The increasing isolation of Belarus president Alexander Lukashenko’s regime on the international stage raises important questions about the future of the country’s economy. As Belarusian diplomats continue to be expelled from Western countries, major European companies are enduring fierce criticism for doing business in Belarus and are under increasing pressure to divest. These critiques have been especially sharp at the European Union level amidst allegations that Lukashenko has misappropriated EU funds.
Western policy towards Belarus needs to thread a very difficult needle, punishing Lukashenko and the leadership for human rights violations while simultaneously preserving Belarusian sovereignty and preventing Russia from exploiting the crisis. Western sanctions policy toward Belarus cannot, therefore, be divorced from policy towards Russia.
The EU has continued to prioritize a sanctions-based approach in tandem with the US. Although to date this has largely been focused on individuals, pressure is growing on both sides of the Atlantic to broaden and expand the programme to include major companies.
In Belarus itself, opposition leader Svetlana Tikhanovskaya has called for sanctions on the Belarusian state-controlled potash producer Belaruskali, which is a major source of revenue for the Lukashenko regime and controls about one-fifth of the global market. Recent revelations that the company has been selling potash, a key ingredient in fertilizer, below the market price in China and India have led to allegations of dumping.
But expanding sanctions to include large state-run firms is not without risk. Kremlin-backed oligarchs and businesses are seeking to leverage the crisis in Belarus to snatch up troubled industrial assets in the country and expand Russia’s footprint and political influence there.
The solution probably doesn’t reside in the private sector either. Pressure from successful multi-nationals, with roots in Belarus, is not likely to arise, and any such protests would not necessarily be helpful or even desirable.
Lukashenko is known to hold close relationships with a number of highly successful European businessmen and pan-European multi-nationals. One such example is Peter Kaindl, owner and CEO of Kronospan, an international company that is the world’s largest manufacturer of wood-based panels.
Kronospan owns more than 30 wood-based panel manufacturing sites in various countries in addition to Belarus, including key sites in Eastern Europe and the former Soviet Union, such as Russia, Ukraine, Latvia, Poland, the Czech Republic, Slovakia, Bulgaria, Romania, Serbia, Croatia and Hungary – as well as plants and branches in the US. Kronospan’s worldwide sales exceed €4.5 billion per year and the company employs more than 11,000 people.
Lukashenko has frequently praised Kronospan and its leader’s honest business ethos. Peter Kaindl is renowned in the country for having harnessed the full potential of its raw materials sector and provided hundreds of jobs for unskilled workers over the course of a decade. Companies such as his are perceived to have helped boost the country’s aspiring reputation for economic stability in the face of external criticism of its leadership.
For these reasons, Lukashenko likes to highlight companies such as Kronospan as prime examples of his country’s favorable investment conditions, buoyed by the fact of a highly successful multi-national – with bases across the EU – having shown consistent confidence in the country’s infrastructure and labour markets.
For the leadership, such case studies serve to demonstrate that Belarus is up to European standards. Indeed, a significant amount of Kronospan’s investment was raised through the European Bank for Reconstruction and Development, as well as Austria’s Raiffeisen Bank International AG. The West stands to gain little by depriving Lukashenko of such incentives. If anything, firms such as Kronospan serve to remind Lukashenko of the rewards of single-market integration, for which the EU can leverage its political capital.
Moreover, these long-term investors are unlikely to pack up and leave any time soon. Having established legitimate foundations in the country replicated on their business models in the EU, they might feel they are doing more to combat corruption and establish European business norms on the ground than any divestment and sanctions programme ever could.
They might well be right. The long-term presence of well-run, EU-centred operations at the heart of the Belarusian manufacturing ecosystem could serve as helpful blueprints for other sectors of the economy. Without these anchors set in the West, the leadership might be less reluctant to turn East.
This debate is about how much to sanction versus how much to isolate. Would sanctioning large Belarusian state-controlled companies drive them into the arms of Kremlin-linked companies and oligarchs? Or conversely, would sanctions against these enterprises deter Russian efforts to acquire them?
The Belarusian crisis is unfolding in a broader geopolitical context in which Moscow is trying to leverage Lukashenko’s vulnerability to expand Russia’s political, economic, and military footprint in the country. As such the West’s policy goals toward Belarus and Russia cannot be divorced from each other.
This raises a series of questions that need to be carefully considered, but for which there are no easy answers. They make it clear however that Western policy toward Russia and Belarus needs to be approached as a coherent whole – a careful balance of carrot and stick.
