CONTENTS

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responsibility for loss occasioned to any person act- obel ing or refraining from acting as a result of material in this publication can be accepted. On any specific matter, reference should be made to an appropriate adviser. Registered Office: Number One Southwark Bridge, London SE1 9HL, UK Reprints are available of any fDi Magazine article, with your company logo and contact details inserted if OvErviEw required (minimum order 100 copies). For details telephone 0207 873 4816. Long established as a hub of manufacturing excellence among central and eastern European countries, For one-off copyright licences for reproduction of fDi magazine articles telephone 0207 873 4871. 02 is now targeting Western companies, writes Andrew Wrobel, as it looks to demonstrate its Alternatively, for both services e-mail [email protected] openness and business credentials on a global scale. q&a The Belarusian president’s economic advisor, Kiryl Rudy; the minister of the economy, Nikolai Snopkov; 05and deputy foreign minister Aleksandr E Guryanov explain to Andrew Wrobel the advantages foreign companies will gain from investing in Belarus. iCT Belarus’s Hi-Tech Park is attracting a growing number of domestic and international software and IT 07companies thanks to economic incentives and a highly skilled workforce. Andrew Wrobel reports.

October/November 2014 www.fDiIntelligence.com 1 OVERVIEW

An open invitation

Long estabLished as a hub of manufacturing exceLLence among centraL and eastern european countries, beLarus is now targeting western companies, writes Andrew wrobel, as it Looks to demonstrate its openness and business credentiaLs on a gLobaL scaLe

hen the International Ice Hockey autocratic government under long-standing Federation World Championship president . Last October, W was held in earlier this year, EU sanctions against Belarus were extended for Belarus was not only competing on the ice, but another year, with Brussels expressing its dis- also hoping to score points for its hospitality. appointment in the lack of progress in instill- The event was a chance to show a friendlier ing human rights, rule of law and democratic face to the world and to counter its image principles in the country. The annual review as a closed, Soviet-style outpost. updated the list of those targeted with a travel “It was a great event for Belarus and for the ban and a freezing of their assets within the Belarusian people,” says the chief manager at EU. More than 200 Belarusian individuals and the Minsk Arena, which hosted the final match, 25 entities remain subject to EU sanctions. The in which Russia prevailed over Finland. “And it US has also extended its sanctions against vari- showed how open and hospitable we are.” ous Belarusian officials. The championship saw a new attendance Against this backdrop, a push to increase record set, with almost 650,000 people attend- international trade and investment links ing over the course of the tournament and goes on. with sports fans visiting the country from “Belarus has always been open to foreign Europe and America. This was helped by a markets,” says deputy foreign minister free-visa entry for anyone with a match ticket. Aleksandr E Guryanov. “Even being part of However, Belarus’s efforts to improve its the Soviet Union, the country was like a pro- openness and hospitality are not restricted duction facility for the whole USSR and most to the sports domain, and the country is now of the union’s exports came from Belarus. In focusing on bringing in business from abroad. recent years, the figures [have gone] up and down but exports have always constituted Doors wide open more than 60% of our GDP.” The openness to business is at odds with At the end of the 2000s, the government Belarus’s political isolation from much of the decided to diversify its trade markets, but Russia Western world, due to its lack of democratic remains Belarus’s most important trading part- credentials and the heavy-handed nature of its ner, absorbing almost half of the country’s

Belarus has always Been open to foreign markets

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wr

photo: andrew

Building blocks: Belarus is working on modernising its economy, which will involve privatising state-owned companies

