Many Belarusian companies want to attract investment, but do not always know how to do it. Some foreign investors tend to the Belarusian market, but not necessarily their interest is completed with transactions. Managing Director of “Rothschild” for CIS countries Giovanni Salvetti told TUT.BY about how residents of Belarus to find strategic partners in the international capital market.
Photo: Forbes Ukraine
– Rothschild investment bank is quite active in Russia and Ukraine. Do you see the opportunity to work in Belarus?
– Of course, because now I have to stop in Minsk every time I fly to Ukraine from Moscow, and vice versa. Speaking seriously, “Rothschild” was launched in Belarus several years ago, and since then we always keep in touch with your country.
Currently, we work active on several projects in Belarus and see the potential for new projects, taking into account the emerging changes in the economic development of the country.
– Eight years ago, “Rothschild” performed an independent assessment of Belpromstroibank, which later bought the Russian Sberbank. Today, the Belarusian authorities have expressed interest in attracting investors to other state-owned banks – Belarusbank, Belinvestbank and Moscow-Minsk Bank. Is there an interest from foreign investors to acquire banks in the post-Soviet countries?
– The development of the banking sector in Europe underwent significant changes since the transaction with BPS-Bank because of the different effects of the financial crisis that began in 2008, and changes in the transition to Basel III the system of regulation of the banking sector, in particular in connection with.
Western European banks, which were once very active in the implementation of transactions involving the acquisition of assets in Central and Eastern Europe, is now more focused on the optimization of its international network than on expansion.
However, in the banking sector new categories of buyers appear – financial investors, investors from Asia. International investment institutions remain quite active. This issue should be considered in terms of the macroeconomic outlook, the country risk and transaction structuring.
– What do Belarusian companies need in order to attract foreign investors?
What is important is a series of moments. Firstly, Belarusian companies have to do everything that depends on them to present themselves in accordance with demands of the West.
For example, they must have robust financial performance in accordance with international accounting standards, necessary permits and licenses, also there should not be any problematic issues in respect of ownership of the property.
Secondly, Belarusian companies also need to understand that the majority of investors are interested to invest in assets, suggesting the presence of the business model steady growth.
In this regard, investors want to see the standard business model, similar to the business models of other companies in which they have invested earlier and that can be easily explained to the Board of Directors and shareholders.
The prerequisite for the arrival of investment to Belarus is a clear understanding of the country’s macroeconomic prospects. Unfortunately, some companies are not able to influence this issue. The presence of significant uncertainty prevents any reasonable investment.
– “Rothschild” is a global consulting company, operating in many countries around the world. Belarus is going through a downturn, the government has been looking for ways to improve the competitiveness of the economy for the second year. In your opinion, how to lay a solid foundation for the future economic growth?
– There are three things that is easy to talk about, but that is much more difficult to implement.
Firstly, you need to determine a plan of economic action for several years ahead, aiming at overcoming the uncertainty as to where the country is moving and on what it relies in its development. Secondly, you should promote the disclosure of local entrepreneurial initiatives. Thirdly, you should increase the flow of capital (know-how) in the country.
Implementation of the last two points is possible by holding the gradual and partial privatization of some of the flagships of the national economy, as well as small and medium-sized enterprises.
– At present, the Belarusian economy is heavily dependent on trends in the Russian economy. How does “The Rothschilds” estimate the Russian economic development for 2016-2017?
– The Russian economy is gradually recovering from the shocks 2014-2015 years, as evidenced by the most economic indicators. As for the future, the most economic analytical reports predict a continuation of this trend.
Nevertheless, the real situation will depend on unpredictable factors – such as oil prices and geopolitical aspects, in addition to the speed and efficiency of the implementation of structural reforms, in particular the pension system reform. The CIS economies are always characterized by a higher degree of volatility than in the rest of the world, and I believe this feature will remain in force.
– What investors will be able to accept a higher volatility and potentially consider companies of the CIS countries, including Belarus, as objects for investment?
– These investors include those who have experience and are open to cooperation with countries with emerging economies, as well as those who have strategic interest to work in the common market of the Eurasian free trade zone.
As an example I can give investors who are interested in the sector of food production, and perhaps the pharmaceutical industry. Other investors may be those aimed at ensuring a stable supply of fertilizers and products for agriculture. Production of building materials may also be attractive for some investors.
I believe that we can talk more about strategic investors than financial ones, if not considering the public offering.
– In Belarus, the topic of privatization has been discussed for a long time, but privatization has not been well developed due to the very cautious position of the authorities. Does Belarus need the intensification of the privatization process? What are the most suitable for the country methods and mechanisms to attract investments?
– I fully understand the reasons why the government takes the issue of privatization in such a cautious position. The proportion of workers employed in the public sector is quite significant and, therefore, holding in the short term of a comprehensive privatization program may cause an excessively high level of unemployment.
Nevertheless, I see no alternatives to increase the share of the private sector for the modernization of the Belarusian economy in addition to carrying out the planned privatisation.
It should also be noted that very few large enterprises should seriously consider the possibility of IPO. The shares of other state-owned enterprises can be sold through auction. Various mechanisms of sale of shares to some employees may be used for the privatization of smaller companies.
– In September, you are planning to take part in the Belarusian forum “Expanding Horizons: investment, finance and development”, which will also be attended by representatives of the authorities. Which topic will you raise?
– I was invited to speak on the topic of privatization. “Rothschild” is a leading consultant in this field, because the company was involved in the latest significant privatization deal in Belarus (mentioned purchase of BPS-Bank), I feel quite justified my participation in this debate.
– Whether it is possible to link the interests of society and the state, that is, the maintenance of employment, expenditures on social infrastructure, protection of the local market and the interests of private investors in the structuring of privatization deals in Belarus?
– This is a very interesting and at the same time a difficult question. I think that this is possible, but it is clear that there will always be situations of imbalance of interests, which can create some tension.
Gradual privatization has fewer negative consequences, but at the same time requires more time to achieve results. In Central and Eastern Europe, there are examples of a rapid privatization, for example, well-known shock therapy of Balcerowicz in Poland, as well as more gradual changes that have taken place in the Balkans.
Each country operates in its own political and economic conditions, and any changes must be based on these factors. But, of course, we should apply to the successful examples from abroad.