Bel arus country economic memorandum
In the absence of well-establish domestic incubator for innovation, quality FDI can become a carrier of know-how and technology transfers. FDI may lead to indirect technology transfer via the building of manufacturing plants and equipment, while there may also be a more direct transfer of know-how in the use of capital-intensive technology, through the training of operational line workers, back-office staff, alternative management practices and better organizational arrangements. Net FDI inflow in Belarus, however, is low by emerging market standard. Belarus is lagging its regional peers in FDI performance (table 4.1.). The experience of other East European countries shows that they were able to upgrade their industrial enterprises through privatization and attracting FDI. For instance, in Czech Republic, the sale of Skoda to Volkswagen (VW) Group gave access to modern technologies and know-how. This has not been the case in Belarus, despite the fact that the country is strategically located between the EU and Russia. As a member of the Customs Union, it could serve as a gateway for trade to a market of over 165 million people to the East and of over 500 million people in the EU to the West. It has good infrastructure and educated and disciplined labor force. The objective of policy makers should not be simply to attract FDI, but to create conditions that would allow maximization of the benefits associated with FDI.
Table 4.1. Comparative FDI Performance of Belarus and Selected Countries, 2001–10 Average FDI Inflows Economy
per capita 2001–06
Belarus
Average Inward FDI Stock
As % GFCF
2007–10
2001–06
per capita
2007–10
2001–06
As % GDP
2007–10
2001–06
2007–10
23
187
4.2%
10.2%
138
753
3.6%
13.2%
Lithuania
242
361
17.4%
12.2%
1463
1463
16.5%
11.3%
Poland
250
404
18.8%
15.8%
1498
1614
16.7%
13.2%
Russia
84
363
10.1%
16.6%
503
1453
7.3%
14.0%
Ukraine
64
175
17.8%
23.8%
387
707
16.7%
23.5%
Source: World Bank calculations based on WDI and UNCTAD data.
Last but not least, a WTO accession could provide an anchor for strengthening competitiveness through opening new opportunities for trade. Belarus has been involved in the process of WTO accession for more than 18 years but this process is far from completion.77 WTO membership is expected to be beneficial to Belarus due to improved market access to WTO member countries, reduced tariff and non-tariff barriers to trade, harmonization of national legislation with the WTO rules and requirements.78 Slow reform implementation and recent reversals will not help Belarus in its aspiration for WTO membership, which became even more topical in light of likeliness of Russia’s WTO accession in 2012, exposing Belarus to higher competitive pressures on its major market and leaving much less time for too gradual adjustment. 77 Belarus submitted its application for WTO accession in September 1993; the Working Party was established a month later and held its first meeting in
June 1997. Six more Working Party meetings were held since then, the last one—in May 2005. The goods offer has been under negotiation since 1998 and the services offer since 2000. The Factual Summary was drafted in 2004 and revised in 2007. To date, Belarus concluded 10 bilateral market access agreements. 78 Benefits from the WTO accession are estimated of GDP increase by 3.4 percent and welfare increase by 1.6 percent. See Pavel and Tochitskaya (2004).
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Chapter 4. Igniting New Engines of Grow th