Three decades after the fall of the USSR, IT is becoming a golden goose for Eastern Europe and Central Asia.
AT THE BEGINNING OF THE 21st century, post-Soviet nations in Eastern Europe and Central Asia – a region with a long history of rewarding math skills – slowly started shifting resources toward STEM fields, boosting their information technology sectors and increasing their independence from Russian influence.
With corruption on the rise in the area, information technology looks like the safest bet for foreign investors, regional experts say.
“Transparency, which the IT industry stipulates, becomes an alternative means of combating corruption,” says Anatoly Motkin, founder and president of StrategEast, a center that assesses legislation and intellectual property protection in Eurasian and Baltic countries.
In January, Transparency International warned that much of Eastern Europe and Central Asia is failing to make progress in decreasing perceived levels of public sector corruption. According to their corruption index, democracy there is threatened.
“In a region where only one country scores over 50 out of 100 and all other countries score 45 or less out of 100 on the index, there has been very little progress in combating corruption over several years,” wrote the authors of the organization’s 2018 Corruption Perception Index.
Decades after embracing various forms of democratic rule, post-Soviet countries like Belarus or Ukraine are still undergoing a profound change, Motkin writes in a report called “Changing Economy, Changing Society.” A “westernization” of the economy is happening faster than the westernization of social and political spheres, he says
Investment in the region is hindered by political confusion and problems investors have with local governments. In the past 30 years, more than 200 reported claims have been filed in international dispute-settlement courts against Eastern European and Central Asian governments over decisions that may have undermined business plans.
Yet one sector that is performing well in the area is the IT industry, Motkin adds in his paper. Nations such as Belarus have supported IT development in the past 20 years: The country saw exports of related services in 2017 exceed $1 billion after almost 12 years of operating with a legal framework dedicated to bolstering IT. Foreign investments in high tech companies in Belarus reached $169.2 million in 2016.
Estonia, meanwhile, has quickly moved from outsourcing to producing its own technology. The Baltic country is now touted as the most developed IT nation among the post-Soviet states, with advanced technologies accounting for 6.8% of its gross domestic product. IT products account for 14% of the country’s exports, and Estonian companies have clients in more than 120 countries.
Latvia and Lithuania are also growing startup companies, producing jobs with comparatively high wages in IT and attracting foreign specialists. And Ukraine is the leader in IT service exports among post-Soviet countries. More than 100 Fortune 500 companies use Ukrainian IT services, and 13 local companies rank among the top 100 world-class IT developers.
While Moldova adopted a legal framework for the export of IT products, Georgia’s focus is on attracting international donors. In addition, Georgian youth receive professional training from Ukrainian specialists. In Armenia, the IT sector – which saw 25% annual growth in recent years – is supported by the diaspora and is a “priority sector” for the economy.
“In the 1990s, the model was to take control of state assets (often using criminal means),” Motkin writes in his report. “In the early 2000s, the model became involved in the production and trade of oil, gas, and other natural resources. But the success model of the 2010s is increasingly to become a software engineer or an IT-entrepreneur.”
Between the two regions, Central Asian countries are trying to catch up in the IT sector. According to Motkin’s report, Azerbaijan invests in startups and Uzbekistan grants tax deductions for companies joining their innovation center. In Kazakhstan, IT accounts for one-third of GDP.
Kyrgyzstan has slowly started developing its IT sector while Turkmenistan, which has just a 2% internet penetration rate, is taking the first steps toward developing an IT sector. In Tajikistan, IT development is still a project on paper only.
Overall, more help from the West and heavier investment in these regions is what post-Soviet nations need, Motkin says. “A thriving post-Soviet tech sector can lead to a more dynamic regional transformation,” he writes. “It can create a new generation of intellectual leaders.”