Testing the Waters: High-Level EBRD Delegation Visits Belarus
The removal of sanctions against Belarus earlier this year has led to increased interest from institutional investors such as the European Bank for Reconstruction and Development (EBRD).
Alain Pilloux, Acting Vice President of this major development bank visited Belarus last week as a part of a delegation, which met with Belarusian officials, including the president, businesses, representatives of think tanks and other stakeholders.
EBRD officials expressed cautious optimism about the prospect of extending their cooperation to Belarusian authorities. In the past, their role in the country was limited to supporting the private sector and very limited contact with the government. With EBRD activities in Russia nearly frozen after the Ukraine crisis and instability in the Arab world, Belarus has good chances of attracting EBRD funding.
EBRD's troubled times
The EBRD was set up in 1991 to help the transition of the former socialist block countries. Although the focus of the bank’s work has traditionally been on Europe, the United States has the largest capital subscription and voting rights followed by the somewhat smaller shares held by Japan, Italy, Germany, the United Kingdom and France.
The EBRD expanded its activities in recent years to include Mongolia, Turkey, Greece and Cyprus as well as countries affected by the Arab Spring uprisings, such as Egypt, Morocco and Jordan.
In 2014, the majority of the bank’s shareholders decided to stop funding new projects in Russia, which used to be the main investment destination. The decision followed Western sanctions against Moscow over its role in the conflict in eastern Ukraine.
In 2014 the EBRD also suffered its first annual loss because its portfolio in Russia and Ukraine had tumbled (in 2015, the EBRD became profitable again). Political instability and corruption in the Arab world also affect its investment plans.
The removal of European sanctions against Belarus has created a better environment for the EBRD to extend its activities in the country.
With 74 projects, the EBRD already has significant experience in Belarus. So far most of the projects have focused on financial institutions and the corporate sector. The EBRD remains a major investor in Belarus. As of 1 June 2015 the Bank had invested nearly €1.8 bn.
Some of the recent projects which the EBRD has supported include a project to support women entrepreneurs in Belarus, a joint venture with Swiss company Stadler Rail AG and funding for facilities to develop the wood processing sector in Mahilioŭ and Smarhoń.
However, compared to other countries in the region, Belarus has failed to attract much EBRD funding. For instance, Moldova has received $313 per capita investments from the EBRD since 1991, Ukraine $271 and Belarus only managed to attract $187.
In Belarus, nearly all EBRD investments (94 per cent) went to the private sector, compared to a much lower level of investments that went to the private sector in Ukraine. Since 1996 the bank’s activities in Belarus have been limited by the country’s unsatisfactory progress in democratic and market-oriented transition.
The bank adopted a calibrated strategic approach to Belarus in 2009 and in its subsequent country strategy documents and focused primarily on the private sector. The Bank’s engagement in the public sector was calibrated against Belarus progress against certain political and economic benchmarks while the main focus remained on private sector development and entrepreneurial activity in the country.
EBRD's new approach to Belarus
Now the EBRD is working on a new country strategy for 2016-2020, which will be adopted in July 2016. The draft strategy proposes to focus on private sector development and public infrastructure to support the government reform agenda.
According to information which has become available to Belarus Digest, over the next few years the EBRD plans to continue stimulating economic competitiveness by supporting growth, efficiency and innovation in the private sector, both directly through debt and equity and indirectly through credit lines to the banking sector. The Bank also plans to promote the privatisation of state-owned companies.
As far as their work with the government is concerned, the bank plans to improve the sustainability and service quality of public infrastructure through policy and regulatory reforms and the introduction of commercial solutions.
Although the proposed strategy will continue to focus primarily on private sector development it will also provide for broader engagement by the Bank to support the Government's reform agenda.
Will the new approach work in Belarus?
The Bank officials at March meetings in Minsk expressed their willingness to extend cooperation with the Belarusian authorities as long as they show concrete steps to reform and stick to undertaken commitments. Although the Belarusian authorities fear any significant changes in the economy which may affect the political status quote, two main factors work in favour of reforms.
First, the dramatic fall in oil prices ended many profitable schemes, which usually involved processing oil products and selling them to the West. The Russian market, the main destination of Belarusian goods, has also suffered as a result of low oil prices and Western sanctions.
Second, the pro-reform camp within the government is growing stronger. Although many see Prime Minister Andrej Kabiakoŭ as a pro-Russian conservative, many influential figures in the National Bank, the Ministry of Economy and the Ministry of Finance have other views.
For example, the First Deputy Prime Minister and graduate of London Business School Vasil Maciušeŭski, as well as presidential economic advisor Kiryl Rudy, a former Fulbright fellow at the University of Chicago, recently became more influential and strongly advocate economic reforms.
With massive layoffs already starting to bite major Belarusian state enterprises, the authorities desperately need foreign investment. With no IMF loan in sight and cautious private investors, the EBRD could play an important role.
However, the political leadership of Belarus is not in a rush to implement reforms. They think they have time. After the crisis in Ukraine the public appetite for revolution is at its lowest for many years. But a growing number of officials seem to understand that Belarusian statehood itself depends on the viability of its economy.
Given the rapidly declining Russian economy, turning to the West seems like a logical response. However, this should not be mistaken for a geopolitical change of heart from the Belarusian leadership. Belarus' dependance on Russia is too strong for any radical moves.
