Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Invest in Ukraine: IT sector

This is a comprehensive analysis of the IT sector in Ukraine. It is an integrated guide for perspective investors who are exploring opportunities in Ukraine. The report includes key figures characterizing the market, as well as information about the ongoing projects. This report also contains the list of forthcoming reforms and policy development needed to boost Ukrainian IT. The report was prepared by the Office of the National Investment Council of Ukraine and presented at the Council meeting in Kyiv, on May 25, 2018

  • Be the first to comment

Invest in Ukraine: IT sector

  1. 1. IT industry of Ukraine Creating value on the global scale
  2. 2. Since 2016, Ukraine has achieved macroeconomic stabilization, the country switched its focus to supporting economic growth and modernization of the economy. FDI is crucial for sustainable economic growth and increasing well-being. Together with day-to-day business environment improvement, state-backed investment attraction and promotion is a pivotal component of attracting FDI back to the country. The National Investment Council was established by the President of Ukraine to set a public-private dialogue with key business leaders on investment promotion, boosting FDI and tackling key obstacles of the Ukrainian regulatory environment. The Office of the National Investment Council is a non-governmental organization which serves as a platform for public-private dialogue which brings together representatives of the business community, IFIs and Ukrainian officials. We are focusing on practical steps needed to address investors’ needs and concerns by promoting actions to strengthen the business climate in the country. This Report is a brief outlook of one of the fastest growing and promising sectors of the Ukrainian economy – IT. IT is more than just a sector of the economy. It is the continuation of Ukrainian historical heritage of being one of the strongest countries in STEM. IT is always about people and Ukrainians are famous for our strong will, passion and desire for growth. That is one of the reasons why the IT sector played a major role in the design and implementation of some of the most important reforms, including transparent public procurement, open budget, deregulation and e-government. IT has been showing a constant double digit growth in the last few years. The sector grew by some 25% last year, becoming the third largest export sector of Ukrainian economy. And according to all the forecasts, it will continue to grow in the next few years and the number of IT specialists will double by 2020. This report details not only the country’s potential for the development of the IT sector, but also the legislative foundations which make Ukraine a predictable place to do business. We hope that it will become a useful tool for investors and all the stakeholders of the Ukrainian economy. We look forward to your feedback. Yuliya Kovaliv Head of the Office of the National Investment Council of Ukraine Introduction
  3. 3. 12018 | National Investment Council | IT industry of Ukraine SECTION 1 – Ukrainian agri sector overview 1.1. Market overview 1.2. Internal IT market in Ukraine 1.3. Employment SECTION 2 – Education and innovation potential SECTION 3 – Largest market players 3.1. Outsourcing companies 3.2. Product companies and startups 3.3. Companies with most revenue of international origin 3.4. Top hardware startups SECTION 4 – IT infrastructure SECTION 5 – Regulation SECTION 6 – Ongoing reforms Contents
  4. 4. 2 2018 | National Investment Council | IT industry of Ukraine
  5. 5. Ukrainian IT at a glance 32018 | National Investment Council | IT industry of Ukraine
  6. 6. Ukrainian IT at a glance 4 2018 | National Investment Council | IT industry of Ukraine Market overview Well-known for the abundance of its highly-skilled engineers, Ukraine has become a leading European and global IT outsourcing hub. In addition to being an outsourcing nation, Ukraine is emerging as a premier R&D destination for many global companies. The country boasts more than 1000 outsourcing companies, including small outsourcing shops, over one hundred national and international R&D shops as well as over 2000 startup companies. Ukraine has the largest number of IT professionals in Central and Eastern Europe amounting to more than 125 000 specialists in 2017. In 2016 Ukrainian IT engineering work force grew by about 25% and its is expected to double to over 200,000 by 2020. Ukrainian outsourcing companies offer a wide range of engineering capabilities, with most companies having already switched to agile development over the past few years. The export volume of Ukraine’s software development and IT services reached at least $3.6 billion in 2017, showing double-digit growth year after year. Experts forecast that in 2018 IT export will grow to $4.5 billion. In 2017 IT became the third largest export sector of the Ukrainian economy and is expected to become the second by 2020. outsourcing market in Eastern Europe according to Outsourcing journal by outsourcing volume in Central and Eastern Europe according to Central and Eastern European Outsourcing Association №1 №2 №4 by the number of engineers in Central and Eastern Europe according to Colliers international by the number of engineers in the world according to Colliers international №1 №1 most master level certified nation according to Bench games 2010 2011 3.8 3.2 4.3 3.2 5.0 4.5 3.9 3.6 2016 20172012 2013 2014 2015 2018 forecast 4.5 ICT Export dynamics, bln USD Source: AVentures
