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National project Innovative Ukraine

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Complex program on development of innovative sector of Ukrainian economy

Complex program on development of innovative sector of Ukrainian economy

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  • 1. STRATEGIC NATIONAL PROJECT “INNOVATIVE UKRAINE” МАРТ 2014 OPEN LETTER Dear Ukrainian politicians and ministers! IT sector of Ukraine has been rapidly developing despite the global financial crisis of 2008-2009 and difficult economic conditions of the present day. Created from scratch, IT sector is already one of the key export sectors of Ukraine’s economy, which has created more than 100,000 jobs for highly paid specialists. We are used to building innovative companies without any support from the government. However, by taking this path, we are not achieving the maximum possible potential. By offering a complex comprehensive program, we aim to stimulate the future growth of innovative component of our country and elicit the maximum out of the intellectual capacity of Ukraine. We invite all interested parties from IT community to sign under this statement and/or provide feedback using this link http://bit.ly/1iZfcK4 Sincerely, Initiative group within IT community
  • 2. SUMMARY In Ukraine IT sector (broadly known as Informational technologies) is among top-5 export categories in Ukraine with extensive potential for future breakthrough in global arena and is doomed to become the leading industry in Ukraine by 2025. •  Vision: we suggest to initiate a strategically important task for the government – the creation of the National Project «Innovative Ukraine» (working title). IT is one of the most developed and innovative sectors of Ukrainian economy. The goal of the project is to boost innovation in general in Ukraine •  Tools: a comprehensive program that in the short-term requires political will, enactment of new bills and improvement of their implementation mechanisms. In the long-term, using minimal investments and the experience of the US, Israel and other countries, the project will serve as an impetus behind explosive growth of the IT sector •  First steps: tax reform in the industry according to international practice or reform whole tax system in Ukraine, enactment of the IT and Ecommerce Laws, reform of education system, stimulating creation of technology infrastructure and implementation of IT technologies in government structures 2
  • 3. POSSIBLE FIRST STEPS Include development of innovations and IT in short and long term strategy of development of Ukraine, particularly potential first steps within next 3 months: 1.  Reform the whole taxation structure in Ukraine or pass the law «Tax for IT Companies», that would preserve the tax inflow into the budget at the same level in short term and significantly increase budget tax inflow in long run 2.  Automate and make public key governmental processes like procurement, taxation and governmental services 3.  Reform education systems that will allow quantity and quality changes in supply of technical force 4.  Pass the law «Ecommerce in Ukraine» that will enhance business transparency, decrease risks associated with doing business and stimulate further growth of the sector HOW IT COMMUNITY CAN HELP The IT community is willing to work together with the government and help with planning, development, and implementation of IT initiatives. We are offering the following assistance to the government: 1.  Create an expert group of advisors to assist the government in planning, development, and introduction of IT initiatives 2.  Gather a team of full-time/part-time hands-on specialists to join the "working group" in the government 3.  Prepare a database of companies/individuals that are willing to do pro-bono projects that would increase transparency, efficiency and create a seamless user experience for citizens interacting with government structures 3
  • 4. 4 •  As the global experience shows (in US, Israel, Singapore and other) transformation toward innovative economy is possible only with the government support (i.e., stimulus for the sector) •  Ukraine is a well known player on the global IT arena. The forecasted export of Ukrainian IT services will exceed the one of metallurgical sector by 2025 Profile association Ecommerce Profile association Entrepre neurship Working group at the Cabinet of Ministers / government Profile association Vendors Profile association Internet Profile association IT outsourcing TRANSFORMATION OF THE IT SECTOR REQUIRES POLITICAL WILL AND MUTUAL DIALOGUE Political will, readiness to implement reforms and multiparty discussions Profile association Telecom
