Sample Economics Paper on FDI Policy in Belarus: An Analysis


The Republic of Belarus has, over the years, been able to establish a stable economy. Through various policies, the country has successfully transitioned into stability and is continuously growing at a steady pace. From 2007, the government of the Republic of Belarus communicated its commitment to focusing on foreign direct investment (FDI) attractiveness as its policy objective, a commitment that resulted in the enactment of Law 53-3 ‘On Investments’, which covers both domestic and foreign investments, in 2013. From 2013, various reforms have been made on Belarus’ investment regulations. However, there has been a decline in FDI since 2013, an outcome that can be attributed to either the commonality in investment regulations between the foreign and domestic investors and various other factors. Law 53-3 ‘On Investment’ presents various preconditions for an investment agreement, incentives for both domestic and foreign investors, and tax regulations for various practices in investment.

Policy Overview and Analysis

Policy Overview

The Republic of Belarus is currently a member of the Commonwealth of Independent States (CIS). The country was established following the dissolution of the Soviet Union in 1991 and has experienced steady economic growth after a period of transition. In this period of economic growth, the country has come up with many investment policies, guiding both local and international trade. At the same time, the Republic of Belarus has maintained the key features of a planned economy. One of the regulations that have been quite impactful in the country’s growth has been the Republic of Belarus Law No. 53-3 ‘On Investments’, which was established in July 2013. From the establishment of the law, various changes have been experienced in the economy of Belarus, pointing to its effectiveness in foreign and local investments (Ministry of Foreign Affairs of the Republic of Belarus 2019). The regulation functions as the basic foreign exchange policy, which is increasingly recognized for its impacts on investment decisions and economic growth.

The Republic of Belarus is generally open to FDI; no framework directly describes the status of FDI policy in the country. In 2007, the government of Belarus committed to improving the investment environment by making FDI attraction a key objective through policy development (Tochitskaya 2009). Various regulatory reforms have thus been made to address the regulatory impediments to FDI. Some of the regulatory reforms have been made to reduce the cost of doing business in Belarus and bridge the gap between the public and the private sectors in the country. The commitment to FDI consideration as a policy objective culminated in the development of the Law No. 53-3 ‘On Investments’, which has since been followed by a series of reforms (UNCTAD 2020). Despite the many reforms that have been made on the law, the attraction of FDI to the Republic of Belarus still remains minimal due to the presence of a weak competition regime, the persistence of price controls, and heavy wages, which still inhibit the growth of the private sector (Ministry of Foreign Affairs of the Republic of Belarus 2019). The other remaining issues are in the implementation of reforms by the administrative functions.

Despite the existence of policy reforms and institutions for the implementation of those reforms, the contribution of FDI to total GDP and on employment remains significantly low. Records of economic indicators from the pre-law no. 53-3 period to the post legislation no. 53-3, in relation to FDI, can help in determining the economic impacts of the legislation. In the subsequent section, a comparative analysis of the data from the two periods is presented to help examine the effects of that law on FDI and various other economic indicators.

Impacts Analysis for the Policy

The development of FDI policies in many countries is often aimed at improving the attractiveness of the country to FDI, just as the government of the Republic of Belarus had purposed in its initial commitment to the policy. From the commitment to improve FDI attractiveness in 2007, the FDI inflow to Belarus improved significantly for a few years up to 2012. From 2013, FDI inflow has been steadily declining, as shown in Figure 1 below.

Figure 1: Trends in Belarusian FDI from 2011 to 2020 (CEIC 2020)

The decline in FDI inflow to the Republic of Belarus started in 2013, most likely after the enactment of Law No. 53-3 ‘On Investment’. Since the law aimed to improve the national environment for private sector support and better integration with the public sector, it would have been expected that the national FDI inflow would increase. The law covered all forms of investment and does not distinguish between FDI and local investments. The highest net FDI was achieved in December 2011 at 2.7 bn USD, while the lowest was achieved in June 2018 at -298.4 m USD (CEIC 2020). The decline in FDI following law no. 53-3 indicates that the law made the business environment in Belarus less friendly compared to those in foreign countries. The negative FDI in late 2016, June 2018, and late 2019 to early 2020 are all indications that more Belarus companies are opting to invest outside the country compared to the amount of investments that are coming into the country.