  7. 7. Ukrainian IT at a glance 52018 | National Investment Council | IT industry of Ukraine Furthermore, IT accounts for about 4% of GDP. The US market is the main destination with an estimated 80% volume of exported services. The investment volume reached the record $265 million in 2017. Growth & Secondary deals formed up to 70% while a dozen of series A deals accounted for another 22% of the total growth. $650m Investment volume, mln USD 2010 2011 2016 20172012 2013 2014 2015 Growth and Secondary Follow-on Round B Round A Seed 97 20 25 80 42 146 80 265 According to AVentures, the amount of unreported deals in 2017 could have made at least $25 million. Some of these deals could be reported later this year while some will remain undisclosed. Foreign capital amounted for 96% of total investment in ICT in Ukraine in 2017. Even though Ukrainian companies co-invested in most of the rounds the overall distribution is unprecedented. 96% of foreign investment is an absolute record for Ukraine. Source: AVentures Investment volume by capital origin, % of total amount 36 4 60 90 4 Source: AVentures Foreign Ukraine Undisclosed 2012 2017 invested in Ukraine since 2013
  8. 8. Ukrainian IT at a glance 6 2018 | National Investment Council | IT industry of Ukraine Foreign Ukraine Foreign capital breakdown by stage *Excludes grants, crowdfunding, buyouts, M&A deals, ICO funding Source: AVentures 50% 50% 55% 45% 77%23% 96% 4% Seed deals: foreign funds led in half of the Seed deals, accounting for 55% of investment volume Series A deals: foreign funds led in 77% of deals, accounting for 96% of investment volume Number of Seed deals Investment volume into Seed deals Number of Series A deals Investment volume into Series A deals Foreign Ukraine Investment by key sectors *Excludes grants, crowdfunding, buyouts, M&A deals, ICO funding Source: AVentures Other Consumer Internet Online services Mobile Software Enterprise E-commerce Education 2010 2011 8020 97 1464225 80 265 2016 20172012 2013 2014 2015 The largest y-o-y growth occured in Software sector due to a few large deals in SaaS products 17%16% 45% 44%20%54% 31% 8% 18% 53% 12% 29% 14% 46% 5% 24% 5% 11% 26% 7% 7% 16% 7% 23% 10% 21% 10% 9% 32% 6% 4% 27% 10% 22% 5% 74%
  9. 9. Ukrainian IT at a glance 72018 | National Investment Council | IT industry of Ukraine Structure of Ukrainian ICT, bln USD Source: IDC, AEQUO, Baker Tilly, SiBiS 1.85 Telecom services Hardware Services Packaged software 0.12 1.46 0.19 Ukrainian internal IT market remains rather small, but shows potential for growth. The limited size of internal market stimulates extensive export of IT from Ukraine. Subsequently Ukraine imports a comparably limited amount of IT service while the key share of IT import remains hardware. Internal IT market in Ukraine The largest consumers of IT in Ukraine are financial and public sectors IT consumption structure in Ukraine, % 35 Financial and banking sector Public sector Telecom Other Industry Trade Services Transport Community facilities 2 12 7 16 11 9 6 3 Source:IDC, AEQUO, Baker Tilly, SiBiS The regional distribution of IT consumption correlates with several key factors such as population, urbanization, economy and industrial development as well as the amount of educational facilities. Kyiv as a capital and the Kyiv region consumes almost as much IT as Dnipro, Odesa, Lviv and Kharkiv regions combined.
  10. 10. Ukrainian IT at a glance 8 2018 | National Investment Council | IT industry of Ukraine Share in total IT consumption Source: IDC, AEQUO, Baker Tilly, SiBiS 17 5% 8% 6% 6% 7% 4% 2% 3% 3% 3% 3% 2% 3% 2% 2% 2% 2% 2% 2% 3% 3% 3% 3% 5% Share of the region in IT consumption in b2c segment, % 8 6 5 4 3 2 n.a. Kyiv, 17% Breakdown of 150 largest companies by sub-sectors Score: Number of companies covering each field Data management Telecommunications Cloud Travel Healthcare Finance Media E-commerce Retail Security 19 26 8 12 12 16 6 6 5 16 18 Gaming Source: Ukrainian Digital News "High Tech Ukraine From A To Z"
  11. 11. Ukrainian IT at a glance 92018 | National Investment Council | IT industry of Ukraine IT outsourcing   Ukraine is listed among the best 25 countries for its outsourcing. Ukraine is ranked 7th by the quality and efficiency of freelancers. 68.1 7.1 3.6 3 2.9 2.4 2.1 1.8 1.5 1.1 1.1 1.1 USA Great Britain Australia India France China Norway Netherlands Canada Ukraine Germany Japan Leaders in total value of IT-BPO contracts Score: bln USD Period: 2016 Internet access   More than 57% of Ukrainians have permanent access to the Internet as of end of 2017 according to the State Statistic Service of Ukraine. This figure more than doubled since 2010 and experts forecast further stable double-digit growth in the next five years. Internet access per 100 persons (as of 01.01.2018) Source: State Statistics Service, NCCIR High Access Level 59,2 47,8 55,7 51,1 106,5 52,9 48,0 46,0 52,3 40,5 41,4 42,6 62,2 38,3 43,7 42,3 45,5 58,7 40,3 44,4 45,2 46,0 54,8 51,6 n.a. Kyiv, 100,6 Low Access Level
