Policy Study 01/2016

Policy Options to Reform Free Economic Zones in Belarus

In Belarus, six Free Economic Zones (FEZs) exist in the country, with the first one (Brest) coming into existence 20 years ago. Their main objectives are according to the Law the promotion of the socio-economic development of Belarus and its regions, the attraction of investments aimed at the creation and development of export-oriented and import-substituting industries based on new and high technologies, as well as other purposes.

A more detailed assessment of their economic performance reveals a very mixed picture, though. While their contribution to the nations FDI and employment stock is relatively limited (5% and 3%, respectively), there have been worrying growth dynamics over the last years. The number of zone residents as well as the people employed in FEZ shrank over the last couple of years. The export share in FEZ is rather poor in international comparison, and they did not really contribute to the diversification of exports from traditional CIS markets towards new markets.

Based on our analysis and on international experience, we suggest the following policy recommendations:

  1. Reposition the FEZ scheme towards a cluster-oriented model with a strong focus on FDI-attraction
  2. Strengthen the focus of FEZ on SME development
  3. The positioning and differentiation of FEZs should be based on services and infrastructure and less on (fiscal) incentives
  4. Target-group oriented investment promotion efforts should be intensified and after-care services extended
  5. It should be assessed if public-private partnerships can be used for the proposed upgrading of the FEZs to increase the efficiency and to reduce the burden on public resources

In order to refine the proposed reform and to prepare a policy decision, a survey-based analysis of the needs of residents and investment potentials of FEZs should be carried out as a next step. This would help to gain a better understanding of the underlying investment patterns and potentials.

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