Belarus Investment Climate After Spartak and Kommunarka
According to Doing Business 2013, Belarus is now on the highest level in its history. It occupies the 58th place out of 185 countries. Last year the World Bank named it among the quickest reformers on the way to the “Ease of doing business” goal.
The indices mainly follow from the analysis of Belarusian regulatory acts. What is going on in the country’s business reality is more difficult to reflect. The case of Spartak and Kommunarka revealed the most crucial defect in its economy – disregard to private property rights. So far Belarus has never faced any investor-state disputes.
The de facto nationalisation of Marat Novikov’s and many minor shareholders’ property could go smooth without attraction of the world’s tense attention. Belarusian state machine did its work on Spartak and Kommunarka impeccably. But Lukashenka’s emotional speech of 12 October when he ordered to transfer the reins of power over these almost entirely private companies to the State ruined all efforts to make Belarus attractive for investors.
Spartak and Kommunarka: Start of An Unexpected Journey
The rise of Spartak and Kommunarka as well as their popularity within the former USSR began long before Belarus’ independence. Carried by beliefs for soon-coming market economy, in 1993 and 1994 the government initiated their transformation from state enterprises into joint-stock companies.
The shares were distributed among the state, private investors, and the factories’ employees. An American friend of Belarusian high officials, Marat Novikov, became the main private investor of both chocolate giants.
For years, the initial distribution of shares in the transformed companies could change only slightly. One of the reasons for that was moratorium on sale of employees’ stock introduced in 1998. In January, 2011, the moratorium’s term expired and big investors got a good opportunity to broaden their economic presence in the country.
Novikov did not lose the chance. By 2011, he already owned about 10% of stock in Kommunarka, and several times more in Spartak. That was not his limit. As soon as the moratorium expired, as the former General Director of Kommunarka Natalya Kot says, the company’s employees started to sell their stock to Novikov.
State Machine at Work
The President’s Edict No. 107 adopted in March, 2011 interrupted such deals. City executive committees got the preemptive right to purchase of employees’ shares. The provision applied to relations starting from January 1, 2011. That meant it actually disregarded the universal principle of non-retroactivity of law.
Using the edict’s retroactivity, city executive committees wanted to get back the shares that Novikov had bought from Spartak and Kommunarka employees.
The difficulties on the way to the conflict’s mitigation found an unexpected embodiment in a new claim against the two companies. This time they arrived from by the State Property Committee. The Committee argued that in 1993 the appraisers underestimated values of Spartak and Kommunarka and now the state should get additional shares to restore its interests. In case of Kommunarka, the alleged undervaluation amounted up 50%. The State Property Committee also blamed Spartak for other violations of privatisation procedure.
Commenting on the State Property Committee’s claims, Belarusian economic analyst Yaraslau Ramanchuk says that the new figures of the companies’ value in the early 90s claimed by the state rely on contemporary investments’ amounts and costs of stock. In the economist’s opinion, that is a rude violation of basic principles of economy and law.
However, on 22 August 2012 the High Economic Court of Belarus satisfied the State Property Committee’s claims with regard to both companies. Under the decision, the state’s share was going to increase by means of additional stock issuance.
Shareholders tried to resist the judgements. But their hopes, as well as the hopes of Belarusian businesses looking for foreign investments, crashed after the famous Lukashenka’s orders: to dissolve Advisory Boards, assign state officials as their sole directors, and increase the state’s share up to 57% in Kommunarka and 60% in Spartak from current 22% and 13.09% respectively.
Unlucky Big Businesses in Belarus
Marat Novikov is the person who has suffered from the stock’s additional issuance the most. He lost control over about 34% of stock in Spartak and 22% – in Kommunarka. However, Novikov is not the first to face the specifics of relation to private property in Belarus.
Examples of similar treatment exist with regard to both foreign and national investors. In 2001 the plans of Russian-Sweden brewery company Baltika to invest in Belarusian plant Krynitsa failed, because Belarus suddenly refused to comply with its contractual obligations to the investor. The state’s refusal came after Baltika already invested in Belarus about $10,5mln.
In 2002 McDonald’s had to close one of its most profitable restaurants in Belarus, because the Belarusian State University started construction of a new building on the restaurant’s land plot. The fact that Minsk State Executive Committee had previously leased the land to McDonald’s till 2036 did not prevent the closure.
In January 2011 Belarus took administrative control over a huge furniture joint stock company “Pinskdrev” although it did not own any shares there. In a few months after Pinskdrev, state officials made one of the main stockholders and the director of a Belarusian big tile and sanitary engineering company Keramin to vacate his position. After his retirement, state’s share in Keramin increased from 3% to 57%.
Despite all the troubles, examples of smooth international investment projects in Belarus still exist. American Coca-Cola, German Man, and Holland Heineken are just a few of an already quite a long list of foreign investors who appear to be successful in Belarus.
In fact, foreign investors in Belarus are even in a safer position compared to their local colleagues. The possibility of impartial consideration of their claims against Belarus is the main reason for that.
Since 1992 Belarus is a party to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States. It has entered into bilateral investments treaties with more than 50 countries which provide substantive grantees to foreign investors. Even more, under the new draft law on investments, investors from any country of the world will be able to draw a suit against Belarus to international arbitral tribunals.
Surprisingly, not a single claim from investors was submitted to the International Centre for Settlement of Investment Disputes against Belarus.
It is possible that after investors start to use their rights and initiate international proceedings against Belarus the situation will improve. This way the government will learn that it can be held accountable for its mistreatment of investors.
