Belarus and Moldova: cooperation despite opposing geopolitical orientations
On 6-7 May, Moldova’s Prime Minister Pavel Filip held a supercharged working visit to Belarus, meeting with the country’s top officials, kicking off several events, and discussing a wide range of issues, from trade to culture.
Despite serious recent setbacks in bilateral trade, Moldova remains an important economic partner for Belarus in the post-Soviet space. Unlike Russia, Belarus has no problem with Moldova's geopolitical orientation towards Europe, instead trying to use this factor to its advantage.
Will the recent election of the pro-Russian politician Igor Dodon to the Moldovan presidency affect the two countries’ economic cooperation?
Welcoming another advocate for Belarus in Europe
Pavel Filip received a warm welcome from President Alexander Lukashenka in Minsk. The Belarusian leader thanked ‘brotherly Moldova’ for explaining to ‘some zealous politicians in Europe what Belarus is and what our policy is’. Lukashenka promised to keep Belarus’s market open to products from Moldova, provided they adhere to high-quality standards.
Belarusian and Moldovan officials discussed trade and economic cooperation in detail during the 18th meeting of the joint intergovernmental commission. Filip also attended the BELAGRO agricultural trade show in Minsk. Twenty-two companies from Moldova promoted their wine, fruit, and vegetables at a 100-sq.m. stand dedicated to Moldova and sponsored by the Belarusian government.
The Moldovan Prime Minister also held a meeting with his Belarusian counterpart Andrei Kabiakou; they emphasised cooperation in the spheres of building and road construction, agriculture, and industrial assembly. The two officials also kicked off the Days of Moldovan Culture in Belarus.
Belarus does not object to Moldova’s European choice
Despite their relatively strong economic ties and shared history in the Soviet Union, there have been relatively few high-level contacts between the two countries’ executive authorities since their independence. Alexander Lukashenka visited Chisinau in August 1995 and received his Moldovan counterpart Petru Lucinschi in Minsk in June 2000.
Later, after two visits to Minsk by former Moldovan Prime Minister Vasile Tarlev in August 2001 and October 2005, there was a nine-year hiatus in high-level interaction, not counting irregular meetings on the sidelines of CIS summits. Finally, Lukashenka returned to Chisinau in September 2014 followed by Andrei Kabiakou in October 2016. Nicolae Timofti, the then Moldovan President, paid an official visit to Belarus in July 2015.
Interestingly, this reinvigoration of high-level contacts between Belarus and Moldova is happening against a backdrop of worsening relations between Chisinau and Moscow. In 2013-2014, Russia, unhappy with Moldova’s decision to enter into an association agreement with the European Union, introduced a ban on imports of Moldovan wine, fruit, and fruit and vegetable preserves.
In 2014 in Chisinau, Lukashenka reassured the Moldovan public that the signing and ratification of the association agreement would not affect the latter's relations with Belarus: ‘Don't dramatise… We need to create new forms and look for new ways of cooperating’.
Indeed, Belarus opened its market to Moldovan food products. Thus, in 2014, the imports of apples from Moldova to Belarus increased more than eleven-fold compared to 2013: from 5,600 to 63,900 tonnes. A large part of these Moldovan apples surely found their way to the forbidden Russian market. Total imports from Moldova to Belarus subsequently grew dramatically: from $91.8m to $149.6m.
‘During a gruelling time for us, Belarus has extended a helping hand in a very open, sincere, and friendly manner, for example, a few years ago, when we had some problems with some markets in CIS countries. We will not forget it’, Pavel Filip said about that period at his recent meeting with Lukashenka.
Will the golden age in trade return?
The golden age for trade between Belarus and Moldova lasted several years during the early 2010s and reached its peak in 2014. Last year, the turnover returned to its 2007 level. In 2016, Belarusian exports to Moldova reached their lowest point in the last decade.
The turnover continued to fall in the first quarter of 2017, contracting by 35% to the same period of the previous year. However, Belarusian officials are encouraged by increasing exports (up by 52%).
Belarus exports several dozen product groups to Moldova: petroleum and chemical products, tractors, motor vehicles, ceramic tiles, and glass fibre dominate exports. Imports are essentially limited to fruit and vegetables (fresh and preserved), wine, and spirits.