  12. 12. Ukrainian IT at a glance 10 2018 | National Investment Council | IT industry of Ukraine Polls are showing a higher percentage. According to Kyiv International Institute of sociology 63% of population have permanent access to the Internet as of 2017. While the figures are 5-10% higher than the data from State Statistic Service, the overall dynamics and historic trend are the same: the number of Internet users has more than doubled since 2010. 20152010 20162011 2012 2013 2014 2017 29 40 43 49 57 62 63 54 Number of Internet users, % of population Source: KIIS According to both polls and State Statistic Service, a large amount of Ukrainians are regularly using mobile Internet. While broadband internet in Ukraine has been relatively fast in the last few years (Ukraine was listed 42 in the global rating of Internet speed in 2017), the fast mobile Internet is rather new to Ukraine. 4G/LTE mobile Internet appeared in Ukraine only in spring 2018. With more than 50 million clients of mobile operators in Ukraine this is expected to become one more stimulus for IT development in the next three years. Telecom users regional distribution, mln (as of 2Q 2017) Source: State Statistics Service of Ukraine, AEQUO, Baker Tilly, SiBiS 47,8 55,7 46,0 12 Users of all services 8 7 6 4 3 2 n.a. 6 3 1 Number of users 7,8 16,3 56,3 Internet users Mobile users Fixed line users
  13. 13. Ukrainian IT at a glance 112018 | National Investment Council | IT industry of Ukraine Employment Ukrainian IT sector has been showing double-digit growth in the number of IT specialists for the last several years. In 2016-2017 the growth reached 27% increasing the total amount of IT specialist to more than 126 000 people confirming the status of Ukraine as #1 country in Central and Eastern Europe by the number of employees in IT sector. Growth of IT sector by the number of employees 2017 2016 99 940 126 990 Source: DOU Vacancies per month 2017 2016 1487 2132 Source: DOU 2015 3111 Number of vacancies published monthly grew by 45% making some 3111 offers in 2017 compared to 2132 in 2016 according to one of the key Ukrainian IT portal DOU. The response rate also grew by 34% from 200 000 to 270 000. Salary dynamics   Even though Ukraine provides world class IT specialists, the salary level remains lower than in other countries. According to the poll conducted by DOU in the third quarter of 2017, the overall salary level distribution among IT specialists remained within the forecasted levels. 0 $1,000 $2,000 $3,000 $4,000 Front-end senior Java middle QA middle Project Manager 2013 2014 2015 2016 2017
  14. 14. Education and innovation potential 12 2018 | National Investment Council | IT industry of Ukraine
  15. 15. Education and innovation potential 132018 | National Investment Council | IT industry of Ukraine Technical education is the foundation of Ukraine's IT ecosystem. Every year over 150,000 students graduate in the country, among which around 40,000 obtain degrees in tech studies, including some 15,000 IT specialists. Additionally, about 40,000 IT specialists graduate annually from IT schools. Number of specialists graduating from IT schools 2017 2016 30 880 43 868 Source: DOU 2015 56 218 Over 125,000 IT professionals make Ukraine the leading country in Central and Eastern Europe by the number of engineers and the number of graduates emerging into the labor market. The abundant and well-educated workforce at relatively low cost is an attraction for investors. This is also proven by the number of technology firms which opened representative offices and labs in Ukraine, and by the amount of the IT services outsorced. “Ukrainian education system has particular strengths in math and science education, and this has led to a very strong IT workforce. On international indicators, Ukraine scores among top countries on investment in education and on higher education enrollment" - World Bank report. It is also ranked 18th by the share of expenditures on education from the GDP and 18th by Government expenditures per student. Expenditure on education, % of GDP Global Innovation Index Indicator Rank (out of 128) 40 Education Government expenditure per pupil, secondary, % of GDP per capita 20 18 18 Human capital and research Tertiary enrolment, % gross 40 Tertiary education Graduates in science and engineering, % 4 10 27 School life expectancy, years Country Availability of scientists & engineers Quality of math & science education Higher education enrollment 29Ukraine 27 11 Poland 5058 25 Bulgaria 7175 26 Hungary 8383 51 89Czech Republic 56 32
