An IT Solution to Belarusian Economic Malaise
The Belarusian IT industry has had a highly successful year. In 2013, the sector achieved a breakthrough in cooperation with public educational establishments. The IT companies hosted 7 new branches of technical universities, while the decision to found an IT University became a milestone in 2013.
In the first three quarters of 2013 the high tech park has shown a strong 155% growth, with its exports totaling $307m. Seven Belarusian companies entered the global "Software 500" rating, and the country became third in the former Soviet Union by the volume of its IT market.
The Dawn of High Tech in Belarus
For all the grave aspects of a Soviet legacy, Belarus inherited from the USSR a sound system of secondary and higher technical education. Founded in 1964, the Belarusian State University of Informatics and Radioelectronics became an important hub for the Soviet IT industry. It helped to secure a regional head start for Belarus at the dawn of the high tech era.
The high tech revolution has tilted the balance in the three core components of business – capital, infrastructure and workforce – heavily to the advantage of the latter. While lacking capital and a modern infrastructure, in the late 1980s Belarus boasted around 10,000 students of informatics and radioelectronics, ready to drive its new economy.
Doing Things Right: High Technology Park
The Belarusian authorities first turned their attention to the IT sector in 2004. However, President Lukashenka initially saw the value of IT development “mainly in securing the transformation of the traditional branches of the [Belarusian] economy”, citing industry and agriculture as being the most important sectors for the young nation.
After an intense public debate, including some warranted scepticism, the President issued decree № 12 “On the High Technology Park”. Its first four residents joined the park in 2006. Conceived as a virtual entity – a special legal and tax regime for high tech companies, the technology park de facto covered the territory of the whole country.
The park has provided its residents two major advantages: a preferential tax regime and a stable regulatory environment. The companies registered in the technology park pay a fixed income tax of 9% and receive exemptions from corporate and capital gains taxes, VAT and custom duties.
The rules of doing business in the park have remained unchanged since 2005, which is unique in the notoriously fluid Belarusian business environment.
Competing with India, not Israel
Contrary to the narrow vision of the Belarusian leader, the park has established itself as a major export-oriented project. In the first three quarters of 2013, the domestic market revenue of the park residents stood at $40m, making up only 12% of the overall revenue of the park. The park has shown a healthy 155% annual revenue growth.
As of 1 October, its residents employed over 16,000 people, which is 8% more than a year ago. In September 2012, the technology park celebrated achieving $1bn in total revenue since its founding.
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However, the biggest successes of Belarusian companies constitutes outsourcing, typically seen as a less lucrative segment of the IT market. This means that the residents of the park largely act as foreign sub-contractors for their Western counterparts, rather than as full-cycle IT product developers.
The outsourcing segment has traditionally been the domain of the developing world, led by India with its cheap and abundant labour force. In the competition for outsourcing contracts, the park touts Belarus’ geographical and cultural proximity to the West and the quality of its services as its main competitive advantages.
When it comes to outsourcing, the flagship companies of the Belarusian IT already have some bragging rights. Four residents of the park made it to the prestigious “The 2013 Global Outsourcing 100” list, with the national leader, EPAM Systems, breaking into top 30. In 2012, the analytical company Gartner Inc. placed Belarus among the top 30 countries in the world in providing offshore software development services.
As for the segment of independent IT product development, the successes of Belarusian companies are rather modest. To compete with global leaders in this segment, such as Israel, the country lacks not only the managerial competencies and organisational capacity of its IT sector, but also infrastructure, capital and closer integration with the West.
Wargaming.net stands as a notable exception. The company has developed the award-winning online game World of Tanks, which has over 60 million registered players.
Flies in the IT Ointment
Despite the generally positive outlook, two types of risks hold the Belarusian IT sector back.
The shrinking pool of IT workers presents the gravest challenge to the industry. Belarus is now simultaneously experiencing the ebb of university students due to the “demographic gap” of the early 1990s and a steady outflow of high-class IT specialists.
In 2012, in the attempt to fill the void, the top three Minsk technical universities increased their student intakes for IT-related programmes of study to 2,307 freshmen, up from just 1,616 the previous year. However, evidence shows that the increased enrolment comes at a cost of declining professional qualifications.
The general investment climate and the image of the country constitute the second barrier. While improving its position in the industry-specific ratings, Belarus consistently trails in the most common international indices used to judge the country’s investment appeal. For instance, in the World Bank’s “Doing Business 2013” Belarus occupies 151th place on trading across borders and 129th on paying taxes and in the 2013 Index of Economic Freedom it is close to the bottom at the 154th place.
Besides, a number of the so-called “problems of growths” of the Belarusian IT sector comprise insufficient managerial and marketing experience, underdeveloped corporate culture and low international brand name recognition.
Bright Prospects Ahead
As of the late 2013, IT stands as the most attractive branch of the Belarusian service sector. The latest available statistics returned an average salary of $1,400 in the IT branch, more than twice as high as the country average. IT remains the most dynamic branch, dominating the Belarusian startup scene in the years 2012 and 2013.
If the current rate of the IT sector growth continues, the branch will achieve the ambitious goal of $1bn in yearly revenue well before the end of the decade. If that comes true, Belarus will abandon the industrial rubble of the Soviet era for a share of the global high tech pie.
Vilnius Summit, Demonstrations in Kiev, Rental Housing – Belarus State TV Digest
Belarusian state TV widely covered various topics related to the recent Eastern Partnership Summit in Vilnius. Journalists commented upon the final reaction of Victor Yanukovych to an offer from Brussels, mass demonstrations in Ukraine and also the interests of Minsk in its relations with the EU.
