The Republic of Belarus is a state situated in the eastern part of the European continent.

In 1991, after the break-up of the former Soviet Union, it became a sovereign and independent state.

As of 1 January 1998 the population of the Republic was 10.2 million, with more than 60 per cent living in cities.

The Republic of Belarus is a democratic constitutional state with a socially oriented market economy, combining the advantages of market with social justice and effective social protection of its citizens.

The Republic seeks large-scale international co-operation. The Belarusian people see their welfare and prosperity developing from integration into the global economic system.

Main economic indicators of 1997

As the main economic indicators of the past year display, the tasks of 1997 have been successfully performed. It was really the first year of stable growth of the national economy, and it proved to be the right choice in terms of social and economic development.

The situation in the real sector has stabilised, investment activity has been revived, real living standard growth has been provided.

Gross Domestic Product (GDP) has increased by ten per cent in comparison to 1996, primarily due to an increase in goods and services in industry (17.6 per cent) and agriculture (2.9 per cent).

Production revival has resulted in productivity gain, reduction of unemployment, and an increase in the number of job places. The number of unemployed decreased from 182,500 (as of 1 January 1997) to 126,200 people (as of late December 1997). Meanwhile, the unemployment rate in terms of the active population was 2.8 per cent.

The following major economic sectors have reported high production growth:

• iron and steel industry (134.5 per cent);
• metal-fabricating industries (125.6 per cent);
• forest and woodworking industry (130.8 per cent);
• construction materials industry (128.1 per cent);
• light industry (127.1 per cent).

The revival of investment activity largely contributed to this. Total investments in capital assets in 1997 exceeded those in 1996 by 19.5 per cent. Sixty per cent of capital investments were made in production, with more than half being used for reconstruction and technical modernisation of operating enterprises.

Due to the policy of the Government of the Republic of Belarus, which is aimed at providing an acceptable level of social guarantees and social security for the poorest strata and preventing the living standard from decline, the real income of the population has grown by five per cent in comparison to 1996, while the real average monthly wage has increased by 14.5 per cent. In turn, this has resulted in more rapid growth in retail turnover (19.6 per cent) and in consumer goods production (21.2 per cent).

Inflation has diminished from 244 per cent in 1995 to 63 per cent in 1997.

Along with ongoing positive trends, stabilisation in major sectors of the economy is characterised by complex problems to be solved in 1998. Firstly, these are curbing inflation, reducing the foreign trade deficit, and increasing production effectiveness, as well as the quality and competitiveness of products. Solving these problems will make it possible to forecast the following parameters of Belarus' economic development:

GDP growth (seven to eight per cent); industrial output increase (eight to nine per cent); agricultural output increase (four to five per cent); capital investments growth (12-13 per cent); increase in real income of population (six to seven per cent); average monthly inflation rate (under two per cent).

Monetary policy

Monetary policy has been planned to ensure monetary stability (a moderate rate of inflation, a relatively stable and predictable currency exchange rate) and growth in the real sector. In the short term, the National Bank is carrying out a relatively flexible moderate bank credits, aimed at stimulating the real sector growth, investment activity and limited liquidity.

The success of the monetary policy has manifested itself in key macroeconomic figures. In 1997 the country achieved a growth in the volume of exports, which is especially important in the highly integrated economic conditions of Belarus. The rate of inflation during the year fell consistently, with capital investment growing significantly.

At present, the National Bank continues to maintain a flexible monetary financial sector.

Budget policy

Belarus has recorded several successes in the budget reform. The budget deficit in the 1996 financial year was 1.9 per cent of GDP, while economic growth during 1997 produced a 2.1 per cent budget deficit. Belarus has been unable to accumulate wage arrears. The 1998 budget is geared towards growth promotion in combination with inflation rate monitoring.

The Government is streamlining the tax regime to reduce the number of taxes and simplify the tax code. The 1998 budget also calls for eliminating support to inefficient enterprises, while directing funds for the support of small businesses.

Privatisation

The Government's privatisation programme, though not as radical as some of its neighbours', is a key facet of Belarus' transformation from a state-run economy to a market oriented one. It allows for the avoidance of mistakes in this process and encourages real and reliable investors.

As of 1 January 1998, 2,658 state enterprises have been privatised and employ 16 per cent of those involved in the national economy.

Investment climate

The fundamental attractive features for investing in Belarus are its advantageous geographical location, its developed infrastructure, its social and political stability, and the presence of a cheap yet highly qualified workforce. The Government is aiming to realise these long-term advantages by offering both direct and indirect (through tax and customs privileges) support to foreign investors.

An example of the success of this policy is the recent opening of the Ford Motor Company plant just outside the city of Minsk. The plant has already begun assembling Ford Escorts and mini vans. Ford is taking advantage of the favourable conditions for foreign investors, as well as the strategic position, and is able to export vehicles to Russia without customs duties.

Ford is not the only internationally known corporation working in Belarus. There are also a number of other significant investment projects, including such well-known firms as Motorola, Bosch, Coca-Cola, MAN, McDonald's, Salamander and others.

The legal basis for investment activities is rather extensive. There are now laws in the Republic of Belarus regarding investment activities, foreign investment, as well as international treaties on the promotion and mutual protection of investments, which have been signed with Germany, Great Britain, Romania, Bulgaria, Sweden, Switzerland, Yugoslavia, France, the Netherlands, Italy, Turkey, Vietnam, China, Poland and others.

Foreign investors in Belarus enjoy legally confirmed rights to:

• long-term lease of land (for up to 99 years);
• participate in the privatisation of state-owned property;
• operate in the securities market;
• transfer profits obtained as a result of operations in Belarus freely.