  16. 16. Education and innovation potential 14 2018 | National Investment Council | IT industry of Ukraine Top universities According to the poll among more than 2000 IT companies conducted by a large Ukrainian IT portal DOU, the rating of top 5 universities for IT in 2017 looks as follows: University Score for IT faculty National University of Kyiv-Mohyla Academy (NaUKMA) 9,1 Donetsk National University 8,3 Kharkiv National University of Radio Electronics (KNURE) 8,2 Simon Kuznets Kharkiv National University of Economics 7,4 Taras Shevchenko Kyiv National University 7,1 10 – maximum score, 1 - minimum In addition to well established traditional educational system industry players and NGOs have taken active steps in educating and graduating more computer science professionals. Thus the BrainBasket Foundation aims to train 100,000 new IT professionals by 2020 and to turn the IT sector into the number one export industry of Ukraine (from what is currently the third). The foundation is launching 100 study hubs all over Ukraine to train IT professionals of all levels. Not only does this initiative help meet a growing demand for Ukrainian technical talent, but it also provides new professional skills and job opportunities for refugees from Eastern Ukraine. Additionally, the IT communities of almost all big regional cities offer specialized courses in the field. Young people attend these as a complementary to the University course. The courses are also popular with those who pursue a shift from the current career field to IT. Some examples of such private initiatives include LITS in Lviv, Gelel in Odesa, Ukrainian IT School in Kharkiv, SkillsUp in Dniprok, GoIT in Kyiv, and ITStep in every large city. A significant portion of the country’s graduates enters the IT labor market annually. With the IT sector expanding, Ukraine anticipates computer science and IT to be among the most popular career choices for graduates in the near future. R&D centers in Ukraine Ukraine is gaining importance on the global arena as a developing innovation hub. The country is also the place for over 100 R&D subsidiaries of global companies from a variety of industries, including telecom, software, gaming and e-commerce. Such international giants as Samsung, Aricent, Boeing, Ericsson, Huawei, Oracle, Siemens and Teleperformance, to name just a few, have chosen Ukraine as one of their R&D facilities' location; these companies work on innovative products in every known industry, including e-commerce, software, cloud technology, security, healthcare, finance, transportation, retail, telecommunication and others. A significant part of these global companies entered the Ukrainian market indirectly, through M&As, joint R&D with an outsourcing component, or outstaffing service companies. The R&D Institute opened by Samsung in Ukraine was the company’s largest one of the kind outside South Korea, with the staff of more than 1000 people.
  17. 17. Source: PV mag The United States remain Ukraine’s prominent partner for joint R&D activities (around 45% of the companies involved), followed by EU countries and Israel. Kyiv is the most popular location for R&D facilities in Ukraine, concentrating over half of all of them. Other key cities for R&D development include Odesa, Dnipro, Lviv and Kharkiv. North America Europe Asia Asia Education and innovation potential 152018 | National Investment Council | IT industry of Ukraine
  18. 18. Largest market players 16 2018 | National Investment Council | IT industry of Ukraine
  19. 19. Largest market players 172018 | National Investment Council | IT industry of Ukraine Outsourcing companies outsourcing market in Eastern Europe according to Outsourcing journal by outsourcing volume in Central and Eastern Europe according to Central and Eastern European Outsourcing Association №1 №1 Several IT outsourcing companies of Ukrainian origin grew into technology giants with offices worldwide. Among these companies are Ciklum, DataArt, Infopulse, Lohika, Miratech and SoftServe. Impressive is the growth of AOG, an IT service company headquartered in Cherkasy (Central Ukraine), which now accounts for 5,000 affiliated freelance engineers less than three years after company launch. At the same time a number of foreign outsourcing companies like EPAM, GlobalLogic, Luxoft have multiple offices in Ukraine, which now stands as a major R&D hub for these global IT service providers. Most Ukrainian large outsourcing companies offer full-stack solutions while specializing in a number of fields. 18 Ukrainian companies were included to TOP 100 Global Outscoring companies of the world in 2017 according to IAOP. This is 5 companies more than in 2016. Employees SoftServe 200 Ciklum Location ELEKS Infopulse Sigma Software Intellias N-iX Miratech Innovecs AMC Bridge Program-Ace Softengi Ukrainian companies Employees in Ukraine EPAM Luxoft Head Office Itera TEAM Int. Softjourn Artezio International companies Lviv Kyiv Lviv Kyiv Kharkiv Lviv Lviv Kyiv Kyiv Dnipro Kharkiv Kyiv USA Switzerland Norway USA USA Russia 5500+ 3500+ 100 300+ 100+ 300+ 4500+ 2000+ 1000+ 1500+ 800+ 800+ 700+ 700+ 400+ 300+ 100+ 200+ Ukrainian IT outsourcing companies are headquartered in: Ukraine Europe North America 13% 63% 2% 22% Israel Source: Ukrainian Digital News "High Tech Ukraine From A To Z", 2015
  20. 20. Largest market players 18 2018 | National Investment Council | IT industry of Ukraine Product companies and startups Powered by the training and expertise that software outsourcing companies provide, Ukraine also has one of the most rapidly expanding startup communities in Europe. Ukrainian software companies offer virtually every possible software service including, but not limited to software development, web and mobile development, quality assurance and testing, business process outsourcing research and development services, IT consulting and IT security management. Source of early capital Accelerator Angel 2017 2016 Source: AVentures 2015 2014 2013 2012 In 2017, startups attracted early funding (Seed and Series A) primarily from the institutionalized venture capital funds (90%), from angel investors (6%), and crowdfunding platforms (3%). According to UAngel Association, in 2017, angels invested $3.5M into 20 companies. Grant Undisclosed 604020 80Million, USD Corporate VC Crowdfunding Most active investors VC Foreign Local Late StageSeed to Series A
