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Hi-Tech Park in Belarus is a growing hub for both regional and international software and IT firms that offers its registered businesses economic incentives. This is one example of how the eastern European country is capitalising on its highly skilled workforce of engineers, which has also attracted the attention of the likes of Microsoft and NEC.
Each month more than 2.7 million people visit the US National Hockey League website. While the site deals with the fortunes of some of the most famous sporting teams in North America, its origins lie in Eastern Europe, as it was designed by the Minsk-based programmers Object Style.
The company is one of the 100 businesses registered at the Hi-Tech Park (HTP), which is a software and IT cluster in Belarus’s capital city. HTP came to life in 2005, after president Alexander Lukashenko signed the decree which led to its commencing operations. According to the decree, all companies that are part of the HTP project until 2020 are exempt from corporate taxes and custom duties, while income tax for the employees working at HTP software and IT development companies is held at the fixed rate of 9%.
Incentives for investors, along with modelling the cluster on similar initiatives in Sweden, Finland and China, brought a string of companies to HTP, with 50% being started with foreign capital. In 2010, HTP-registered companies exported $161m worth of products, which counted for 80% of the revenues of the park’s companies. One of Belarus’s most successful private companies, Epam Systems, is also a part of HTP, where it has more than 1000 employees. The company is expected to float on the Nasdaq stock market in 2012 with an initial public offering of about $1bn.
Natallia Makarchenko, deputy head of the foreign economic and marketing department at HTP, says that the park benefited not only from the economic incentives granted by the decree, but also from Belarus’s highly skilled workforce. “We have a number of technical higher education institutions, with HTP supporting 30 research labs,” says Ms Makarchenko. She adds that in order to keep the number of graduates with tech-related degrees high, HTP organises meetings with primary school students, which sees children as young as five years being given information on the benefits of a career in IT and software.
Employment in the IT sector also offers a significantly lucrative salary for workers in Belarus, at an average of $1200 (the overall average monthly salary in Belarus was $530 in 2010). Though this is high for Belarus, this is still three or four times cheaper than average salaries in Germany or the US.
A capable and inexpensive workforce undoubtedly appeals to investors seeking sites for their foreign operations. According to greenfield investment monitor fDi Markets, since 2003 a total of 37 foreign investment projects were established in Belarus in the IT and software and information and communications technology (ICT) sectors, with 2010 seeing an increase in both the number of projects and their size (50% and 115%, respectively). The International Telecommunication Union and the United Nations ranked Belarus in 52nd position out of the 152 countries in their 2011 ICT development index.
Germany’s SAP, which is one of the world’s leading software companies, plans to double its number of employees in Belarus by the end of 2011. “SAP has a strong position in the Belarusian market and continues to see benefits from the investments here. There is a strong culture of IT development and innovation and that is the most valuable asset a company can have in the IT business,” says Ilya Yuriev, managing director of SAP Belarus.
Mr Yuriev also highlights that in terms of revenue, SAP’s decision to invest in Belarus pays dividends too. “Since 2007 we have doubled our revenue and initiated a number of large-scale transformation projects with several of the country’s biggest companies,” he says.
Mr Yuriev is not the only satisfied foreign investor in Belarus. Industry giants Microsoft and NEC both entered the Belarusian market in 2011, with the intention to develop cloud services. NEC opened its representative office together with Russia’s leading telecommunications provider MTS.
Raymond Armes, managing director of NEC Neva Communication Systems, says that the investment decision is based on the fact that “Belarus has been extremely active in implementing a broad range of ICT projects in the past five years”. Apart from the customer-driven demand for IT and ICT development, demand comes also from the public sector, as since 2003, a series of ‘e-Belarus’ programmes have been implemented with the aim of increasing the use of IT and ICT solutions in administration.
Mr Armes states that the joint venture between MTS and NEC is also intended to serve as a key gateway to Russia. “The cloud computing business application store launched by MTS and NEC is the first step and we are planning to use this great experience on the Belarusian market before large-scale provision of cloud services in Russia,” he says.
MTS made additional investments in the country in the telecommunications sector, expanding its 3G coverage network. However, the company has a powerful foreign rival in the Belarusian telecommunications sector, as Velcom, one of the country’s most popular mobile operators, was acquired in 2007 by Telekom Austria. “After four years we are operationally clearly ahead of our initial expectations,” says Helmut Duhs, CEO of Velcom. Nevertheless, Mr Duhs says that his company’s operational growth in 2011 is offset by the devaluation of the Belarusian currency. “We are adjusting our business model to the new situation,” he says. And local tech companies are adjusting their offering to the foreign demand.