Overseas business risk for Belarus

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Information on security and political risks which UK businesses may face when operating in Belarus.

Political and economic context

POLITICAL

Belarus, with a population of 9.2m, is bordered by Poland, Latvia, Lithuania, Ukraine and Russia. It was a republic of the Soviet Union until it gained independence in 1991. Alexander Lukashenko has been in power since 1994 and is Belarus’ first and only directly elected president. Since coming to power, Lukashenko has consolidated his rule over all institutions.

All subsequent Presidential elections in Belarus have fallen short of international standards. The most recent Presidential election, in August 2020, was widely viewed as fraudulent, and led to mass protests. The UK and a number of other countries have not recognised the results of this election as valid. We have called on the Belarusian regime to organise new elections in line with international standards and under the monitoring of the Office for Democratic Institutions and Human Rights (ODIHR) of the Organisation for Security and Cooperation in Europe (OSCE).

The regime’s brutal crackdown of the post-election protests led to the imposition of sanctions – both sectoral and individual - by the UK, EU, US, Canada and other international partners (see Sanctions section of this OBR).

Other significant political developments include the forced diversion to Minsk of Ryanair flight FR 4978 in May 2021 and the removal and arrest of a Belarusian dissident and his partner travelling on board the aircraft. In July 2022, the International Civil Aviation Organisation (ICAO) found this to be an act of unlawful interference with civil air traffic that endangered the safety of the aircraft, its passengers and crew and contravened Belarus’ obligations under the Chicago and Montreal conventions to which it is State Party. Also from mid to late 2021, the regime facilitated the mass entry of foreign nationals into Belarus in order to engineer a migration crisis intended to impact upon the neighbouring countries of Poland, Lithuania, and Latvia.

In February 2022 the Russian Federation launched its illegal invasion of Ukraine partially from Belarusian territory. Although Belarus has not committed its own armed forces in support of the invasion, the Belarusian regime is nevertheless facilitating Russian military operations. Apart from having permitted the use of Belarusian airspace, territory and infrastructure by Russian forces to conduct offensive air and land operations against Ukraine, it continues to provide other support to Russian forces. Belarusian infrastructure such as the rail and road networks have been used to transport Russian military personnel and equipment. Injured Russian military have been treated in Belarusian hospitals. Entities owned or controlled by the Belarusian regime have provided logistical support to Russian military forces based in Belarus. The Belarusian regime’s security and intelligence apparatus have identified, repressed and arrested individuals in Belarus who have criticised the Belarus’ support for Russian actions in Ukraine.

In response to Belarus’ support for the illegal invasion and its repression of opposition to the war, the UK and other close allies have imposed further sanctions on Belarus.

Following the failed mutiny by the Russian Private Military Company (PMC) Wagner in June 2023, the Belarusian regime has permitted the relocation of an estimated 4,000 Wagner mercenaries to Belarus. Belarus also signed an agreement in 2023 with Russia to allow the forward basing of Russian Tactical Nuclear Weapons in Belarus.

ECONOMIC

Belarus has a mainly state-controlled economy where inefficient, state-owned enterprises (SOEs) dominate the market. The country’s economy has also been seriously weakened by sanctions, the scope of which can be called unprecedented in the independent history of Belarus. In May 2022, the Belarusian authorities assessed that “the direct impact of sanctions had affected approximately 20% of the Belarusian economy and had an indirect impact on the rest.”

In 2022, Belarus faced turmoil in the banking and financial sectors, disruption of trade, payment and logistics, withdrawal of international companies, restricted imports and the loss of markets. Belarus’ state-owned Belagroprombank, Dabrabyt Bank, Development Bank of Belarus and Belinvestbank were all disconnected from the SWIFT international financial messaging system. Belarus’ GDP fell 4.7% in real terms in 2022, the biggest annual fall since the mid-1990s. The contraction took Belarus’ GDP back to its 2012 level, erasing ten years of economic development.

The contraction of GDP was reversed by May 2023, and the Belarusian government now expects the economy to recover to 3.8% growth in 2023. However, consumer confidence, as well as the business and investment climate, have suffered severely because of the political crisis and they remain weak in 2023. Business sentiment has been worsening, spurring a new wave of migration and the relocation of companies (in particular the IT sector) abroad. Unemployment remains low at 3.4% (June 2023), but the economy keeps losing its labour force.

