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The Buzz in Belarus: Interview with Sergei Makarchuk of Cerha Hempel

The Buzz in Belarus: Interview with Sergei Makarchuk of Cerha Hempel

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"The economy in Belarus has been stable for the past few years, but recently has been heavily affected by both the negative impacts of the coronavirus and a tight situation with Russia,” says Sergei Makarchuk, Partner at Cerha Hempel in Minsk. “Tensions between the two countries have really taken their toll over the past six months and a few conflicts have taken place, in most cases related to the supply of oil.”

Makarchuk reports that the European Union’s and the United States’ sanctions against Russia are also indirectly affecting Belarus’s economic situation. "Russia was a major market for Belarusian economy for decades. Nowadays, because of the anti-Russian sanctions, the purchasing capacity of the Russian market shrank. As a result, the sales of Belarusian companies in Russia has also dropped. In addition, despite Belarus's membership in the Eurasian Economic Union, in fact, there is a lack of free movement of goods to Russia as a result of the restrictions systematically imposed on a number of Belarusian manufacturing companies by the Russian consumer protection authority Rospotrebnadzor. Considering how small Belarus’s market is, this has resulted in a financial loss."

According to Makarchuk, it’s not only Belarusian entrepreneurs that are affected, and that "the situation is rather discouraging for foreign investors too, as we have noticed that clients are tending to move their manufacturing businesses from Belarus to Russia. The effects are very visible in the M&A market, which in 2019 was record low for the past few years in terms of both numbers and volume of the deals. The cause of this is also related to the fact that there is a lack of strategic investors interested in Belarusian companies, and the equity ratio in most of the local targets is around zero or even negative, so they have little strategic value for potential buyers, and there is a big gap in the price expectations of potential sellers and buyers.”

Makarchuk doesn’t believe things will improve anytime soon, noting that “the situation will stagnate further in the future as well,” but he says he hopes that “the negative interest rates in the EU and low value of assets in Belarus will incentivize the M&A market to grow.” He admits that the IT sector is prosperous, but says it is "not sufficient to overcome the greater geopolitical and structural trends. Besides, the growing difficulties in Russian export is forcing local businesses to open new markets, which will be very positive in the long run since such new markets as China and EU are rather promising."

“In the legislative field, we have seen some positive trends, such as Presidential Decree No. 8 On Development of Digital Economy," which was adopted at the end of 2017, says Makarchuk. According to him, "many progressive legal innovations introduced by the decree and initially intended for IT companies are now expected to be incorporated into the Belarusian Civil Code this year, which would be positive not only for business but for the entire economy.”

Finally, Makarchuk says there is “a big demand for structural reforms, which will hopefully open up the economy and lead to freer and more open competition.” He says, “I hope that companies will become more competitive in the near future, which will hopefully result in a stronger market, attractive to investors.”