Aleksandr Lukashenko is an unlikely source for tech optimism. A former agricultural manager, the Belarusian president is often referred to as ‘Europe’s Last Dictator’, and not without merit. In a 2010 general election, which most nations considered a farce, Lukashenko took home a shade under 80% of votes. His fourth term will conclude this November. A fifth is highly probable.
But despite the furore, much of which has unwarrantedly focused on Belarus as some sort of Soviet backwater, the country is making plenty of progress – particularly in the technology sector, where it has won many successes. Mobile app developer Apalon was acquired by U.S.-based Mindspark, an operating business of IAC, in November last year. The acquisition, whose figures were not disclosed, shows that foreign investment in Belarus “is manageable,” an Apalon spokesman told Red Herring. “It sets a great example for other companies to follow.”
There are 55 universities in Belarus, which turn out 16,000 ICT-qualified graduates per year. The country specializes in high-end software development for clients across the world. Some global firms whose solutions are at least partially created in Belarus include Boeing, Airbus, Deutsche Bank, Barclays, Bank of America, Google and IBM.
This focus on software development has led to the rise of several innovative brands, among which the game developer Wargaming, and social media platform Viber, are two of the most recognizable. Viber was acquired by Rakuten last February for a mammoth $900m, while Maps.me, a travel app, was acquired by Russian messaging giant Mail.ru in November. Also on the startup map are gaming expert Vizor Interactive and ExpCapital, a fast-growing FinTech firm.
However its biggest success story is surely EPAM Systems, which was founded in Minsk in 1993, and has since become a global software giant, employing over 11,000 people with offices in, among others, the U.S., Canada, U.K., Singapore and Russia.
When the Soviet Union collapsed, rather than throwing open its doors to free-market capitalism, Belarus’ leadership retained a state-driven economy, maintaining control over the country’s abundant mineral wealth. Big leaps in GDP in the late 2000s led some, such as Germany’s esteemed Der Spiegel, to suggest the arrival of the ‘Minsk Tiger’, Lukashenko’s approaching “Belarusian Silicon Valley”.
But in 2011 an economic crisis largely scuppered those plans, and headlines returned to pour scorn on Lukashenko, with his trademark pepperpot mustache and autocratic bent, in power since 1994 and prone to hell-to-leather rhetoric.
That said, there are signs that Lukashenko’s tiger could still roar. In the World Bank’s Ease of Doing Business table, Belarus came 57th, ahead of European neighbours like Luxembourg (59); Greece (61); and even Russia (62). The report noted improvements in keeping corporate tax records and simplifying corporate income tax.
Minsk’s Industrial Park project is another plan Lukashenko’s government hopes will speed up the tech sector. The 20,000 acre complex will cost approximately $2 billion, three-quarters of which will come from Chinese benefactors. The as-yet-unbuilt facility is planned for next year.
“In particular, China is interested in the construction of state-of-the-art enterprises over there and it means billions in revenues for Belarus,” Lukashenko said this month. “If we implement the project, we will have no problems with the gold and foreign exchange reserves or with supporting the exchange rate of the national currency.”
Privatization has trickled into Belarus, showing that while its leadership still clamours for control of heavy industry, there is room for money to come into profitable businesses from outside – and even, perhaps, startups.
However corruption remains considerably high, and Belarus is among the worst of Europe’s performers in Transparency International’s Corruption Perceptions Index, ranking 119th of 175 states. “You need to have an informal network of contacts to run business after it grows above some threshold, which involves informal payments or concessions,” says Laksiej Lavončyk, an IT expert and lawyer.
“It is a kind of corporate social responsibility which is Belarusian-enforced: a company opening production of window panes will be asked to put windows into several nearby kindergartens and schools free of charge – or to local authorities buildings,” he adds. “In essence, the state makes enterprises pay some social costs which it should be paying itself. Hence higher business costs; hence higher price for final consumers.”
Lavončyk lists just two advantages the country holds. One is the aforementioned skill force, the other being the low local wage, which is towards the foot of Europe’s salary table. Aliaksandr Kharkauski, CEO and founder of DarkStone Games, adds that foreign investment has ground to a halt, and that gaming professionals in particular learn their core skills through books, the web and private courses. “To be honest, I have never heard news like, ‘Oh my god, that’s so cool that our government made such a good program or initiative’,” he says. Startup wages, adds Kharkauski, are usually between $800 and $1,300.
Upon the fall of the USSR, “Belarusian companies were mostly working with foreign clients – as it was more lucrative to do so,” says Laksiej Lavončyk. “There was no internal market for software in which you could earn at least half as much as you could earn selling your development skills abroad.
“Belarusians could charge rates that were moderate for Americans,” adds Lavončyk, “but sky-high for Belarusian companies – hence a lot of orders originating from Belarusian internal market were actually placed in Ukraine, which remained cheaper.” Belarusians still nominate work in US dollars, which has helped during the current Russian ruble crisis.
That said, there are several basic factors hampering Belarus’ progress in the tech market – not least a prohibitively high cost of Internet and phone services, which are monopolized by the national operator Beltelekam, and which are higher than equivalents in nearby Poland and Lithuania. In fact Belarus is one of only two countries in Europe – the other being Bosnia and Herzegovina – where Skyping someone local can cost as much as, for example, Zimbabwe.
In addition air travel, another of the government’s keepsafes, often cuts Belarus off from potential visits. BELAVIA, the national carrier, has a hold over Minsk’s two airports and cheap carriers are forbidden. Many businesspeople opt instead for a flight to Vilnius, the Lithuanian capital, and take a three-hour ride by car instead. Even Belarusians are beginning to call Vilnius International ‘Minsk-3’.
One major city which has remained within affordable reach of Minsk, however, is Moscow, where until recently many Belarusian developers headed for work. “The rates Russians were paying till 2014 were higher than Belarusian ones – and Belarusians could remain working in Minsk and travel to Moscow whenever necessary using ten-times-a-day train or plane connections,” says Lavončyk.
If Lukashenko gets his Industrial Park dream on time, and Belarus can continue to forge an economic path away from its neighbours, the country could yet become the ‘tiger’ it was once professed to be. However few Belarusians will be holding their breath. Privatization and success are possible in Belarus. But they come slow, and alongside a government still unwilling to give up its core infrastructure.