State media also showed how the state-level body controls the local authorities and remains concerned about the needs of local residents from one Belarusian town. They also covered new changes in the Belarusian Catholic Church – Pope Francis named three new bishops in the country.
Kiev makes a pause in its relations with the West. Belarusian state TV reported on the recent Vilnius summit. Its coverage noted that Brussels remained against the dual integration of Ukraine with both the EU and the Customs Union.
Due to its rapprochement with the Customs Union, Kiev would rather hold out on signing the Association Agreement with Brussels. As the Ukrainian Prime Minister Nikolai Azarov stated, the Customs Union made simply a better offer to Ukraine than the EU. Thus Kiev is now rather open to develop its relations with Russia and other members of the Commonwealth of Independent States.
Journalists noted that manifestations of supporters and opponents of the EU integration coming out onto the streets took place throughout Ukraine.
Russia’s entry into WTO did not have any unfavourable implications on Belarus but… A special commission analysed the 12 months since the country became a member of the WTO. It concluded that for a more tangible impact to be measured more time is needed. The media noted that actually the WTO within 5-10 years could lose its position as the leading trade resolution organisation.
What could, however, have a real lasting impact on the economies of the Customs Union members is the potential Association Agreement between Kiev and Brussels. The Agreement would bind Kiev to comply with the European standards, journalist explained.
This could rupture the links between Ukrainian business and the Customs Union, but also influences mutual trade turnover between the parties. It would lead to the number of labour migrants from Ukraine to Russia increasing. The Agreement also carries with it certain risks, state TV goes on to say, though which particular risks were not mentioned.
Yanukovych resisted pressure from Brussels. One report covered the reaction of Kiev to the Association Agreement. According to a number of experts found by Belarusian television, the European Union is not the best choice for Ukraine at the moment. Benefits from potential integration with the West seem rather blurred when compared with the costs of making the Ukrainian economy to be in compliance with European norms.
That process would cost the country up to 180bn EUR. In any event, the very signing of the Agreement does not guarantee anything, the journalist emphasised. The case of Croatia and Turkey prove that. Zagreb waited to join the EU for 12 years, whereas Ankara signed its Association Agreement with Brussels already in the 1950s and has not yet joined the European Union. The Ukrainian leadership managed to resist pressure from Brussels, the journalist concluded.
Drive intoxicated – you may lose your car. State TV reported on the first case of the confiscation of a car from a drunk driver to take place in Belarus. The court made its verdict based on a new law that came into force in October. According to the new law, if a driver commits the offence of driving while under influence for a second time, the state has a right to confiscate his vehicle. A special commission then determines its value and sells it. A former owner does, however, have the right to repossess it provided he pays a certain price.
The state closely observes the work of local authorities. Belarusian TV reported on inspections of local governing bodies as ordered by Lukashenka, this time in the Viciebsk region.
State TV showed how promptly and efficiently the commission reacted to complains of local residents. One of the calls was from a woman unhappy that only one type of bread was available in a local store. The head of the commission, Aliaksandr Yakobson, checked out the situation and explained to the store’s management that competition was necessary, and thus more types of bread should available to their clients. The commission left survey forms in a hospital and shops to see how satisfied the residents were with the service provided by the local authorities.
Housing policy should address the needs of Belarusians. Lukashenka chaired a meeting on the nation's housing policy. He made it clear that the priority for all officials remained the peoples’ interests regarding housing. The state created a special scheme of “rental housing” where all non-privatised housing will be included. Now officials are discussing how much the state should charge people for them. Lukashenka emphasised that Belarus remains one of a few countries, if not the only one, that these kinds of housing privileges for its citizens.
Changes in the Catholic Church in Belarus. Reporters took note of an important event for the Belarusian Catholic Church. Pope Francis named three new bishops in Belarus. Among them are Aleh Butkevich for Viciebsk Eparchy (also known as a Diocese), Yury Kosubitski for Minsk and Mahiliou Eparchy and Iosif Stanieuski for Hrodna Eparchy. Journalists commented that the Belarusian Catholic Church has been waiting for decades for these changes, though they did not explaining this point of view in any further detail.
Economic development of Belarus at the Vilnius summit. For Minsk, liberalisation of the visa regime remains among the key issues. But the top priority is economic co-operation with the EU. A policy of sanctions certainly impedes the mutual relations between Minsk and Brussels.
Minsk remains loyal to integration with the Customs Union first and foremost, state TV reported. What the Belarusian authorities remain in favour of is rapprochement with both the Customs Union and the EU, or the so-called "integration of integration".
Fake bankruptcy in Belarusian companies. A company producing glass bottles in the town of Lida announced its bankruptcy. Journalists, however, did not believe in the pure intentions of the company's management and suspected them of deliberately causing the company to go bankrupt. The company worked successfully for over 15 years and employed over 100 people. Today only 29 Belarusians work there. What concerned the journalist most was that the company has its various branches working without any arrears in payments in the city of Homiel.
State TV reiterated that Lukashenka had already talked about how poor management and a company's business plan, as well as also how falsification of documents, can lead to bankruptcy and influence the Belarusian economy. Another case of fake bankruptcy occurred in Navahrudak – currently its management are already facing criminal charges.
Belarus Digest prepared this overview on the basis of materials available on the web site of Belarusian State Television 1 (BT1). Freedom of the press in Belarus remains restricted and state media convey primarily the point of view of the Belarusian authorities. This review attempts to give the English-speaking audience a better understanding of how Belarusian state media shape public opinion in the country.