international trade. According to the European the Americans, Germans and Japanese,” says Commission, however, the EU-Belarus bilateral Aleh Stsiapuk, first deputy director at BelAZ. trade in goods has been growing steadily in “For our consumers it is not important where recent years and the EU is now Belarus’s second the product is manufactured.” main trade partner, with almost a one-third Vladimir Rybakov, deputy general director share in the country’s overall trade. at Belarusian roller shutter systems producer “In order to be able to sell more to foreign Alutech, understands that for his company to markets, Belarus’s companies need to be more be competitive, it is important to work to global competitive,” says Pavel Laschenko, country market principles and follow the best global managing partner for Belarus at Ernst & Young. practices. The company has recently acquired a “We need to finish modernising the economy factory in Germany, has another one in Austria first. Now only the oil industry is competitive and a logistics centre in the Czech Republic. It enough as it was modernised first.” sells its products to some 40 countries. “Sometimes we still invite our partners to The private model show what we can produce in Belarus, and it Such modernisation could be done through usually takes about four years to convince our privatisation, given that private investors typi- clients to work with us, even though we have cally bring new technologies, know-how and modern equipment and machines and all the access to new markets, but it has taken Belarus necessary quality certificates, and sometimes almost two decades to start privatising state- even additional ones,” says Mr Rybakov. owned companies. “We are working on a joint privatisation Educated workforce project with the World Bank. Its goal is to create But such examples of state-of-the-art produc- a model example,” says Natalia Nikandrava, tion facilities are not Belarus’s only assets. director of Belarus’s National Agency of According to the European Commission, Investment and Privatisation. “One investment there are about 500,000 students enrolled is at its final stage and all the documents will at Belarus’s 55 higher education institutions soon be submitted to the president’s adminis- each year, an impressive number bearing in tration, who makes the ultimate decision about mind the country’s relatively small population privatisation. Four state-owned companies have of about 10 million. passed the pre-sale stage and are ready for sale.” Although getting credit, paying taxes and Some companies are already competitive. trading across borders can still be an obstacle BelAZ, a state-owned automotive company, for companies operating in Belarus, according exports 95% of its production and owns 48% the World Bank’s Doing Business 2014 rank- of the global market in 130-tonne mine trucks. ing, the country was placed 63rd in the rank- For BelAZ, its success can be largely attributed ing and is therefore more business friendly to it finding a lucrative niche. than some EU economies, such as Greece or “Only five companies produce similar the Czech Republic. equipment and we successfully compete with Currently, the government is working on

october/november 2014 www.fdiintelligence.com 3 beLarus OVERVIEW

ber of registered companies with foreign capi- tal doubled to reach 7000 last year. Within the past five years, foreign companies have invested almost $10.5bn. In 2012, Stadler, a Swiss producer of light railway vehicles, set up a joint venture with a local partner in the Minsk Free Economic Zone, l hts andrew photos: all one of the six such zones in Belarus, which hosts almost 140 companies from the UK, the US, Germany and even as far as New Zealand.

wr “The factory in Minsk will be used to supply obel the [Commonwealth of Independent States] market, especially Russia. One of the first orders we acquired was the construction of 25 double-decker multiple-unit trains for the Russian company Aeroexpress,” says Vladimir Korol, chief executive at Stadler Belarus. Austrian IT company Kapsch had a similar goal when the company first looked to the Belarusian market. After a few years of prepara- tion to sign an investment agreement and then building the infrastructure, the company started operating the national electronic toll collection system in August 2014, thus running the first public-private partnership (PPP) in Belarus. “Around the world, PPP has a wide applica- tion, but in Belarus we haven’t established the regulatory and administrative framework. Now we are working on it,” says Sergei Roumas, CEO of the Development Bank of the Republic of Belarus.

