In recent years, Ukraine has been actively developing the innovation sphere, and Ukrainian start-ups and IT companies are known worldwide. According to IT companies, in 2016 the IT market amounted to $3 billion, which is 3.3% of Ukraine’s GDP in 2016. This area grows by 20,000 jobs annually. These growth rates can gradually match traditional Ukrainian industries like metallurgy and agriculture that will increase budget revenues. Ukraine has been discussing the launch of innovation parks for several years. One of the first has recently opened in Kyiv.
The first part of a large-scale project UNIT.City was presented on April 6 in Kyiv. It is expected to become the focus of the country’s creative economy.
The goal of the UNIT.City project is to combine educational, business, cultural, medical, sports and entertainment facilities in order to provide small and medium-sized innovation businesses with access to all infrastructures necessary for rapid development and expertise in one area.
For the most part, companies that work in the areas of high technology, creative ideas and innovative business will be based here. That is, small Ukrainian and international food companies, R&D centers, start-ups and IT companies.
UNIT.City will help create up to 15,000 highly paid jobs, and provide talented youth with the opportunity of self-realizing in their country thus stopping “brain drain” in Ukraine.
The total area of the future innovation park will be 25 hectares. The project resembles the famous campuses of Google, Apple and other Silicon Valley giants.
As of now, 4000 square meters have been used. Business campuses, sports complex and UNIT.Factory (free programming school), which is the main educational element of the park, are located there.
Business campuses will work in the format of club-offices (the company will use a small room, while meeting rooms and other spaces can be used by other companies).
Investors plan to build 31,000 square meters of business campuses, which will help create an entire innovation park. It is planned to invest 200 million dollars in the project within four years.
A plain Soviet-era office block squats on a residential street in the beautiful historic city of Lviv, Ukraine. The lobby is dimly lit and there is no seating, only a stern guard who points to the elevator to access local software engineering firm N-iX.
The doors part and the offices are an orange and white oasis, with lofty ceilings and light and young people working at clusters of desks.
This is Ukraine, a country of stark contrasts. Old Ukraine is stuck with antiquated businesses, methods, and corrupted leaders. New Ukraine is sunny, prosperous, and talented despite war in the east and scandals galore.
N-iX, for instance, employs 200 talented and world-class software developers who are working on projects around the world in offices in Lviv, Stockholm, and Sofia. I met its CEO and founder, Andrew Pavliv, in Silicon Valley two years ago and visited his operation in 2015.
“We are very proud of our company and our projects,” he said.
And he should be. He and the rest of the IT sector in Ukraine have become Europe’s largest software development industry. There are 100,000 Microsoft certified software professionals in the country and aggressive plans to double this number by 2020.
N-iX is rooted in Lviv but its market is global. Its cool offices could be in San Francisco or New York City and its workforce is just as brilliant. Walls are decorated with irreverent cartoon figures, funny quotations, and many flags representing their multinational clients.
There is also a large attractive kitchen and eating area, a gym, and recreation area with foosball and other games to provide a gathering place and break from intensive projects in multiple time zones.
During a tour of the premises, N-iX spokesman Halyna Dumych said that “Ukraine is now fourth in the world in the number of IT professionals after the United States, India, and Russia.”
Sanctions have cost Russia IT business and many have opted for Ukraine instead. In other words, Ukraine is winning the IT “war.”
Three recent and significant deals have turned the tech world’s attention toward Ukraine. In September, Snapchat paid $150 million to buy a two-year-old Ukrainian startup in Odesa called Looksery. The previous record was $45 million paid by a Google mobile division for Viewdle.
In November, financier George Soros made a big bet when his Ukrainian Redevelopment Fund acquired a stake in Ciklum Holding Limited in Kyiv, a successful IT firm with 2,500 professionals. “It is a very dynamic company in an industry that represents the future of Ukraine,” said Soros.
Analysts estimate that there are more than 2,000 startups in the country’s major cities. And some have already made their mark. Ukrainians are behind global success stories such as Grammarly, an online writing enhancement software, and Paymentwall, an online platform dedicated to selling digital goods and services.
Both those companies, like 100 other multinationals, have huge research and development operations in Ukraine such as Siemens, Samsung, Oracle, Cisco, SoftServe, Procter & Gamble, and Bioclinica.
Ukraine’s IT sector is proactive and is determined to transform the country from the world’s bread basket to the world’s “brain basket,” says Yevgen Sysoyev, managing partner of AVentures Capital in Kyiv.
In February, he published “IT Ukraine” that listed the sector’s growing achievements and impressive client base. To reach its goal of 100,000 more IT professionals with proficiency in English by 2020, the sector is signing on universities, local governments, and companies.
For instance, the Lviv IT Cluster, an organization run by Stepan Veselovskyi, has linked three universities, the city council, and thirty-four companies to build incubator facilities, host a large conference annually, and develop IT House, the first of several seventy-two-unit condo buildings on low-cost city land to help IT professionals relocate from war-torn areas or smaller centers. The first building sold out immediately last year.
