Crypto country: Ex-Soviet state Belarus uses bitcoin bubble to boost its tech sector

Europe's last dictatorship wants to promote itself as a forward-thinking technology-powered nation.

Ex-Soviet state Belarus becomes cryptocurrency powerhouse Europe's last dictatorship wants to promote itself as a forward-thinking technology-powered nation.

It all started two years ago, when a group of technology professionals knocked on the door of Belarusian president Alexander Lukashenko.

They asked him for "very favorable legislation" for the technology sector as well as incentives, arguing that these would lure foreign investors to the country and make it less dependent on oil and gas prices.

Lukashenko, who a few years earlier had called the internet "garbage", was at that moment interested in artificial intelligence. So he agreed to give them a chance.

The entrepreneurs invited one of the country's most famous tech lawyers, Denis Aleinikov, to help write a bill that would make it easier for foreign companies to work with local ones.

But the tech community went one step further: "We wanted to promote our country abroad as a global technology hub," Aleinikov tells ZDNet. "We didn't have any budget for marketing, and we needed a viral campaign."

The entrepreneurs thought they should capitalize on the crypto bubble. "Cutting-edge technology [is a] very nice marketing instrument for a little country," Aleinikov says. "We decided that it would be good for Belarus to be the first country to make smart contracts legal."

In December 2017, President Lukashenko signed a decree, which came into force three months later. According to some reports, Lukashenko allegedly said: "If it benefits us, it's a plus. If not, I know who to blame."

SEE: How to implement AI and machine learning (ZDNet special report) | Download the report as a PDF (TechRepublic)

The decree marked a turning point in the evolution of the tech sector of the former Soviet republic with its 9.4 million citizens. It had an impact even before it was signed, says Dmitry Titov, the press secretary of the Belarusian high-tech park based in the capital of Minsk.

"Serious players began coming into the country and became interested in our preferential terms: from Uber to General Electric," he says.

There are 36 types of tech activities listed in the decree for which taxation is waved. "Until 2049, there's zero percent VAT, zero percent corporate profit tax, customs duty, offshore duty, income tax for foreign entities, tax on sales of shares of high-tech park residents, and zero tax on revenues of foreign companies," Titov says.

"Yes, that's right. All these are zero. President Lukashenko supported the most daring ideas of our IT specialists."

The decree also legalized initial coin offerings and granted tax-free status to all token-issuance, digital currency trading, and mining enterprises until 2023.

Helped by this law, the Belarusian tech sector has flourished, Titov says. In 2018, over 260 companies entered the tech park, more than in its entire 12-year history. The high-tech park's software exports also soared. They accounted for $1.4bn in 2018, up 38 percent from the previous year.

The park attracted a variety of companies and startups last year, from blockchain-based businesses, to those operating in the field of machine learning, telecommunications, space, robotics, and information security. Belarusian devs are working for European and CIS clients, as well as for businesses in the US, Israel, and South Korea.

One of the main changes the decree brought is to grant foreign employees six-month visa-free entry into Belarus, which people like the London-based CEO of Currency.com and Capital.com, Ivan Gowan, find helpful. Gowan has traveled to Minsk on more than 10 occasions to do business, but also to enjoy a good old beetroot borscht.

"There have been lots of steps taken to make [Belarus] a more favorable place to do business for tech companies," Gowan says. The country ranks 37 among 190 economies in the latest ease of doing business report published by the World Bank.

"We're really excited to have been granted a high-technology park license to run the world's first cryptocurrency tokenized security exchange," he says speaking about Currency.com. The trading platform is based on a web app, and it allows crypto investors to buy tokens that are linked to shares on Nasdaq.

Gowan says, besides tax exemptions, the quality of Minsk's tech pool is also part of his company's success. "We don't see Belarus as a place to hire cheap people; we see it as a place to get great talent," he said. "[My Belarusian team is] not a delivery team asked to do as they are told. They are a team of people who are really sharp."

When crafting the decree to reform the tech sector, Belarusian entrepreneurs also hoped it would indirectly help with the country's brain-drain problem. A survey conducted in 2017 by the Belarusian Analytical Workroom showed that 31.3 percent of locals would consider permanently moving abroad for a better life.

Most of those who settle somewhere else list economic crisis, political pressure, and education stagnation among their reasons. Corruption is also a problem, as Belarus ranks 70 out of the 180 countries included in Transparency International's Corruption Perception Index.

Many of those who leave are highly skilled technology professionals, says software developer Artsiom Dylevich, who has written code for companies in Belarus, Russia, and Germany. He's currently a freelancer based in Minsk working remotely for German clients. That way he enjoys a Western paycheck in a city where renting a one-bedroom apartment downtown only costs about $340 a month. A three-course meal for two at a mid-range restaurant is $30, according to numbeo.

SEE: How to build a successful developer career (free PDF)

Dylevich argues that Belarusian developers are not only highly skilled, but also eager to learn more about the latest trends. "They are more interested in brand-new technologies, like blockchain or AI, compared with those in Germany, for instance," he says. "However, German developers tend to stick to a company longer than those in Minsk."

But not all highly skilled techies want to leave the country, argues Andrei Avsievich, general partner at Bulba Ventures. "We see two flows today: people who leave Belarus, and highly qualified people who come back," he says. "They come to launch startups, to run R&D centers. And they bring their experience and money."

Setting up a startup in Minsk can be a viable option, Avsievich says, as hiring techies there is cheaper than in London or Berlin. The median pay for a software developer in Minsk is about $26,500 per year, according to PayScale.

On top of that, there seems to be enough money, as both local and foreign investors have started to open their pockets. "A major improvement happening is local startups raising financing rounds from international investors and becoming mature businesses," Avsievich says. "A good example here is the health-tech startup Flo, which raised $12m in series A at a $200m valuation."

In a country whose tech sector heavily relies on outsourcing, some startups have even had striking successes. Face-swap app MSQRD was acquired by Facebook in 2016, and computer vision startup AIMatter was bought by Google in 2017.

Those few successes and the new decree that enables lower taxation for the tech sector have given technology professionals hope for the future. The entrepreneurial spirit is stronger than ever in Belarus, which is "extraordinary" given the country's communist past, Bulba Ventures' Andrei Avsievich says.

"For the past 100 years, entrepreneurship wasn't something that the state encouraged people to engage with. But [today] founders are learning to present themselves and their projects to the international tech community," he says.

Victory Square in Minsk, Belarus

Setting up a startup in Minsk can be a viable option, as hiring techies there is cheaper than in London or Berlin.

Image: Getty Images/iStockphoto

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