Ukraine’s past lingers in the current image of Ukraine as a corrupt, bureaucratic and Soviet place. For years, the country has struggled to attract talent and investors from abroad.
But the booming tech industry, which employs more than 212,000 specialists in thousands of companies, has started to improve Ukraine’s reputation.
Now the Ministry of Digital Transformation plans to make Ukraine even more of a tech-driven country.
First, it seeks to replace paperwork with a single app. The next step is to encourage online payments to shrink a shadow economy amounts to a third of Ukraine’s economic output, according to the economy ministry.
“To be innovative, we need not only to follow global trends but also to set them,” Minister of Digital Transformation Mykhailo Fedorov told the Kyiv Post.
Paperless
To start a business in Ukraine, local entrepreneurs have to go through bureaucratic hell: bring dozens of documents to the government office, wait for their approval, and repeat it all over again if documents are rejected, often without explanation.
“Everything that requires interaction with state agencies is unpredictable and takes a lot of time,” said CEO of McDonald’s Ukraine Yuliya Badritdinova in an interview with the Kyiv Post in July. Because it’s hard to get papers to launch a business or start construction in Ukraine, McDonald’s has delayed many of its projects, Badritdinova said.
To make Ukraine less bureaucratic, parliament adopted a bill on July 16 that forbids government agencies from requiring paper documents if they contain information that is available electronically. The so-called “paperless regime” will make Ukraine more transparent and less corrupt, Fedorov said.
As of today, Ukrainians can use nearly 70 state services online. For example, they can register a business, sign electronic documents or get unemployment benefits with a state mobile app or through the Diia website. Fedorov wants to digitize all government services by 2024.
Ukraine has already become the world’s first country that legalized digital passports. Starting on Aug. 23, all Ukrainian institutions are obliged to accept personal IDs shown through the Diia app. In a few weeks, Fedorov wants to add digital COVID‑19 vaccine certificates to the app so that Ukrainians could use them to travel abroad.
“Digital documents have a big future. It is still an innovation now, but it will soon become a new reality,” Fedorov said.
Cashless
Ukrainians love cash — it allows many businesses to pay “envelope salaries” and avoid the 41.5% tax on wages. As a result, the country loses out over $18 billion of taxes every year, according to Economy Minister and First Deputy Prime Minister Oleksiy Lyubchenko.
Online payments are easier to trace than cash. Experts claim that digital payments save money for the government and make financial services like insurance and credit more accessible to citizens.
In Ukraine, online payments are booming. Ukraine is among the world leaders in contactless payments, according to the financial services corporation Mastercard. Half of Ukrainians are ready to completely abandon cash payments in the next five years, Inga Andreieva, the general director of Mastercard in Ukraine and Moldova, said.
Aside from cash, Ukrainians pay with credit cards, mobile phones, smartwatches and fitness bracelets, according to Andreieva.
There are many reasons why Ukrainians turn to contactless payments, according to financial technology expert Rostyslav Dyuk. First, over 60% of the population uses smartphones and has access to mobile internet. Second, e-commerce in the country is gaining momentum, offering lower prices and more choice.
According to Dyuk, Ukraine has seven online banks, including Monobank, which leads the market with over 4 million users. Monobank has become the first bank in Europe that first issues digital cards, with physical ones as an option, Andreieva said.
Dyuk predicts that more fintech companies will enter the market. “Launching an online bank in Europe costs nearly $50 million, while in Ukraine it is 10–11 times cheaper.” In addition, over 30% of Ukrainians do not use traditional banks, meaning they are potential customers of fintech, Dyuk said.
Tech-minded
The Ukrainian tech industry accounts for $5 billion in exports and generates $588 million in taxes. More than 212,000 tech specialists work in Ukraine and the demand for them grows by 30% every year, according to Vitaly Sedler, the head of the Ukrainian IT Association.
Despite the weak economy and lack of rule of law, Ukraine’s tech industry has thrived due to what Andreieva calls “a digital leap,” a phenomenon when a country skips several development stages and embraced innovations at an early stage.
Fedorov agrees, saying that Ukraine is a young country, and flexibility and quick decision making are its strengths.
“At a time when conservative states are slowly transforming, Ukraine is doing it with incredible speed,” he said.
Even amid the lack of regulative legislation, Ukraine leads the world in cryptocurrency use, according to a report by a cryptocurrency analyst Chainalysis. Last year Ukrainians earned about $400 million of investment in bitcoin, making local investors the tenth richest in the world.
Although the cryptocurrency market emerged in 2013, Ukraine still recognizes cryptocurrency neither as asset nor property nor a valid payment tool. This year the government introduced several laws aiming to de-shadow the market and encourage foreign investment, according to Fedorov.
Another milestone is the development of artificial intelligence, or AI. The global market value was $30 billion in 2020 and is expected to reach $299 billion by 2026. Many local businesses already use AI. Ukraine’s new “unicorn” People.ai, valued at over $1 billion, has developed an AI-based algorithm that helps businesses forecast sales, close deals and find new clients.
The proofreading service Grammarly, another “unicorn,” uses AI to help people become better writers. Schools and universities still fail to provide decent AI education, but Ukraine’s specialists can learn from big tech giants like Samsung, Ubisoft, Rakuten and Google, which run research and development centers in the country.
Last year, the government decided to push the development of AI by improving tech education and training in the defense industry, health care and justice. “We have great potential in the development of AI and we are moving confidently in this direction,” Fedorov said.
As Ukraine uses technology to make state services simpler, Fedorov believes that the sector is key to Ukraine’s brighter future.
“I am confident that Ukraine will become a powerful IT hub in Eastern and Central Europe.”
