Weekly 30 August 2020

Techies on the barricades

Hello! This week our top story is a deep-dive into how the famous Belarusian IT sector is reacting to ongoing protests against President Alexander Lukasehnko. We also look at why the poisoning of Alexei Navalny has not led to an outcry, and investigate the rise of billionaire Tatiana Bakalchuk, who created ‘Russia’s Amazon’. We’d like to apologise for the lateness of this week’s newsletter — we were held up because of technical issues. 

The future of Belarus’ IT sector hangs in balance amid protests

Tens of thousands of people protested Sunday across Belarus against President Alexander Lukashenko, the third consecutive week of demonstrations following heavily rigged elections. The country’s IT sector — famous for nurturing companies like World of Tanks and Viber — has traditionally kept out of politics, but they are now openly supporting the opposition. Why has the sector turned against Lukashenko? The Bell reporter Anastasia Stognei went to Minsk to find out (you can watch a Russian-language video report from her trip here).

The widely successful Belarusian IT sector

  • The Belarusian IT sector is the only part of the economy to post any significant growth in recent years. This success — achieved despite Lukashenko’s moniker as the ‘Europe’s Last Dictator’ — have been widely reported on around the world, including by The New York Times, Forbes, The Financial Times and Wired. Major tech brands from Belarus include popular online game World of Tanks, and messenger Viber.
  • Between 2017 and 2019, IT service exports from Belarus increased almost 150 percent to be worth $2 billion, and, last year,  tech companies accounted for almost 50 percent of the country’s GDP growth. At the moment, the IT sector in Belarus accounts for up to 6.1 percent of the country’s GDP (in Russia, it’s less than 1 percent). 
  • This IT fairytale began with outsourcing: EPAM is the best-known IT outsourcer to have Belarusian roots. It was set-up in 1993 by Arkady Dobkin and Leonid Lozner, two classmates from Minsk, and is now traded on the New York Stock Exchange.
  • The country’s IT boom was really kick-started by a hi-tech park (PVT). This is not a physical ‘Silicon Valley’ like in California, more a system of financial support for IT firms. In July, there were 886 companies in the PVT employing more than 63,000 people. EPAM’s Dobkin is one of the biggest cheerleaders for the project.
  • In recent years, Lukashenko has claimed credit for the success of the IT sector. But businessmen and economists who spoke to The Bell were unanimous: the most Lukashenko has done for the sector was to leave it in peace (in contrast to the rest of the country’s command economy, which is de facto under his personal control).
  • Why did Lukashenko let this happen? There are different theories. “He simply failed to understand what it was and how it could become such a cool industry,” said Maria Kolesnikova, a senior opposition figure and the chief of staff for presidential candidate Viktor Babariko who is currently under arrest. Others point out that, 15 years ago, the IT sector was too small to be taken seriously and nobody imagined it could become such a hotbed of independent thought. A third explanation holds that, in 2011-2014, Lukashenko was eager to change the climate for Belarusian business and reduce its dependency on Russia — so he allowed the growth of the IT sector as a counterbalance.

Supporting the anti-Lukashenko protests

  • For many years, there was no desire for political change among Belarus’ IT workers — but all that changed this month. For many Belarusians, not just in the IT industry, the pandemic was the last straw (Lukashenko dubbed the virus “corona-psychosis” and tried to ignore it). With the illness spreading rapidly, people found their own solutions and businesses began to organize themselves, creating mutual support groups, providing food for medics and printing masks on 3D printers.
  • Amid the current protests, IT entrepreneurs have raised money for people detained by the police, and hired and retrained activists who lost their jobs. At rallies, you can see people carrying keyboards painted in the white-red-white flag of pre-Communist Belarus. Mikhail Chuprinsky, founder of robot manufacturer Rozum Robotics said there are many IT workers among the protesters. He said this was “simple economics”: on an IT worker’s salary, it’s no hardship to go on strike. 
  • “Everyone I know wants to do something to help,” said Mikita Mikado, founder of software company PandaDoc. He has promised financial help for those who want to resign from the security forces. Rozum Robotics, meanwhile, is hiring people from small towns who were fired after participating in protests.
  • Some IT workers were mobilizing against the government even before the current protests. Several start-ups were created to monitor the elections: Golos for checking the vote count; Bison for collecting data on poll violations; and Honest People to collate witness testimony on election day. These all gained millions of users in a matter of days, something far beyond most commercial start-ups.
  • Like all Belarusians, IT specialists saw at first hand the violence used by security forces against protestors. Rozum Robotics’ Chuprinsky said he was beaten up when he spent several days in police custody. Riot police yelled at him: “How much did they pay you, bitch? How much do you earn? Isn’t that enough for you? If you want change, here’s some change for you!” as he was assaulted, he said. The entrepreneur recalled how people were beaten up continuously in jail, their cries continuing through the night. 

On leaving prison, Chuprinsky thought about leaving the country. He was far from alone. Everyone who spoke with The Bell was unanimous: if Lukashenko remains in power, the IT sector in Belarus is finished. Almost every business is currently making plans to relocate. Staff working at IT giant Yandex in Belarus are beginning to relocate to Russia, while Viber has announced the closure of its Minsk office. “If we don’t win this battle, Belarus will be rolled into the asphalt,” said protest leader Kolesnikova.