There is a distinctive Ukraine advantage: A pool of talent well-versed in math and sciences, a desire to get ahead, and a competitive advantage for export of services because salaries are 40 percent to 50 percent lower than in the West. To boot, these companies are paid in foreign currency.
Young people are flocking to the industry because an IT software developer is the “highest paid job in Ukraine,” said Dumych. For instance, she said a railway engineer in Britain makes 1.5 times more than an IT software developer there, but in Ukraine a software developer makes 15 to 20 times more than a railway engineer.
Kyiv and Lviv are the main centers of activity but a robust tech sector exists in most of the country’s cities. But Lviv is growing quickly because of its location, furthest from the violence in the east, as well as just three hours flight from Vienna or Warsaw.
“The headlines look bad, but this is an exciting time for entrepreneurs,” said Lenna Koszarny, CEO of private equity firm Horizon Capital in Kyiv with hundreds of millions invested in the country in many sectors. “We are bullish about Ukraine.”
First published Atlantic Council website Feb. 26, 2016
Diane M. FrancisSenior Fellow Atlantic Council Eurasia Section, Adjunct Faculty Singularity University in Mountain Vie the National Post in Canada, Professor at Ryerson University, author of 10 books
DAVOS. Jan 26 (Interfax-Ukraine) – The sector of Ukrainian product IT companies thanks to a rapid growth in recent years in terms of cost became comparable with the sector of outsourcing IT companies and has a significant potential of growth in the light of experience accumulated, the formation of an appropriate business environment and a high interest of venture investors, head of the supervisory board of the Ukrainian Venture Capital and Private Equity Association (UVCA) Andriy Kolodiuk considers.
“There appear more and more product companies. My total evaluation of product companies exceeds $2.5 billion: one deal with Looksery is $150 million, but we also have a full list of 3,000 start ups and companies in Ukraine. Therefore I am confident that the aggregate value of them has already exceeded $2.5 billion,” he said in an interview with Interfax-Ukraine on the sidelines of the Ukrainian lunch organized by the Pinchuk Foundation in Davos.
Kolodiuk, being also a venture investor, founder and managing partner of AVentures Capital, noted that venture investors invest only in product companies and do not invest in outsourcing.
“Large funds such as (George) Soros Fund, Horizon Capital invest in outsourcing – this is another story. And we invest in product companies because this is the exit [the possibility of selling to the very high profitability], on which this business is built,” he said.
According to him, among the projects available in the portfolio of AVentures, for example, Petcube will cost at least $600 million, and this success encourages other investors to invest.
The Ukrainian IT industry now employs 99,940 people — up from 89,300 last year — according to the latest report of DOU.UA, an authoritative industry resource. The figure includes programmers, QA specialists, project managers and other IT-related professionals.
Almost half of these professionals live in Kyiv (Kiev). Others are inhabitants of such other major Ukrainian cities as Kharkiv (Kharkov), Lviv (Lvov), Dnipro (previoulsy known as Dnipropetrovsk), and Odessa.
With its Ukrainian offices in Kyiv, Dnipro, Lviv, Kharkiv and Vinnytsia, US-headquartered EPAM is the biggest employer in the industry. Among other industry leaders are such companies as SoftServe, Luxoft, GlobalLogic and Ciklum, if judging by the number of employees, says the report.
With monthly salaries reaching or exceeding $3,000 for certain specialties, remunerations in the Ukrainian IT sector are high or very high by local standards.
Women are becoming more interested in the field. This year the share of female specialists now reaches 15%, up two percentage points from last year.
Ukrainians have shown growing hunger for IT education, according to the study. In 2015, almost 30,000 Ukrainians attended IT courses.
Among the organizations supporting the educational effort is the BrainBasket Foundation, a Ukrainian NGO. Earlier this year George Soros offered his personal support to BrainBasket’s Technology Nation program through the International Renaissance Foundation.
Ukraine’s IT work force could double to some 200,000 by 2020, according to a recent report on the Ukrainian IT outsourcing and software devemopment by Ukraine Digital News and AVentures Capital.
Returning IT entrepreneurs can help Ukraine to upgrade from breadbasket to brainbasket
In February 1992 my former employer, Digital Equipment of Canada, moved me to Kyiv to develop its IT business from scratch. At the time, DEC was the No. 2 global IT company. Prior to my arrival, the transfer of sophisticated technology was prohibited due to strict Cold War export restrictions. Regulations were relaxed after the Soviet Union collapsed. Even then, in 1991, everyone talked about Ukraine’s IT potential. Twenty-five years have passed and Ukraine’s economy continues to struggle along, taking several steps forward then several steps back.
