New customs union between Russia, Kazakhstan and Belarus could spark fresh M&A.

The new customs union between Russia, Kazakhstan and Belarus could stimulate M&A activity in a variety of sectors, according to legal and political sources in the three countries.

The harmonisation and simplification of certain customs tariffs in the new union could lead to MSA in sectors including finance and consumer products, sources said. The new system is being introduced throughout 2010, sources said, with the potential for deeper economic integration in the future.

"The customs union now means that the tariff and non-tariff regulations are unified in general for the goods that enter Russia, Belarus and Kazakhstan," explained Andrey Goltsblat, managing partner of Goltsblat BLP in Moscow. "Soon, there should be a unified customs area within the borders of the three countries with a harmonised approach to trade with third countries, customs valuation rules, technical, sanitary, veterinary and phyto regulations and an unrestricted circulation of most of the goods within the union."

Goltsblat said he thought the customs union would encourage businesses to think about making acquisitions.

"If I am an enterprise in Moscow and it's easier for me to acquire, I think I would be looking at Kazakhstan and Belarus," he said. "It is understood that certain difficulties will no longer exist."

The three governments are currently working on an agreement on investments within the union, according to Sergey Chernysnev, director of the department of cooperation with CIS countries at the Russian Ministry of Economic Development. The agreement would provide protection for investments and clear conditions for cross border M&A between the three countries, which could stimulate M&A in the region, he explained on the sidelines of the Vienna Banking Forum.

A managing partner of one law firm in Kazakhstan told this news service that the new union throws up a lot of question marks for businesses operating in the region, and his firm is receiving regular client requests about its implications,

"If we look mid-term and long-term, it creates a huge market," he said. "And we as a law firm for example, just see the tip of the iceberg... I think there will be opportunities when we will see stronger competition and a larger market. Russian banks are looking to Kazakhstan now; whether it will be easier to get business here; whether it will be easier to open; whether they will be able to set up branches, which is not possible now."

A second legal source at the same firm highlighted the clothing industry, the agricultural sector and pharmaceuticals as areas that may see M&A activity as a result of the new union.

"In Kazakhstan, there are some very interesting areas where investors would like to come," he said. "Right now, a lot of companies want to have a presence in Kazakhstan."

Joining the customs union will have an indirect but positive effect on the investment attractiveness of Belarusian companies, according to Natalia Zhernosek, Director of the State Property Fund of Belarus. The companies will benefit from larger access to the markets of Russia and Kazakhstan, she said.

The State Property Fund is currently in talks with certain German mid-size investors on the privatization of several textile companies, and the eventual investors view the customs union as an advantage, she added.

The cancellation of customs borders should have a mainly positive impact on the economy of Belarus, according to Anastasia Golovach, analyst with Renaissance Capital. It could eventually increase Belarusian exports to Russia and therefore increase the investment attractiveness of those Belarusian companies for which Russia is the main market, she agreed.

M&A in Belarus is defined by the privatization of state companies, she agreed. The government of Belarus is forced to sell its assets in order to get foreign currency to cope with its foreign trade deficit, she said.

By Rob Hartley and Alexander Cajcyc in London

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