The Belarusian hi-tech revolution: the government drafts an ambitious decree
Last month, Belarusian IT businessman Victor Prokopenya published a post on Facebook informing the public about a new decree on High Tech Park. This led to fervent discussion in the Belarusian media, with a number of articles devoted to the topic.
After meeting with HTP head Usievalad Jancheuski and Prokopenya, Belarusian president Alexander Lukashenka repeatedly mentioned that fundamental measures would be taken to develop the IT industry. ‘We have set an ambitious goal – to turn Belarus into an IT-country,’ said Lukashenka at the plenary session of the 4th Belarus-Russia Forum.
The new IT decree, drafted by a group of representatives from HTP, state bodies, specialists from leading IT companies, and legal and financial experts, aims to address the problems of the Belarusian IT sector. From cryptocurrencies and investment funds to English law and immigration policies, the decree is groundbreaking in the number and types of reforms it sets out.
Optimists believe that this sensational decree could turn totalitarian Belarus into an ‘IT Hong-Kong for the Slavic world’. Others remain critical of the fact that the government has neither published the decree nor opened it up for public discussion, suggesting that certain points may be controversial. Thus, whether the decree will benefit the whole country’s economy or merely widen the already existing gap between privileged IT companies and other sectors remains unclear.
New benefits for the IT business
Most importantly, the decree prolongs already existing tax benefits for IT businesses, which will help sustain the growth of Belarus’s most successful industry. The document also makes numerous large and small amendments which remove limitations on the sector’s further growth.
With the new decree, HTP will open its doors to large IT product companies, export-oriented ITES (IT enabled services), and companies working in other hi-tech spheres (such as medicine, biotechnologies, and electronics). Not only will this create thousands of well-paid jobs for Belarusians, it will also broaden the type of activities High Tech Park engages in.
Moreover, the decree welcomes investment funds, including venture capital, which is crucial for the sphere’s growth. In March, the head of Flint Capital announced the readiness of international investment funds to come to Belarus once the necessary legislative conditions are created. Thus, if the government implements the legislative changes – such as cancellation of subsidiary liability for HTP residents in case of bankruptcy – more investment funds and venture organisations will enter HTP.
What’s more, the decree simplifies the business process, allowing IT companies to implement various business models, such as earnings on advertising, marketing activities, games with internal currencies, etc. For example, it would be possible for Google or Facebook, which make money off advertisement, to become HTP residents. At the same time, investment funds and lifted restrictions regarding earnings will encourage Belarusian companies and startups to remain in the country, as they will be able to find finances and opportunities for development in Belarus.
English law, currency control, and documentation changes
The decree stipulates the application of English law, which would stimulate shareholder agreements, investment partnerships, and non-competition agreements with employees. This measure would boost investment activity and also structure transactions for Belarusian IT business sale.
Furthermore, in order to reduce the risks associated with the unstable Belarusian economic situation, the decree would abolish control of the movement of capital. It would also eliminate a significant amount of paperwork that companies engaging in foreign trade have to deal with. Experts consider these steps crucial for making Belarus appealing to large foreign enterprises, as they do away with some of the most frustrating bureaucratic procedures with which enterprises must contend.
The decree will uproot old Soviet-style legislation, involving complex document circulation, which prevents Belarus from adopting business practices preferred in much of the rest of the developed world. Key IT players lack the incentive to enter the Belarusian market as long as these time-consuming practices continue to exist. Thus, simplification of legislation is a wise move if Belarus wants to attract big names in the tech sphere.
Cryptocurrency and unmanned vehicles
On 17 July, the National Bank of Belarus announced the introduction of blockchain technologies for solving a wide range of problems in the banking sector and outside it. This decision is rooted in the HTP decree, which legitimises cryptocurrencies, the Bitcoin profit test and tokens based on blockchain technology.
