How Aleksandr Lukashenko – the socialist dictator of Belarus – is luring tech giants like Microsoft
Aleksandr Lukashenko is not widely regarded as one of Europe’s great reformers. The Belarusian dictator – who has ruled his country since 1994 – has historically shied away from embracing change. In December 1991, as Belarusian deputies prepared for life outside the Soviet curtain, Lukashenko was the only MP to vote against dissolving the USSR.
And in the early 1990s, when countries like Russia and Kazakhstan enthusiastically embraced the policy prescriptions of the IMF, Lukashenko’s Belarus was unique among CIS states in undertaking almost no economic reforms at all. A former Soviet collective farm boss, he “understood the planning system, not the market,” according to historian Andrew Wilson.
After some moderate economic liberalization led to protests over dairy prices, Lukashenko lambasted his entire cabinet on live TV in 1995.
“Do you know what a market economy is, can you work in market conditions?’ he bellowed. “No,” came the sheepish answer. “And do you know what a planned economy is?” ‘Yes,’ they chorused. “Right,” said Lukashenko. “Then we will build what we know.” Since then, Belarus has pursued a non-market economic system, with pervasive state control of the economy crowding out investment and growth.
The wind however, may be beginning to blow in a new direction. In recent years, Minsk has embraced dynamic initiatives, in a bid to turn itself into one of the world’s leading IT clusters.
In 2015, the government opened the ‘High Technologies Park (HTP) in Minsk, a state-backed tech incubator which employs nearly 30,000 people and generated $1 billion in revenues in 2017. Tech companies registered in the park enjoy generous state support for developing and selling their products.
To boost the attractiveness of registering tech companies in Minsk, the government has also moved to offer tax incentives. Since 2017, HTP firms have been exempted from most taxes, including VAT and income tax, and their employees enjoy a 30% reduction in personal income tax compared to other sectors of the economy. Although Belarus’s political image will inevitably deter some investors, its legal system offers tech companies solid protection, according to Dmitry Matveyev, a partner at law firm Aleinikov & Partners.
Recent HTP successes are an encouraging sign for the government. Global tech brands like Viber messenger service and World of Tanks have chosen to base themselves in the tech ecosystem. According to a 2017 EY survey, more than 30% of Fortune Global 200 companies have worked with start-ups from Minsk, including behemoths like Facebook and Microsoft. Belarus’s relatively low labour costs and well-educated population have also contributed to HTP’s achievements, according to Finance Minister Vladimir Amarin.
Regularly criticized for human rights abuses and a democratic deficit, Belarus has a poor international image and remains a no-go zone for many investors. Challenges like poorly-run SOEs and a dysfunctional state banking sector continue to dampen its economic outlook. The tech industry’s recent success however, indicates that Belarus may not be uniformly arid ground for business.