  21. 21. Largest market players 19 2018 | National Investment Council | IT industry of Ukraine Companies with most revenue of international origin Tech holding with fast-growing products operating in African and Asian markets Al-powered spell-check SaaS company Document management SaaS to edit, sign, share and store documents online Interactive restaurant dining technology Multifunctional Cryptocurrency Exchange Cloud CRM for sales, marketing and service automation Security and cleaning software for Mac E-commerce holding with fast-growing products in 5 countries Payment & content distribution platform for digital goods &services in 200+ countries Mobile App marketing with user acquisition technology Developer of iSO productivity apps such as Spark, Documents, and Scanner Pro Leader in Connected Pets, maker of Petcube Play and Petcube Bites Mac software development company Online booking services including flights, hotels and insurance Micro-stock photo-ban online marketplace Supply Side Platform with own Video Ad Marketplace Mobile app for event planning Storage management and SAN software for SMBs Tools engineered to increase user adoption and ROI of enterprise applications (CRM. ERP. Etc) Global jobs search engine Top e-commerce companies on Ukrainian market Global playersLocal players
  22. 22. Largest market players 20 2018 | National Investment Council | IT industry of Ukraine Top hardware startups With the global rise of the Internet of Things sector, the Ukrainian market has seen an increasing number of of startups in this field. Most of them are focused on the global market, where customer purchasing power is much higher than in Ukraine. Most products created by startups are designed in Ukraine and manufactured in China or Ukraine. The majority of these startups obtained early funding and customers via crowdfunding platforms. Ajax Systems is a wireless security system controlled from the web or mobile application. Branto is a home intelligence system that affords users remote control of various electronics in their houses and also acts as a security device. Concepter’s initial product, iBlazr, is a LED flash for smartphones and tablets that is sold in the Apple Store. Concepter’s latest product, dubbed ‘Soul’, is a time-tracking platform for lifestyle enhancement. is a home energy monitoring solution that tracks energy consumption and makes it more efficient. The startup gained impressive worldwide traction in just 2 years after launch. is a smart heating solution with a touch sensor and remote control. Petcube Play is an indoor home pet camera that allows checking on a home pet remotely, from smartphone.
  23. 23. IT infrastructure 212018 | National Investment Council | IT industry of Ukraine
  24. 24. IT infrastructure 22 2018 | National Investment Council | IT industry of Ukraine Ukraine has a developed and yet fast growing IT ecosystem contributing to the overall infrastructure which includes five major IT clusters. The IT clusters have been formed in five largest cities of Ukraine. Each of the cities has more than a million of inhabitants, highly developed educational establishments, vivid culture, as well as a heritage of being a center for research and innovation. Major regional IT clusters Source: State Statistics Service, NCCIR Lutsk IT Cluster 9 IT companies Local universities and media Kyiv IT Cluster 65 small and middle IT companies Over 900 developers Cherkasy IT Cluster 10 IT Companies Kharkiv IT Cluster 20 IT companies 5 local universities Dnipro Tech Cluster 18 companies Odesa IT Cluster 18 IT companies 3,000+ IT professionals Bukovyna-Chernivtsi IT Cluster 15 companies 700 IT professionals Lviv IT Cluster 6,500+ IT professionals 35 IT companies
  25. 25. 232018 | National Investment Council | IT industry of Ukraine Kyiv and the Kyiv region Source: UADN, AVentures A study by Global Services-Tholons has included Kyiv among its Top 50 Emerging Outsourcing Cities. Kyiv, a city of more than three million, is the capital of the country and the main brainpower of the Technology Nation. The city’s dominance rests upon a large number of universities, including technical education, with the highest concentration of students in the country. Four of Ukraine’s major universities are located here: the Kyiv Polytechnic Institute, the Taras Shevchenko National University, the “Kyiv-Mohyla Academy,” and the National Aviation University. Like other capitals, Kyiv attracts the largest fraction of national and international investors, the biggest conferences, numerous IT community initiatives, incubators, collaboration and co-working spaces etc Kyiv has a well-developed business infrastructure and transportation system, including two international airports. Many companies have their official