Annual inflation reached its peak of 18.1% in July 2022 and came down to 12.8% by the end of 2022 mainly due to the authorities’ decision to enforce strict price controls. The annual inflation rate in Belarus eased to 2.7 percent in July 2023 from 2.9 percent in June, logging a fresh historical low due to a fall in the price of non-food items (-2 percent vs -1 percent). The government’s inflation target for 2023 is 7-8%. Pro-inflation risks in the economy persist due to soft monetary policy aimed at reaching higher economic growth.

The majority of macroeconomic trends that took shape in 2022, and the comprehensive state interventions in the economy continued in 2023. However, the recovery dynamics of economic activity is subject to many risks, and current growth is heavily reliant on exports to Russian markets.

The World Bank (WB) expects a real GDP decline of 2.3% in Belarus in 2023 and a rebound to 2.5% in 2024. The WB’s baseline projections assume that sanctions on Belarus and Russia remain in place through the forecast period. Similar to the WB, the Eurasian Development Bank’s (EDB) baseline scenario also assumes that Belarus sanctions will be in place for the entire forecast horizon. The EDB notes that the Belarusian economy keeps adjusting to new conditions but it believes that a recovery of economic activity in 2023–2024 will not fully compensate for the downturn in 2022 due to the expected prolonged negative effects of the sanctions. In the long term, the economic growth rate will be around 1% per annum. The European Bank for Reconstruction and Development (EBRD) notes that Belarus’ economy is more dependent than before on the Russian economy and forecasts a 1.0% contraction in 2023. A moderate recovery of 1.3% is expected in 2024.

The European Investment Bank (EIB) ceased activity in Belarus in the wake of the flawed elections of August 2020. The EBRD has made no new investments in Belarus since 2021. In April 2022, the EBRD’s Board of Governors decided to suspend Belarus’ access to the Bank’s resources in response to the regime’s facilitation of Russia’s illegal invasion of Ukraine. The EBRD has closed its offices in Minsk, but Belarus remains a shareholder. In early March 2022, the Asian Infrastructure Investment Bank (AIIB), which Belarus joined in 2019, froze lending to Belarus.

In April 2022, the Belarusian government and the National Bank of Belarus decided that public loans from the International Bank for Reconstruction and Development (IBRD), EBRD and Nordic Investment Bank (NIB) would be repaid in Belarusian rubles. In June 2022, the regulation was extended to Citibank N.A. London Branch to authorise payments on Belarus’ Eurobond obligations in Belarusian rubles. As a result, on 20 July 2022, Fitch Ratings downgraded Belarus’ Long-Term Foreign-Currency Issuer Default Rating to ‘RD’ (restricted default). The rating was affirmed in April 2023.

Belarus was ranked 49 among the 190 countries surveyed in the last 2020 World Bank Ease of Doing Business Report. It has established preferential investment regimes in special economic zones such as the Hi-Tech Park and the China-Belarus Industrial Great Stone Park. However, the political crisis in Belarus, aggravated by the Russian invasion of Ukraine, has highlighted problems with the business climate such as weak rule of law and protection of property rights, lack of transparency, macroeconomic and financial instability, burdensome regulations with frequent changes and a shortage of affordable and long-term finance.

TRADE

Belarus’ economy has traditionally been export-oriented; about 65% of manufactured products are sent abroad. Belarus’ biggest export items and sectors are IT, transport services, oil, fertilisers, mechanical engineering, metallurgy, woodworking, light industry, dairy and meat products, furniture, glass, fiberglass and cement. Belarusian imports primarily comprise energy resources (oil and natural gas), raw materials, materials and components (metals and products from them, raw materials for chemical production, machine parts) and technological equipment. Many of these sectors are now under sanctions. In addition to a sanctions blow, certain sectors, such as IT, have been gravely impacted by Belarus’ increased isolation and its growing poor reputation. The openness of the Belarusian economy and its high dependence on foreign markets, in particular on Russia, make it sensitive to external sanctions pressure.

The geography of Belarus’ exports shrank from 172 markets in 2021 to 157 countries in 2022. The main trade partners of Belarus were Russia, Eurasian Economic Union (EAEU) and Commonwealth of Independent States (CIS) countries. CIS countries (mainly Russia) accounted for 68.1% (59.8% in 2021) of all exports of goods in 2022. Belarus is trying to expand its presence in the markets of Asia, America, Africa and Oceania. Belarus imported goods from 188 countries in 2022 (191 in 2021). The major share of all imports came from CIS countries – 61.7% in 2022 (62.1% in 2021).

