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Ukraine's resilient tech industry doing well in spite of war
Unlike Ukraine's manufacturing plants, warehouses and stores, many of which lie in ruins, its IT sector has had much better luck.
The tech industry reacted with lightning speed to the new reality dictated by Russia's all-out war against Ukraine.
Early in the invasion and even before it, companies started to relocate whole teams into safer western Ukrainian regions. Other IT specialists continued to work remotely even in dangerous areas close to the front line.
The results surprised many. In the first quarter of 2022, the industry’s export revenue hit a record $2 billion despite martial law and mobilization, up 25% year-over-year, according to Danylo Hetmantsev, the head of the parliament's finance and taxation committee.
In March, exports of IT services fell by just 4% compared to 2021, “despite the shock of the hottest phase of the war,” he said.
Since they need access to only two things – a laptop and a stable Internet connection – Ukrainian techies turned out to be as efficient at work as they were before the war, according to Natalia Koliadko, head of human resources at EPAM, the largest tech company in Ukraine by the number of employees, 14,000 people.
“We were astonished at how timely our employees completed their projects for clients, sitting in Kharkiv basements and other horrible places,” said Koliadko.
According to Konstantin Vasyuk, head of the IT Ukraine Association, 77% of IT companies in Ukraine were able to attract new clients and nearly 60% expect that they will grow up to 30%.
He forecasted that in 2022 the industry will pay 20-25% less in taxes, which would still be a hefty $4-5 billion.
“Today, the IT industry is one of the few that support the economy of the state and will help the future recovery,” said Vasyuk.
But experts also predict that the war may yet severely damage Ukraine's IT sector.
Industry’s new realities
The war caused a massive domestic relocation of tech professionals. As of May, 35,000 IT specialists of the country's 285,000 had moved to Zakarpattia Oblast alone, according to Ulyana Kratko, the IT Expert Lead at Ukraine’s online recruitment service Robota.ua.
The western city of Lviv typically employs 30,000 techies. That number has more than tripled.
In addition, some IT specialists decided to join the Ukrainian military to defend the country against Russia's invasion.
According to a survey that the IT Ukraine association conducted among 30 companies employing 34,000 techies, almost 700 of their employees joined the Ukrainian army as of mid-April.
Meanwhile, the war put future contracts in the sector at risk.
Currently, every fifth IT company in the country lacks orders from clients due to the war and expects more tax breaks from the government, according to a survey conducted by Robota.ua in April.
While almost 30% of IT companies did not suffer losses due to the war, every 10th company has already lost up to $50,000. According to Kratko, some have lost up to $1 million.
“Over the past month and a half, the company has added perhaps two new clients, four times less than before the war,” said Intellias CEO Vitaly Sedler. “They postponed decisions to enter the Eastern European market and started to reconsider whether to work with Ukrainian companies.”
As a result of the all-out invasion, 2% of all IT companies in Ukraine were forced to close their businesses, the study said.
Still, the falling revenues did not push most companies into mass layoffs or deep wage cuts. Only 6% of IT companies in Ukraine had to cut up to 60% of salaries, while just 4% of companies laid off up to 25% of their staff.
Instead, four big tech companies – Intellias, Genesis, Squad, and Parimatch – have already opened offices in Uzhhorod, the capital of Zakarpattia Oblast, and are looking to hire and grow their teams.
In spite of solid performance, the IT sector in Ukraine may be looking at an uncertain future. Experts believe that the relocations will not stop in western Ukraine.
“It’s only the first wave of the relocation, it won’t be the last one,” said Tetiana Laduba, head of Employer Brand Development at Ciklum, one of the largest software developers in Ukraine headquartered in the UK. “The second wave of relocation of IT professionals abroad may also take place."
Currently, men between the ages of 18 and 60 can't leave the country due to martial law. After the war, some IT developers are likely to depart, according to HR specialists. Some are already signing contracts with global IT companies, which will have them relocate as soon as they are allowed to leave the country.
“Competition at this market will only grow,” said Laduba. “And the demand for digital transformation remains high.”
The military threats will have a strong impact, changing people’s plans. In the mid-term perspective, for up to five years, IT professionals will choose the location, not the company.
“People are under stress,” said Laduba, explaining the urge for relocation.
Vladislav Savchenko, head of the European Software Engineering Association, sees another worrying trend: There are 20,000 vacancies in the tech sector, which is less than half the number of job seekers, 45,000. Before the war, it used to be the other way around.
“This is a very bad trend, if we talk about the prospect of 3-6 months,” Savchenko said in an interview with BBC News.
Plus, many investors already fear that Ukraine may experience problems with the Internet and that IT specialists may be mobilized if the war escalates.
This could result in billions in losses for the sector in the long run. While it took decades for the Ukrainian IT industry to become world-famous for its tech talent, the country “could lose it in a year, and that's sad,” Savchenko said.