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Some 300 CEOs of Belarus’ leading IT companies and their investors have signed a letter demanding a new election, an end to police violence and the release of political prisoners, otherwise they will take their businesses out of the country, it was reported on August 12.
Despite its image as a Soviet throwback, one of the few real successes of the Lukashenko regime has been to create a multi-billion-dollar IT industry that services the leading blue chip companies around the world. But now the leading IT firms are threatening to leave.
“Conditions are being formed in the country in which a tech business cannot function. Start-ups are not born in an atmosphere of fear and violence. Start-ups are born in an atmosphere of freedom and openness,” the letter said.
“In the near future, we will begin to observe a massive outflow of specialists abroad, the opening of offices in neighbouring countries, a slowdown in the growth of the IT sector, a decrease in investment in Belarusian IT companies, and a decrease in tax revenues. There is a risk that in a short time all the achievements in the field of high technologies will be cancelled out,” it continued.
The IT bosses went on to make four demands:
Altogether more than 700 tech CEOs and IT industry employees put their names to the letter.
The business has grown out of the high technology park (HTP) in Minsk that was established in part by presidential candidate Valery Tsepkalo, who served as Belarus’ ambassador to the US before becoming a technology advisor to Belarus President Alexander Lukashenko. After he left public office, Tsepkalo carried on advising governments on IT issues before entering the presidential race.
The HTP came about after Tsepkalo visited Silicon Valley whilst ambassador and returned to Minsk determined to create something similar at home. He tied up with the founders of EPAM, a leading Belarusian software engineering firm, that was already making millions of dollars a year from software exports both east and west. EPAM needed staff and was keen to build a park to train new engineers and create an ecosystem for start-ups and other projects.
Since then, EPAM has listed on the NYSE and has built up a billion-dollar business that is run out of New York, but the larger part of its engineering staff remains in Minsk.
Indeed, the HTP has been so successful that there are plans to build a series of similar parks in various Belarusian regional cities.
Thanks to the traditional emphasis on hard sciences in higher sciences, and especially mathematics, Belarus has a wealth of highly talented and hard-working software engineers. Moreover, its geographic location allows it to cater to clients in the US, all of Europe and in Asia, as the working day in Minsk overlaps with all these markets. But 90% of the exports go to the EU and the US markets.
IT exports has become a serious business for the Belarusian economy. The HTP exported $1.4bn worth of software in 2018, up by 38% from the year before, BelTA reported in March – a target the park was only expected to hit in 2020.
“The export growth surpassed all our expectations. The projections made by leading agencies were also beaten. Naturally, this is a direct consequence and an obvious success of the ordinance passed by our head of state. This success belongs not only to the Hi-Tech Park, but also the entire country. Belarus is indeed turning into one of the most powerful IT clusters of the whole of Eastern Europe,” Vsevolod Yanchevsky, director of the state institution Hi-Tech Park Administration, said.
Today the HTP is home to 267 companies and over 45,700 people were working there in 2019.
EPAM has also been doing well. It just reported its second-quarter financial that were well above consensus, as if anything, its business has been boosted by the coronacrisis.
“EPAM’s 2Q20 revenues increased 15% year on year to $632mn and came in 6% above consensus and 5% above our forecast. The number also significantly exceeded the company's guidance of $590-605mn,” BCS Global Markets said in a note on August 7. The growth was primarily driven by the strong performance of the Business Information & Media vertical (+43% y/y), Life Sciences & Healthcare (+16% y/y) and Software & Hi-Tech (+13% y/y).
However, most investment banks have marked its stock to hold or sell after the share prices rallied strongly this year and are now trading at just short of its 52-week high of $314; it shares are valued at a price-to-earnings ratio (p/e) well over 40.
EPAM is not the only company that makes use of the country's deep pool of IT talent. Minsk is one of the strongest players in the business and holds its own against rival IT hot hubs such as Bucharest, Kyiv and St Petersburg, along with several Russian regional cities.
The companies are annoyed, as Lukashenko has been blithely shutting off the internet every day at around 7pm as the street protests start to prevent the crowds from co-ordinating via social media.
The internet outages during the protest are costing the IT businesses $56.4mn per day, according to netblocks.org, and these costs are likely to soar if the protests drag on.
Already increasingly short of cash after Russia began to reduce its energy subsidies as part of its so-called tax manoeuvre, Lukashenko can ill afford to wreck one of the country’s best, and fastest growing, export orientated industries.
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