Lukashenko, who has an atrocious human rights record, Belaraus has taken a number of steps in recent years to boost its attractiveness to investors. And, consequently, Ukraine's northern neighbor of 10 million people has leapt ahead in global investment rankings in the last three years.
In the World Bank's recent Doing Business 2010 report, Belarus was named one of the top 10 reformers for the ease of doing business rankings in 2008-2009. It shot up to 58th of 183 countries, leaving Ukraine trailing in 142nd.
"Belarus is still a country of risk, but it is much more predictable for business [than Ukraine], because the government usually says what is does, and does what it says; the corruption is much lower than in Ukraine," said Dario Marchetti, general manager of Danone in Ukraine and Belarus.
The economy of Belarus is driven by exports and remains heavily state-controlled.
The global financial crisis in the past two years has seen a significant drop in demand on the external markets, and the Belarus leadership realized the need to attract investment and improve the competitiveness of its products.
"Belarus is the last destination in Eastern Europe where you can benefit from economic transition," said Anastasiya Golovach, an analyst at investment bank Renaissance Capital, which has recently opened a representative office in Minsk, Belarus' capital.
The general shift toward a more open economy was given its initial impetus in 2007 when the country experienced the first increase in gas price from Russia.
The primary focus has been on improving its position in global business rankings.
"The prime minister [Sergey Sidorskiy] has announced that the target is to get to the top 30 of the 2011 report," said James Wilson, head of the European Union-Belarus Business Council. "There is a strong push to improve investments from the top [of the government]. It is the country's priority."
Belarus was praised for removing obstacles and improving legislation for starting business, dealing with construction permits, employing workers, registering property, paying taxes and trading across the border.
"Belarus simplified its registration formalities by merging four procedures, abolished the minimum capital requirement, made the use of notary optional and removed the need for company seal approval. Start-up period was shortened by nearly four weeks," says the Doing Business report.
According to the report, Belarus has also improved the efficiency of the permitting process in construction, simplified procedures for individual and collective redundancies and has removed the notarization requirement, reducing the number of steps to register property from four to three.
In fighting corruption, Belarus also received better grades than last year, moving from 151st to 139th in Transparency International's Corruption Perceptions Index.
The consistent improvements saw Belarus's foreign direct investment (FDI) peak at $2.2 billion in 2008, dropping slightly during the economic downturn to $1.8 billion in 2009.
This figure may look modest compared to neighboring Poland, Ukraine and Russia, but experts predict a boom as a result of improvements in the investment climate.
"The main reason to start business here is the absence of competition," said Aleksandr Shvidchenko, general manager of the Ukrainian and Belarusian retail chain of 80 stores under the Rodnaya Storona brand throughout Belarus.
Retail and real estate are seen as the hottest sectors for investment as they are relatively free from state influence. They will be followed by consumer-oriented industries such as food production, chemical industry and energy. Banking, telecommunication and machine-building are also viewed as promising industries.
Belarus still has plenty of work to do on improving its investment environment, in particular to ease access to loans, strengthen investor protection, enforce contracts and develop procedures for closing businesses.
Known for its heavy tax burden, Belarus has launched an online tax portal, available for all taxpayers, but still remained on the 183rd place in the rank of "Where is it easy to pay taxes?"
But with the positive trend in its business climate expected to continue, analysts see bright days ahead - something Ukraine's investment-hungry new administration should take notice of.
"Within the next few years Belarus will be among most popular countries for investments," said Renaissance Capital's Golovach.