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Overseas Business Risk: Belarus

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Overseas Business Risk: Belarus

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

Political and economic context

Belarus, with a population of 9.25 million, is bordered by Poland, Latvia, Lithuania, Ukraine and Russia. It was a republic of the Soviet Union until it gained independence in 1991. Its President, Alexander Lukashenko, has been in power since he was elected in 1994 and is Belarus’ first and only directly elected president. Since coming to power, Lukashenko has consolidated his rule over all institutions.

All subsequent 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 the 2020 Presidential 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 subsequent brutal crackdown by the regime 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 forced removal and arrest of a Belarusian dissident and his partner.

Other significant political developments include the forced diversion to Minsk of Ryanair flight FR 4978 in May 2021 and the forced removal and arrest of a Belarusian dissident and his partner. In July 2022, the International Civil Aviation Organisation (ICAO) found this to be an act of unlawful interference with civil air traffic that contravened Belarus’ obligations under the Chicago and Montreal conventions to which it is a signatory. 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.

Although Belarus has not committed its armed forces in support of the illegal invasion of Ukraine by the Russian Federation, the Belarusian regime is nevertheless actively facilitating Russian military operations. The regime has permitted the use of Belarusian airspace, territory and infrastructure by Russian forces to conduct offensive air and land operations against Ukraine and provided logistical support to Russian forces. Russian forces have launched air and missile strikes on Ukraine from Belarusian territory. Belarusian infrastructure such as the rail and road networks have been used to transport Russian military personnel and equipment. Entities owned or controlled by the Belarusian regime have provided logistical support to Russian military forces based in Belarus.

The security and intelligence apparatus of the Belarusian regime have identified, repressed and arrested individuals in Belarus who have criticised the support of Belarus for Russian actions in Ukraine. In response, the UK and other close allies have imposed further sanctions on Belarus.

Economic

Belarus has a mainly state-controlled economy where inefficient, state-owned enterprises (SOEs), dominate the market. However, in 2021, Belarus’ economic growth exceeded predictions. The 1.8% target set by Belarusian authorities was surpassed with 2.3% GDP growth achieved in 2021, despite the imposition of sanctions. This was due to favourable global market conditions that facilitated an increase in exports from Belarus. Agreements on Russian oil and gas supplies as well as potash contracts with major customers (India and China), the surge in global commodity prices and the rapid recovery of global demand have all helped to offset some of the negative economic impact of the ongoing political crisis. Compared to the pre-pandemic year of 2019, by 2021 the Belarusian economy had expanded by 1.6%.

However, in 2022 Belarus’ economy has seriously weakened with additional sanctions imposed against the country for its role in the war on Ukraine. The Belarusian authorities assessed in May 2022 that “the direct impact of sanctions had affected approximately 20% of the Belarusian economy and had an indirect impact on the rest.” Belarus has faced turmoil in the banking and financing sectors, the disruption of trade, payment and logistics, withdrawal of international companies, restricted supplies from foreign companies and the loss of markets. Belarus’ state owned Belagroprombank, Dabrabyt Bank, Development Bank of Belarus and Belinvestbank have all been disconnected from the SWIFT international financial messaging system.

The European Investment Bank ceased activity in Belarus in the wake of the flawed elections of August 2020. The European Bank for Reconstruction and Development (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 regimes facilitation of Russia’s illegal invasion of Ukraine. EBRD 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 Belarus’ Eurobond obligations As a result, on 20 July Fitch Ratings downgraded Belarus’s Long-Term Foreign-Currency Issuer Default Rating to ‘RD’ (restricted default).

Consumer confidence, as well as the business and investment climate, have suffered as a result of the political crisis. Business sentiment has been worsening, spurring a new wave of migration and the relocation of companies (in particular the IT sector) abroad. In January to May 2022, the country’s GDP fell by 3.4%. Uncertainty remains extremely high and prospects for economic growth are dependent on a resolution of the geo-political crisis.