headquarters here for legal and business purposes, even though some players do not base their main technical office in Kyiv. 55+ 55+ 35 000+ 38+ 20 000+ Software outsourcing firms with 80+employees International R&D offices IT professionals Universities and colleges with technical education Technical graduates (2015) Kharkiv and Eastern Ukraine Source: Kharkiv IT cluster UADN, AVentures Software outsourcing firms with 80+employees International R&D Centers IT professionals Universities and colleges with technical education Technical graduates Kharkiv is the second largest city of Ukraine. It is modern and comfortable city with developed infrastructure including airport, railway, subway and is located just four-hour drive away from Kyiv. Home to 142 higher educational establishments and research institutes, Kharkiv has been the scientific capital of Ukraine for decades and is well known in the world for its high-tech enterprises, such as: Hartron, Turboatom and others. Currently Kharkiv prepares specialists in 69 high education institutions, including 17 universities and 9 academies. Every year more than 200,000 students study in colleges and universities in Kharkiv. More than 2,000 IT professionals graduate per year from Kharkiv Universities. 35 11 22 000 5 16 000+ Kharkiv Luhansk Donetsk Kyiv IT infrastructure
  26. 26. Central Ukraine and Dnipro Source: UADN, AVentures Central Ukraine has the fourth largest IT outsourcing community by the number of companies after Kyiv, Kharkiv and Western Ukraine, and the second largest community of R&D centers after Kyiv. Dnipropetrovsk is not the only city in the region with a large number of IT companies. Vinnitsa, Cherkasy and Zhytomyr also have significant IT communities. 44 14 9 000+ 5+ 27 000+ Software outsourcing firms with 80+employees International R&D Centers IT professionals Universities and colleges with technical education Technical graduates Dnipro Poltava Sumy Chernihiv Cherkasy Kropyvnytskyi Vinnytsia Zhytomyr Lviv and Western Ukraine Source: UADN, AVentures Although Lviv is a primary driving force behind the IT development of its region, Ivano-Frankivsk, the cities of Rivne and Lutsk add to that growth. The region is home to such huge IT outsourcing giants as Softserve, Eleks, Intellias, N-iX, Malkos and many others. Lviv-based N-iX and Perfectial made it into twelve top Ukrainian IT development company ratings, published by American research publisher Clutch. 32 14 15 000+ 17 15 000+ Software outsourcing firms with 80+employees International R&D offices IT professionals Universities and colleges with technical education Technical graduates Chernihiv Lviv Ivano- Frankivsk Uzhhorod Lutsk Rivne Ternopil Khmelnytskyi Chernivtsi IT infrastructure 24 2018 | National Investment Council | IT industry of Ukraine
  27. 27. Odesa and Southern Ukraine Source: UADN, AVentures Software outsourcing firms with 80+employees International R&D offices IT professionals Universities and colleges with technical education Technical graduates 28 23 11 000+ 10+ 15 000+ Odesa Kherson Simferopol Mykolayiv Zaporizhia Major co-working spaces and incubators Odessa is one of Ukraine’s top five IT hubs with over 190 IT companies. Roughly half of them are IT service providers, the other half are software publishers. In addition to five technological universities, the city has several popular IT coaching centers which provide advanced training in software development, UX/UI design, QA and testing, and other IT disciplines. Some IT companies operating in Odessa have their own IT training centers to help grow and nurture junior tech talents. 252018 | National Investment Council | IT industry of Ukraine IT infrastructure
  28. 28. Kyiv In 2017 the total office supply in Kyiv amounted to 1 823 000 m² according to Colliers. The new supply grew only by ~ 40 000 m². Compared to 2016, in 2017 the vacancy rate dropped by 6.8%. Commercial real estate in major cities IT infrastructure 26 2018 | National Investment Council | IT industry of Ukraine The demand for high quality office space mainly came from IT companies (36%), professional services (18%), and manufacturing (12%). Co-working spaces are becoming increasingly common, with IT companies and start-ups as their target clients. The prime headline rent remained unchanged at $28/m²/month. The average rental rates in Grades A and B settled at 16/m²/month. Lviv The current supply of offices in Lviv meets the demand of the industry. The first A-class premises appeared in Lviv in 2017. According to Lviv City Council 12 Business centers with GLA 80 400 m² are available in the city. The prime rental rates vary from 10 to 18 EURO m²/month. Dnipro In 2016 the total office supply in Dnipro amounted to 1 670 000 m², mostly B/B+ and C-class premises. The rent starts from $2 and grows depending on class and location. Kyiv office submarkets Desnianskyi district Podil Left bank Dniprovskyi district Darnytskyi district Obolon Shevchenkivskyi district Podilskyi district Solomianskyi district Holosiyivsyi district Sviatoshynskyi district sq m $** 128.000 9-15 Class B sq m $** 56.700 16-20Class A 168.600 13-17Class B 225.300Overall Right bank sq m $** 116.900 16-20Class A 766.030 9-16Class B 882.930Overall CBD sq m $** 217.600 16-28 Class A 239.100 13-17 Class B 456.700Overall