Belarus 110 Years Later
In 1905 his grandmother Ida left the village of Novy Svierzhan, about 60 km (46 miles) to the southwest of Minsk. At the age of 13 she set out to travel with her family to the United States of America. She never returned.
In her perfect English with no trace of an accent she rarely reminisced about her past. One hundred and ten years later at the age of 65 he travelled back to her birthplace to discover his roots and another country.
He found the places, but they carry no memories. He found a country which preserves few traces of his ancestors. And yet Professor Krohn thought it was a trip worth making. But without a local, this would have been nearly impossible.
Belarus remains a country with little infrastructure for English-speaking visitors. The newly appointed Head of the National Tourism Agency, Veranika Darozhka, recognises the potential of ‘nostalgic’ tourism and seemingly has the proper experience to make it work.
Getting to Belarus
According to Belstat, 140,000 tourists visited Belarus in 2015. Roughly 70 to 80 per cent of these were from Russia. By contrast, neighbouring Lithuania accepts around 2m visitors each year. Sweden, comparable to Belarus in terms of population with 9.8m inhabitants. attracts around 5m tourists, and the UK, comparable to Belarus in size, attracts a staggering 31m each year.
Professor Krohn had to start planning the trip in advance. A journey to Belarus cannot be made on a whim. US citizens need to obtain a visa from the Belarusian Embassy in Washington or Consulate in New York. The process requires extensive preparation and financial investment. Preparations in his case included obtaining an invitation from a former student residing in Belarus, confirming that he could stay with them. The cost of a visa was $130.
His teaching obligations brought him to neighbouring Latvia from which he managed to take inexpensive trains to Lithuania and then to Minsk. He got lucky, as no low cost carriers will bring you to Belarus. He found ground transportation services swift and reliable. The only downside was that trains had no designated space for suitcases in them. Upon arriving in Belarus, he realised that English would not suffice. He taught himself to read Russian, but understanding the spoken language was harder.
Discovering Jewish Heritage
Novy Svierzhan remained where it used to be, 46 miles south-west of Minsk. However, for Professor Krohn there was little to discover. The population of Novy Svierzhan currently totals 2,086 people according to the 2009 census. Interestingly, in 1900 according to the International Jewish Cemetery Project, the Jewish population was 732.
Even according to current figures, it accounts for one third. That number of people must have left some heritage behind. However, there remained only two traces, neither of which well preserved. The locals easily directed Professor Krohn and his two guides to the remnants of a synagogue and the Jewish cemetery. Interestingly, everybody, even the youth, knew exactly where to look for them. Both looked dilapidated and abandoned.
The next stop was Mir and Niasvizh. Both cities boast well-preserved major tourist attractions listed by UNESCO as World Heritage sites, including the sixteenth century Mir Castle and a palace. Few people know, however, that the 1921 census of Mir showed that 55 per cent of the population was Jewish. Mir or Mirrer Yeshiva was established in 1815 by prominent local Jews and gained a reputation far beyond the little town, attracting students from many parts of the world.
Except for a small private museum run by a local enthusiast by the name of Viktar Sakiel, no other places in Mir contain information about the once vibrant community. One of the four rooms in his private museum features Jewish culture and exhibits collected in the cellars and attics of his neighbours. He works as a collector, fund-raiser and a tour guide for his little enterprise. Some of the exhibits are for sale, many can be touched, and all can be photographed.
Reworking the Past, Looking at the Future
A few Hollywood celebrities trace their ancestry to Belarus, including actors Kirk Douglas and Lisa Kudrow. Many other less famous descendants of Jews from the former Russian Empire have re-discovered their heritage. However, 110 years seems too long ago for Belarusian history. Except for a few private or foreign sponsored initiatives, there seems to be little effort by the state to either preserve or feature the Jewish past of the country.
Yet maybe the government has recognised the historic, cultural and financial potential of Jewish heritage in Belarus. In early March the National Tourism Agency selected Veranika Darozhka from among eight candidates to become its director. Darozhka’s profile features work for the Jewish NGO network and a fellowship at the University of Jerusalem.
In her interview with the traveling.by portal she states the following: “I take deep interest in promoting Belarus in the international arena. I understand the challenges of the current situation and have a vision of how to deal with them and move forward”. Most importantly she notes among her priorities: “This is so called ‘nostalgia’ tourism because so many people had left Belarus in the past and have now become interested in it. Our country has a diverse, rich heritage to offer to various nations".
This rings true for many Jews in the United States, including Professor Krohn, who trace their ancestry to former shtetl or miastechka in Belarus. And while he certainly admired the nature, hospitality and culture of modern Belarus, he just wished he could see more of his own once vibrant culture preserved and featured. Professor Krohn says:
Except for the incredibly moving memorial to the Jews descending to the killing pit, there is a notable paucity of Jewish sites in Belarus. But then I expected little in this regard and I cannot say I was disappointed. The other point I can make with total honesty is that my first trip to a country in the current Russian orbit was fascinating and enjoyable in its own right. The food was good, the transport well organised, the parks absolutely glorious and the broad thoroughfares remarkably clean and well tended for such a large city.
Belarus continues to be expensive to get to and hard to get around without knowledge of Russian or Belarusian. The new leadership at the National Tourism Agency should generate much-needed initiatives reflecting historic cultural diversity and do away with the unnecessary entry restrictions.