Sale of “Beltransgas” is a sole major transaction in 2011
When analyzing the privatization in Belarus, BEROC experts notice that last In 2011 the Government planned to attract about USD 6.5 billion in FDI, of which, almost half was to come from the privatization of state property. According to the Privatization Plan for 2011-2013, 178 enterprises of the state property were to be privatized in 2011. However, shareholdings of 38 enterprises were sold.
In total, in 2011 Belarus managed to attract about USD 4.1 billion, i.e. 63% of the Plan. At the same time, only one sole major transaction, i.e. the sale of 50 % of shareholdings “Beltransgas”, the Belarusian gas transmission operator, to the Russian “Gazprom” for USD 2.5 billion offered more than a half of all attracted FDI (as a result of this transaction “Gazprom” became the holder of 100% of “Beltransgas” shareholdings – BUSINESS NEWS note).
Investors’ activity was influenced by the economic crisis and the government position
As it was noticed by BEROC experts, the Government still continues to consider the privatization only from the fiscal point of view: only as a way of budgetary recharge but not as way of capital assets replacement and improvement of competitiveness.
On the other hand, foreign investors’ activity in Belarus in 2011 was not high due to a large extent to the crisis of national economy. Multiplicity of rates which existed in the country from April to September, fast inflation growth rate, macroeconomic imbalance brought investors to wait and see attitude for a while. It is connected with the fact that in such situation any activity planning and development strategy arrangements are highly problematic, that increases investment risks, as it is noted by the experts of BEROC.
There are a number of other factors which, according to the experts’ assessment, decrease foreign capital inflow to the country. These factors are the following: lack of state enterprises management’s motivation, differing points of view on method of assets valuation and assets value, expensiveness of services of external consultants and financial intermediaries able to increase the efficiency of attracting external capital and of privatization.
Moreover, BEROC notices in its research that in 2011 foreign investors’ activity was held due to the fact that the Government continued unwillingly to part with major shareholder holdings of enterprises trying to get rid of with minor sales. Furthermore, for the most part, the enterprises put up for sale were either inefficient or unprofitable, that also decreases investors’ motivation.
Legislative conditions for investors were improved but these improvements were not comprehensive
According to the experts’ assessment, from the point of view of legislation, in 2011 as in 2010, significant reforms aimed to raise the investment attractiveness were not performed. However, some legislative acts promoting improvement of current situation were adopted.
Thus, June 6, 2011 the President of the Republic of Belarus adopted the Decree No. 4 amending the Decree No. 10 «On creation of additional conditions for investment activities in the Republic of Belarus» as of August 8, 2009. Decree No. 4 gives a right to deduct the full amount of VAT paid when purchasing goods, licenses and property rights. According to the Decree investors are exempt from payment of deductions to innovation funds as well as from land taxes and rental payment for land plot being in state property for time of construction and carrying out of design works.
December 19, 2011 the House of Representatives adopted the Draft Law “On amendments of the Tax Code of the Republic of Belarus". According to this Draft Law the profits tax is reduced from 24% to 18% from 2012. Moreover, profits from sales of own innovation production is exempt from tax payment. Seigniorage revenues obtained after original issue of capital issues are exempt from tax payment.
According to the privatization plan for 2012 sales of state property for an overall amount of USD 2.5 billion are to be carried out. As it is noticed in the BEROC research, this sum will allow the country to lay account with getting the next tranche of the EurAsEC Anti-Crisis Fund loan.
BEROC experts forecast that taking into account the fact that privatization is considered only from the fiscal point of view it is not worth waiting of any fundamental changes in comparison with previous years. Upon their opinion, the process of attracting foreign capital will be slow in 2012. Transactions on large enterprises sales will be singular and they will be carried out only in order to meet the requirements of EurAsEC Anti-Crisis Fund while the essential importance will be given to sales of small and medium state property.
At the same time BEROC experts consider that the necessity to change the attitude towards foreign investors is more than ever important for the Government. The progress in economy reforming, more flexible activity on assets sales will make it possible to improve investment attractiveness, to attract foreign capital and to straighten the economic situation. Otherwise, the government will have to put an emphasis on the loan component that could lead to very negative consequences in the short term.
As early as in 2012 Belarus will have to make lump-sum payments under external public debt (USD 1.63 billion). In 2013 the amount of payments will amount to more than USD 3 billion. These amounts are in marked contrast to those ones paid before (USD 628.9 million – 2011, USD 757.3 million – 2010 and USD 273.5 million in 2009).