Why supporting Ukraine’s tech ecosystem is so important
War has decimated much of Ukraine’s economy, but a notable exception is the IT sector. As of November, the industry’s annual export revenue was a record $5.5 billion – 13% more than the same period last year.
Since Russia invaded in February, 58% of Ukrainian technology companies have processed new orders from customers. Despite brutal attacks, martial law and general mobilization, 85% have recovered their pre-war business activities. That’s according to Lviv IT cluster, a community of businesses, universities and local governments.
“Ukraine’s technology industry is not only showing the ability to fully function, but also showing growth,” said Stepan Veselovskyi, the group’s CEO. “IT services exports grew 9.9% compared to last year and brought in more than $6 billion in revenue, surpassing the 2021 figure of $542 million.”
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This triumph over adversity has been indispensable for Ukraine. As the conflict ravages the country’s treasury, the industry provides wages for workers, taxes for the economy and technical support for the war effort. Technology provides the military with encrypted communications, UAVs and cyber defenses, and civilians with digital IDsair raid alerts and online payments.
IT will also be an integral part of post-war recovery, but it will be difficult to get there.
It can be mutually beneficial.
A summer research by Lviv IT Cluster found that more than 50,000 IT workers had moved since the invasion, while another 7,000 had joined the armed forces. Those that remain now face blackouts due to infrastructure attacks. Some fear that clients’ empathy will wane as war fatigue sets in.
As the challenges grow, aid from abroad becomes increasingly important. But the benefits of support extend far beyond altruism.
“Charity is good, but you can also work with companies. It can be mutually beneficial,” says Oleksandr Yatsenko, managing partner at BRISE Capitalan investment company from Kiev.
Indeed, Ukraine’s tech ecosystem has a unique combination of assets. The countries rich history in computer science laid the foundation for a thriving industry. Today it includes more than 200,000 IT specialists and one of the world’s largest pools of technical talent. Stellar programming skillsa high one level of Englishand a time zone that overlaps well with both the US and Europe make an attractive package.
These characteristics have made Ukraine a global hub for IT outsourcing. Now the country wants to convert its expertise into domestic tech giants.
President Zelensky’s administration has taken bold steps to realize these ambitions. this future. In 2019, his government established the Ministry of Digital Transformation. By 2024, the department aims to bring every public service online, expand access to high-speed internet; Teach 6 million Ukrainians digital skills and increase the share of technology in GDP to 10%. It currently accounts for about 4.5%.
Industry is united with government.
To achieve these goals, the government has implemented business-friendly policies: low taxes, minimal paperwork and massive deregulation, along with extensive anti-corruption reforms and financing initiatives, such as the Ukrainian seed fund.
This program has been strengthened through collaboration between the public and private sectors. War has made both sides realize their interdependence.
“The world needs to know that the industry is united with the government and they help each other,” said Ivan Babichuk, Chairman of the Supervisory Board of Lviv IT Cluster. “And it makes [Ukraine] a protective and safe place to run a business – despite the whole security problem across the country.”
The rigors of war have added even more qualities. Ukraine’s digital infrastructure and economy has been remarkably resilient since the full-scale invasion, while its workforce has acquired a rare blend of courage and adaptability. New skills in crisis management, leadership, teamwork and efficiency are forged in conflict.
“Most companies have retained customers and the volume of their contracts,” said Alex Bornyakov, Deputy Minister of Digital Transformation of Ukraine. “Ukrainian developers have shown that they can do their job well even under extreme conditions. For the whole world, this is an indicator that Ukraine is a reliable partner and an attractive investment destination.”
We have become more active – and stronger.
Some tech companies have done well since the invasion. Take mosquitowho won the prestigious IT Arena starting match in 2021. As the conflict escalated, the company expanded its team and developed a new product line.
“Difficulties provide opportunities and opportunities for growth,” says Olga Diachuk, the company’s COO. “It shows you who you really are, what you’re made of, and how smart you are.”
Digital businesses also typically require fewer physical assets, making their revenue increasingly important to Ukraine. For example, brick-and-mortar stores are now closing earlier due to security concerns than e-commerce sites.
Nevertheless, technology companies face enormous challenges. Investments from abroad will be a crucial part of their future fortunes.
“It is very important to maintain the support of the local technology ecosystem from the outside, as Western funds do,” said Joachim Laqueur, General Partner at VC firm Acrobator Ventures.
“Technology is such a beneficial force in the long run. Now we see the first wave of successful companies going into the ground. Even in wartime, these people, these companies are able to tackle problems that are not bound by borders.”
People who already invest in Ukraine note that war fosters a unique set of skills. For example, thousands of volunteer hackers have joined the IT Army, an organization that defends Ukraine from Russia’s vaunted hacker groups.
Members of the group have gained an unparalleled experience. Mykhailo Fedorov, the country’s Minister of Digital Transformation, describes the conflict they endured as “the first global cyberwar”. The volunteers now want to share their expertise with international allies.
“Ukrainian technology companies are strengthening their cyber defense capabilities and can help other countries better understand the nature of modern cyber attacks,” said Veselovskyi, CEO of Lviv IT Cluster.
The First World War Cyber War. The world’s first IT army. 270,000 angry IT warriors from the cyber frontline. Rutube shutdown. AI technology and identification of war criminals. And many more cases to announce after the win. By the way, you are free to participate. pic.twitter.com/3PDP075nU5
— Mykhailo Fedorov (@FedorovMykhailo) May 26, 2022
Despite these strengths, the potential of Ukraine’s tech sector will only be realized through the support of the international community. For Veselovskyi, the easiest way they can help is to cut all ties with Russia.
“The next step is motivating your local governments to support Ukraine and get involved in Ukraine’s fundraising initiatives,” he says. “Europe’s future security and economic prosperity depend on Ukraine’s victory on the battlefield. You can start working with Ukrainian companies today through our B2B platform Lviv Tech.”
To predict the future of the industry, Veselovskyi’s team surveyed more than 5,000 tech industry representatives. In the most positive scenario, which assumes European integration and liberalization of the economy, 78% of the respondents would stay in Ukraine. Another 12% would try to move abroad, while another 10% have to decide.
The best way to help Ukraine is to invest in Ukraine.
This outcome could lay the foundation for a thriving post-war industry. To build this, continued support from Europe will be essential. Government officials have tried to spread this message at IT events around the world.
“We tell them one specific thing: the best way to help Ukraine is to invest in Ukraine,” said Bornyakov, the deputy minister of Digital Transformation. “Work with Ukrainian companies, give money to Ukrainian startups and if you can hire Ukrainian freelancers, do it.”
The stakes are extremely high. IT remains the only industry in Ukraine that continues to show growth. If it shrinks, the whole country will suffer. However, if it expands, the sector could not only help Ukraine survive, but also prosper.