Russia is Belarus’ key trade partner and a major market for Belarus’ goods. The share of Russia in Belarus’ foreign trade in goods increased from 49% in 2021 to 58% in mid-2022 and more than 60% by the end of 2022. Belarus’ economy relies largely on oil and relatively cheap natural gas imports from Russia. The dependence of the Belarusian economy on Russia has markedly increased since the onset of the political crisis in Belarus and the war in Ukraine. Increasing cooperation with Russia and the implementation of import substitution projects jointly with Russia are on the top of Belarus’ government agenda. Russia is almost the only source of resources, the main market, and a transit window for Belarus’ exports. Close linkages to Russia’s plunging economy and any further negative shocks affecting Russia will hamper Belarus’ economic prospects.

Belarus is a part of the EAEU. Some products and equipment destined for Belarus must be certified under EAEU rules. This is not necessarily a barrier, but may deter companies who have no experience working in the EAEU or consider the Belarusian market not large enough to spend additional resources for certification.

Some foreign companies continue to operate in/with Belarus despite the political situation, sanctions, economic downturn and geo-political tensions in the region; others have decided – including for reasons of reputational risk - to suspend their activities in Belarus, withdraw from the Belarusian market or stop trading with Belarus. The protracted crisis has discouraged British business, and companies need to take the necessary steps to ensure that they are compliant with sanctions regimes.

UK-BELARUS TRADE

Total trade in goods and services (exports plus imports) between the UK and Belarus was £91 million in the four quarters to the end of Q1 2023, a decrease of 63.3% or £157 million in current prices from the four quarters to the end of Q1 2022. Of this £91 million:

• Total UK exports to Belarus amounted to £40 million in the four quarters to the end of Q1 2023 (a decrease of 63.6% or £70 million in current prices, compared to the four quarters to the end of Q1 2022);

• Total UK imports from Belarus amounted to £51 million in the four quarters to the end of Q1 2023 (a decrease of 63.0% or £87 million in current prices, compared to the four quarters to the end of Q1 2022).

Belarus was the UK’s 152nd largest trading partner in the four quarters to the end of Q1 2023 accounting for less than 0.1% of total UK trade.

Sanctions

Following the flawed presidential elections of August 2020, the Belarusian regime has embarked on the systematic and egregious violation of human rights and civil and political rights in Belarus. This has included the violent repression, torture, rape and arbitrary detention by the regime and its security forces of civil society, democratic opposition, independent media and journalists, and the continued undermining of democratic principles and rule of law.

In response, the UK government and key international partners, including the United States, Canada and the European Union, have introduced sanctions against Belarus to encourage the government to respect human rights, democratic principles and the rule of law as well as to refrain from actions, policies or activities that repress civil society and the independent media.

In 2021, the UK imposed further financial, trade and aircraft sanctions measures. These included prohibitions on the export of equipment which could be used for interception and monitoring of communications, as well as the provision of related technical assistance; prohibition on the export of dual-use goods; prohibitions on the import of potash from Belarus; and the broadening of the list of activities which may give grounds for a person to be designated.

In 2022 the UK’s Belarus sanctions regime was amended to allow for designations related to Russia’s illegal invasion of Ukraine. In July 2022, measures were also introduced which extended Russian measures to Belarus in order to constrain Belarus’ ability to provide economic, military and in-kind support to Russia’s illegal invasion and occupation of Ukraine. This included the adoption of financial measures designed to undermine Belarus’ ability to raise revenue, and the expansion of export criteria to include additional goods such as luxury goods, goods and technology related to quantum computing and advanced materials and goods and technology related to oil refining. Another package of measures was introduced in June 2023 which further expanded the designation criteria and prohibited the import of gold, cement, rubber and wood from Belarus, as well as the export of machinery and chemical and biological-weapons-related goods and technology to Belarus.

There are currently (August 2023)130 designations (including 108 individuals, and 22 entities – six of which are designated under the Third Party Military Supply Package) under the Belarus regime. In addition there are currently (August 2023) 52 Belarusian individuals or entities designated under the UK’s Russia or Global Human Rights sanctions regimes.

Sanctioned entities include a number of Belarusian SOEs. It should be noted that according to the Belarusian National Statistical Office (Belstat) only communal or Republican Unitary Enterprises belong to the public sector. Belstat classifies all Joint StockCompanies (JSC) / Open Joint Stock Companies (OJSC) as privately owned. However, JSCs / OJSC’s where the state (either in the form of e.g. the State Property Committee or in the form of another SOE) is a majority or significant shareholder are very common in Belarus. According to some estimates, if an SOE in Belarus is defined as any enterprise of any legal form where a significant share of the assets remains in the hands of the state and/or where the managers are heavily controlled by the public authorities then in excess of 14,300 entities could be considered as SOEs.

