“Kommunarka” and “Spartak”: a show case for investors

De facto nationalization of two confectionery enterprises demonstrated that Belarus’ attitude to private ownership has not changed: the authorities feel empowered to not bother looking for a good reason to seize private property. This case proves high investment risks in Belarus for all those who do not have close connections with the country’s leadership.

On October 12^th, 2012, speaking at a meeting on the confectionery industry development, Alexander Lukashenko demanded to dissolve “Kommunarka” and “Spartak” confectioneries’ Advisory Boards and to sack their directors.

On November 15^th, 2012 VII Belarusian Investment Forum will be held in Belarus. However, the decisions made during the confectionery industry development meeting question its feasibility.

Belarus declares country’s foreign investment attractiveness at all levels. In 2013, Belarus is set to attract USD 4.5 billion in direct investment. National Agency for Investment and Privatization on September 25^th launched a special website for foreign investors.

Actual data on foreign direct investment shows that foreign investors are reluctant to invest in Belarus. FDI plans are not implemented year after year, the range of investors, as a rule, is restricted to investors from Russia or from countries that allow companies to mask the ultimate beneficiary, which is often Belarusian business.

The reason behind this is a regular non-compliance of the Belarusian leadership with their claimed intentions to attract foreign direct investment. In fact, the government’s interference with the activities of a private company is formalized: the state can make decisions about disposal of property, make decisions on a company’s management, and change the distribution of shares among founders.

Decisions adopted on October 12^th, concerning “Kommunarka” and “Spartak” are an example of their de facto nationalization. Neither compensation for the changes in the shares, nor replacement of the directors (the state does not even have a controlling stake in one of the enterprises) have been agreed with the owners. In fact, it could be regarded as raiding at the state level.

Thus, other investors have been taught a good lesson about the Belarus’ attitude towards the right of property. Only investors affiliated with Belarus’ top management will risk investing in Belarus.