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Three scenarios of Ukrainian IT industry

Author : Maria Yuzych

19:03, 10 October 2016
Three scenarios of Ukrainian IT industry

Author : Maria Yuzych

How government policy can stimulate the growth of one of the richest sectors of the domestic economy

19:03, 10 October 2016

Read the original text at day.kyiv.ua.

112 Agency

IT industry, which has been officially recognized by President Poroshenko as an integral of Ukraine's economy, already in 2020 could rise twice on all counts and bring to the budget to 27.2 billion dollars. This is according to the research committee of IT EBA and international research firm PwC, conducted on the basis of official Ukrainian and international statistical data and information on the top 5 domestic IT companies.

According to expert estimates, in the last four years, the contribution of the IT sector in national GDP increased from 0.6% to 3.3% - from 1.1 to 2.7 billion USD. It was achieved by increasing the number of programmers. From 2012 to 2016, their number has almost doubled - from 42.4 thousand to 91.7 thousand.

Additionally, IT professionals’ deposits in banks in 2015 amounted to 5.8 billion UAH, and the amount of the mandatory sale of foreign currency earnings. Thus, the income of banks from currency transactions reached 1.7 billion UAH.

Related: Ukraine's IT industry: Top 10 breakthroughs of 2015

Thus 19% of specialist qualifications provide 41% of the value.

However, as the authors noted, the situation might change as the growth of the domestic market of IT services might slowdown. Previously the industry grew by 27% (2011-2012) and 30% (2013), then in 2015 the figure was only 7%. While both the IT markets of neighboring countries - Belarus, Romania, and Poland - are actively growing (12%, 19% ,and 22% respectively).

Related: Why Ukraine is called "toxic dead zone" for investments

In addition, there is a high risk of loss of this segment of professionals who are very attractive for foreign companies in terms of their relocation to other countries.

The issue of taxation is also important for the development of IT sector in Ukraine. According to the researchers, in this situation there are three possible scenarios for the industry.

First, in case of maintaining the current tax rate in 2020, budget revenues will amount to 21 billion UAH (with 142 thousand specialists involved).

Related: Poroshenko hopes for further increase of trade and investment with Switzerland

Second is pessimistic. If the tax rate increases to 20%, budget revenues will amount to 13 billion UAH, but this, in turn, would reduce the number of specialists by almost half - to 72 thousand.

Third is optimistic. It would increase taxes by 1% annually. Under these conditions, experts predict, the 2020 budget revenue will amount to 27 billion UAH, with 146,000 professionals involved.

Among the stimulating factors, authors distinguish the reform of education, intellectual property rights, the development of the internal market, protection against uncivilized interference of state bodies, and promotion of Ukrainian IT industry abroad.

Related: Ukrainian programmers earn more than their foreign colleagues

However, the researchers predicted, the interaction with the state will increase the contribution of the IT sector in GDP from the current 3.3% to 4.5%, which is equal to 5.1 billion USD export revenue by 2020, while the number of jobs in the IT and related industries will grow from 420 thousand to 670 thousand.

Viktor Valeev, Director of the Association "IT Ukraine:"

Yes, today we de facto have the opportunity to work with business entities that proved rapid development of the industry...

Last year I asked the former Minister of Finance Natalia Jaresko on the impact of tax reform on the IT industry, and she replied that believes business entity model would give the impetus for the development of the industry that Ukraine can now afford.

Related: Investment climate: Why businessmen are afraid to invest in Ukraine?

Currently, we do not have new integrated tax system and economic policy in our country, so this is now the best solution for the industry. In addition, this model complies with the new trends of the economy, where every person is an asset and enterprise for herself. And so every statement about the possible cancellation of this model as we recently heard from Miklos and Balcerowicz, is delay of the arrival of new companies in Ukraine and at the same time help to our neighbors, which are already conducting promotions calling for Ukrainian IT-specialists move abroad. But I am glad that the committee of the Verkhovna Rada and the Ministry of Finance understand this.

Regarding education, we lose the potential of the old education system, and this concerns to our schools. Last year the Association has implemented the introduction of programming in schools, but we still need to do a lot towards improving mathematical education at school, using new models of transferring practical knowledge.

Concerning searches and other actions of the law enforcers and using disproportionate force are just unacceptable and dangerous for the industry. Developers living in their technological world very emotionally respond to things. So the first thing that comes to their mind is to emigrate away from the situation.

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