Law no. 53-3 allows both foreign and domestic investors to sign agreements with the government of the Republic of Belarus for investment in the country. Such agreements allow both domestic and foreign investors to access various incentives to investment. The factors that affect FDI include political stability, tax rates, size of local markets, and access to free trade areas, commodities, and wage rates (Ministry of Foreign Affairs of the Republic of Belarus 2019). With the incentives provided by the Belarus law no. 53-3, these factors are shared between domestic and foreign investors, which probably increases competition for available resources and labor, as no investor is disadvantaged. The increased competition for resources and labor between domestic and foreign investors potentially results in low consideration of Belarus as a suitable, profitable FDI target market, hence the decline in FDI following the implementation of the law.

Besides the declining FDI in Belarus following the implementation of law no. 53-3, there has been considerable consistency in the overall structure of foreign investment in the country. Figure 2 below shows the different types of foreign investment as a percentage of the total foreign investment. From the chart, FDI is shown to maintain a somewhat steady state, ranging from the lowest percentage of 61.3 in 2010 to the highest in 2016 at 80.9% (National Statistical Committee of the Republic of Belarus 2020). This shows that the declining FDI is accompanied by a declining foreign investment in general, from 2013 onwards.

Figure 2. Foreign investment structure in the real economic sector in the Republic of Belarus (National Statistical Committee of the Republic of Belarus 2020)

The overall decline in foreign investment, which includes direct, portfolio, and other forms of foreign investment can be attributed to the combination of investment policy and other factors. Over the years, changes in the other economic policies of the Republic of Belarus have been aimed at achieving different objectives, including assessing the quality of assets of various financial institutions in the country, management of financial instruments, lowering the exchange rate, and lowering the refinancing rates (EY 2019). Such changes affected other forms of foreign investments, such as portfolio investments, resulting in low profitability. Particularly, reduced exchange rates harm portfolio investments, such as bonds and stocks, reducing their profitability and thus lowering the attractiveness of such investments to foreigners (Caporale et al. 2017). The combined effects of the shared incentives as outlined by the law no. 53-3, which hurt FDI and the other fiscal policy changes that affected other forms of foreign investment, inevitably resulted in an overall decline in foreign investment, and hence the steady proportion of FDI as a percentage of the total foreign investment.

Belarus has also experienced various changes in its international business from the enactment of the law to date. Both exports and imports show a declining trend from 2011 through 2018, as shown in the charts below.

Figure 3: Export and Import Trends in Belarus from 2011 (EY 2019)

From the charts above, it is observable that both import and export rates declined from 2013 to 2018. This contradicts the expectation, which would have been an increased FDI following the enactment of law no. 53-3 due to the investment incentives provided. According to Albahi (2016), FDI increases the nation’s production capacity, resulting in more exports. With increasing exports, a country experiencing high FDI is expected also to exhibit declining imports. However, the evidence from Belarus in both imports and exports shows that there was indeed a decline in FDI following the law. Some of the economic characteristics in the Republic of Belarus, such as the practice of market socialism, which had induced economic stability while keeping foreign investment out of the country, had existed even before the law and a higher rate of FDI was reported (Kljucnikov and Junger 2013). It is thus deductible that the reduction in FDI, which also resulted in reduced exports and imports, is attributable to an aspect of Law no. 53-3.

The negative outcomes in FDI following the enactment of Law 53-3 are not attributable to the law per se. The law, as well as the subsequent reforms in investment regulations specifically, give various positive attributes that would result in FDI growth in any other economy. For Belarus, however, the poor implementation of these policies has been cited as a challenge that the country needs to address for the benefits of regulations such as law 53-3 to be felt in terms of FDI (EY 2019). One of the major features of Law 53-3 is that it espouses the right of protection of foreign investor properties from nationalization (UNCTAD 2020). It would, therefore, be expected that since lack of protection was one of the issues previously mentioned as barriers to FDI attractiveness, and elimination of the nationalization risks to FDI through law 53-3 would result in higher FDI attractiveness. This, therefore, indicates that the decline in FDI attractiveness is not attributable to the law.