  29. 29. Regulation 272018 | National Investment Council | IT industry of Ukraine
  30. 30. Taxation Budget revenues from IT in 2017 formed only around $30 million. Even though this amount is about 40% more than in 2016 it’s still incomparably little to the side of the sector. The key reason for this is the current tax system. Salary is the most significant expense for Ukrainian IT companies which often accounts for up to 60% of a company’s total expenditures. Salary taxes comprise a unified social security contribution (USCC) of 22% (mostly on top of net salary) and personal income tax (PIT) of 18% At the same time majority of IT companies employ personnel by outsourcing from private entrepreneurs using simplified tax system. This system was created by the Government to stimulate small and medium-side business development. The key stimulus of the simplified tax system is a very low tax rate of only 5% of the revenue plus a fixed social contribution tax of around only $30 per month. VAT does not have to be paid either. Compared to an average 40% tax rate on a usual salary in Ukraine the simplified system provides a significant advantage. The existing simplified tax system creates a very strong stimulus for IT development on the one hand, but deprives the budget of the tax revenues. Furthermore such a system does not help IT companies grow at a stage when they are looking for credit or venture financing. Currency control In order to remain the IMF program Ukraine was obliged to impose currency restrictions. As our financial and banking system has been reformed and substantially strengthened in the last two years the National Bank of Ukraine is lifting the restrictions step by step. Thus the National Bank relaxed the restrictions on 2 March 2018. With effect from 2 March 2018, the following currency restrictions are in force: Foreign investors are allowed to repatriate their investments subject to monthly cap of USD 7 million regardless the period of dividends’ accrual. Previously, foreign investors were able to repatriate dividends accrued for 2016-2014 only subject to cap of USD 5 million Ukrainian borrowers may prepay cross-border loans denominated in foreign currency subject to monthly cap of USD 2 million; and The requirement for mandatory conversion of 50 % of loan denominated in foreign currency will be disapplied to the extent to which such funds are utilized by such borrowers for refinancing or repaying to other non-Ukrainian lenders (including, foreign trade creditors) and Ukrainian banks Regulation 28 2018 | National Investment Council | IT industry of Ukraine
  31. 31. Regulation 292018 | National Investment Council | IT industry of Ukraine Intellectual property rights protection In Ukraine, the same as in other European countries, and the USA, the international copyright laws rules apply. Those rules state that IP rights arise once the asset is created and no registration is needed for those rights to exist (Presumption of Authorship). Nevertheless, when it comes into dispute, the registration document – called the Certificate of Copyright Registration – generally does matter, be it in Ukraine or in other jurisdictions. According to the Berne Convention of 1986, a title of copyright protection locally issued is valid in all convention countries, which includes 168 countries among which the USA and EU countries. Copyright is treated distinctly from trademark protection, which requires registration in every country separately, whether you apply locally or by means of international application. This means that one may protect the IP rights in any country participating in this convention, but it would be more effective to protect them in the country of IP usage. Here is worth mentioning that in Ukraine IP is being registered as submitted, without substantial examination. When it comes to a dispute, evidence of priority is to be presented by the parties. It is the opposite in the US, where the Copyright Office conducts examination of software code in order to detect if it contains protected IP of third parties. This makes US copyright protection more valuable for the foundation of evidence in the case of a copyright dispute. Source: UADN, AVentures Work permits for foreigners In 2017 the Ukrainian Parliament adopted a law on taking out the barriers for foreign investment attraction. The law stipulated a new simplified procedure for employment of foreign citizens was introduced. The new regulation allows for a faster and easier process of getting a work permit. Now it takes less then one week to get a permit. This change became a significant relief for IT companies employing foreigners according to European Business Association. As labor is the key resource in IT industry this relatively small step could make a ground for quite substantial leap on the industry attracting more foreigners to live, work and invest in Ukraine. Establishment of the National Startup Fund In 2017 the Government of Ukraine launched a creation of a National Startup Fund aimed at supporting innovation and IT in Ukraine. The World Bank supported the initiative and provided technical assistance in establishing the new body. It’s expected that the fund will start operating in fall 2018.
