Belarusian business may count on long-term European money

7 September 2016

— Mr. Derekh, according to your opinion what are the reasons for the notable waring up in Belarus-EU relationships in 2016?

— For sure, this is connected with lifting of the EU sanctions against Belarus along with development of political dialogue between Minsk and Brussels, which may consequently result in closer economic ties. Strengthening of investment relations is of crucial importance for our country, since the economy needs considerable foreign direct investments.

— — In the light of the new phase of Belarus-EU relationships, what kind of business opportunities are brought about in this respect, in your opinion?

— First of all, there are opportunities in the sphere of more supportive fund raising, more favorable conditions of fundraising, if you will.

A particular example illustrating the situation. At the moment we are working on raising funds for a large-scale private Belarusian enterprise. A member of the Board of Directors of a similar European company in the course of his visit to the enterprise was surprised by the cost of credit resources in Belarus. While in European countries the creditors line up to finance the project at 3%, in Belarus 11% is common practice.

Implementation of adequate approaches in working with the international financial institutions may allow Belarusian companies to attract resources on more comfortable conditions. For sure, the rates might still be not that low, as the benchmark is rates on domestic market, however, the maturities are definitely longer.

In cooperation with international financial institutions, Belarusian business may receive a possibility to raise financing for development for 5 years and in some cases even longer. Currently, attracting such long-term loans for realization of long-term projects on the Belarusian market is very challenging.

— If to express in absolute numbers, what is your opinion on the potential of cooperation of the Republic of Belarus with International and European financial institutions?

— To illustrate such potential I will provide you with some actual data concerning cooperation with IFIs of our EEU partners: Kazakhstan, Kyrgyzstan and Russia. At the beginning of 2016, 80 EBRD financed investment contracts on different implementation stages were active in Kazakhstan, in Kyrgyzstan the number amounted to 66 contracts of such kind, in Belarus – only 16.

Since 2007, the Nordic Investment Bank has approved financing of 17 investment projects in different sectors of the Russian Federation economy for a total amount of 682 million euro while in the Republic of Belarus only one project is currently being financed – reconstruction of the wastewater facilities in Brest and Grodno for a total amount of 25 million euro.

Therefore, Belarusian business and public sector has great potential for strengthening cooperation with international financial institutions which should result in real projects. This will finally result in increased employment, improved balance of payments, overall economic growth and other positive effects.

— Thomas Mirow – the former President of the European Bank for Reconstruction and Development and Tomasz Telma – the regional Director of the International Finance Corporation – are going to visit Belarus Forum: Broadening the Horizons taking place in Minsk on 29-30 of September. What is the practical value the visit of such a high-ranking guest may bring for Belarusian business?

— The visit of Thomas Mirow and Tomasz Telma to the forum will give Belarusian participants access to first-hand information on international financial institutions cooperation mechanisms, on plans and forecasts of the institutions concerning interaction with the Republic of Belarus and to obtain information on the actual products, that may allow Belarusian companies to attract funds on favorable conditions.

Moreover, experience of some Belarusian private companies shows that business may benefit from cooperation with IFIs in the way that in some cases IFIs cover 50-80% of the consultancy services costs for the projects being financed. For instance, consultancy services were the first stage of cooperation of the currently well known Belarusian company Mark Formelle with international financial institutions.

— In your opinion, which Belarussian projects currently have the highest chances to receive funding from IFIs on comfortable conditions?

— At present we expect that more and more investment projects will be crystallized for state owned enterprises in Belarus.  It is likely to happen along with extension of the mandates of European financial institutions so that the will be ready to provide resources to increase competitiveness of the Belarussian economy.

Regarding sector-wise investment opportunities, we see high potential of attracting financing for implementation of environmental and energy-efficient projects in Belarus.  For such purposes, soft loans from international organizations are possible with the interest rate on the level of 2-4%. However, the above-mentioned sectors do not limit the opportunities of cooperation with IFIs since almost every investment project provides for installation of modern, energy-efficient and environmentally friendly equipment.

— In the framework of Belarus Forum: Broadening the Horizons it is planned to discuss the prospects of the Belarussian petrochemical complex, which constitutes a large share of earnings in the state budget.  In your opinion, what opportuneness will low oil prices open for Belarussian petrochemical enterprises?      

— To comprehensively answer this question we invited to the Forum one of the leading international experts in that sphere – Colin Chapman.  He has over 45 years of experience in the oil refining and petrochemical industries including more than 30 years of experience in Russia and former Soviet Union countries.

In our opinion, the decrease of oil prices opens great prospects for the Belarussian petrochemical industry.
With the exception for JSC «Grodno Azot», which uses gas as a raw material, the absolute majority of other large Belarussian chemical enterprises use oil as their main input. Thus, from our point of view, in conditions of low oil prices projected to stay at this level in the long run, Belarussian petrochemical industry has good opportunities for further development.

— Mr. Derekh, you are known not only as a proficient expert on petrochemicals, but also as a member of the working group for the financial markets development, established by the government under the auspices of the Foreign Investments Advisory Council exactly 10 years ago. The banking sector has attracted significant investments during these 10 years, however, the Belarusian financial market remains underdeveloped. What is the reason?

— Today it is impossible to imagine capital markets in the developed countries without investment activity of the population receiving dividends on the investments made. In Belarus, the situation is quite different.

Belarus has created legal basis for the operation of forex companies. People involved in such activities follow the changes of the Dow Jones index, the movement of “USD-EUR” currency pair on the market trying to earn money on this.
Wouldn’t it have been better to create conditions and possibilities that allow Belarusians who have funds to invest them directly in the economy? We strongly believe that it is high time to take specific measures for the development of the national stock market in Belarus.

— Representatives of the Rothschild investment bank recommended Belarus to develop the domestic stock market as far back as 7 years ago…

— Plans for the stock market establishment in Belarus have been formalized on paper long time ago, but, as they say, things aren’t moving. We hope that the National Bank which claims to be a mega-regulator will be able to launch the securities market in the country.

— May the arrival of the Managing Director of Rothschild to participate in the Belarus Forum: Broadening the Horizons in September be regarded as a signal that the market-oriented transformation in Belarusian economy will take place?

— The arrival of the Rothschild’s representative to Belarus Forum: Broadening the Horizons is an evidence that international financial institutions are beginning to look more closely at Belarus. There are both private companies and the entire states in the client portfolio of this reputable investment bank. We believe that the cooperation of Belarus with Rothschild can be a good sign for the cooperation intensification between our country and the International Monetary Fund.

Source: Belarus Forum: Broadening the Horizons