Petroleum products amounted to over half of Belarusian exports to Moldova in the peak years of 2013-2014. However, the abrupt drop in supply in 2015 upset bilateral trade. Nevertheless, it is fair to note that the sales decrease affected most product groups including tractors, the second-largest export group in trade with Moldova.
Currently, eighty-seven companies operate in Moldova with the participation of Belarusian capital, including flagship projects of knockdown assembly plants of Belarusian trolleybuses and tractors. Now, the Belarusian government is hoping to launch a knockdown assembly plant of Belarusian MAZ buses in Chisinau in late 2017.
Will Lukashenka’s fan in Moldova help to increase bilateral trade?
Igor Dodon, the recently elected Moldovan president who sympathises with Russia, has an affection for Lukashenka. He called the latter ‘an example for [Moldova] … in preserv[ing] all the best things from the USSR’. ‘The economy works like a clock, and there is a rigid vertical of power [in Belarus]’, Dodon said in an interview to Deutsche Welle.
Belarus supported Dodon’s application for observer status at the Eurasian Economic Union, which was approved by the member states in April 2017. The head of Moldova’s executive branch, Pavel Filip, seems to harbour no grudge against the Belarusian government for having supported this initiative, which he called ‘a symbolic gesture’ with no legal consequences.
Lukashenka and Dodon met in Bishek, Kyrgyzstan on 14 April, on the sidelines of the Eurasian Economic Council. According to Dodon, Lukashenka advised him to hold a referendum on introducing a presidential republic in Moldova to give the country's leader more power, according to the examples of Russia and Belarus.
Dodon also announced in April that he would soon come to Belarus on Lukashenka’s invitation. The visit is tentatively scheduled for 13-14 July.
Dodon’s activities as the new President of Moldova have apparently failed to affect Belarusian-Moldovan relations in any way, be it positive or negative. Dodon has little real power in the parliamentary republic, and Belarus prefers to work with those in charge.
Even if he succeeds in bringing Moldova back to the ‘Russian world’, it would hardly help to strengthen Belarus’s economic position in Moldova. Thus, despite its apparent fondness for rhetoric about integration and Soviet nostalgia, Belarus remains quite pragmatic in its economic dealings.
The avant-guarde of Belarusian hi-tech industry
Agreements concluded in May of this year between the Belarusian High Tech Park and Uber, along with the opening of an R&D centre for the Israeli company Gett, demonstrate the growing success of the Belarusian IT industry.
Dave Waiser, Gett’s CEO, compared Belarus to Israel in terms of its small domestic market for retail business, but big opportunities for IT export for worldwide use.
Over the past decade, Belarusian IT services have grown by almost 50, with export reaching $900m – a number which is growing at a rate of 20 per cent and currently constitutes 12 per cent of Belarusian export.
Out of the 1,000 IT companies in Belarus, only 24 belong to the state. The largest IT companies, which operate in Belarus’s most promising industry and do most of their business abroad, put continuous effort into ensuring the industry continues to grow.
While the authorities support the increasing contribution of the IT sector to Belarus’s declining economy, it is Belarusian IT companies themselves which play the largest role in boosting IT education, expanding the sector’s size and regional reach, and cautiously influencing changes in legislation.
High Tech Park – Belarus’s hub for IT
It’s been 12 years since High Tech Park opened in Minsk, after the president signed the decree ‘On High Tech Park’ in 2005. Before the park’s opening, Belarus’s IT export constituted $15.2 million.
In 2009, HTP had already reached $121.5m worth of export. In 2016 it reached $820.6 million, expanding its activities into the fields of nanoelectronics, mechatronics, data transmission, and other areas.
Currently, the park hosts 173 companies from 67 countries, producing 91% of its software for export and attracting $169m of foreign direct investment. Thanks to HTP, the export of Belarus’s IT services became the second most important contributing factor to the country’s current positive trade balance for foreign services.
The number of foreign companies entering HTP is increasing thanks to tax benefits and a pool of inexpensive and highly qualified specialists; this creates a perfect environment for outsourcing.
Four Companies with Belarusian roots (EPAM Systems, IBA Group, Intetics, and Itransition) are ranked among the world’s largest outsourcing companies in 2016 Global Outsourcing 100. Another ranking, SoftwareMag, includes EPAM, IBA and eight more HTP residents among the top 500 IT service providers.