Safe and sound The lack of necessary regulations, administra- tion hierarchy and decision-making processes can be challenging, but is also an opportunity to negotiate individual incentives, benefits and privileges, such as in the case of Kapsch. “You have to be very patient because every- thing might seem very complicated at the begin- ice breaker: having attracted global attention as host of the international ice hockey federation world Championship in may, Belarus wants to promote its hospitality and openness to foreign investors. the ning, especially if you have a Western-minded country already has a strong manufacturing sector comprising both foreign firms, such as swiss light railway approach, but everything is possible,” says vehicle maker stadler (top left), and state-owned companies, such as automotive firm BelaZ (top right) Sergey Boury, marketing manager at Kapsch. “The truth is that Western investors are hesi- internet communication between government tating whether to come over here and investors agencies and business to be able to process from the East are not. That is why they start all the necessary administrative procedures occupying the niches which could be taken online. “Once we complete that, we’ll be in the by investors from the West,” says Kiryl Rudy, ranking’s top 30 countries,” says economy min- economic advisor to President Lukashenko. ister Nikolai Snopkov. Dmitry Matveev, a partner at law firm “In the mid- to long-term, small and Aleinikov & Partners, confirms Belarus is a medium-sized businesses will be the driver legally safe place to do business. “The country of our economy. There is a lot of discussion is a member of the Multilateral Investment about innovation but we forget that the basis Guarantee Agency and the International for innovation is entrepreneurship and initia- Centre for Settlement of Investment Disputes. tive. When both of them are missing, there So far, for example, there have been 12 cases cannot be any innovation, that is why my tar- against , three against Poland and get is to create a comfortable and proper envi- none against Belarus,” he says. ronment for entrepreneurship and use it as a Belarus is working hard to reverse its long- basis to boost an innovative economy,” he adds. standing negative reputation and seems very committed. Mr Rudy says: “If the hockey cham- A gateway to the East pionships weren’t enough, we will undertake According to the country’s National Statistical other measures to change that image of Belarus Committee, in 2013 there were almost 92,600 in the West. We have a clear message, we wel- small and medium-sized companies, more come Western partners and we do not see any than twice as many as in 2007. Also, the num- reasons for them not to come to our country.” ■

4 www.fdiintelligence.com october/november 2014 Belarus q&a q&a: Belarusian officials Has Belarus’s time arrived?

The Belarusian companies coming to Belarus it is With GDP growth of 0.9%, 2013 presidenT’s economic an opportunity to make money. Qwas a challenging year for the advisor, Kiryl rudy; During the past few years, for- Belarusian economy. The govern- eign companies operating in Belarus ment’s forecast for economic The minisTer of The have achieved higher profits com- growth this year is 3.3%. What economy, niKolai pared with subsidiaries in other is the government’s strategy to snopKov; and depuTy countries. And it is interesting for achieve that growth? foreign minisTer us to see that these companies do not Nikolai Snopkov: The only strat- aleKsandr eguryanov take their profits out of the country A egy to strengthen our growth is explain To Andrew but decide to reinvest them here. to sell. Our domestic market has some wrobel The advanTages limitations. It only has 10 million con- At the beginning of August sumers, and that is why our aim foreign companies Q 2014, the EU and the US tight- is not to grow through domestic will gain from ened sanctions against Russia. Will consumption but through exports. invesTing in Belarus these sanctions affect Belarus? Foreign trade is sometimes worth Mr Rudy: The slowdown in more than 140% of our country’s A Belarus started before the sanc- GDP. But, as far as Western markets After almost a decade of high tions were imposed against Russia. are concerned, we don’t see it as stra- Q growth, the Belarusian econ- That is why economic growth that tegically correct to focus exclusively omy slowed in 2008, and is yet to we are forecasting may, in fact, on the export of [Belarusian] products recover, with GDP at just 0.9% in coincide with the sanctions. and services. What I mean by that is 2013. What caused this slowdown? I wouldn’t say these sanctions that if particular goods are not identi- Kiryl Rudy: It would be naive of will necessarily have a knock-on fied as Belarusian products, but Aus to only blame the global crisis effect on Belarus. The Russian econ- instead as international products for the current slowdown in our econ- omy has its own challenges and I manufactured in Belarus by a foreign omy. A big part of our economy am sure that the government will company or by a joint venture, then depends on developments in Russia. see to them and will tackle them. that [allows them to be] distributed This is a conscious policy of ours; What we would be more afraid of is a in the markets of the Eurasian neighbouring such a big economic slowdown in the entire region Russia Economic Union, the EU and the player, it makes sense for us to try to collaborates with. I wouldn’t link the US. This is the best option open to us. benefit from that. Of course, it is ben- slowdown to the sanctions. eficial when everything goes well, but As far as the sanctions against So, in other words, you would slowdowns in Russia also affect us. Belarus are concerned, [when these Q like to invite more Western Apart from that, there are some were imposed in 1996] we were companies to come and operate internal aspects [of the Belarus econ- experiencing high growth and we in Belarus? omy] that need improving and we are weren’t really affected by them. They Mr Snopkov: My task is to gener- trying to do that. In 2011, we had a were more detrimental to businesses A ate value here in Belarus, that is large devaluation of our currency, but that originated from the countries why I am focused on Western compa- we didn’t experience any of the social that imposed those sanctions. nies coming here and opening their consequences that accompanied simi- manufacturing facilities here. There lar devaluations in Argentina and in are many reasons why Belarus is a parts of central and eastern Europe. good location for businesses. The current economic slowdown is The first is human capital – we a result of our gradual recovery from have a very disciplined, not demand- the devaluation. ing and highly qualified workforce Our policy of gradual social with technical degrees. We also have development doesn’t include social stability. Another advantage making harsh economic reforms. is our geographic location, with Because of that, it has taken us three numerous oil and gas pipelines, rail- to four years to recover [from the ways, roads and waterways linking global financial crisis] instead of western Europe and Russia, as well just one. As a result, interest rates are as Asian countries. up and credit is less available. This Another advantage is our progres- affects businesses, economic pro- sive investment legislation, which is cesses and GDP growth. But these based on the Principles of European are challenges primarily for our Contract Law, and allows the use of Belarusian companies. For foreign Kiryl Rudy, the Belarusian president’s economic advisor British, Italian, Swiss or any other

