Identifier
Created
Classification
Origin
06MINSK461
2006-04-28 11:31:00
CONFIDENTIAL
Embassy Minsk
Cable title:  

IT PARK CONCEPT GOOD, BUT COMPANIES SKEPTICAL

Tags:  PGOV ECON EIND ETTC BO 
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VZCZCXYZ0036
PP RUEHWEB

DE RUEHSK #0461/01 1181131
ZNY CCCCC ZZH
P 281131Z APR 06
FM AMEMBASSY MINSK
TO RUEHC/SECSTATE WASHDC PRIORITY 4315
INFO RUEHKV/AMEMBASSY KIEV PRIORITY 3278
RUEHMO/AMEMBASSY MOSCOW PRIORITY 3450
RUEHRA/AMEMBASSY RIGA PRIORITY 1670
RUEHVL/AMEMBASSY VILNIUS PRIORITY 3674
RUEHWR/AMEMBASSY WARSAW PRIORITY 3324
RHMFISS/HQ USEUCOM VAIHINGEN GE PRIORITY
RUEHVEN/USMISSION USOSCE PRIORITY 1123
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK PRIORITY
RUEHBS/USMISSION USEU PRIORITY 0081
C O N F I D E N T I A L MINSK 000461 

SIPDIS

DEPARTMENT OF COMMERCE
KIEV FOR USAID
SIPDIS

E.O. 12958: DECL: 04/28/2016
TAGS: PGOV ECON EIND ETTC BO
SUBJECT: IT PARK CONCEPT GOOD, BUT COMPANIES SKEPTICAL

REF: 05 MINSK 407

Classified By: AMBASSADOR GEORGE KROL FOR REASONS 1.4 (B,D)

C O N F I D E N T I A L MINSK 000461

SIPDIS

DEPARTMENT OF COMMERCE
KIEV FOR USAID
SIPDIS

E.O. 12958: DECL: 04/28/2016
TAGS: PGOV ECON EIND ETTC BO
SUBJECT: IT PARK CONCEPT GOOD, BUT COMPANIES SKEPTICAL

REF: 05 MINSK 407

Classified By: AMBASSADOR GEORGE KROL FOR REASONS 1.4 (B,D)


1. (U) Summary: The GOB is in the process of creating its own
Silicon Valley, an IT park in Minsk. The park will offer a
number of tax and other administrative advantages to a
limited range of high-tech companies. The head of the park
also hopes to create a venture capital fund to provide
investment for promising IT projects. The necessary
legislation is in place and the park is accepting
applications from companies, but has not yet registered any
members. Belarus' IT companies believe the park and its tax
advantages are a good idea, but many distrust the GOB and
will wait and see what befalls the first companies to join
before they decide themselves. End summary.


2. (U) In early 2005 Lukashenko, seeking to capitalize on
Belarus' growing IT sector (reftel),announced the GOB would
create an IT park in Minsk to act as Belarus' version of
Silicon Valley. Lukashenko appointed his aide and personal
representative to parliament, former Ambassador to the U.S.
Valery Tsepkalo, to head the project. Tsepkalo remains an
aide in the Presidential Administration, but as of January 1
has received a salary only as head of the IT park.


3. (U) The IT park is initially open to, and is now accepting
applications from, companies involved in software
development, data processing, and research and development in
related fields. In the future the park hopes to invite
companies involved in the medical field, biotechnology and
nanotechnology.


4. (U) The park is taking over an unfinished academic
compound in northern Minsk. The park is currently soliciting
bids to develop the 52 hectares of land and finish the
incomplete office building on the property. IT companies can
either choose to build or rent office space on the territory
of the park, or to register as park members while located
elsewhere in the country. The infrastructure of the park is
to include its own electrical substation, a fiber-optic

network and access to high-speed satellite internet.
Construction is due to begin in late 2006 and last three to
four years.


Tax Advantages
--------------


5. (U) In September 2005 Lukashenko signed a presidential
decree giving members of the park a number of tax advantages.
These tax advantages are to last for fifteen years from the
signing of the decree (until 2020),and apply to non-resident
park members as well.


