Ukraine has become a major player in the global tech arena. The IT talent pool in Ukraine is approaching 200,000 software developers, tech startups are booming, the flow of investments is increasing, and the number of companies that partner with Ukrainian software development service providers is growing.
There could be no better time for the country with historically strong engineering skills to realize its potential. In the world engrossed with tech innovations, at the time when information and data have become the new oil, Ukraine has an invaluable asset to offer – an unmatched IT talent pool.
The quality of Ukrainian tech skills is recognized across the world and acknowledged by many industry awards. The country is in the top 20 in the A. T. Kearney Services Location Index; it was named Offshoring Destination of the year by GSA; more and more Ukrainian companies are listed in Global Outsourcing 100 by IAOP; a lot of companies are included into Software 500, Inc. 5000 and other industry ratings.
What is happening on the Ukrainian IT market today? And what are the key forces driving Ukraine to the foreground of the global tech scene? Discover it and more about Ukraine in this report.
UKRAINE: COUNTRY OVERVIEW
Ukraine has an area of 603,628 km2 (233,062 sq mi), making it both the largest country entirely within Europe and the 46th largest country in the world.
As you can see much of Ukraine’s success stems from its ample resources. It is the largest country lying entirely in Europe with the population of nearly 42 million and the workforce of 20 million people. Its size, rich natural resources, a wide pool of educated workforce make Ukraine a lucrative investment market for global businesses.
The country has a favorable geographical position as it borders Poland, Romania, Slovakia, Hungary and Moldova in the west; Belarus and Russia to the north and east; Bulgaria, Georgia and Turkey to the south over the Black Sea. For European businesses, geographical location and time zone proximity significantly simplify collaboration. Moreover, the European mindset and a similar business culture remove communication bottlenecks.
As an emerging economy, Ukraine has a quite low cost of living. It has the world’s second lowest Big Mac price of $1.64. Cost of living in Ukraine is 58.29% lower than in the United States. Rent in Ukraine is 74.78% lower than in the United States and a one-bedroom apartment monthly rent is around $200. At the same time, Ukraine ranks 50th out of 157 countries on the Human Capital Index, which assesses the knowledge, skills, abilities, and health of the population.
Literacy and education
Historically, the system of education has been well-developed in Ukraine. The first higher educational institutions emerged in
the country during the late 16th and early 17th centuries: Ostroh Academy (the first higher education institution in Eastern Europe), Kyiv Mohyla Academy (1632), the Lviv University (1661), and others. Today, Ukrainian higher education is part of the Bologna process, which aims to ensure comparability in the standards and quality of higher-education qualifications in Europe. So Ukrainian students can get either a bachelor’s degree (4 years) or a master’s degree (5–6th year), in accordance with the Bologna process.
Ukraine has been a full member of the Bologna Process and the European higher education area since 2005.
Ukraine is one of the countries with the highest literacy rate reaching 100%. Its adult literacy rate has increased from 99.4% in 2001 to 99.8% in 2015. Because of the Soviet Union’s emphasis on total access to education for all citizens, which continues today, the country boasts a highly-educated workforce. Therefore, 70% of Ukrainians have a secondary or higher education.
The country ranks 4th on the World Bank Enrollment Index (tertiary education), and according to Universities 21, a global association of research universities, Ukraine is 38th out of 50 countries in the 2018 ranking of National Higher Education Systems.
According to the Ukrainian constitution, access to free education is granted to all citizens. Secondary education is compulsory, and it is free in state schools, which constitute the overwhelming majority. Also, Ukrainian students can apply for state-funded scholarships at state universities. The number of private secondary schools and higher educational institutions is much smaller. Overall, in 2016/17 the number of students in primary and secondary schools reached 3,846,000, in vocational schools – 285,800, and in higher educational institutions – 1,586,700 students. At the beginning of 2017–2018 academic year, there were 661 higher educational institutions, and 1,539,000 students studied there in 2016–2017. In 2017, there were 421,000 graduates, which is 8,9% more than in 2016.