october/november 2014 www.fdiintelligence.com 5 Belarus q&a

European system of law and arbitra- cost-effective, more profitable for the tion. Finally, 95% of the territory companies in question, as well as of Belarus has preferential regimes being beneficial for foreign investors. for investments. This means simpli- I believe that if the government fied access to tax and customs allow- begins to invest in the companies, ances, and other advantages for start- in a few years, foreign investment ing and doing business in the country. won’t be as attractive to us as it is now, as this is the time when we need to Most of these factors and upgrade our manufacturing facilities. Q opportunities have been there And finally, today we offer for quite some time. Why is now the a market of not only 10 million right moment to consider Belarus? Belarusians but 170 million consum- Mr Snopkov: Again, there are ers in the , A a few reasons. One of them is because, as far as goods and services Nikolai Snopkov, Belarus’s minister of the economy that Russia, and Belarus are concerned, there are no limita- are all competing for investors right tions. The union allows for the free business and mark their presence now, and it seems to be easier to do movement of goods, equal access in the union. They decide to business here than in the other to services of natural monopolies, set up here, and not in Russia or two countries. common technical regulations, a Kazakhstan, because Belarus offers After the fall of the Soviet Union, liberalisation of trade in services greater political stability, less cor- Belarus kept a lot of state-owned pro- and, from 2016, a unified pharma- ruption and bureaucracy, as well duction companies and their perfor- ceutical market. as a better business environment. mance is quite strong compared with Belarus was instrumental in their Russian and Kazakh counter- Now that the agreement establishing this union, because parts, but it is weaker compared with Qto establish the Eurasian we believe that integration helps companies in the EU. We have two Economic Union [between Belarus, development, both economically choices in this situation, either to Russia and Kazakhstan] has been and politically. But, when we created invest our internal resources or we signed, will that help foreign com- first the Customs Union and then can attract investors who already have panies operate in Belarus and the the Eurasian Economic Union, we the technologies needed to upgrade wider region? didn’t want to build any walls and strengthen these companies. Aleksandr E Guryanov: between Belarus and the EU or the In the end, both methods would A Now, thanks to the Eurasian US. On the contrary, we wanted to achieve the same result. But I prefer Economic Union, many companies strengthen our international rela- the second option, as it is faster, more are coming to Belarus to start their tionships and increase trade, invest- ment and joint production.