6. (U) Park members will be exempt from payment of "dues and
taxes to the state budget and non-budgetary funds," income
tax, value added tax, and customs duties and VAT when
importing equipment for the park. In addition, individual
income tax for employees of companies registered in the park
is set at a fixed rate of nine percent. Members are exempt
from the normal fee for transferring workers from other
cities to Minsk (currently USD 7,200, or three times the
average salary). The decree also states that foreign
companies without a representative office in Belarus can
register as park members and are subject to an income tax
rate on dividends, debts, royalties and licenses of five
percent. Foreign firms are not liable for the "offshore fee"
when transferring money abroad, and park members are not
obligated to sell any of the hard currency they earn to the
GOB. (The offshore fee stipulates that companies pay 15% of
the money they transfer abroad to the GOB. Companies in
Belarus must now sell 30% of the h
ard currency they earn to the GOB at market rates.)


7. (U) Companies physically located in the park are also
exempt from paying land tax for the duration of park
construction, real estate tax, "payments for shared
participation in city infrastructure development and
compensation to the city administration for the available
engineering and social infrastructure." Tsepkalo also stated
that he expects the park to offer rent to residents for half
the going rate in Minsk.


State-Owned, But Not Quite
--------------


8. (U) Tsepkalo explained to the Ambassador that the state
budget is providing the initial funding for the park. The
park is registered as a state-owned entity, but Tsepkalo
maintained it is not part of the Presidential Administration,
even though he official remains an advisor to Lukashenko.
The park itself is state-owned, but Tsepkalo claimed the
park's employees would be considered private workers, not
state employees, and no park proceeds would return to the
budget.


Venture Capital
--------------


9. (U) Members of the park must pay a fee of one percent of
revenue to the park management. Tsepkalo explained this
money would be used to pay for the administration of the
park. According to the park's charter, the administration
reviews business plans, supervises the work of the residents,
and runs the infrastructure. Tsepkalo added the
administration will help companies register and that any
extra proceeds will go into a park fund to be used as venture
capital, which is lacking in Belarus. Currently Belarusian
IT companies have trouble acquiring capital because under
Belarusian law banks are only allowed to lend money when they
can offer concrete collateral.


Accepting Applications, One American So Far
--------------


10. (U) The park is now accepting applications from
prospective members and about 40 firms have already applied.
Registration of members was due to begin in April, but has
not yet commenced. Tsepkalo reported that several U.S.
companies originally expressed interest in joining, but that
most backed out after researching Belarus' business
environment. He said only one American company, consulting
firm Colliers, had applied.


Belarusian Companies Skeptical, but Hopeful
--------------


11. (C) Emboffs discussed the IT park with several Belarusian
and international companies, most of whom would like the park
to live up to its promise but were skeptical. The most
optimistic firm was Belsoft, Belarus' third largest IT
company. Belsoft's sales manager explained to Econoff that
Belsoft hopes to open an office in the park as soon as the
park opens and to locate there the company's entire software
development team, about 25 people. Belsoft wants to take
advantages of the tax benefits, but also needs a new office.
It currently rents office space from the Presidential
Administration, which is expensive and substandard (he
especially complained about the PA's bathrooms).


12. (C) Microsoft's regional director from Kiev explained to
Econoff that his company is curious about the park, but
complained that Tsepkalo refused to meet with him. Even
though Microsoft is thinking of opening an office in Minsk,
he did not think it would be in the IT park. The manager of
software developer Averson Soft likes the idea of the IT
park, but does not trust the GOB. Averson Soft plans to
register a new company, and use that company to apply for
park membership. That way, if the GOB is using the park as a
means to take over IT companies, Averson Soft will not have
lost its core business. The General Director of Checkpoint
told Emboff that he likes the idea of the park, but will wait
a few years to see how it develops before deciding to join.


13. (C) Econoff also heard from several sources rumors that
the park is intended as nothing more than a shell for the GOB
to launder proceeds from arms sales. Post cannot comment on
the credibility of these rumors.

Comment
--------------


14. (C) Post believes that this IT park, if managed in an
appropriate manner, could provide a boost to Belarus' already
growing IT sector. Tsepkalo's plan to create a venture
capital fund would be particularly useful. Tsepkalo may be
sufficiently "westernized" to be a successful manager (his
wife even worked for MCI while he was Ambassador to the
U.S.). However, the IT park remains a GOB project, and
Tsepkalo still has ties to the Presidential Administration.

SIPDIS
Based on past GOB practice, if the IT park proves to be
profitable there is a good chance the regime will attempt to
milk it for whatever short-term profit they can. This
practice is what is making many of Belarus' IT companies
skeptical of joining the park, even with the obvious tax
advantages.
Krol