The proposed legal regulations would allow HTP residents to provide crypto-exchange services, use cryptocurrencies in everyday life, and attract ICO financing. Potentially, this could also lead to the creation of crypto-centres for generating crypto-code. Given the increasing legal status of cryptocurrencies around the world, their legitimisation could allow Belarus to directly benefit from this trend .
The decree also creates the legal basis for the development of unmanned vehicle technologies in Belarus. In May, Uber’s regional head and the CEO of Gett announced the opening of R&D centres in Minsk. Their motives for doing business in Belarus relate to existing information about upcoming reforms for HTP. Additionally, the decree makes provisions for a legal act which would even allow the circulation of 3rd-class unmanned vehicles on Belarusian roads. Hence, Belarus could become one of the first countries in the world to launch driverless cars.
One country – two systems?
The decree sets the ambitious goal of turning Belarus into a world centre for IT development and innovation. However, its critics insist that the decree would enforce a ‘one country, two systems’ formula, by which HTP would function according to capitalist laws while the rest of the country remains socialist. This would exclude non-IT spheres from the same privileges and reforms, creating an unfair and unbalanced economy.
Furthermore, some criticise the fact that Belarusian society has no access to information on the development of the decree. Thus, the public cannot influence the decision-making process. Key IT figures participating in the drafting of the decree are struggling to attain privileges for themselves, let alone campaigning to amend the Civil Code for everyone. Thus, critics claim that the decree will foster the IT industry exclusively and question whether it will benefit the rest of the country.
However, IT specialists respond that although the decree primarily targets HTP, it will also allow the expansion of IT activities to education, science, finance, and other fields. Moreover, it will create more well-paid jobs, thus increasing the size of the wealthy class of Belarusian programmers and preventing brain drain.
More well-paid workers will consequently increase Belarus’s tax revenue. Additionally, the decree will foster improvement in IT education as HTP residents will be able to carry out educational activities, contributing to IT education at schools and universities.
Nevertheless, the question remains of how an authoritarian state with no experience in regulating investment funds or venture organisations will ensure everything functions at an optimal level. Despite doubts, experts are expressing hope that once the decree is fully implemented, it might eventually de-bureaucratise the Belarusian economy and bring positive changes to the conservative state apparatus.
Redrawing the geopolitical map: Belarus and its neighbours connect the Black and Baltic seas
Belarus and Poland are advancing a project to connect the Black and Baltic Seas via the E40 waterway. The 2,000 km-long waterway will run through rivers and canals in Belarus, Ukraine, and Poland and provide better access to seaports for landlocked Belarus.
Having already conducted a feasibility study, the participating countries are now considering ways to finance the project before making their final decision.
However, in July, several environmental organisations and public associations launched a campaign against the E40 waterway. About two dozen organisations from Belarus, Poland, and Ukraine signed a petition to halt the project.
If anything can ensure the sovereignty of Belarus and its neighbours, it is such projects which modify the political geography of the region. Unfortunately, many experts and politicians in the region do not seem to understand this matter.
Is the project really as large as it seems?
Linking up the Black and Baltic Seas, the proposed E40 route also connects many of the region’s major cities: Brest and Pinsk in Belarus, Gdańsk and Warsaw in Poland, and Kyiv and Kherson in Ukraine. The designers of the E40 project emphasise that their intention is to restore a previously existing waterway to move both people and cargo. In most parts of the waterway, ships are navigating even today.
The Polish leg of the project will require the most work, while Belarus has only to partially streamline the Prypiats’ River, construct seven locks, and build several other hydro-technical facilities.
The Polish Maritime Institute in Gdańsk carried out a feasibility study on the project with EU support. According to the institute, construction of facilities on the Prypiats’, i.e., the Belarusian part of the undertaking, would cost $150m. In comparison, about 12bn euros is to be spent on construction of the Polish part of the route.
Criticism from activists
On 19 July, certain environmentalists and economists expressed their concerns over Е40 during a press conference in Minsk. Ales’ Herasimenka, the press secretary of the Business Union of Entrepreneurs and Employers, criticised the project for the high investment risks it carries and the negative consequences for the Belarusian economy.