Is there a chance of closer Qcollaboration between the Eurasian Economic Union and the EU in the future, especially now that the EU and the US are working on their Transatlantic Trade and Investment Partnership? Mr Guryanov: We understand Athat the development of closer relations between the US and the EU will increase competition here in our region. This is a challenge for us and, of course, our priority is not to have additional barriers in our collaborations with either the EU or Russia. About 45% of our foreign trade is with Russia and almost 40% with the EU, which implies that these partners are of equal importance to us. That is why we suggested dis- cussions between the European Commission and the Eurasian Economic Commission, in the hope that such talks would enable us to remove some of the technical and regulatory barriers between the two unions, thus increasing collabora- tion. Unfortunately, politics has pre- Aleksandr E Guryanov, Belarus’s deputy foreign minister vented such talks taking place. ■

6 october/november 2014 www.fdiintelligence.com obel

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Photo: Andrew

Opening doors: since it opened in 2005, the Hi-Tech Park (pictured) in Minsk has been a focal point of Belarus’s IT sector, which is now worth more than $500m per year Cracking the IT success code

Belarus’s Hi-TecH Park is employed some 10,000 IT workers lion users across the world; aTTracTing a growing numBer across 17 countries and four conti- ObjectStyle, a software development nents, and recorded revenue in and outsourcing company that has of domesTic and inTernaTional excess of $550m. designed, among other things, the sofTware and iT comPanies, US National Hockey League’s web- THanks To economic incenTives Homegrown talent site, which gets 2.7 million visitors and a HigHly skilled workforce. When the Hi-Tech Park (HTP) was set a month; and WarGaming, the Andrew wrobel rePorTs up in Minsk in 2005, by the decree of developer of the ‘War of Tanks’ president Alexander Lukashenko to online game, which has 85 support Belarus’s software industry, million registered users globally. EPAM was its very first resident. Today, WarGaming is one of the “About 10 years ago, I attended leaders in the free-to-play massively hen, in 1993, two native a lecture in the US and visited a multi-player online gaming market, Belarusians, Arkadiy company producing simulators for and has 16 offices worldwide. The W Dobkin and Leo Lozner, set planes. I found out that the chief company’s goal is to expand and sup- up EPAM (or Effective Programming engineer was originally from port the global online gaming com- for America), operating the business Belarus,” says Valery V Tsepkalo, munity. While it likes to treat each out of their respective bedrooms – director of HTP and a former ambas- market individually, “our roots are one in New Jersey, the US, and the sador to the US. “This pushed my here [in Belarus]”, says Andrei other in Minsk, Belarus – they had idea to set up a hi-tech park. If Yarantsau, WarGaming’s vice- no idea how successful their modest Belarusian engineers can be president of global operations. enterprise would become. successful in the US, on foreign Some 19 years later, in 2012, the soil, why couldn’t they be successful Ambitious plan Belarusian flag waved on Wall Street in their own country, I thought.” In total, there are 140 companies when EPAM was listed on the New It was not long before EPAM registered in the HTP and they work York Stock Exchange. Last year alone, was joined at the park by others, with a large number of respected the global software engineering ser- including Viber Media, the company clients: Barclays, Bank of America, vice company opened new offices in behind instant messaging platform Citibank, Western Union, the Hong Kong, and Australia, Viber, which has more than 360 mil- London Stock Exchange, Google,

october/november 2014 www.fdiintelligence.com 7 Belarus ict

ht:Andrew Photo: “If a new company wants to enter the market, it would defi- nitely be able to find 20 to 25 Wr

obel employees who could become the core of their business at the outset. Then we would be able to make a commitment to set up a lab at a uni- versity and start working with the educational system to provide the best employees,” says Mr Tsepkalo. Additional training is also available through education centres as well as directly in companies. This encourages companies to increase employment.