  • 5. REPRESENTATIVE ASSOCIATIONS OF THE IT INDUSTRY ASSOCIATION DESCRIPTION IT Ukraine Association •  Development of software development industry in Ukraine Victor Valeyev Ukrainian high-tech initiative •  Promotion of Ukrainian IT outsourcing •  Development of IT outsourcing Victor Maznyuk Internet Association of Ukraine (IAU) •  Development of Internet access and services •  Protection of consumers and telecom operators Tatiana Popova Ecommerce committee under IAU •  Ecommerce development Alexander Olshanskiy E-business association of Ukraine •  IT business development •  Legislative activity Yuriy Chayka Association of information technology companies •  Transparent IT market formation and development Ellina Shnurko-Tabakova Council of competitiveness of Ukrainian IT and communication technologies industry •  IT sector development Igor Lisitsky Telecom chamber of Ukraine •  Development of telecom sector Konstantin Grytsak INFORMAL DESCRIPTION IT Tent at Euromaidan •  IT support of Euromaidan •  Consolidation of IT projects for society transformation Maxim Plakhtiy Venture ecosystem •  Development of entrepreneurial IT ecosystem Venture funds, accelerators Ecommerce law •  Ukrainian Ecommerce law Olga Belkova 5
  • 6. Yevgen Sysoyev AVentures Capital ys@aventurescapital.com Eugene Leng AVentures Capital lengeug@gmail.com Andrew Pavliv N-ix Aleksiy Anikin Global Technology Foundation Alexander Kardakov Datagroup, Incom Alexander Olshanskiy Imena.ua, Ecommerce Committee Andriy Kolodyuk AVentures Capital Andriy Logvin ModnaKasta Dmitri Lisitski Ukrainian Media Holding Dmitry Shymkiv Microsoft Ukraine Dmytro Gadomsky Juscutum Dmytro Havrylenko AVentures Capital Evgeniy Utkin KM Core, DeNovo Ellina Shnurko-Tabakova Association of information technology companies in Ukraine Eveline Buchatskiy EastLabs Ilia Kenigshtein LR Group Katerina Kostereva Terrasoft Maxim Plakhtiy Karabas.com, IT Tent Mykola Palienko Prom.ua Maxim Yakoover Chasopys Olga Belkova Member of Parlament, EastLabs Olena Vardamatska Wolf Theiss Roman Khmil Ciklum Taras Dumych Wolf Theiss Taras Kytsmey SoftServe Torben Majgaard Ciklum Tatiana Popova Internet Association of Ukraine Victor Galasyuk Bionic Hill Victor Valeyev Association IT Ukraine Viktoriya Tigipko TA Venture Vlad Voskresensky InvisibleCRM Yuriy Peroganych Association of information technology companies in Ukraine Yuliya Sychikova Mitten Yuriy Chayka MoneXy, E-business association of Ukraine We invite all interested parties from IT community to sign under this statement and/or provide feedback using this liink http://bit.ly/1iZfcK4 CONTACTS WORKING GROUP MEMBERS INCLUDE: 6
  • 7. APPENDIX: IT INDUSTRY IN UKRAINE AND COMPLEX PROGRAM TO UNLEASH FURTHER ECONOMIC POTENTIAL OF UKRAINE 7
  • 8. IT OUTSOURCING IT INDUSTRY OF UKRAINE: OVERVIEW •  $2B market •  50,000+ engineers •  500+ firms •  25-30% growth •  5,000+ engineers •  100+ centers •  30-40% growth R&D CENTERS •  $1-2B worth •  Thousands of engineers •  1,000+ startups •  50-100% growth STARTUPS •  $2B locally •  Thousands of engineers •  100+ firms •  40-50% growth ECOMMERCE •  IT sector is a multibillion dollar market and one of the most important export categories of Ukraine •  IT industry is highly competitive at the global stage and will continue being a major driver behind Ukrainian economic growth over the next 10 years 8
  • 9. IT OUTSOURCING: OVERVIEW 9 •  #1 in CEE by # developers and $ volume •  Top30 outsourcing destination (Gartner) •  Top5 strongest software developers, outstripping US (TopCoder) •  Top10 most certified IT professionals With top-notch software engineers Ukraine is the global outsourcing player Competitive cost And contracts with the leading global companies 92 21 US Ukraine Annual software engineer salary, $k Ukrainian IT outsourcing grow 5x faster than global And will double over the next 3-5 years 27% 16% 4% CAGR% 2009-2013 Ukraine Eastern Europe Global 2 4 2013 2016 Market size, $ billions