Under UK legislation, it is a criminal offence to contravene sanctions imposed on Belarus, whether they be related to the regime’s post-election repression or its support for the invasion of Ukraine.

A breach of the new financial sanctions introduced in July 2022 will be an offence that is triable either way (able to be heard before a Magistrates Court or a Crown Court) and carries a maximum sentence on indictment of 7 years’ imprisonment or a fine (or both). The Office of Financial Sanctions Implementation (OFSI) is responsible for monitoring compliance with financial sanctions and for assessing suspected breaches. It also has the power to impose monetary penalties for breaches of financial sanctions and to refer cases to law enforcement agencies for investigation and potential prosecution. OFSI works with other parts of government, supervisory bodies and regulators to consider all cases reported to it, sharing relevant information accordingly.

Offences of breaching the new trade sanctions measures introduced in July 2022 and June 2023 will be triable either way and carry a maximum sentence on indictment of 10 years’ imprisonment or a fine (or both). The Export Control Joint Unit (ECJU) administers the UK’s system of export controls and licensing in relation to trade sanctions. The Department for Business and Trade’s (DBT) Import Licensing Branch implements trade sanctions and licensing relating to imports.

Offences breaching the transport sanctions measures introduced in July 2022 will be triable either way and carry a maximum sentence on indictment of 7 years’ imprisonment or a fine (or both).

The UK’s restrictive measures are targeted so legitimate business may continue where sanctions do not apply. It is also possible to apply for licences from the UK government to undertake certain activities. Companies should consult the information about sanctions on GOV.UK. BE Minsk and FCDO cannot and will not provide legal advice on Belarus sanctions issues to companies, nor will they provide any advice on Belarus sanctions issues above and beyond that published by HMG and in the public domain.

It is important that companies research sanctions thoroughly, including, where applicable, taking advice from their own legal advisers, and to consult HMG advice. UK companies are obliged to stay strictly within the law. As outlined above the penalties for non-compliance can be severe.

SANCTIONS – REGIME COUNTER MEASURES

As a response to sanctions, Belarus has adopted a number of counter-measures. Starting from 1 January 2022, Belarus’ has implemented a food embargo for six months against a broad range of goods made in foreign countries “which pursue a discriminative policy and take unfriendly actions against Belarus”. The ban has been extended three times since then, the last time on 27 June 2023 until 31 December 2023. The UK is subject to such restrictions.

Presidential Decree No 93 issued in March 2022 envisages measures aimed to protect the Belarusian economy against unfriendly actions. In April 2022, the regime published a list of foreign states, which commit unfriendly actions against Belarusian legal entities and individuals. The list includes inter alia the UK, US, Canada, and all EU Member States.

Presidential Decree No 137 “On Writs of Execution” issued in April 2022 suspends enforcement of all writs of execution (court rulings, notary writs of execution, etc.) issued in favour of the residents of “unfriendly” countries.

Resolution No 247 “On the Movement of Transport Vehicles” issued on 22 April 2022 banned the movement of EU-registered heavy goods vehicles in Belarus. Such vehicles are permitted to enter Belarus only at specific border crossing points and must travel to specially designated locations close to the border for semi-trailer swaps.

Transport connectivity with the EU has worsened. Restrictive measures introduced in response to the May 2021 forced diversion of Ryanair flight FR4978 led the UK to suspend the operating permit of the Belarusian flag carrier Belavia. UK and EU airspace is closed to all Belarusian registered aircraft. The Belarusian air traffic control operator (Belaeronavigatsia) is subject to UK and EU sanctions with Belavia sanctioned by the EU and US. The Belarusian authorities have closed Belarusian airspace to all UK and EU registered aircraft.

In February 2023 Poland and Lithuania introduced border crossing restrictions which intensified Belarus’ economic isolation. Lithuania has closed a railway border crossing with Belarus, which did not have any X-ray scanners. Poland has closed the Bobrovniki border crossing with Belarus, which triggered a Belarusian response banning Polish registered trucks from entering Belarus through Lithuanian and Latvian border crossings. A subsequent Polish decision banned non-EU-registered trucks entering Poland from Belarus through the only Belarus-Poland border crossing point open to trucks. Poland and Lithuania do not exclude the possibility of closing all remaining border crossing points.

In July 2022, Resolution No 436 banned the sale of shares in 190 listed companies which had “unfriendly” investment. Some UK investors were affected. In January 2023, the list was expanded from 190 to 1849 entities. Foreign investors from “unfriendly” countries are prohibited from disposing of their interest (shares) in companies included in this list or to restructure such entities.