Dziady in Belarus
On 28 October thousands of Belarusians are expected to visit Kurapaty to mark Dziady.
Dziady is a traditional day of remembrance of the deceased ancestors observed in Belarus. Kurapaty is the place on the outskirts of Minsk where the Bolshevists executed over 200,000 people in 1930s.
Dziady is more than a traditional holiday. It has also become a symbol of resistance to the Soviet regime and the revival of the Belarusian nation. In 1988 Dziady became the day when the Belarusian first organised a mass demonstration against Soviet rule.
Belarus is the only country where the Dziady celebration preserves its authentic form. On this day, Belarusians visit not only the graves of their dead relatives, but also invite them to visit their houses. As with most traditional folk holidays it has pagan roots. Belarusians believed that on this holiday the deceased souls visit their descendants. The hosts even leave spare sets of flatware on the tables for the dead.
Dziady used to be a holiday that was granted the status of a day off in 1990s. However, Lukashenka abolished it as the people associated Dziady with the anti-Communist struggle.
Lukashenka and Communism
A great number of Belarusians still miss the Communist past. These people nearly all support Lukashenka, who thinks that “The Communist ideology, based on Marxist-Leninist ideology, should be a key part of the Belarusian state ideology”.
Research conducted by the Independent Institute of Socio-Economic and Political Studies showed that 48.7% of people over 60 and 29.3% aged between 50 and 59 even wish for the revival of the Soviet Union. These very groups actively support Lukashenka and the idea of closer ties with Russia. On the other side, young people do not want revival of the USSR and support the idea of an European path for Belarus: 55.1 % of those between the ages of 18-29 want to join the European Union.
That is why today’s authorities keep silent about the mass executions in Soviet times in public, and support the Communist party which mainatins its loyalty to Lukashenka. Communism remains one of the fundamental principles of Lukashenka’s regime, which are full of fissures and cracks when analyzed under the facts of Soviet rule in Belarus.
The Article That Changed the Belarusian History
Kurapaty is the Belarusian symbol of Stalinist repressions. The first mass action which gave hope for changes in Belarus took place there, on Dziady. The demonstration was a reaction to publication of the article written by Zyanon Paznyak and Yauhen Shmyhalyou “Kurapaty – the Road of Death”.
Literature and Art magazine published this article in 1988. It is unbelievable that such article was published in the Soviet Union. In the article, the authors depicted about the mass executions in Kurapaty, and how the Soviet special services tortured and murdered dozens and thousands of people. According to their research , every night from 1937 until 1941 the NKVD delivered people to Kurapaty and shot them.
No one knows exactly how many peaceful citizens the Soviet authorities killed. Initially, the Communists spoke of a figure of around 30,000. Zyanon Paznyak who publicised Kurapaty crimes claims that the number may more likely be 100-250,000, while British historian Norman Davies thinks it is over 250,000.
They Went to Dziady as Population, and Returned as People
The truth about the mass executions had a powerful effect on the Belarusian society in 1980s. 30 October 1988 became a historical day for Belarus. In those days, it was extremely difficult to distribute information and dissidents had not yet forgotten what prisons and mental hospitals looked like. Despite all this, thousands of people came to the demonstration.
The Soviet authorities behaved brutally on that day. Belarusian writer Vasil Bykau described that day as “The Long Road Home” in his autobiography:
They started dispersing the demonstration – they beat and arrested people, poisoning them with gas, using portable gas-sprays. They poisoned Paznyak as well – he was leading the crowd. But Paznyak did not surrender. He led the crowd to the outskirts and then to Kurapaty. However, the troops were there to block the way. Then Paznyak led the people to the field, where the religious ceremony took place under the snow which fell from the sky.
It was on Dziady when people hoisted the white-red-white flag for the first time in Soviet Belarus. Belarusian writer Victar Kazko said after the action that “They went to Dziady as a population, and returned as a people”.
The Soviet authorities were scared, for the first time in many years. They were scared not only because the people found out about the mass executions. They were frightened because the peaceful protesters continued their rally to Kurapaty despite the demands and the brutal actions of the authorities.
Vandals Destroy Kurapaty, the Authorities Keep Silence
Today, there is a People’s Monument in Kurapaty. People come here and erect their own crosses. But every year, vandals dig out the graves, destroy crosses, break memorial shields, and paint swastikas on the icons.
The favourite target for the vandals is a bench with the following encryption: “From people of the USA to People of Belarus, for Memory”. People call it “Clinton’s bench”, as the American government presented it in 1994 during his visit to Kurapaty.
The authorities try to leave the acts of vandalism unattended. In fact, they do not give any help or protection to the memorial complex. The law-enforcement agencies initiate criminal cases for vandalism, but only one case has reached the courts thus far, and only because members of the Conservative Christian Party of the Belarusian Popular Front caught the vandals on the spot. The court considered the vandals guilty but they were then granted amnesty and released.
Today a private company is building park near the stove. The owners claim that the visitors of the new complex will have an excellent opportunity “to hide from the city fuss”. Of course, business should develop in Belarus, but the question is, whether it should happen next to the place were hundreds of thousands were murdered under Stalin.
The History Will Decide
Every year since 1988 the opposition marches to Kurapaty.The age of the participants has changed greatly. Previously, it was mostly middle-aged people who came to Dziady, but today the great majority of the participants are young.
The authorities do not let any information about Kurapaty to seep into history textbooks. They threaten students who participate in political activities with expulsion from universities and administrative detentions. But still young Belarusians come to Kurapaty on Dziady.
The Communist regime also seemed unbreakable but it lost to the History in the end.