The World Bank (WB) expects a real GDP decline of at least 6.5% in Belarus in 2022 (the IMF – a decline of 6.4%) and a rebound to 1.5% in 2023 (the IMF forecast expects Belarus’ growth to recover by only 0.4% in 2023). The WB believe that falling GDP will increase poverty and household vulnerability. Broadening of price controls could have limited effect, leading instead to shortages of certain consumer goods, also due to the scarcity of foreign currency (FX) in the economy and related restrictions on imports. The EBRD forecast a 4.0% contraction in 2022 and stagnation in 2023. The Eurasian Development Bank (EDB) notes that external constraints and difficult access to advanced technologies and the global market will have a long-term negative impact on economic growth.

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), technological equipment, medicines and food. Many of these sectors are now under sanctions. The openness of the Belarusian economy and its high dependence on foreign markets makes it sensitive to external sanctions pressure.

Belarusian products were exported to the markets of 174 countries in 2021. However, 5 of these countries (Russia, Ukraine, the Netherlands, Poland and Germany) accounted for 69.6% (67% in 2020) of all exports. The concentration of imports was even higher. Russia, China, Germany, Ukraine and Poland accounted for 76.9% of Belarus’ imports in 2021 (75% in 2020).

Russia is Belarus’ main trading partner, accounting for 41.1% (45% in 2020) of goods exports and 56.6% (50% in 2020) of goods imports in 2021. Belarus’ economy relies to a large extent on oil and 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 was ranked 49 among the 190 countries surveyed in the 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 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.

Belarus is a part of the Eurasian Economic Union (EAEU) offering a potential gateway to the markets of Russia, Kazakhstan, Armenia and Kyrgyzstan. 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.

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 – including 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 introduced further sanctions measures to prevent UK businesses from trading goods and services across various sectors of the Belarusian economy.

In July 2022, in response to the Belarusian regime’s facilitation of Russian aggression against Ukraine, our sanction regime was further expanded. This aims to encourage the regime to cease supporting or enabling Russian actions against Ukraine and to discourage the regime from participating more directly in the conflict. The expansion of UK sanctions measures, in the form of stronger trade, financial and transport sanctions targets key sources of finance and revenue for the regime, increases the pressure on them, and denies them access to items that could be used to support the Russian invasion of Ukraine.

Since August 2020, the UK has designated more than 100 individuals and entities under the Belarus sanctions measures. Other Belarusian individuals and entities have been designated under Russia sanctions measures. 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 Stock Companies (JSC) as privately owned. However, JSCs 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 all 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 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. DIT’s Import Licensing Branch implements trade sanctions and licensing relating to imports.

Offences of breaching the new 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).

Companies should also be aware of sanctions regimes imposed by the EU, the US and Canada and other countries such as Australia and Japan.

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 against a broad range of goods made in foreign countries “which pursue a discriminative policy and take unfriendly actions against Belarus”. In June 2022, the ban was extended for another six months until 31 December 2022. The UK is covered by these restrictions.

Presidential Decree No 93 issued in March 2022, envisages measures aimed to support Belarusian economy and business during difficult times and retaliatory restrictions for entities from states that commit unfriendly actions. The regime has followed up on this Decree with additional regulations. 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, etc.) issued in favour of the residents of “unfriendly” countries.

In July 2022, the Council of Ministers adopted Resolution No 436, which prohibits investors from “unfriendly states” from selling their shares in 190 listed companies with international investment. Some UK investors have been affected. Regulation 436 allows for further companies to be added by the authorities.

The Council of Ministers of Belarus have also adopted Resolution No 247 “On the Movement of Transport Vehicles” establishing a ban on the movement on the territory of Belarus of EU-registered heavy goods vehicles. Such vehicles are permitted to enter Belarus only at specific border crossing points and to travel no further than to specially designated locations close to the border to conduct for cargo operations and semi-trailer swaps.

Human rights

The FCDO consider Belarus to be a country of human rights concern.

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 of whom several thousand face politically motivated charges. There are currently in excess of 1,200 political prisoners in prison following 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 subject of relentless interrogation, intimidation and psychological pressure techniques that amount to torture.

The regime has deliberately targeted independent journalists and 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 commercial organisation carrying out business in the UK can be liable for the conduct 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 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.

Terrorism threat

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 be in public areas, including those visited by foreigners.

Protective security advice

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 potential activities of the local security service, which could include monitoring of IT and digital communications and physical and audio surveillance.

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.

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