The software development market is the only export sector, which is steadily increasing in Ukraine, having demonstrated an increase of 58% in 2013-2016. In 2016, exports of software development services amounted to $3.2 billion that brought the sector to the third position in terms of currency revenues and provided 26% of total export of services. The market creates more than 100 thousand highly paid jobs, 56% of which are in regions that facilitates their dynamic development.
Top three cities leading in the IT sector includes Lviv, Kharkiv and Kyiv. For example, there are 15 thousand of specialists employed in the sector in Lviv, and the turnover of 192 local IT companies is 14.4% of the city’s GRP. The Lviv IT market has tripled over the past 5 years turning Lviv into an IT hub city.
The market has huge potential for growth, but instable tax regulation, lack of specialists and a wide range of regulatory barriers are the factors that hinder the sector’s development. The government and IT-business representatives as well as educationalists discussed the ways to remove them during the regional Round Table “IT Future Talks. Lviv: Software Development Market Regulation” as part of the Public Dialogue #PRODialogue held at the Metropolitan Sheptytsky Center on November 23.
At the opening of the event, the Deputy Mayor of Lviv Andriy Moskalenko said, “Today, we have a chance to discuss how we will become the most competitive the next day. Lviv makes a significant contribution to the opportunities of the IT sector, and this is one of our priorities. We are ready to be involved as much as possible in all processes and provide our assistance.”
The sector is a powerful economic multiplier: 1 job in IT creates 3 more jobs in related areas. The wage of an IT specialist is 5 times higher than the average wage in the country. At the same time, the high level of payments is provided not only in the capital, but in regions as well.
The Project Manager of EU4Business/FORBIZ in Ukraine Matthias Halder stressed the importance of developing the entrepreneurship and improving the business climate in the sector: “Ukraine is one of the most attractive countries for placing orders in the area of outsourcing business processes and IT. To ensure the sustainable development of the sector, we should focus on providing the stable taxation environment, developing the human capital and removing customs and regulatory barriers. To make effective changes, it is necessary to involve the business into the dialogue.”
The Better Regulation Delivery Office (BRDO) has analyzed the regulatory environment of the sector and presented its results in the Green Paper. According to experts, the rapid development of the sector was possible due to the lack of special sectoral regulation as well as due to favorable tax conditions. The amount of direct taxes and fees paid by sector representatives has increased by 88% over the past 3 years, reaching 7.1 billion hryvnas in 2016. At the same time, due to the instability of the simplified taxation model, software market companies are limited in the long-term planning and investment attraction.
“This is a successful example of an efficient self-regulated market, and this should not be changed. The capitalization of the 10 largest Ukrainian IT companies currently exceeds $4 billion, and unlike raw material producing giants, their value is based on human capital. If the government provides the stable taxation environment, quality changes in industry-specific education and the elimination of some regulatory barriers, sector profits can increase twofold – to $6 billion in 2020,” the head of IT sector at BRDO Oleksandr Kubrakov assures.
Participants actively discussed possible taxation models for the IT industry. The people’s deputy of Ukraine, co-founder of ELEKS Oleksiy Skrypnyk said, “We should create a harmonized taxation system, in particular for the IT sector. This area is a top priority in changing the paradigm of the country’s economy into the innovative one as well as in revealing investment opportunities.”
The educational issues were also brought into focus during the event, as one of constraining factors is the labor shortage in the market. The reasons for the labor shortage include the necessity to improve industry-specific education, a significant outflow of IT graduates from the country, reaching 30% as well as difficulties of attracting foreign specialists to the market.
“If we invest in education, we will see systemic changes in the country. Progressive youth is a powerful driver toward this goal. And the task of the government is not to prevent wise people from doing their business,” the Lviv City Mayor Andriy Sadovy summed up.
The event was also attended by Taras Kytsmey, co-founder and board member of SoftServe, Andriy Pavliv, CEO and co-founder of N-iX, Supervisory Board Chairman, Lviv IT Cluster, Vitaly Sedler, Intellias CEO, Ihor Salamin, PLVision, Yaroslav Prytula, Dean of Faculty of Applied Sciences at Ukrainian Catholic University, Dmytro Fedasyuk, Assoc.Prof. Vice-Rector on Scientific and Pedagogical work at Lviv Polytechnic National University, Vitaliy Kukharsky, Vice-Rector on Scientific and Pedagogical Work and Informatization at Ivan Franko National University of Lviv, Zenoviy Veres, Lviv IT Cluster Education Director, representatives of IT-business, experts and the public.
