What is the future of the Belarusian IT sector? An analysis of Lukashenko's latest statements on IT specialists and the Hi-Tech Park
06/01/20231 views
At the end of 2017, Alexander Lukashenko signed the Decree "On the Development of the Digital Economy", which provided the Belarusian IT industry with unprecedented development conditions, and the High-Tech Park, established back in 2005, gained worldwide recognition. "Belarus is turning into a Silicon Valley," "Belarus is becoming a global development hub," wrote The Wall Street Journal and Forbes about the country. "A paradise for programmers," "Exceptional potential and visionary economic policy," assessed the opportunities of the republic Eric Gundersen, founder of the well-known American startup Mapbox, and former US Secretary of State Michael Pompeo.
In the new issue of the BELTA YouTube project "According to the Fact: The First's Decisions," we will tell you how Belarus became an IT country, debunk myths about the High-Tech Park, and try to find out what the future of the Belarusian IT sector actually holds.
How was the High-Tech Park created?
Let's start from the beginning. In the early 2000s, the Belarusian authorities decided to focus on the development of information technologies. This was not arbitrary. Firstly, they believed it would help enhance the economy's competitiveness. Secondly, it was necessary to halt the brain drain. Not just halt it, but also attract the best of the best to the country. They decided to implement ambitious plans by creating their own Silicon Valley.
"Lately, I've been hearing from some scientists, especially young ones, that the conditions for development and application of intellect are not created here, that everything is available abroad, and nothing is here. As the Head of State, I cannot ignore such views. Therefore, the decision was made to establish a high-tech park in Belarus, where all conditions for scientists' creativity will be created. We must retain the best minds in Belarus so they do not go abroad, bring back those who have gone to work abroad, attract those programmers who are currently working 'in the kitchen,' as well as specialists from neighboring countries," said Alexander Lukashenko in 2004 at a seminar for managerial staff in Vitebsk.
At the same time, the President emphasized that the high-tech park should bring economic benefits to the country and its people, not be created for the sake of image.
The project development lasted for many months. The authorities decided not to rush and avoid hasty decisions to prevent mistakes. And so, on September 22, 2005, Alexander Lukashenko signed the decree on the establishment of the High-Tech Park. The HTP residents received unprecedented preferences for that time, primarily concerning profit tax and contributions to the Social Protection Fund of the Population. In June 2006, the first four residents registered with the HTP. Within a year, software production and its export grew several times over. IT companies began to emerge from the shadows, register with the HTP, and pay their employees exclusively official salaries. They gained an incentive to develop, and investors – to invest.
Why was the decree on the development of the digital economy needed?
And it seemed that everything was going well. Software exports increased by tens of millions of dollars annually. The President was reported on "fantastic successes." However, the development pace of the Belarusian equivalent of Silicon Valley did not satisfy him yet. Belarusian IT specialists mainly worked on an outsourcing basis, fulfilling orders for foreign companies. They received only a small share of the profit compared to the benefits of a product business model and the commercialization of the final product. Clearly, this was not what the Belarusian authorities initially aimed for.
In 2017, the development of the digital economy began to be actively discussed in Belarus. At the end of the year, Alexander Lukashenko held a meeting on the draft of the relevant decree.
"The domestic IT sector needs a new impetus for development so that talented people can fully realize their potential here. Belarus should become a real center of attraction – for talented people, successful companies, and international corporations. Our country has every chance to become at least a regional leader in the development of the most advanced areas – artificial intelligence, big data, blockchain technology," the head of state said.
A few days later, the decree was signed. The adopted innovations were so revolutionary that this event became epochal not only for the High-Tech Park but also for the global industry. The Presidential Decree "On the Development of the Digital Economy" caused a truly international resonance. Elements of English law began to apply to the residents of the HTP. The procedure for hiring qualified foreign workers was simplified. Belarus was the first in the world to legalize a number of technologies, such as smart contracts. Activities in the field of blockchain were legalized, and the unimpeded hiring of foreign specialists was permitted. HTP residents gained the opportunity to conclude foreign economic transactions electronically. The effect of the document was almost immediate. The HTP and its residents entered a period of explosive growth.
"This is the merit of the IT specialists themselves. The question was: either we have this, or we don't. They approached it responsibly – the IT specialists themselves. And they are working today thanks to these decisions. Therefore, no one should consider themselves a great person who has done something great. It was done by the IT specialists, and I am grateful to them for acting decently," Alexander Lukashenko would say a couple of years later.
How did the adoption of the decree affect the Belarusian IT industry?
In 2018-2021, five times more companies joined the HTP than in the previous 12 years. The number of product companies increased 14-fold. Exports not only increased in volume but grew threefold in three years: from $1 billion in 2017 to $3.2 billion in 2021. From 2014 until the adoption of the new decree, the growth rates were declining annually.
