Watch Out, Silicon Valley. Here Comes Ukraine

Lviv’s annual IT conference Lviv IT Arena brings thousands of IT specialists and companies together each year. Credit:Lviv IT Arena

Ukraine has the potential to become Europe’s top hub for information technology and other innovation-based industries. Some major private sector businesses have already chosen Ukraine as the site of their research and development centers; among them are Aricent, Boeing, Ericsson, Oracle, and Siemens. Private business initiatives in Ukraine have given birth to well-known startups like BPMOnline, DepositPhotos, Grammarly, InvisibleCRM, Jooble, Looksery (acquired by Snapchat in 2015), MacPaw, Paymentwall, Readdle, and Starwind Software.

Already, the number of IT specialists in the country, 90,000, is the highest in Central Europe, and there are more than a thousand IT service companies in Ukraine. The value of software and IT services outsourcing exports reached $2.5 billion in 2015, putting Ukraine in first place in that category among CEE countries.

Ukrainian IT businesses are also actively entering international markets and establishing partnerships with foreign companies. For instance, they were represented at the Seattle Tech Day this year, where the management of the Ukrainian IT company Ciklum introduced itself to the world’s IT giants. Another significant investment of private businesses into the Ukrainian IT sphere are the many non-state educational programs that provide practical programming skills. One such initiative called BrainBasket Foundation aims to train 100,000 new IT specialists by 2020.

By 2020, Ukraine plans to create a network of regional industrial parks designed as private initiatives with state support. Today there are fourteen officially authorized industrial parks, of which three are largely operational. The Solomonovo industrial park in the Zakarpattia region aims to restore Ukraine’s automotive industry. The iPARK is based on the infrastructure of the seaport in Odesa and possesses considerable land, roads, and container and railway terminals. A third, Bionic Hill near Kyiv, is a part of Ukrainian businessman and politician Vasyl Khmelnytskyi’s business portfolio. This large park, which aims to specialize in IT industry development, embraces a workforce of 35,000 and receives $1 billion in private investment from Khmelnytskyi each year. However, these industrial parks remain real estate projects rather than innovation hubs.

Ukraine’s high-tech boom shouldn’t surprise anyone familiar with the country. While the Ukrainian state is war-torn and still corrupt, the country has well-known natural resources, an advantageous geographic position and—most important—unrealized economic opportunities. The latter includes crucial factors like low labor costs, opportunities for innovation developments, and a well-educated population.

According to World Bank data, Ukraine’s 2015 GDP per capita was $2,115—that is, 4.3 times lower than the GDP per capita of Russia, and fifteen times less that of the EU’s average. Ukraine is one of Europe’s poorest countries, and that means it has a cheap work force.

And yet Ukrainians are well educated. According to the World Bank, 99.74 percent of Ukraine’s population is literate, higher than Russia and even the European Union. The share of Ukraine’s population with a post-secondary education is even more exceptional: in 2014, 82 percent of adults had tertiary educations. In that regard, Ukraine performs notably better than Russia, with 78 percent of the population having some post-secondary education, and is significantly above the EU average of 66 percent.

Unfortunately, since 2006, Ukraine has invested less than 1 percent of its GDP annually in science. However, the Ukrainian government has recently begun encouraging the country’s integration with international scientific developments and norms. For instance, it adopted the pro-development Law on Scientific and Scientific-Technical Activity in 2015. Additionally, Ukraine’s Cabinet of Ministers is currently working on a strategy for the development of high-tech industries and is planning to launch a special High-Tech Office. Despite its limited resources, the government aims to popularize the country’s image as a society of IT experts and software developers under the brand “Hi-Tech Nation.”

Ukraine may be poor, but it is an attractive place for national and international investors, and for entrepreneurs. It has cheap labor and generally low resource costs, though corruption is still an issue. Many Ukrainians are engaged in self-education and show great initiative in creating new businesses. As a result, Ukraine’s government and entrepreneurs see a niche for the country in the world’s division of labor in the IT sector and other innovation-related industries, and although the government has limited resources at its disposal, it has begun to create a framework for Ukraine to become a high-tech country. Watch out, Silicon Valley. Here comes Ukraine.

Yuliia Horovetska is a Friedrich Naumann Foundation scholar at the Berlin School of Economics and Law.

Image: Lviv's annual IT conference Lviv IT Arena brings thousands of IT specialists and companies together each year. Credit:Lviv IT Arena