  • 10. IT OUTSOURCING: ACTION PLAN •  Growth of the sector • Increase in budget revenues • Increase in demand of IT engineers and simulation of IT industry growth Long- term Short- term ResultsRecommended actions Resources • Strengthen the image of Ukraine as one of the world's technology leaders in the IT industry • Enable transparent and seamless process for registration of new companies and regulation of their business activity • Reform tax system within industry according to international practice or reform the whole tax system in Ukraine • Stop the practice of raider takeovers of the IT companies and enhance the public control against illegal actions directed at IT companies • Reform the education system (program, quantity, quality) according to market needs • Increase the number of state-financed students studying technical disciplines at the leading Ukrainian universities. Introduce programming classes in the curriculum of the secondary schools • Information • Administrative, legislative • Political will and enactment of the bill by Verhovna Rada • Financing and coordination with Ministry of Education •  Ukrainian IT outsourcing industry competes with India, China, Russia and Eastern Europe, where governments extensively support the sector •  Future rapid development of the sector can be boosted with the government support and will require training of more than 100,000 new professionals over the next 5-7 years 10
  • 11. AMERICA OVER 100 R&D CENTERS IN UKRAINE 11 EUROPE ASIACIS 750 ppl. 600 250 150 100 300 250 200 300 150 100 1100
  • 12. R&D CENTERS: ACTION PLAN Long- term Short- term •  Ukraine can implement the successful experience of Israel, Singapore and other countering, in creation and promotion of IT clusters •  Creation of innovative centers can be financed through private-public partnerships, with major part of financing coming from private investors • Boosting the attractiveness of innovative initiatives • Attraction of international companies, stimulation of innovation, increase in tax revenues ResultsRecommended actions Resources • Administrative and information • Funding, legislative framework • Legislative framework to encourage the opening of new development centers (not only IT) •  Promoting Ukraine in the international arena as a global leader in IT technology • Make compliance of protection of Intellectual Property rights according to world standards • Simplifying procedures around obtaining working visas by western specialists (particularly IT) • Creation of technology infrastructure • Enabling an attractive business environment for international companies that are opening R&D centers and hiring IT professionals • Stimulating the creation of IT clusters and technoparks through public-private partnerships with the majority of funding coming from the latter 12
  • 13. ECOMMERCE AND CONSUMER INTERNET 13 $2B market 1.8% penetration Electronics, apparel and ticketing are the major categories 1.5 2.0 10.0 1.5% 1.8% 4.6% 0% 1% 2% 3% 4% 5% 0 1 2 3 4 5 6 7 8 9 10 11 2010 2011 2012 2013e2014e2015e2016e2017e2018e 5x rise over the next 5 years eCommerce, $B Online/Total sales, % ($USD B) Other Groceries Personal care Auto parts Books Jewelry Sporting goods Tickets Other Events Hotels Air Apparel Social Online shops Shopping clubs Electronics Appliances Phones IT Laptops Photo
  • 14. ECOMMERCE AND SERVICES: ACTION PLAN Long- term Short- term • Stimulation of innovations • Development of innovative services • Decrease in corruption of import of goods and increase in tax revenues ResultsRecommended actions Resources • Political will and enactment by Verhovna Rada • Financing of investment attractive projects • Financing, administrative • Pass “The Ecommerce Law” that regulates Ecommerce and eDocuments • Simplify (or eliminate) the license for e-money and its administration procedure • Develop logistics infrastructure and services provided by UkrPoshta (Ukrainian postal services) or provide state loans to private logistic operators for infrastructure development • Open custom-license warehouses on Ukrainian territory of all key vendors-suppliers •  «The Ecommerce Law» will consolidate the key aspects of e-commerce at the legislative level, reduce business corruption •  Logistics and payments infrastructure are the two pain points, the alleviation of which will accelerate the future growth of the sector 14
  • 15. $1B+ WORTH STARTUPS IN TOTAL VALUE 15 MARKET GlobalCISUkraine SECTOR Online services Mobile eCommerce Software