But most importantly, after the adoption of the new decree, sales of goods and services in the domestic market of Belarus increased manifold. Before 2017, these indicators were not even particularly tracked. The previous management of the HTP apparently did not consider it important to pay any attention to this. If in 2017 the park residents supplied goods and services worth Br190 million to the domestic market, then a year later this figure increased by more than Br100 million. And in 2021, the volume of sales of IT products and services in the domestic market amounted to Br1.3 billion. A significant increase, isn't it?
Currently, residents of the Hi-Tech Park (HTP) utilize three business models. The custom development model, or outsourcing, involves a company developing software on demand and transferring the product to the client along with all rights to it. Development centers, or staff leasing, are when a company has a single foreign founder who is also the sole client. The product model involves a company creating and developing its own product, owning all rights to it, and earning through its scaling. This could be, for example, some kind of software, a game, or a mobile application.
The Belarusian Hi-Tech Park has become a leading IT cluster in the region. The export of computer services per capita in 2021 amounted to $320. For comparison, in neighboring Poland it was $266, in the USA - $155, and in India - $56.
How have approaches to education changed in Belarus?
All these achievements are largely due to the high level of IT education in Belarus. The Hi-Tech Park actively participates in creating a unique continuous personnel training system for the industry, from kindergarten to university. HTP residents have established and support nearly a hundred joint scientific and production laboratories based at universities. Specialized educational courses have been developed and are being conducted at relevant departments. Moreover, over 40 branch departments of universities have been opened directly on the premises of HTP residents and within the park's territory.
For over five years, the republican educational project "Programming is the Second Literacy" has been implemented in schools. Today, more than 80,000 Belarusian schoolchildren study the basics of programming in elective classes starting from the second grade.
If everything is clear with schools and universities, then what kind of programming can be taught in kindergartens? Of course, it's not about working with a computer. Since 2020, the educational project "Informatics without a Socket" has been launched in Belarus. Its main goal is to develop algorithmic skills and logical thinking in children aged 5-7. Specifically for them, the Hi-Tech Park has developed a unique methodology that allows identifying aptitudes in children and developing the foundations of algorithmic thinking and logic in a playful manner.
According to Natalia Karlyukevich, Deputy Head of the Educational Activities Department of the Hi-Tech Park Administration, a special diagnostic tool was developed to assess the effectiveness of this programme. An experiment was conducted in kindergartens in 2021-2022. As a result, children who attended the club scored 2.5 times more points in all areas of logical thinking development, cognitive abilities, and cognitive interest in learning than those who did not participate in the project.
"We have developed two more projects. Children study robotics within the framework of the "Roboalgorithmics" project. And science for toddlers is the "Discovery Laboratory" project. Currently, this is a pilot project for us, where children study the basics of physics. "Roboalgorithmics" has been implemented in our kindergartens since this year. Given that this project is still young, we have a small number of kindergartens involved. And we are now actively developing these two areas," noted Natalia Karlyukevich.
Belarus remains at the top of the educational online platform Coursera's ranking. In the Global Skills Report 2022, Belarus continues to hold the honourable first place among 33 European countries in the "Technology" category. In the global ranking, as in the previous two years, Belarus maintains the second position, with Indonesia leading.
Russia officially strives to catch up with and surpass Belarus in the development of the information technology sector. In 2021, the Russian government adopted a roadmap in an effort to increase the attractiveness of its jurisdiction compared to global market leaders, which include our country.
What benefits does the Hi-Tech Park offer and how much tax do residents pay?
There is a myth that the Belarusian IT sector surged forward thanks to unprecedented tax incentives. The idea is that if any enterprise were provided with such conditions, it would show even greater results. Let's take a closer look. What tax preferences did Belarusian IT professionals receive? VAT, profit tax, offshore levy - 0%. Tax on income of foreign organisations - 0%. VAT and profit tax on mining, operations with cryptocurrency and tokens - 0%. Personal income tax - 9% (in 2021-2022, a rate of 13% was applied as part of measures aimed at combating the COVID-19 pandemic. - Ed. BELTA). Contributions to the Social Protection Fund (FSZN) - from the average salary across the country. This is approximately 7%. Contributions to the Hi-Tech Park administration - 1% of turnover.
This sounds indeed very tempting. However, there is one caveat. Despite the incentives, Hi-Tech Park residents pay more taxes to the budget than all enterprises of the Ministry of Industry and the Ministry of Agriculture and Food. More than any other tax-burdened industry. The actual tax burden on Hi-Tech Park residents is higher than on enterprises in the economy on average. Each Hi-Tech Park employee pays four times more personal income tax than the average employee in the economy.