Despite this, Canada has remained a fervent supporter of Ukraine’s economic, social, and political transformation. Support is partially based on Canada’s strong Ukrainian diaspora, but also because Canada can serve as a good example. With both countries strong in agriculture and technology while bordering a big, influential neighbour, Canada and Ukraine have shared attributes of multiculturalism, diversity, and technology innovation.
As a show of this support, the Canada Ukraine Business Forum took place in June in Toronto. The objective was to increase trade and investment between Canada and Ukraine. Three weeks after the forum, Canadian Prime Minister Justin Trudeau arrived in Kyiv. While in Ukraine, he and Canadian Minister of Trade and Development Chrystia Freeland signed the Canada Ukraine Free Trade Agreement (CUFTA), eliminating about 98% of all duties. Promising sectors for trade include aerospace, transportation, energy, agro-tech, defence and security, and information technology. All have the potential to create win-win opportunities for both countries.
As a good example, one of Canada’s largest retailers has contracted more than 700 Ukrainian software engineers to help them develop leading edge IT solutions to maintain an advantage against global technology giants such as Amazon and Ebay. CUFTA will make more opportunities like this possible.
Ukraine’s bountiful brainbasket
One of the most successful panels at the Toronto business forum was ‘The New Ukraine – an Emerging Technology Nation’, where the chasm between Canada and Ukraine’s high-tech ecosystems was evident. The key to Ukraine’s growth in ICT is investment. The problem is not a lack of private capital availability. According to the 2016 Preqin Global Private Equity & Venture Capital Report, global uncalled capital commitments, known as dry powder, stands at a record USD 4.2 trillion.
According to the Ukrainian Ministry of Economic Development and Trade, Ukraine is ranked the fourth most educated nation in the world, with over 99.7% literacy. Ukraine produces more than 130,000 engineers and about 16,000 IT graduates each year, making it the No. 1 engineering force in CEE. Ukraine is in the top three by number of certified IT professionals globally. Indeed, Ukraine is no longer just the breadbasket of Europe, it is evolving into a brainbasket for global IT.
Ukrainian IT sector can learn from Canada
Despite its strengths, Ukraine lags significantly in attracting venture capital investment. By way of comparison, Canada attracted USD 2.3 billion in venture capital in 2015, while Ukraine attracted just USD 132 million. Nevertheless, IT outsourcing in Ukraine has grown twenty-fold over the last decade, reaching USD 2.5 billion in 2015. The industry is expected to grow to USD 21 billion by 2021.
A recent article in Tech Crunch states that Toronto can become one of the biggest hubs for technology start-ups in North America over the next five-ten years. Both the Canadian federal and Ontario’s provincial governments offer strong support. Federal tax incentives to conduct R&D and economic development agencies such as FedDev Ontario help create, retain and grow businesses while cultivating partnerships. Furthermore, International Science and Tech Partnerships are supported so small companies with R&D programmes can receive financial support to partner with foreign researchers. Ukraine happens to have a good supply.
If we want the brainbasket to grow by harvesting its technology potential, similar programmes should be implemented by the Ukrainian government. Best practices from Canada and other innovation centres such as Israel and Silicon Valley should be adapted to the Ukrainian reality. There is no way to recreate a Silicon Valley in Ukraine and that temptation should be resisted. Building a technopark (i.e. Skolkovo, Bionic Hills etc.) as a real estate project is not the way to go. The government should help create the conditions for entrepreneurship and innovation to thrive, or at least get out of the way.
Ukraine needs return of émigré entrepreneurs
Since independence, Ukraine has suffered from a shrinking population and brain drain. Thousands of young people have left the country – many from the tech sector. They have built careers in technology centres such as Silicon Valley, Tel Aviv and Toronto. They have gained valuable education and skills that are very much needed in Ukraine. A colleague, Stas Khirman, himself born in Kyiv, is managing partner at TEC Ventures and Co-Chair of the influential Silicon Valley Open Door Conference. He has researched that a minimum of 5% of Palo Alto residents, the heart of Silicon Valley, are Russian-speaking – mainly immigrants from the former Soviet Union. Accomplished entrepreneurs like Jan Koum and Max Levchin, both born in Ukraine, have achieved their success outside Ukraine. They would make wonderful mentors. The tipping point will come when those who left return to Ukraine to build their careers and companies, as many entrepreneurs from India and China have done after achieving success abroad.
Despite challenges, the Ukrainian tech sector has shown that it will continue to grow and prosper. If coupled with a well-defined strategy and best practices from global innovation hubs, and combined with stubborn Ukrainian creativity, the tech sector can play a more important role in Ukraine’s transformation than many realize. Ukraine has the ingredients to be the world’s breadbasket and brainbasket. It just needs the right recipe. Every Canadian knows this.
About the author
Bohdan Kupych (email@example.com) is Vice President of KM Core and Managing Partner of Borsch Ventures, a technology holding company based in Kyiv with a portfolio of operating and early stage technology companies