Law No 240-З “On Seizure of Property” issued on 3 January 2023 provided the Belarusian government with the right to issue a decision to seize property into state ownership. The measure may potentially be applied to “unfriendly” states committing unfriendly actions; legal entities and individuals linked with “unfriendly” foreign states; those under the control of such legal entities and individuals; and affiliated persons. The seizure may be applied to any property owned by the subjects of seizure and located on Belarusian territory, including funds, securities and property rights.

Law No 241-З “On limiting Exclusive Rights to IP Objects” issued on 3 January 2023 allowed goods containing IP objects to be imported to Belarus and placed on the Belarusian market without the consent of foreign right holders from unfriendly countries, provided that such goods are included in the special list of goods essential for the domestic market. The law also allows the use of a number of IP objects (software, audiovisual works, musical works, programmes of broadcasting organisations) without the consent of right holders or collective management organisations from unfriendly countries, who prohibited or refused consent to use these lawfully disclosed objects in Belarus.

Human rights

Belarus is an FCDO Human Rights Priority Country (HRPC): we assess that the human rights situation in Belarus continues to deteriorate.

In the aftermath of the flawed presidential elections of August 2020, the human rights situation has significantly deteriorated. The regime, its security forces, propaganda outlets and judicial bodies have brutally supressed democratic rights, human rights and fundamental freedoms.

Over 30,000 people have been detained. There are currently over 1,500 political prisoners convicted under flawed trials. The security forces, acting with full impunity, have used excessive – including lethal – force against peaceful protestors, the democratic opposition, independent media and civil society activists. There are credible reports of inhuman and degrading treatment (including sexual violence and rape) and torture perpetrated against detainees. Many political prisoners have limited or no access to proper healthcare and are subjected to relentless interrogation, intimidation and psychological pressure techniques that amount to torture.

The regime has deliberately targeted independent journalists, media organisations and civil society organisations – including independent trade unions - with the aim of “purging” these from Belarus. Independent media outlets and NGOs have been “liquidated” by the regime and in some cases designated “extremist organisations.” Some opposition politicians and others who protest against the regime have been listed as terrorists or charged with / convicted of treason against the state.

Belarus remains the only country in Europe to retain and use the death penalty (carried out by firing squad). The range of offences for which the death penalty can be imposed has recently been expanded. The UK opposes the death penalty in all circumstances as a matter of principle. However, we especially denounce failures to observe relevant minimum international standards, including prohibiting the use of the death penalty beyond ‘the most serious of crimes’.

Bribery and Corruption

Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world. In addition, a UK company can be liable for misconduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case, it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.

Belarus avows that it attaches significant importance to combating corruption. It has ratified, and fulfilled the requirements of the main international anti-corruption instruments, such as the Council of Europe Criminal Law Convention on Corruption; the United Nations Convention against Transnational Organised Crime; the United Nations Convention against Corruption; and the Convention on Civil Liability for Corruption.

However, in 2022, Belarus’ corruption perception index deteriorated further, placing Belarus in 91st position out of 180 countries in Transparency International’s Corruption Perception Index, compared to the 82nd position in 2021.

Terrorism

Although there is no recent history of terrorism in Belarus (there was a terrorist attack in Minsk metro in 2011), attacks cannot be ruled out. You should be aware of the global risk of indiscriminate terrorist attacks which could happen in public areas, including those visited by foreigners.

Protective security advice

FCDO travel advice currently (August 2023) advises against all travel to Belarus.

Belarus has very low crime rates, but you should be alert to the possibility of pickpocketing and theft from vehicles or hotel rooms.

You should maintain a high level of security awareness, particularly in public places, and avoid demonstrations. Business people also need to be conscious of the risk from the Belarusian security and intelligence services who are have well developed physical and technical surveillance capabilities. Belarusian legislation allows the security and intelligence agencies direct remote access to all communications and IT systems without the need for interception warrants nor to inform the provider (all communications providers in Belarus are state owned or controlled).

Intellectual property (IP)

IP rights are territorial, that is they only give protection in the countries where they are granted or registered. If you are thinking about trading internationally, then you should consider registering your IP rights in your export markets.

More information on intellectual property rights in Belarus is on the website World Intellectual Property Organization, of which Belarus has been a member since 1970.

Belarus was ranked 77th among the 132 economies featured in the Global Innovation Index (GII) 2022.

Belarus partially legalised parallel imports and put in place other IPR related measures, when it adopted Law No 241-З “On limiting of exclusive rights to IP objects” in January 2023 (see Sanctions - Regime Counter Measures section of this OBR for more information).

gov.uk