The Law on Foreign Investment in the Republic of Belarus, adopted in 1991 and amended in 1993, regulates the activity of enterprises with foreign investments. According to this Law, the following privileges are granted to those enterprises with foreign investments. Enterprises with more than 30 per cent foreign shareholding are exempt from profits tax for three years, beginning with the date of profit announcement and including the first profitable year. If these enterprises produce goods of special priority for the Republic, the Government of the Republic of Belarus has the right to make a fifty per cent reduction of profits tax rate for up to an additional three years under the established list of priorities. Property, raw and other materials imported by foreign shareholders to form stock capital of enterprises with foreign investments are exempt from customs duties and import tax.

Foreign investors are free to transfer abroad due amounts in foreign currency. After the liquidation of an enterprise, a foreign investor has the right to withdraw his share in money terms, or in kind, at residual value upon the date of liquidation. Foreign investments in the Republic of Belarus are not subject to requisition or any other measures equal in consequence.

Should the laws adopted after the registration of an enterprise with foreign investments worsen its activity conditions, it is important that the law provides for application within five years of the legislation, active on the enterprises' registration date.

At present, the Law on Amendments and Additions to the Law of the Republic of Belarus on Foreign Investment has been adopted to harmonise legal treatment of foreign investments in the Republic with international treaties to which it is a party and respective principles of the international law.

The said Law provides for an invariable status of foreign investment, irrespective of changes in their form, moreover (as regards the current legislation), it defines the registration procedure of enterprises with foreign investments, allowing enterprises with foreign investments to accelerate capital consumption. A new article added to the Law protects foreign investments from nationalisation (expropriation), as well as from unlawful actions of state bodies. It stipulates that damages incurred by foreign investors shall be paid promptly, adequately, and effectively. Compensation includes actual cost of nationalised (expropriated) investments on the date immediately prior to the nationalisation (expropriation), including interest starting from the date of announcement of repayable disinvestment up to the date of compensation. The Law will provide investment friendly conditions in the Republic of Belarus.

Pursuant to the Law of the Republic of Belarus on Value Added Tax (VAT), the property imported by foreign shareholders to form stock capital of enterprises with foreign investments are exempt from VAT.

VAT imposed on fixed assets imported into the territory of the Republic of Belarus is subject to reimbursement from the State budget upon payer's request and within a month from the date of their putting it into operation.

The Law also stipulates that VAT imposed on raw and other materials, semiproducts, components and energy resources, imported into the territory of the Republic of Belarus by manufacturers, is deemed as advance payment and included in VAT to be paid upon the realisation of goods made out of imported raw and other materials, semiproducts, components and energy resources.

According to the Laws of the Republic of Belarus on VAT and Excises, goods exported from the Republic of Belarus, excluding those exported to the Commonwealth Institute of States (CIS) countries, are subject to neither VAT nor excises.

In keeping with Decree No.108 of the President of the Republic of Belarus on streamlining foreign economic activity, and in the order established by the State Tax Committee and agreed by the Ministry of Finance, components, spare parts, raw and other materials imported into the Republic of Belarus for manufacturing export products are granted by customs bodies on up to six months' deferment of customs duties and VAT, with no interest charged. In case these products are exported as ready-made goods within the stated term, or utilised for manufacturing export products, they are exempt from customs duties or VAT.

In accordance with Decree No. six of the President of the Republic of Belarus on streamlining tax and customs privileges to juridical and physical persons, tax and customs privileges are given to corporate persons involved in the implementation of investment projects which have passed state examination and been approved by respective central government bodies. The property imported into the territory of the Republic of Belarus by foreign shareholders to form stock capital of enterprises with foreign investments are exempt from customs duties or VAT, provided they are related to fixed assets, are not subject to excises, and are imported in terms determined by company documents to form stock capital of enterprises with foreign investments.

Pursuant to the Resolution of the Council of Ministers of the Republic of Belarus No.967 on streamlining measures to prevent outstanding debts under loans extended by governments of other states, foreign and international financial institutions and banks under the guarantees of the Government of the Republic of Belarus, the Ministry of Finance is authorised to repay outstanding debts within amounts allowed for these purposes in the State budget. The Resolution also provides for higher responsibility of executives for purpose utilisation of the loan proceeds and prompt payments under these loans. According to the Resolution, an insurance fund is to be created for payment of loans made available under the guarantees of the Government of the Republic of Belarus.

The Government undertakes measures to create a single trade and economic area for Belarus and a number of the CIS countries. The Convention on Protecting the Rights of the Investor, signed by a number of the CIS countries and ratified by the National Assembly of the Republic of Belarus, is a real move in this direction. Most advantageous sectors for foreign investors are electronics, motor vehicle construction, petroleum and chemical industry, woodworking, production of consumer goods and food products, recycling, production of medical equipment and others.

A free economic zone, 'Brest', has been created on the territory of the Republic of Belarus. Investors operating in the zone are provided with a broader range of privileges in comparison to the rest of the territory. At present, free economic zones 'Minsk-2' and 'Gomel-Raton' are being developed.

Conclusion

The statistics prove that Belarus is an attractive yet undiscovered region of Europe for investors.

The President of the Republic of Belarus, Alekeandr Lukashenko, with the support of the population at the elections and referendum, has taken Belarus on a more measured road to reforms, placing particular emphasis on forging strong ties with the country's eastern neighbour, Russia. In contrast to gloomy predictions made by some politicians, this course has turned out to be highly successful.

The Government is interested in attracting foreign investment, and to this end, has been working in co-operation with international financial institutions. With its growing economy, satisfactory infrastructure, political stability, qualified workforce, and access to the world's largest markets, Belarus offers investors unique opportunities.