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Alés Alachnovic, Dr. Justina Budginaite-Froehly

To the stars (and back): the Belarusian IT industry

Since the outbreak of Russia’s war of aggression against Ukraine and the introduction of Western sanctions against Belarus, the Belarusian IT industry experienced a massive slump, turning it from a growth engine into a main brake for the country’s economy. Two years after the major shock, three main trends shaping the Belarusian IT industry can be observed. First, its share of GDP, once growing rapidly, is shrinking, having been pushed back to the level of 2017. The innovation potential of the country is fading in parallel. Second, after the massive outflow of IT professionals from Belarus, which peaked in May-22, the emigration numbers seem to have stabilised over the past several months.

  • Belarus
NL 88 | May-June 2024
Private Sector Development

With relatively high salaries, companies in the IT industry remain sought-after employers for those staying in the country. Third, Belarusian IT businesses and professionals that relocated to the EU after Feb-22 are experiencing a second relocation wave as they increasingly leave Lithuania mainly for Poland amid a lack of an EU-wide approach towards Belarusian business migrants.

The shrinking size of the IT industry

Having been one of the largest and fastest-growing industries in Belarus, the IT industry has experienced a massive slowdown since Feb-22. While the real GVA in IT grew at a double-digit annual pace (over 14% on average) between 2016-2021, contributing a record 5.7% to GDP in 2021, it shrank for the first time since 2011 by 5.6% in 2022 and further in 2023. It is estimated that the IT industry accounted for only 3.4% of GDP in 2023.

Gross value added in the IT industry

Source: Belstat 2023, own estimates

Amid a general lack of progress of the Belarusian economy during the past decade, the dynamic IT industry contributed to a significant share of total GDP growth (ca. 30% during 2016-2021). In 2022 and 2023, on the contrary, the IT industry was one of the main brakes of the Belarusian GDP. In the first half of 2024, the deterioration of the IT industry is still ongoing.

Outflow of IT professionals

One of the main reasons for the poor performance of the IT industry during the past two years is the massive outflow of IT professionals from the country. Belarusian IT companies have been suffering from immense image damage since the outbreak of war against Ukraine. The Western sanctions, although not targeting the IT industry directly, also had substantial negative secondary effects. Because of compliance concerns of their Western partners, the representatives of the Belarusian IT industry were confronted by deteriorating business relationships and withdrawing clients.

Consequently, IT companies lost 17.2 thsd. employees (almost 20% of the total number of employees in the IT industry) between Mar-Dec 2022. Based on the available numbers for the closely related Information and Communication section (IC section), which can be used as a reference for developments in the IT industry in general, the number of employees in IT industry dropped by additional 6.9 thsd., who most likely left Belarus in 2023 in search of better business conditions.

Net inflow/outflow of employees in IT and IC

Source: Belstat, Note: data for companies with more than 16 employees

The outflow from IT seems to have stabilised in recent months because of several reasons. In addition to the fact that the critical mass of those willing to relocate did so immediately after the onset of the war and the introduction of Western restrictive measures, the Belarusian IT industry also experienced a scaling back of internal relocation programmes of international IT companies and subsequent reductions of budgets for employee moves.

Wages in the IT industry

Relatively high wages as compared to the current average wage in Belarus can be seen as the key factor motivating current employees to preserve their workplace in the Belarusian IT industry and motivating new ones to seek employment there.

Wages in IT and the overall economy


Source: Belstat, NBRB

In 2023, the monthly wage in IT accounted for USD 2,271 and was 3.6 times above the national average of USD 634. However, between 2021-2023 wages in IT were growing slower than average wages in the economy. They fell by 8.5% yoy in USD terms in 2023. Thus, although IT remains a highly attractive industry for employees, its comparative attractiveness has been decreasing since 2020.

Belarusian IT companies in the EU

In the EU, Poland and Lithuania were the two most popular destinations for relocation from Belarus. Relocation to Poland peaked in 2022 following the outbreak of the war against Ukraine. As of Dec-23, 538 IT companies with Belarusian founders were active in Poland.

New IT companies with Belarusian roots registered in Poland

Source: Central Economic Information Center (Poland)

Relocation to Lithuania peaked in 2021 during the political crisis in the aftermath of rigged presidential elections in Belarus. As of Dec-23, there were 62 IT companies with Belarusian roots in Lithuania: 17 established in 2021, 11 in 2022, and only 2 in 2023.

New IT companies with Belarusian roots registered in Lithuania

Source: ABBA

Over the past year relocation to Lithuania almost stopped. Due to issues with administrative and bureaucratic procedures, some of the Belarusian companies are even considering relocating from Lithuania to Poland.

Outlook

Since Feb-22 the Belarusian IT industry has experienced a massive deterioration. Secondary sanctions effects, compliance concerns of Western partners, and massive image damages led to an unprecedented outflow of IT professionals and companies from Belarus, thus dragging the industry and the whole Belarusian economy down. Although the situation seems to be stabilising to some extent over the past several months, the long-term consequences of the recent slump are far-reaching. The trend of slowing innovation is not easy to reverse, especially in the current economic environment in Belarus which is rather hostile to private sector engagement.

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This Newsletter is based on the Policy Briefing PB 03 | 2024.