Why the world should care Belarus’ IT sector is unique: it’s the only part of the economy in which the country can take genuine pride. If Lukashenko cracks down hard to quash the protests and cling onto power, the country’s IT industry will surely fall apart — and that would be a catastrophic blow. 

 

Why Navalny’s poisoning didn’t lead to street protests

There’s been little change in opposition leader Alexei Navalny’s condition this week. He remains in an induced coma on a ventilator after being taken ill in what almost everyone believes to be a case of poisoning. He is now being treated in a German hospital. Despite the dramatic events, the reaction, in Russia and abroad, has been comatose: there are no mass protests demanding the truth about what happened, nor Western promises of more sanctions. Why not?

  • Last weekend, Navalny was finally removed from the hospital in Omsk where he was taken after collapsing on a flight home from Siberia. He is now in Berlin’s famous Charité hospital. His airlift to Germany only took place after a struggle: the Russian doctors initially claimed he was too sick to be moved. Many believe that the doctors, under political pressure, were playing for time to ensure no traces of poison remained in Navalny’s body. Media outlet Proekt reported that the Kremlin was so concerned about the situation that it was receiving direct updates from the Omsk doctors. 
  • Navalny remains in an artificial coma, hooked up to a ventilator. His condition is serious, but not thought to be life-threatening. Perhaps more significantly, there are still no answers to the big question: what actually happened? According to German newspaper Der Spiegel, Charité has made a secret appeal to the German military to use their chemical labs in the hope of identifying the poison. The newspaper also reported that Chancellor Angela Merkel is getting daily briefings on the case.
  • The response from the Russian authorities has been predictable, and no criminal investigation has been opened into the incident. The only change has been rhetorical: official statements on the Kremlin website now refer to Navalny by name (rather than the previously preferred formulation of ‘some opposition politician’). This might mean the Kremlin is taking the situation more seriously.
  • Perhaps surprisingly, there has been little sign of public anger, save a few heated exchanges on social media. Economist and Navalny ally Sergei Guriev said that “everyone knows [something like] this can happen”, and that protesting is particularly difficult in the current climate.   
  • Western countries have condemned Navalny’s poisoning and some – most obviously Germany – have acted to help. But this is unlikely to lead to sanctions, according to Konstantin Sonin, an economist at Chicago University. “People in Russia might find it hard to believe, but European governments try not to interfere in Russian politics,” he said. Sanctions on Russia are generally only used in response to foreign policy issues, like the annexation of Crimea. To impose sanctions over a domestic political struggle is “unimaginable”, said Sonin. 

Why the world should care Navalny’s poisoning helps you understand three things: the appetite for protest in Russia; how seriously the Kremlin views Navalny; and the likelihood of Western support for the opposition. 

 

Beyond PR: how Tatiana Bakalchuk really created the ‘Russian Amazon’

Mother of four and former English teacher Tatiana Bakalchuk has set-up a Russian version of Amazon. She triumphed where many could not: both Sberbank, Russia’s biggest bank, and Yandex, the ‘Russian Google’ failed to replicate the success of the U.S. online retail giant. 

All the reporting on Bakalchuk and her company, Wildberries, makes their story sound like a rags-to-riches fairytale: she is now the second wealthiest woman in Russia and worth $1.1 billion. However, an investigation by The Bell revealed the truth is a little more complicated.

  • To start with, we discovered Bakalchuk’s ‘self-made’ narrative was crafted by a PR company. During a 2017 conflict with suppliers, Wildberries hired a PR team for the first time and Bakalchuk was advised to give a big interview, telling the story of how she built her company from scratch. There may well be some truth in this tale, but it’s worth noting that her husband, Vladislav, was already a successful businessman when Wilderries was founded and earned about $5 million by selling a stake in an internet provider. Company representatives said this money played no role in the establishment of Wildberries.
  • Initially, Bakalchuk’s partner was a mysterious bodybuilder, Sergei Anufriev. The Bell’s sources claimed that, in the early 2000s, when Russia had a thriving gray market in imported goods, Anufriev provided Bakalchuk with a large batch of Adidas-branded stock. Nobody knows exactly where this came from, nor why several wholesalers refused to touch it, but it was the start of Wildberries’s success, and for a year the company could undercut official Adidas stores by up to 50 percent, according to our sources. Subsequently, Anufriev helped Wildberries with security as well as logistics.
  • In subsequent years, Wildberries’ success has come from its decisions to offer free delivery, the creation of a network of collection points all over the country, and a refusal to buy goods independently, instead selling them on commission. It’s the same model that has powered Amazon in the West. But that’s not all: we spoke to Wildberries’ suppliers who complain that the firm uses its dominant position to impose big discounts and never-ending sales. For many suppliers, it’s not profitable — but there is no alternative because Wildberries gives access to such a huge goods marketplace.

In recent months, Bakalchuk has become a more public figure, and appears in the media. Even senior government figures boast of being her acquaintance, and apparently enjoy spotlighting Wildberries’ success. This summer, Bakalchuk appealed directly to President Vladimir Putin to support one of her company’s new projects.

Why the world should care We often write about successful businesses in Russia. Even if Wildberries’ backstory is not as clear-cut as its ‘rag-to-riches’ PR story might suggest, it’s still highly unusual. The company has become a market leader without any obvious political patron (if we discount a distant relationship with a former deputy Moscow mayor) and without state funding (although it does have loans from some state banks). Recently, Wildberries began an international expansion — so you might hear much more about it in the near future.