Top outsourcing companies
EPAM Systems is the largest Belarusian IT company, registered in the US with 25 branches around the world. Arkadz Dobkin, a Belarusian immigrant to the US, founded EPAM in 1993. Today, EPAM employs 22,000 people, including 8,000 in Belarus, where the company has branches in all regional centres. With revenue of over $1 billion and IPO at the New York Stock Exchange, EPAM is the fastest-growing IT company in Belarus and among the fastest in North America. Over the past six months alone, the Belarusian branch of EPAM increased its staff by more than a third.
EPAM invests millions of dollars into real estate for Belarusian programmers, finances university training programmes, and runs start-up initiatives. Moreover, the company is listed among the winners of the ‘Best Exporters of 2016’ for its leading position in Belarus’s IT services export.
However, EPAM’s overall revenue structure shows that North America takes the largest share (59.2 per cent), while CIS receives 14 times less (4.2 per cent), and this gap is widening. Hence, most of EPAM’s revenue falls outside Belarus, the country with the most employees.
IBA Group, the third largest IT exporter and second biggest supplier to Belarusian market, is another major Belarusian outsourcing company. IBA owes its creation to the US company IBM, which established a joint venture with the Minsk Research Institute of Computers in the early 1990s. Today IBA is headquartered in Prague, while the Minsk-based office remains the key to the company. IBA has developed several projects for the Belarusian market, including an e-tax system for the Ministry of Taxes and Duties, a ticket system for public transportation, and budgeting systems for banks.
In August 2016, the media claimed that Belarusian police had detained IBA’s top managers. While IBA CEO Siarhiej Liaŭciejeŭ denied this information, he confirmed certain claims by national law enforcement agencies. Nonetheless, IBA, EPAM, and other top IT companies, such as Itransition, ISsoft Solutions, and iTechArt, remain among the top Belarusian IT service providers to this day.
Conquering the world with tanks and augmented reality
While the Belarusian IT industry largely focuses on services, product development continues to be the most profitable sector. Wargaming, founded in Minsk in 1998, is a primary example. Last week, the world’s fifth most popular PC gaming company held its 2017 Grand Finals in Moscow, gathering 12 teams to compete for a $300,000 prize. Officially registered in Cyprus, Wargaming garners international recognition for its game World of Tanks, played by 110 million users. The game turned the company into an international corporation.
Wargaming’s CEO Viktar Kisly became the first gaming industry billionaire from the CIS included in the Bloomberg index, which valued Wargaming’s business at $1.5 billion. However, since World of Tanks, no other game has had similar success. Stagnation of the business could have influenced the decision of co-founder Ivan Michnievič to leave Wargaming in 2014. While the Minsk-based Game Stream Studio continues developing new projects, recent games such as World of Warplanes and World of Warships have failed to take off.
Other fresher examples of Belarus’s IT development is the company Banuba Development, registered in Hong-Kong with a development centre in Minsk. Backed by $5m of funding from the Gutseriev family’s Larnabel Ventures and Viktor Prokopenya’s VP Capital, the team of 45 Belarusian programmers are currently developing augmented-reality-enabled mobile apps. Already boasting 11 US patents, Banuba expects to present its first application this year.
During Lukashenka’s visit to several IT companies, the president made clear that the state has given a green light to the development of the IT industry. Lukashenka praised the achievements of Belarusian IT companies, promising to expand state support for new projects.
The fact that Belarus already has EPAM and InterActiveCorp (IAC), which owns the HTP-registered mobile apps developer Apalon, shows that the right steps are being taken towards involving large corporations in Belarus’s IT sector. Nevertheless, further revenue growth requires a new legal system to support the IT product model and attract more public IT companies with traded shares on stock exchanges.
While Belarusian and Russia-oriented exports continue to shrink, the West-oriented IT industry is growing by leaps and bounds. The government supports Belarus’s high-tech achievements by asking for its 5 per cent share in GDP, while IT businessmen carefully push for reforms in economic legislation. As long as the interests of IT business and the government in making Belarusian economy more innovative coincide, HTP residents can expect production and revenue growth, as well as more IT corporations coming.
This article is a part of a series of publications on IT sector in Belarus supported by VP Capital.