Why the West needs Ukraine and its IT business

Why the West needs Ukraine and its IT business

Photo: ua.depositphotos.com / sashk0
7 June 2023
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In the first weeks and months after the start of Russia’s war of aggression against Ukraine, there was great concern that the war would jeopardise agricultural exports from Ukraine and thus the nutrition of millions of people, with dire consequences also for Ukraine’s export revenues. The failure to deliver Ukrainian wiring harnesses also made headlines in Western Europe, with these supply chain problems causing some automakers to run into difficulties assembling their cars. Less prominent were the headlines about the Ukrainian IT industry and its vital importance for Western companies. 

The background to this is the massive shortage of IT specialists in Europe. In Germany alone, in 2022, 137,000 IT positions could not be filled, according to a survey by the Digital Association Bitkom. Many companies have therefore increasingly relied on working with Ukrainian IT providers, either directly with Ukrainian IT companies or indirectly via Ukrainian IT service providers. Companies such as Cisco, Google, Lyft, Microsoft, and Snap, as well as many small and medium-sized enterprises and startups, use Ukrainian IT experts directly or indirectly via IT outsourcing partners to develop and maintain their software and digital offerings. 

This is possible thanks to the Ukrainian education system, which produces many highly qualified people. The mathematical education at the universities is excellent and many students are interested in jobs in the IT industry due to a lack of other interesting job prospects. Before the outbreak of the war, the number of IT specialists in Ukraine had been growing steadily, reaching 285,000 IT specialists. 

Ukraine was in 11th place in the IT competitiveness ranking among European middle income countries in 2021 (IT Ukraine Association 2021). The increasing importance of the IT sector for the Ukrainian economy is clear. The IT sector has taken over first place in the export of services and generated more than 4% of Ukraine’s GDP in 2021. In three years, the industry has more than doubled its exports, generating $6.9 billion in export revenue in 2021. If the trend were maintained, the forecast for export revenue in 2022 is $8.5 billion. More than 5,000 IT companies (including startups) are active in the labour market. Over the past three years, the industry has increased its number of specialists by more than 50% (Lviv IT Cluster 2021). 

There are more than 2,000 tech companies and startups registered in Ukraine. Investments in the IT startup sector increased tenfold over five years, from $39 million in 2014 to $509 million in 2019. Between 2020 and 2021 alone, investment in Ukrainian startups increased by 45%. In the first quarter of 2022, 11 venture deals worth $11.5 million were made (Kreston Ukraine 2021). Forty per cent of Ukrainian startups are geared toward the export market, while for 60% of startups, the key market is Ukraine. 

Even after the outbreak of the war, work in the IT sector was initially not significantly affected and cooperation with Western clients could continue. IT companies were well prepared and quickly relocated employees within the country, out of the contested areas to western parts of the country. Nevertheless, IT companies are also suffering from contracts being terminated by clients, and they face increased cyber-security risks. 

Another major challenge for the IT industry is that, as a consequence of the war, 43% of IT specialists want to or are considering moving abroad (Lviv IT Cluster 2021). As of summer 2022, 20% of IT specialists have already moved abroad since the beginning of the full-scale war, while around 3% of workers have been mobilised to the military or the territorial defence force. 

More than half (55.7%) of IT startups continue their operations exclusively from Ukraine. Since the beginning of the war, they have lost about 12.7% of their employees. Ninety-one per cent of startups confirm that they need financial support to continue operations and/ or expand their business (Komarnytska et al. 2022). Ukraine has dropped 16 positions in the Global Startup Ecosystem ranking

The IT sector could be relatively less affected by the events of war, since one can work remotely as long as a quiet room, a laptop, and a working Internet connection and power are available. However, it is precisely these conditions that have been increasingly compromised in recent months. The attacks of the Russian armed forces on the power supply and the resulting power outages make work more and more difficult, as colleagues from Ukraine tell me in video calls when power is working. Thus, the rehabilitation of the energy infrastructure is of paramount importance, both for the population and for the economy. 

Even though the war has so far been fought primarily with conventional weapons, the importance of IT experts to the war effort should not be underestimated. The fact that the energy supply infrastructure is being attacked and destroyed with missiles is at the same time proof that Russian IT specialists have not succeeded in achieving the same thing through cyberattacks. The lessons learned here will continue to play an important role in the future. 

Let me conclude on a personal note. For me, supporting the Ukrainian war effort and its economy is a humanitarian duty. But it is also in our own security interests and, as I have tried to illustrate with the example of the Ukraine IT sector, in the interests of our economy. Moreover, it is the young people employed in this sector who can and want to ensure that Ukraine’s economy and society are modernised. I saw firsthand the young generation’s willingness to engage at a conference in Kyiv in 2015. This was a few months after Euromaidan, after the Russian annexation of Crimea and the start of its open military engagement in Donbas. The topic of the conference was how to modernise Ukraine and fight corruption. Ukrainian participants seemed very determined to fight for it. That experience made a deep impression on me. We must not leave them alone. 

References 

IT Ukraine Association (2021), Ukraine IT report 2021. 

Komarnytska, E, I Supruniuk, O Toporkov, M Grzegorczyk, C Turp-Balazs and A Wrobel (2022), “The country at war: The voice of Ukrainian start-ups”, Emerging Europe. 

Kreston Ukraine (2021), “Ukraine deal review 2021: Tech venture capital and private equity deals of Ukraine”. 

Lviv IT Cluster (2021), IT research 2021. 

#helpUkraine_helptheWorld

This publication is a part of a collection of essays initiated by the National Bank of Ukraine. Famous economists, political scientists and historians, experts recognized in the world, volunteered to share their thoughts and arguments on why helping Ukraine is helping the world. The complete book of essays can be found via the link.

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