Growth agenda Six years ago, US-based app develop- ment company Softeq opened an office in Minsk, Belarus, with just five employees. Today, the company Ahead of the curve: Belarus’s Hi-Tech Park already plays host to a number of foreign firms, including strategy game developer WarGaming (pictured), but it is looking to attract even more has more than 150 employees, most of which are based in Belarus, and IBM, Expedia, BP, Chevron, Microsoft operate in HTP and stay in the park it has plans for further growth. and Airbus, to name but a few. until 2020 are exempt from corpo- “We are working with large “When I wrote a substantiation rate taxes, custom duties, real estate global companies and our projects to the president to prove that it was and land taxes, while income tax for result in long-term relationships necessary to create a hi-tech park I employees of software and IT devel- with our clients. We can see now had a projection that in 10 years we opment companies in the park is that next year we will increase the would have exports worth $300m to held at a fixed rate of 9%. number of employees by some 40%,” $350m. It was a very optimistic pro- These incentives are not the only says Alex Kovalenko, business devel- jection because, at the time, the reason that the IT sector has enjoyed opment director at Softeq in Belarus. country exported software worth such significant growth in Belarus, Of the 40 companies registered about $14m. Now, the reality is a however. Its success is also owing to in HTP, 27% are wholly foreign bit different,” say Mr Tsepkalo. the efforts that have been made to owned, with 53% funded by In 2013, HTP’s production volume nurture a highly skilled workforce. Belarusian investors. The park’s amounted to $527m, 41% higher In 2013, there were 18,000 IT and biggest companies are either joint than in 2012. Exports account for 88% software engineers working in the ventures or foreign-owned ones, with all the software produced in the park. park, 3000 more than in 2012. As the largest investors hailing from the Of this, 45% is sold to Europe, 40% to well as possessing the technical skills US, Germany and Japan. And HTP the US and Canada, and 12% to Russia needed for their job, about 90% of wants to attract even more investors and other Commonwealth of these engineers also have a good and IT businesses. Independent States countries. command of English. Work is just about to be com- HTP residents account for about Meanwhile, the country’s univer- pleted on a 10,000-square-metre 90% of all Belarusian IT companies. sities are producing about 16,000 business incubator, which has The country’s per capita income graduates with ICT and related tech- been designed to house an ecosystem from IT exports amounts to $58,000 nical skills every year. Most of them where innovators can meet engi- and is higher than, for example, in already have excellent technical neers, and ideas for new business India ($41,000), the US ($36,000) or knowledge but, to make them more ventures can be born. It is develop- Russia ($17,000). employable, HTP wants to provide ments such as this that have helped In 2013, the International students with more practical skills, HTP’s director, Mr Tsepkalo, main- Association of Outsourcing and so it has established 63 labs in tain the same level of optimism that Professionals’s Global Outsourcing universities across the country. These he started out with when the park 100 ranking included five HTP-based labs are open to students in their opened, a decade ago. companies, while Software Magazine’s third, or sometimes second, year of “When we were setting up the 500 Companies, ranking the world’s university, and provide computer park, we based our estimates on largest 500 software and services classes, which are run by companies India’s software exports,” he says. companies, included seven of the from HTP, as well as mentors, who “It had taken India 20 years to park’s residents. Furthermore, in encourage students to work on prac- reach $3bn. But, we have a stronger 2014, Belarus was named one of 30 tical projects from creating apps for base than India because, apart leading locations for offshore ser- mobile phones to working with the from outsourcing, we also have vices by US-based IT research and banking sector or creating games. our own products. If we keep up advisory firm Gartner. Initially, these labs were focused this pace of growth, next year we will exclusively on software engineer- reach the $1bn mark in just our 10th top marks ing; now they also teach business year of operation. That means that, According to Mr Lukashenko’s analytics and a number of other within 20 years, we’ll make more decree, all of the companies that disciplines. than $3bn.” ■

8 www.fdiintelligence.com october/november 2014