Besides the FDI policy, other factors are considered to be determinants of FDI. These factors include the economic conditions in the country as defined by the markets, resources, and competitiveness; the host country policies including private sector policies, macro policies, and trade and industry policies; and foreign investor strategies such as location, risk perception, sourcing and integration transfer (Ministry of Economy of the Republic of Belarus 2020). For Belarus, therefore, the realization that the declining FDI is not attributed to the changes in policy, it is thus deductible that the FDI attractiveness of Belarus can be linked to other factors, possibly the trade and industry policies, markets, resources, and competitiveness. These factors have a moderating effect on the FDI inflow. A report by UNCTAD (2009) shows that the FDI attractiveness for the Republic of Belarus has been lagging behind those of other countries since 1991. This trend seems to have been carried forward into the period after the enactment of law 53-3 and was possibly compounded by the existence of other factors.

The decline in the Belarus FDI from 2008 can be attributed to the global economic crisis that affected the whole world. From 2013, on the other hand, the declining FDI could be connected to the challenges in the Russian economy, on which Belarus is highly dependent. The chart in Figure 3 above shows that the imports from Russia are generally higher than those from all other countries, both in the CIS and the non-CIS categories. Moreover, EY (2019) reports that Belarus exports the same products that it imports, namely, chemicals, machinery, vehicles and equipment, and food products. This could only mean that Belarus receives products from Russia, then exports the same products into other countries, hence the visibly lower exports to Russia relative to other countries. Export Enterprises SA (2020) also reports that the main foreign investors to Belarus are companies from the Russian Federation, which contribute nearly 38.3% of the FDI to Belarus. These are followed by companies from the UK with 25.7%, those from Cyprus with 7.8%, and those from Poland with 4.1% (Export Enterprises SA 2020). With these statistics, it is expected that any issues with the Russian economy would result in declining FDI as well as imports and exports to the country. With improvements in the Russian economic conditions since 2016, there has been a visible improvement in the internal FDI and FDI stock to Belarus, as observed from the table below. This confirms the hypothesis that the decline in Belarusian FDI is not a result of law 53-3 ‘On Investment’, but rather a result of external factors, specifically the challenges to the Russian economy.

Foreign Direct Investment 2016 2017 2018
Inward flow 1,238 1,279 1,469
Stock 18,623 19,796 20,761

Table 1. Foreign direct investment changes in Belarus (Source: Export Enterprises SA (2020)).

Law no. 53-3 ‘On Investments’ provides a strong foundation for increasing the FDI attractiveness of the Republic of Belarus. Therefore, the decline of FDI inflow to Belarus following the enactment of the law is contrary to the expected outcomes. As such, the FDI inflow has been seen to have possibly been affected by external factors, specifically the challenges to the Russian economy. It is thus expected that with the growth in FDI inflow that has begun in the last few years, Russia’s economy is gradually stabilizing, and Belarus will continue experiencing growth in its FDI in the coming years.


The Republic of Belarus has been exhibiting a lower FDI inflow compared to other countries from the former Soviet Union since 1991. Law 53-3 ‘On Investments’ was developed in 2013 to help improve the country’s attractiveness to FDI. Through such FDI policies, it is conventionally expected that national attractiveness should increase, characterized by increasing FDI inflows, portfolio foreign investments and other forms of foreign investments. Law 53-3 in particular, describes various incentives for both domestic and foreign investment in Belarus; it addresses issues on the relationship between government authorities and the foreign investors, taxation incentives and various other aspects of foreign investment, which would have resulted in positive FDI growth. However, results from the conducted data analysis, show that the FDI inflow has not grown as expected following the enactment of the law. Contrarily, FDI inflow has declined after the law. An examination of the possible causes of such decline indicates that Law 53-3 has not been the reason behind the declining FDI, hence occasioning the need for an analysis of external factors. Consideration of the external factors shows that the declining FDI inflow in Belarus was most probably a result of the challenges to the Russian economy, on which Belarus depends heavily. As the Russian economy improves, the Belarusian FDI inflow is also bound to improve as observed over the last few years. Eventually, the benefits of law 53-3 to the Belarusian FDI inflow will be felt.


Reference List

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