  32. 32. Regulation 30 2018 | National Investment Council | IT industry of Ukraine UNSF will invest 50 million HRV into early-stage startups that demonstrate potential for commercial success through scalable growth in the global market Viable, teamed, early-stage, innovative, high-tech Ukrainian companies Hight-potential ideas that can achieve sustainable, international, commercial success: 'unicorn' goal Sectors for Investment Artificial intelligence Fintech Internet of Things Energy Agritech Med tech Big DataCyber security Blockchain UNSF – Goals, Guidelines and Benefits Goals Guidelines Benefits Result oriented and transparent Promote Ukraine as an innovative country on national/international level(s) Share best practices with the Ukrainian startup community, inspire more young entrepreneurs Coordinate and partner which existing entities to strengthen the startup ecosystem Invest in the most promising and innovative ideas that also demonstrate high probability for global commercial success Provide strong and consistent post-investment support to the companies, aimed at fostering their development, preparing for next stage financing, and ultimate success Contribute to the economic development and global competitiveness of Ukraine Support innovation to transform the Ukrainian economy Act as a catalyst for igniting new investment activity in Ukraine Executive Summary
  33. 33. Ongoing reforms 312018 | National Investment Council | IT industry of Ukraine
  34. 34. Ongoing reforms 32 2018 | National Investment Council | IT industry of Ukraine Further strengthening of IT education In order for Ukrainian IT to grow faster than the global IT market country have to be not just competitive at this particular moment, but think strategically. It requires to reinforce education strengthening vocational training and establishing stronger cooperation between IT companies and universities. It is important to coordinate such efforts on the national level and establish a country-wide program on IT education development which would set strategic priorities for the development of the human capital in sphere. At the same time the IT education system should be flexible enough to allow educational enteties to adapt faster to market needs changing programs and introducing new disciplines when needed. Intellectual property rights improvement By far one of Ukraine’s top priority in developing IT is strengthening the intellectual property rights. In 2016 the Government of Ukraine disestablished the State Agency on Intellectual Property and transferred the functions of regulation of the sphere to the Ministry of Economic Development and Trade. In summer of 2016 the Government adopted the Concept of intellectual property rights protection reform and the Reform Action Plan. According to the documents the reform comprises of the three steps: Institutional changes: creation of a new transparent body regulating intellectual property rights issues in Ukraine Reorganization of the Collective Management of Copyright and Related Rights system Improvement of the national regulation on the Intellectual property rights protection In February 2018 the Government created the Intellectual Property Rights Council responsible for coordination of State IPR protection policy. In September 2017 the President of Ukraine created a new High Court for Intellectual Property which is expected to deals with the disputes on copyright, trademarks, inventions, patents, author’s rights and administration of titles to intellectual property and other IPR issues. This body was created as a part of a wide reform of the Ukrainian judiciary. The Court is expected to enhance the speed and quality of hearings by the expert judges in IP-related cases and, ultimately, improve protection of intellectual property rights in Ukraine. It is expected that the Hight Court for IPR will be established in 2018 with judges appointed through a competitive and transparent procedure.
  35. 35. Ongoing reforms 332018 | National Investment Council | IT industry of Ukraine Introduction of sustainable taxation in IT The current simplified tax system allows many IT companies to pay a low tax rate of only 5% from revenue with a simple administration process. At the same time this system does not allow IT companies to attract foreign financing, limits systemic growth and puts market players in unequal position when one company has to pay around 40% taxes on salary while another can only pay 5%. According to the European Business Association survey IT companies are ready to pay fairly higher taxes in case their level remains adequate and competitive to neighboring countries. At the same time the changes to the taxation should not mean the full elimination of the simplified tax system for IT as itcould jeopardize the development of the IT sector or motivate companies work in the shadow. Digitalization of public services and digital economy development Since 2014 Ukraine has already introduced a number of world-class IT solutions to public services such as an online public procurement system Prozorro, online platform e-Data created to monitor public spending and enhance budget transparency, electronic online VAT reimbursement system and many others. These initiatives not only tacked corruption and significantly improved public services, but they also gave a yet another push for the development of Ukrainian IT sector. Therefore further digitalization of public services is a win-win for both the public and IT sector in particular. In year 2018 421 public services are provided online, including register of real estate, company registration, tax-payers online cabinet etc. Further public services will be launched online as well as other IT solutions for management of municipal infrastructure, energy supply and data-management. Introduction of GDPR Comprehensive regulation of data protection in the European Union should by introduced in Ukraine in the nearest time. GDPR currently is focused on the individuals whose data is being utilized, and changes need to made in regulation to further strengthen of regulation of organisations utilising the data in Ukraine.
  36. 36. This report has been prepared by the Office of the National Investment Council for information purposes only. Although the information in this report comes from sources we believe to be reliable, and although we have made every effort to ensure its accuracy at the time of publication, we make no warranty, express or implied, of this report's usefulness in predicting the future performance. Nor should this report be regarded as a complete description of the macroeconomic situation and markets regulation in Ukraine. Office of the National Investment Council doesn’t do or seek to do business with companies covered in its research reports.  Any investment decision made on the basis of this report shall be made at the investor's sole discretion, and under no circumstances shall Office of the National Investment Council or any of its employees or related parties be liable in any way for any action, or failure to act, by any party, on the basis of this report. This report, or any part of it, is free to reproduce, distribute and quote, referencing Office of the National Investment Council is required. Office of the National Investment Council would like to credit AVentures and Ukraine Digital News which produced a report IT Ukraine, IT services and software R&D in Europe’s rising tech nation, from A to Z. The information from aforementioned study was partly used in the preparation of the current document. Source of photos: Pexels, Unsplash, Pickwizard Produced by the Office of the National Investment Council of Ukraine which is supported by the European Bank for Reconstruction and Development For any questions or comments please contact