Ukraine is proud of its tech. In 2019, the industry secured over $4 billion in exports and paid $588 million in taxes. Every year the local information technology sector grows by 30% and keeps charging ahead even during the pandemic.
Unlike many local businesses that suffer from economic lockdown, the Ukrainian IT industry will bounce back quickly with support from the government, investors and tech entrepreneurs.
In 2020, Ukrainian tech had everything to thrive: nearly 200,000 qualified techies ready to work remotely, over 4,000 IT companies ready to employ them, and low taxes that attract some tech specialists from abroad.
With all of this Ukraine could have competed in the global arena, had it not been for complicated laws, corrupt courts and notorious oligarchs that damage the country’s image.
Flexible industry
When the coronavirus crisis hit Ukraine in March, local tech companies were quick to adjust.
A few weeks after Ukraine imposed a strict quarantine, over 92% of Ukraine’s IT businesses have switched to working remotely — for most of them, it was a matter of habit, according to Olga Kunychak, manager of the IT committee at the European Business Association.
When it got clear that the global pandemic would stay for long, tech businesses focused on the most profitable industries during the quarantine: fintech, medicine, virtual reality and online education, according to Konstantin Vasyuk, executive director at the Ukrainian IT Association.
Ukrainian video streaming startup Restream, for example, has attracted $50 million from U.S. investors and increased its revenue during the pandemic, because people spent more time online, streaming virtual events, video games and conferences.
Other tech companies have proved to be creative amid the quarantine. The Ukrainian film studio One Location, for example, started to produce commercials and movies using virtual reality technology, while Ukraine-founded startup 3DLook has developed a mobile app that creates a digital model of a human body and allows users to try on clothes online without the need to leave the house.
Technologies like this is appeared timely and investors support them. Tech businesses that actually benefit from the pandemic became the priority for investors, said Oleksii Vitchenko, founder of venture investment fund Digital Future.
Unexpected support
For years, the Ukrainian IT businesses were growing without money and support from the government, according to Dmytro Ovcharenko, a legal tech expert.
It changed when President Volodymyr Zelensky came to power and created the Ministry of Digital Transformation now spearheaded by 30-year-old tech-savvy Mykhailo Fedorov.
Fedorov promised to support the tech industry and ensured that it would secure 10% of Ukraine’s gross domestic product, compared to 4% today.
The information technology sector is more important for Ukraine’s economy than ever, according to Oleksandr Bornyakov, Fedorov’s deputy.
Having so many qualified specialists, Ukraine is ready to introduce tech products to the global market under its own brand, Bornyakov told the Kyiv Post.
Many local tech experts disagree: “The Ukrainian brand is not strong enough and needs more support,” said Olena Mazhuha, investment manager at fund Genesis Investments.
Ukraine has one of the lowest taxes on revenue for programmers — 5% if they’re registered as private entrepreneurs.
Although many tech businesses enter the market — mostly opening research and development centers here — nearly all of them complain about the flawed judiciary, widespread corruption and omnipresent bureaucracy. All of these hamper foreign investment in the industry, Kunychak said. In fact, nearly 50% of investors think that Ukraine has become less attractive over the year, according to research by the European Business Association.
Bornyakov, however, thinks it’s only because the Ukrainian market seems more complicated for foreign investors than in neighboring countries.
To address that at least partly, the Ministry of Digital Transformation has introduced a new project called Diia City, an economic zone with taxation, legislation and employment benefits tailored for local and foreign tech firms.
The project is expected to bring Ukraine over $11.8 billion and create 450,000 new jobs by 2025. However, some experts and tech entrepreneurs criticized the initiative: they say it will overregulate the local tech industry.
Growing demand
Ukraine has over 200,000 tech specialists and 30,000 new ones graduating every year but the country needs more to keep growing.
The government tries to attract them with low taxes, Bornyakov said. Besides, the average salary in Ukraine’s tech is $2,000 a month, which is higher than in other industries.
However, foreign businesses, for which Ukrainian techies are good but cheap workers, usually offer more, so many Ukrainians opt for moving to the U.S. or Europe.
They register their businesses there to find investors and protect their businesses from lawmakers and corrupt law enforcers, said Andriy Dovzhenko, managing partner at Ukrainian investment fund SMRK.
Ukraine boasts many local startups, including Grammarly, People.ai, and GitLab, valued at $1 billion, but they all are registered in the U.S. where they pay taxes.
Despite this depressing, Mazhuha still thinks it is still good for Ukraine: successful startups promote Ukraine on the global arena. Some foreign techies even decide to move to Ukraine after they hear success stories from Ukraine.
Some Belarusians were among those willing to move in Ukraine this year. Since August, 40 Belarusian tech companies and over 2,000 freelancers have flocked to Ukraine to escape the political turmoil induced by the protests against the regime of self-proclaimed Belarusian President Alexander Lukashenko.
Ukraine attracts Belarusian tech specialists with a favorable 5% revenue tax for private entrepreneurs, a visa-free regime between the two countries and similar language and culture. Most Ukrainians and Belarusians speak Russian.
Ukraine benefits when qualified tech companies from Belarus find refuge in the country, according to Ovcharenko. One employed programmer brings about nearly $35,000 worth of exported goods every year, he said.
However, many Belarusian programmers expect to return to their home country when the situation stabilizes if Ukraine can’t convince them to stay, experts said.