  • 16. STARTUPS: ACTION PLAN Long- term Short- term •  Increase in number of innovative companies and government revenues ResultsRecommended actions Resources •  Administrative •  Minimal financing • Legislative •  Financing that depends on national priorities •  Promotion of entrepreneurship at the highest level •  Simplification of foreign companies registration by Ukrainian citizens •  Cooperation with international programs that help stimulate entrepreneurship •  Enhancement of development institutes, stimulation of the ecosystem via inviting foreign guest speakers, publishing business/scientific literature, awarding grants, supporting innovation in all regions of Ukraine, supporting conferences etc. •  Development of laws which will allow to structure corporate governance and minority investments protection rights of investors •  Launch the project «Yozma Ukraine» – analogue of Israeli Yozma project that became a major driver behind breakthrough of tech sector in Israel •  Found Government Venture Company for private/public co-investments in best startups that would award grants to best projects •  Create development institutes to assist universities with the commercialization of scientific developments •  Ukraine has a number of successful startups valued at $50-100mm, and their number is growing exponentially •  Founders with Ukrainian roots, like Max Levchyn (PayPal) and Yan Koum (Whatsapp), created multibillion companies in countries with right ecosystems •  Experience of Israel and Baltic states show that it is possible to build multibillion-dollar IT companies from scratch (Skype) 16
  • 17. ISRAELI EXPERIENCE: YOZMA PROJECT 17 A government initiative in 1993 offering: •  attractive tax incentives to foreign venture-capital investments in Israel •  tax incentives •  Match of any private investment with funds from the government 1:1 Ukraine possess expertise, infrastructure and talent to build innovative economy. Government should initiate the creation of private-public VC funds to accelerate growth, attract foreign investments and expertise. EXPERIENCE PROJECT: YOZMA RESULTS NUMBERS •  Initial budget $100mm •  Assets under management >$170mm •  Number of investments >40 Russian Venture Company (RVC) use Yozma experience extensively and appointed Yozma’s founder Yigal Erlich to the Board of Directors Growth of IT sector 1991 2000 Venture investments $58mm $3.3B Number of companies funded 100 800 IT sector revenue $1.6B $12.5B •  Israel is #1 globally by the volume of VC investments per capita •  70% of Israeli growth is attributed to high-tech sector (global leader)
  • 18. IT IN GOVERNMNET Long term Short term • Substantial enhancement in productivity, eradication of corruption, high return on investment • Increase in productivity, transparency and revenue budget of Ukraine ResultsRecommended actions Resources • Political will and market level salary for the best IT specialists • Financing of the highly profitable investment projects • Political will and minimal financing (European grant awards for specific projects are possible) • Attract first-class IT specialists and entrepreneurs to develop government strategy for implementation of IT tools within the government (customs, procurement, eGovernment etc) • Arrange tenders for procurement of government IT technologies • Automate various government services (issue of references, certificates, passports, incorporation documents etc) • Automate public procurement process • Automate and increase transparency in customs • Automate and increase transparency of VAT •  As of today, Ukrainian government hasn’t implemented the best IT tools and practices already successfullly used in business •  Investments in government IT infrastructure will substantially low corruption and improve transparency, productivity and performance 18
  • 19. Long- term Short- term • Increase in tax revenues, implementation of new telco services, increase in their accessibility for Ukrainian citizens, decrease of «digital gap» ResultsRecommended actions Resources • Political will and changes in current legislature • Administer 3G and 4G/LTE licenses via transparent auctions to all interested Ukrainian operators under commitment of network coverage of the majority of the Ukrainian territory • Protect the critical elements of network infrastructure (prohibition of server removals, network shutdowns) • Simplify the process of obtaining permits and licenses • Provide uniform and equal access rights for all interested parties to telecommunication infrastructure: telecommunications cable ducts, elements of municipal infrastructure, residential buildings etc. •  Inefficient regulation, especially in RFR, results in capital outflow, absence of the next generation mobile network and inhibits the introduction of new services •  Vulnerability of critical elements of telecom infrastructure leads to customer churn in favor of foreign suppliers of services and poor quality of service within the country TELECOM: ACTION PLAN 19

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