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Capitalism's Unlikely Frontier

"... Belarus has been a high-tech magnet since Soviet times. Minsk was one of the Communist bloc's computer-science capitals, and local universities still turn out 4,000 information technology grads every year. Belarus also produces world-class specialists in mathematics and physics.

French software startup Abaxia was hunting for an offshore research and development site in 2006 when one of its employees suggested taking a look at his native country, Belarus. "I had to get out an atlas to be sure where it was," recalls Ongan Mordeniz, Abaxia's R&D chief. Today, more than half of Abaxia's employees work in the former Soviet republic of 9.5 million, wedged between Russia and Poland on the EU's eastern rim. The company and two affiliates employ 85 engineers at a software development center in Minsk near the former Communist Party headquarters, which is now President Alexander Lukashenko's residence. They're among an estimated 10,000 professionals working for outsourcing operations in what is now the region's No. 3 country for such shops, behind Ukraine and Romania, according to the Central and Eastern European Outsourcing Assn.

Why Belarus? After all, two decades after the fall of the Berlin Wall the country still seems sealed in a time capsule, with a centrally planned economy run by an authoritarian leader who is routinely denounced by Western governments for what the U.S. State Dept. terms "frequent serious abuses" of human rights. Minsk (pop. 1.8 million), a tranquil city of wide boulevards, hulking Stalinist architecture, and Soviet-era factories, is an unlikely place to find capitalism's new frontier.

Yet the Lukashenko government is opening the door to investment as never before. Since 2007 it has enacted regulatory reforms and tax relief measures that have vaulted Belarus from 129th place to 58th on the World Bank's ranking of the "ease of doing business" in 183 countries. (Poland ranked 72nd, Russia came in 120th, and Ukraine was 142nd.) The Belarus government says foreign direct investment more than doubled last year, to $4.8 billion, even as investment plummeted in neighboring countries ..."

By Carol Matlack, BusinessWeek's Paris bureau chief.

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