Compared to the rest of Ukrainian economy the IT sector is in good shape, and retains its substantial considerable resilience to shocks. But little growth should expected this year.
IT was one of the fastest developing sectors of Ukraine’s economy before the war. Over the last five years export proceeds from IT services had been growing at an average of 28.3 per cent per year.
The sector proved to be resilient to the Covid-19 pandemic. In 2020 IT exports expanded by 20.4 per cent despite widespread hardships across the globe. Last year IT exports ballooned by 35.9 per cent and reached 6.8 billion US dollars, which comprised 36.7 per cent of services exports and 8.4 per cent of total exports for the year.
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The IT sector employs a relatively minor part of the Ukrainian labour force (285,000 out of 20 million people of working age), but the number of IT specialists had been growing fast: by 20-40,000 people per year.
The war hit the IT sector painfully, despite IT companies beginning to prepare for Russia’s aggression well in advance, with programmers able to relocate to safe places fast.
According to the National Bank of Ukraine, export proceeds from the IT sector dropped by 4.4 per cent year-on-year in March 2022 in what might be seen as a relatively minor decline (compared to the 30-50 per cent drop in total GDP), but we should take into account the near 30 per cent growth the sector demonstrated before February 24, they of Russia’s invasion.
Just to compare, IT sector export proceeds in March were 37.8 per cent down on February 2022.
IT companies report that many clients are withdrawing or freezing their operations with Ukrainian subcontractors. The reason is clear – clients are scared of the risk of non-delivery on their projects.
Those companies which managed to move their staff to the West (such as Poland and Baltic states) can give guarantees on their smooth performance. The others see many projects put on pause. Those companies that were producing for the local market are experiencing a dramatic plunge, some have stopped operating.
Surveys of the sector commissioned by the IT Ukraine Association find that nearly 70 per cent of IT specialists have moved to the western part of Ukraine and have kept working. Near 16 per cent have moved abroad, primarily women. Around two per cent of IT specialists enrolled in the army. IT companies also report problems with western companies headhunting staff.
Drop in productivity
People in all IT companies report that productivity has dropped drastically amid the shocking events Ukrainians have had to go through. Even those working in western Ukraine or from abroad experience difficulties concentrating on their tasks, many are involved in volunteering activities or are helping with cyber-security or in some way participating in the information resistance.
Polls report that up to 80 per cent of IT companies were able to maintain their operations, but no growth is expected. Companies working for the western market are talking about a decline in sales of up to 10 per cent. Companies oriented on local markets might experience a fall in sales of up to 50 per cent.
Nevertheless, compared to the rest of Ukrainian economy the sector is in good shape, and retains its considerable resilience to shock.
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