The decision to privatise Belinvestbank, Belarus’s fourth-largest lender, by 2020, was the direct result of a meeting between Alexander Lukashenko, the country’s president, and Sir Suma Chakrabarti, the head of the EBRD, Emerging Markets can reveal.
Sources close to the development bank said the conversation stemmed in large part from the EBRD’s inability to channel capital directly to small and medium sized (SME) corporates. Around 40% of the capital the EBRD commits to Belarus each year is channelled through local lenders, most of which are subsidiaries of Russia lenders.
After the EBRD’s shareholders voted last year not to lend money to or through Russian banks, much of its Belarus investment capital was lying dormant. Total EBRD investment in the country shrank in 2014, having hit a record €257m the previous year, due largely to the impact of Russia sanctions. A source in the EBRD said the January meeting was the “turning point” that led to the subsequent agreement. “Sir Suma told Lukashenko ‘If you want us to do business in Belarus, you need to privatise Belinvest’. Lukashenko agreed.”
So far, the Belarus strongman has proved as good as his word. On Wednesday his deputy premier, Vladimir Semashko, signed a memorandum of understanding committing Belarus to privatise the Minsk-based lender by 2020, at a ceremony at the annual meetings in Tbilisi.
Phil Bennett, first vice-president and chief operating officer of the EBRD, said the process of reducing the state’s stake in the lender to zero could be completed as early as 2019. The EBRD is expected to buy a stake of up to 25% in the lender by 2017, boosting corporate governance and reducing state interference in the economy.
Commercial direction
Development figures hope the deal will kick-start privatisation in the heavily state-focused economy.
“Unlike other countries in the region, we haven’t made as much effort with privatisations in the past,” Semashko told Emerging Markets. “But we are getting there. We need more investment in the country, in particular in sectors like manufacturing, infrastructure, and SMEs.”
Bennett said the EBRD was “fully committed” to completing the sale of the bank to the private sector. “The world will be watching, the business sector will be watching,” he said. “Investment outside and inside Belarus needs to know that the country is serious about privatisation.
“The country needs more private and foreign investment, but for that, people need to look at the country in a new light, and to know and trust that the government is moving in a more commercial direction. We want to encourage that.”
He added that the EBRD would open a new SME lending credit line as well as a new trade facilitation facility for the country in the weeks ahead, totalling €50m ($56m).
The move by Belarus reflects internal recognition of its own structural weaknesses and overreliance on recession-hit Russia. Belarus’s economy is expected to contract by around 3.5%, sources close to the EBRD said, a far deeper recession than previously feared.
The country remains overly dependent on Russia, and is determined to follow the more reformist route, including privatisation and better corporate governance, favoured by Kazakhstan under President Nursultan Nazarbayev.