According to him, internal waterways are generally less efficient than automotive and rail transport in terms of rapidness, necessity of reloading cargo, and seasonal limitations. Therefore, according to Herasimenka: ‘We believe that government and institutional investors should come to terms with the decline of the role of inland water transport. … Waterways were relevant at the beginning of civilisation.’
However, such cursory dismissal of inland water transport is misjudged. In other European countries, this form of infrastructure shows no obvious signs of decline. Between 1990 and 2015, despite some ups and downs, the cargo volume of German inland water transport remained more or less static, at slightly more than 220m tons.
Likewise, some types of cargo, especially liquid bulk and dry bulk cargo, can be profitably transported through inland waterways, despite the limitations on speed. Several major firms in southern Belarus could take advantage of the waterway to transport large volumes of cargo. The Mikashevichy-based firm Hranit has been using the Prypiats to transport its granite for many years. Likewise, the Mazyr oil refinery or the Salihorsk–based potash company Belaruskali could transport their products using water transport.
Tourism cannot replace trade
Environmentalists insist that the project could have grave consequences for the local bird population, including several vulnerable species. Moreover, they claim it could potentially destroy the unique wetlands ecosystem.
However, the project does not envision any direct destruction of the wetlands. Moreover, nature in the area is not pristine anyway. In the 20th century, most swamps were drained in southern Belarus, and intensive economic activity altered the region significantly.
What’s more, the local environment is transforming because of global climate change. The water level in southern Belarusian rivers has been low for several years. Last year, because of the low water level in the Prypiats’, navigation on the river stopped much earlier than usual: by the beginning of autumn. On the other hand, because of rising temperatures and earlier springs, last year the company Belarusian Riverine Steamships started navigation on the Prypiats’ a month earlier than normal, in March.
One critic of the project, a representative of the Polish organisation Ratujmy Rzeki, Przemyslaw Nawrocki, urges Belarus to develop tourism along the Prypiats’. However, despite the beautiful landscapes along the river, the tourism industry is unlikely to be able to compete with the income brought by the E40. Belarus is simply too poor to leave the region undeveloped to satisfy environmental activists.
The waterway as a political game-changer
The E40 project also has political significance. ‘Death of Palissie [the name of the region in the Pripyats River Basin] or an alliance against Russia?’ exclaimed the US-financed and administered Radio Liberty, writing about the project on 24 July.
Meanwhile, the Belarusian government is negotiating a waterway which would help it use Polish and Ukrainian ports at the time when the Kremlin is urging Minsk to reroute its cargo away from Latvian and Lithuanian ports towards Russian Baltic ports. Minsk is not only resisting Moscow’s plans in this area, it even wants to make more intensive use of ports in countries Moscow considers unfriendly.
However, this concerns more than just Russia. Minsk is increasingly interested in the Polish port of Gdańsk and various Ukrainian ports because of very probable problems with using the Lithuanian port of Klaipėda.
The Lithuanian government has become unfriendly towards Minsk in recent years because of Belarus’s decision to build a nuclear power plant near the Lithuanian border. Moreover, on 14 July, the Klaipėda City council voted to expand the city at the expense of its port – a priority destination for maritime export of Belarusian products. Belarus had invested in the Klaipėda port and there was long-standing bilateral cooperation on using the port for Belarusian foreign trade. This decision of local authorities dissmisses the plans of the port administration to construct a new deep-water port for ocean-going ships – a dream for Belarusian exporters.
In sum, projects like E40 alter the geopolitics of the region, opening it up and providing it with further and better connections to the sea. Belarus cannot change its location, but it can develop its infrastructure in a way which mitigates its disadvantage as a landlocked country. Minsk can diversify its exports and reduce its dependence on Russia; it can also better integrate with its neighbours and the EU.
The environmental and economic arguments against the project are unconvincing, at least as far as Belarus is concerned. To survive, Belarus must reach the sea; the E40 is one way to do this.