The IT industry is confidently turning into one of the flagships of the Ukrainian economy and becoming an integral part of its international image. The crisis that swept the whole world due to the spread of the coronavirus infection and caused a significant decline in the Ukrainian and global economies in 2020-2021 did not prevent the powerful and dynamic development of the Ukrainian IT sector.
Fast and stable dynamics
The main positive and significant news for the Ukrainian IT industry in 2020 was the continuation of the optimistic growth dynamics of exports of Ukrainian IT services. In 2020, for the first time, this indicator hit a record high of more than $5 billion, which is almost 20% (USD 853 million) higher than the same indicator of the previous year (USD 4.2 billion). In general, if compared with 2013, the IT industry from year to year confidently demonstrates positive dynamics – at present, the share of IT in the country’s total exports has reached 8.3% (1.58% in 2013). Also, the export of IT services in terms of its volume has already outpaced the export of chemical products, has reached the level of export of mineral products and is approaching the export of metallurgical products.
And this is against the backdrop of a fall in national GDP by -4.2% in 2020 compared to the previous year, as well as a fall in the composite index of production of goods and services by main types of economic activity (CIP) by -4.4% over the same period (all statistical calculations – according to the Ministry of Economy). The indicators for 2020 in other sectors that are of decisive importance for the Ukrainian economy are no less eloquent: industry -5.2%, agriculture – 11.5%, transport – 14.2%
Growth dynamics is a key factor that attracts a lot of attention to the Ukrainian IT industry both domestically and abroad.
Ukraine is a global center for research and development, outsourcing and start-ups
According to data compiled by Beetroot from various sources and published in their Tech Industry Survey, the largest share of Ukrainian IT industry customers are in the United States. After the USA, the services of Ukrainian tech companies are most popular in the EU (in particular, in Germany, the Netherlands and Sweden) and the UK. It is expected that demand among the Scandinavian countries, especially Sweden and Denmark, will continue to grow.
In accordance with the above-mentioned review of the IT market, the services of Ukrainian IT companies have been chosen by more than 100 companies from the Fortune 500 list. More than a hundred research and development centers of foreign companies operate in Ukraine, including: Google, Samsung, Siemens and Huawei.
In 2020, Ukraine rose by 2 positions in The StartupBlink ranking, getting into the top thirty leaders in the development of an ecosystem for startups.
In addition, Ukraine leads the ranking of countries for offshore software development and is gradually turning into a real global IT center.
Personnel shortage in the IT industry
The prospects for the national IT industry are obvious, but there are many questions about the ability of Ukrainian IT to keep up the pace and the ability of the state to provide the prerequisites for this. One of the most significant challenges for the future of the IT industry in Ukraine is an acute shortage of personnel.
According to estimates by GlobalLogic, about 40 thousand vacancies appear annually in the IT sector across the country. Given that the demand for engineers in these specialties is growing by about 30% annually, in 2021, a request for employment of 54 thousand new specialists is expected.
At the same time, the real number of employed engineers is growing by only 18%, which indicates a significant excess of demand over supply. This is also eloquently evidenced by the fact that at the end of 2020, there were more than 10 thousand open vacancies in the Ukrainian IT market on the specialized portal for IT specialists DOU alone.
At the same time, Ukrainian universities are able to train no more than 15-20 thousand IT specialists in various fields. In addition, many graduates are employed abroad or prefer freelancing. Also, IT professionals are actively preparing numerous private courses. This improves the situation, but still does not cover the significant shortage of IT staff.
Another component of the personnel problem in the IT industry is the urgent need for specialists with at least 2-5 years of experience (Middle and Senior levels, respectively, 37% and 33% of all vacancies in the labor market). Ukrainian universities and training courses are powerless in solving this problem, no matter how many new specialists they train every year.
Immigration quotas for foreign professionals
In this light, the recent steps of the Ukrainian government aimed at creating broad employment opportunities for foreign highly qualified IT specialists in Ukraine look very logical.
So, in 2020, for the first time, the government introduced an additional immigration quota for the employment of 5,000 highly qualified foreign IT specialists. Recently, a similar quota was also introduced for 2021 – its volume was increased to almost 6 thousand people.
The main advantage of employment within the introduced immigration quota is the opportunity to obtain a residence permit in Ukraine. This means that employment occurs almost on a permanent basis – foreign IT specialists will be able to freely live and work in Ukraine for 10 years. The conditions of their employment are no different from the conditions of employment of Ukrainian citizens. In addition, foreign IT specialists receive a priority right to obtain Ukrainian citizenship and can immigrate to Ukraine with their families.
Last year, Belarusian IT companies and IT specialists were in the focus of special attention of Ukrainian government structures – the Cabinet of Ministers of Ukraine created the most favorable conditions for their activities and employment in Ukraine.
According to the Ministry of Digital Transformation, about 40 Belarusian IT companies with about 2,000 employees have already moved to Ukraine.
Taxation
Taxation conditions for the activities of IT companies is another block of issues that is fundamentally important for the development of the Ukrainian IT sector. It is the lack of clear and transparent taxation rules that is one of the factors hindering the entry of powerful global players into the Ukrainian IT market.
The rapid development of the domestic IT sector is not least stimulated by the possibility of employment of IT specialists through the 3rd group of sole proprietorships, which provides for the payment of a preferential single tax rate of 5%. This state of affairs does not suit the Ukrainian state, because this group was introduced to stimulate the development of small businesses in Ukraine.
The Ministry of Digital Transformation of Ukraine is trying to find a compromise in this situation by regulating and liberalizing tax relations.
For this purpose, the Diya City project was initiated, the residents of which must pay a 5% personal income tax and a military tax. The corresponding bill (number 4303) was registered in the Verkhovna Rada at the end of last year.
The Diya City program should become the world’s first virtual business country, within which an accessible, transparent and comprehensive register of business entities in the Ukrainian IT industry will be created for the first time.
It is planned that thanks to this initiative, more than 450,000 additional jobs will be created by 2025, and the capitalization of the IT industry will increase by $11.8 billion. The program includes, in particular, the technological areas of AgroTech, Fintech and Blockchain, artificial intelligence and cloud computing technologies, medical neural networks and biotechnologies, an industrial equipment control system via the Internet (Internet of Things – IoT), publishing and marketplaces, aviation and space technologies , drones, advertising, marketing and promotion, animation, graphics and audio, esports and business process outsourcing.
Long term prospects
At the moment, the transformation of the IT sector into a strategic sector of the Ukrainian economy is considered one of the foundations of the strategic course of the Ministry of Digital Transformation – its volume in the country’s GDP should reach 10%.
To this end, the Ministry of Digital Transformation is planning a large-scale digitalization of the Ukrainian society (100% of public services online).
Another important step is to create the most convenient conditions for the activities of IT companies and the provision of relevant services, where access to reliable and high-speed Internet plays one of the key roles (95% of the population should be covered by such Internet).
High-quality and affordable Internet
As of 2020, according to Cable.co.uk (Worldwide Broadband Price Research 2020), only about half of the population of Ukraine have access to the Internet. However, on the other hand, Ukraine ranks first in terms of internet accessibility (see table below). This creates excellent conditions for freelancers, both Ukrainian and foreign.