Belarus’ IT sector sparks new growth

24/07/2016

by Riccardo Dugulin

Recent development of the IT sector in Belarus has had major positive effects on the local economy and created a new social dynamic among young high-skilled workers. It also occurs at a time when the country is trying to improve ties with regional actors.

In November 2015, 34 Travel partnered with Viber to produce a slick tourist guide of Minsk in English. The online publication quickly became a go-to stop for those visiting the city and most importantly showed a key element of modern-day Belarus.

Viber, an Israeli-Belarusian IT company, took the lead in promoting Belarus’ image abroad. This was symbolic for a wider revolution that is taking place in the local economy and that will have a lasting impact.

Belarus provides domestic and international IT companies with a favourable investment environment. Since 2005, the Belarusian government has been taking steps to enable the development of a dynamic IT market in the country.

The creation of the High-Tech Park (HTP) in Minsk paved the way for the burgeoning of a local Silicon Valley. As of March 2016, approximately 160 IT companies delivering services to clients in more than 60 countries are located in the HTP.

Companies investing in the HTP benefit from the provisions of the 2005 Decree of the President of the Republic of Belarus n.12. The decree foresees several tax exemptions and reduced tariffs for those operating in the IT sector. This special status will be upheld until 2020.

Belarus’ companies spearheading growth

While 51% of the companies in the HTP have foreign capital, the success of the IT revolution in Belarus is in part spearheaded by local giants. Two market leaders in their respective sectors have been serving as an inspiration to the overall growth of the software related industry in the country.

The instant messaging and communication application Viber was created in 2010 by Israeli and Belarusian developers. The company is managed from Israel while the operations are based in Minsk. Viber has long passed the 100 million users mark and is now a major employer in the IT sphere in Belarus.

The all-Belarusian World of Tanks online multiplayer video game is another success story for the local developers’ scene. The game first came out in 2010 and has now become a leader in its market segment.

Wargaming, the developing company, has registered more than USD $200 million in revenues in 2012 following the release of the game worldwide and is now employing approximately 4,000 people.

Other IT-industry service providers such as the IBA Group and EPAM systems are among the internationally recognized leaders in their field, managing thousands of projects and with a strong presence in Belarus’ HTP.

A growing portion of the economy

While big names may be driving the growth of the IT sphere in the country, the sector is increasingly becoming an essential element in Belarus’ economy. This was underlined by the speech made by President Alexander Lukashenko on June 22nd during the 5th Belarusian People’s Congress.

The president called for all sectors of the economy to integrate IT developments and exposed the country’s plan to further drive the growth of the industry between 2016 and 2020.

In an economy battered by the depreciation of the Belarusian ruble, the IT revolution is currently a key element necessary to bringing a much needed flow of cash and ensuring the employment of large numbers of young and highly skilled people.

The Belarusian GDP of USD $54.8 billion suffered a contraction of 28% in 2015 due to effects sparked by Western sanctions against Russia. Exports of IT services in 2015 reached USD $818 million, marking an 18% increase from 2014.

The growth of the sector is bound to continue in the medium-term as the country offers a cheaper workforce than other regional competitors and low tax rates for those investing in the IT sphere.

Boosting the Belarus’ middle class

The IT revolution is also bringing about a key change in the local economic structure. The growth of the sector is leading to the development of a local young and highly skilled middle class.

The average salary in Belarus is approximately USD $400 per month. Within the IT sphere the salaries are reaching a monthly average of USD $2000 and are expected to continue growing in the coming years.

Currently, IT-related companies employ close to 45,000 Belarusians, less than 1% of the country’s workforce. However, they generate approximately 5% of the salary mass and most of the IT salaries are pegged to the US dollar, and thus partially unaffected by the ups and downs of the Belarusian ruble.

The creation of a young Belarusian middle class employed in local and international companies has potentially far-reaching effects on the country’s economy. It will spur consumption and investment and generate a new kind demand for important and luxury goods.

The challenge for local authorities will be to foster these developments in the coming years and continue to grant IT companies operating in Belarus the necessary level of operational freedom needed to grow.

Wider trends of positive regional relations

The development of the IT sector in Belarus comes against the backdrop of the country’s to engagement in wider and more positive relations with the rest of the region.

IT companies in Belarus are currently responding to thousands of outsourcing projects managed by international clients and are also in the process of developing local products to bring them to the global market. The country’s HTP is increasingly competing with regional and international key IT actors such as Ukraine, Russia, the United States and South Korea.

This evolution goes hand in hand with the government’s project to build closer ties with the EU and balance its relations with Moscow. The warming of relations between Minsk and Brussels following the October 2015 Presidential Elections and the partial lifting of sanctions against Belarus signal a potential improvement of the country’s position in the region.

A further integration of Belarus within an eastern European market with Minsk serving as a bridge between the EU and Moscow could be a major driver for the continuous growth of the local IT sector.

Riccardo Dugulin is an analyst at Drum Cussac, a global business risk consultancy. He specializes in supporting international organizations and large corporations operating in emerging markets by providing them with critical risk management intelligence. His regions of expertise are the Near East, the Gulf, North Africa and Continental Europe. He previously worked as project manager for a French medical assistance company. He gained field experience in the Middle East having worked for leading think tanks in Dubai and Beirut. Riccardo holds a Master in International Affairs from the Sciences Po – Paris and a Bachelor in Middle Eastern Studies from the same university. Follow him on Twitter @RiccardoDugulin.

Useful links:

http://globalriskinsights.com/2016/07/belarus-it-sector-sparks-new-growth/

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