Why did this happen? It's simple. In the IT business, over 80% of the cost of goods sold is salary, which is subject to personal income tax. On average across the economy, over 60% of the cost of goods sold consists of material costs, which are not subject to taxes. And those who believe that the billions of dollars earned by Belarusian IT professionals leave the country to the accounts of Western or Eastern shareholders are mistaken. Almost all of this money remains in Belarus in the form of salaries for employees. And they, in turn, spend it by purchasing goods and services within the country.
Today, digital developments by residents of the High-Tech Park are known worldwide. Belarusian companies work with global giants. Applications and software developed by Belarusian developers are used by billions of people. In terms of production and export of software products, the country has long been among the world leaders.
What is happening with the Belarusian IT sector today?
Why has Alexander Lukashenko been so critical of IT specialists recently, and why have some companies decided to leave Belarus? In 2020, presidential elections were held in the republic. Alexander Lukashenko won a confident victory. However, even before the voting, protests began to be fueled from abroad. Among the "supporters of change" were representatives of the IT sector. True, as it turned out later, only a few percent of those employed in this industry took to the streets to protest. And these few percent, in turn, constituted only a couple of percent of the total number of protesters. But they were written about so often in the media that an impressive effect was created.
Alexander Lukashenko, thanks to whom the High-Tech Park was established in the country and the IT industry became known worldwide, could not ignore this.
"I admit that neither I nor the special services paid enough attention to this. We simply dismissed it. I thought: well, your children cannot start a war against you. That's why we paid the price. It turns out that such children can also fight against their parents if they are well paid. That is, our people, it must be frankly admitted, working in the HTP, receiving decent incomes, salaries compared to the average salary in Belarus, preferred big money and followed the commands of their foreign masters. Most often, those from overseas, - the head of state said recently, hearing a report on the development of the HTP. - Therefore, we must take into account that they were controlled. And since they are mostly young people, and the management of the HTP also worked carelessly - they did not know their people and did not counteract all these negative trends in time - we got what we got."
In 2020-2022, news began to emerge about various IT companies leaving Belarus. This began to happen against the backdrop of protests and the imposition of sanctions against the republic. Is there any political background to this? No. The main clients of Belarusian companies are located abroad. All they need is to receive their product on time and conduct financial transactions without hindrance. Foreign owners and shareholders are also not concerned with politics. The main thing for them is the stock value and profit. And when protests occurred in Belarus, and then sanctions began to be imposed against the country, many companies were forced to relocate. More precisely, they were forced to - by clients and owners. It is unlikely that they followed the course of the elections in Belarus, but they certainly followed the movement of funds in their accounts.
"Relocation itself (i.e., the movement of IT specialists between offices of their corporation in different countries) has always existed. It existed before 2022, and before 2020. It is, in principle, a form of work. A programmer moves to where there is a project, where they need to be for a limited period of time. Consequently, the project is completed, and they move on. These processes have always existed, people just didn't pay attention to them," noted Kirill Zalessky, Deputy Director of the Hi-Tech Park. "Now we see a very clear trend that despite all the forced relocations of our programmers outside our country, the majority of them return to their homeland at the slightest opportunity. They have their home here, they have a decent standard of living, education, healthcare, and so on."
What awaits Belarusian IT professionals in the future?
After these events and ambiguous statements by the President, some media outlets began to write off the Hi-Tech Park. However, in November 2022, Alexander Lukashenko, after a meeting with the management of the Hi-Tech Park, reaffirmed his support for the park and the entire IT industry. The Head of State stated that it is necessary to look to the future so that both programmers and companies can work and develop peacefully. In other words, the authorities have turned a page.
"The past year has been challenging for the park. Naturally, the geopolitical situation around our borders and the general global crisis in IT have left their mark. You heard the news at the end of last year about mass layoffs in almost all global IT corporations. Consequently, this was a global trend that also had a certain impact on us," emphasized Kirill Zalessky.
Nevertheless, the IT industry achieved good financial results in 2022, as stated by the Hi-Tech Park. Data for the entire year is not yet available. It is known that for the first nine months, exports amounted to $2 billion. "These indicators were positively assessed by the Head of State. In the coming year, we will continue to work on the development of the Hi-Tech Park, search for new markets and strengthen our position in existing ones, work within the country, and develop the product model. That is, on all those directions and all those main tasks that lie before us," said the Deputy Director of the Hi-Tech Park.
"Regarding work in the domestic market of Belarus, we are working closely with the Ministry of Communications and Informatization, which acts as the main regulator for the digitalization of the economy. Here, the park acts more as a contractor. That is, our companies will actively participate in projects that are being developed within the country. Regarding work in the external environment, our legal regime will receive certain development here. This is an increase in opportunities for our residents," - said Kirill Zalessky.
Belarus is known worldwide for many things. Including the IT sector. The management of the Hi-Tech Park promises that there will be many, many good news ahead. The High-Tech Park, created by the decision of the President, was and will remain the pride of the country.
The project was created using funds from a targeted levy for the production of national content.