Ukrainians have strong technical competencies and necessary skills for developing innovative solutions. According to Bloomberg Innovation Index 2018, Ukraine is one of the top 50 innovative economies as there have been substantial improvements in education, technologies, human capital, research, and other areas in recent years. In Ukraine, innovations are also driven by the absence of rigid regulations in many areas. Thanks to this flexibility, Ukrainians have developed a lot of disruptive products. For instance, the country’s Privat24 has become one of the first and the best online banking systems in Europe, and stem cell treatment that is developing in Ukraine has saved many lives (Ilaya Clinic).
Science and research have always been strong in Ukraine. This is proved by the active patenting activity in the country both among residents and non-residents. Ukraine has a high number of patents and utility models registered during the 2007–2017 period, well above its GDP per capita ratings – more than 140,000(!). Ukrainian residents obtain a remarkably high number of utility models, one of the highest in the world. The main reason for this is a simpler, cheaper, and faster procedure required to obtain them. The most advanced patenting areas include IT, agriculture, renewable energy, pharmaceuticals, mechanical engineering, robotics, and others.
Long-standing engineering tradition
Another factor that influenced Ukraine’s competitiveness on the global tech market is the quality of engineering skills it offers.
The country is known for its achievements in engineering such as manufacturing of various types of transportation vehicles and spacecraft; the production of Antonov An-225 Mriya — the largest airplane in the world; the work of Kyiv aviation designer Ihor Sikorsky; the construction of the first artificial satellite by the rocket engineer Sergiy Koroliov; the early invention of X-rays by Ivan Pului, to name a few.
Business Climate in Ukraine
Currently, the state is working on many other laws aimed at improving the business environment in areas identified in the World Bank Doing Business Index.
In 2017, the country entered the EU–Ukraine Association Agreement and published a plan of measures for its effective implementation. Ukraine is showing signs of stabilization and prosperity. Its GDP grew by 3.5% in 2018 hitting the target of $391.53 billion, inflation is slowly but surely going down, and it is estimated to normalize at around 6% in 2019.
Moreover, over the last 3 years, Ukraine has gone up 23 positions in the World Bank’s Ease of Doing Business 2018 (76 places higher compared to 2012).
Since 2014, the state has focused greatly on improving the business climate in Ukraine, and it has taken many measures in that direction. As a result of the continued effort, Ukraine has become an investment hot spot. Foreign direct investment in Ukraine in 2017 came close to $3.000 million.  In the first half of 2018, the country attracted $1 billion in direct foreign investment and in the fourth quarter it increased by $833 million. In 2018 this number exceeded $2.490 million.
Ukraine is attracting investments not only from existing, but also from new foreign companies. Since 2015, with the participation of foreign investors, 80 factories have been built or are currently under construction.
Moreover, there are some big companies on the market, which is of vital importance for big investors. For instance, 40+ companies are valued at $50 million and more.
In 2018, the largest direct investments were made in industrial enterprises (33.6%), wholesale and retail sales, as well as motor vehicle and motorcycle repair industry (15.6%). Major investor countries include Cyprus (28.1%), the Netherlands (20.6%), the United Kingdom (6.1%), Germany (5.5%), Austria (3.4%), the British Virgin Islands (4.1%) and Switzerland (4.7%).
It is also worth noting that Moody’s Investors Service has improved Ukraine’s credit rating on international economic list from Caa3 to Caa2, changing the outlook from “stable” to “positive”. In addition, Ukraine was able to improve its ranking in the 2017–2018 Global Competitiveness Index (GCI) by 4 points, currently ranked 81st among 137 surveyed countries (vs 85th place among 138 countries in the 2016–2017 GCI).
The largest deals in the IT domain in the recent years were a $110 million investment in Grammarly, $30 million in BitFury, $10 million in Petcube, and $7 million in People.ai.
Also, Ukraine is home to 100+ R&D offices of market-leading companies across a wide range of industries. They include Boeing, Aricent, Huawei, Siemens, Oracle, Magento, Apple, Microsoft, Deutsche Bank, Skype, eBay, IBM, and others. The USA has the largest share of R&D partnerships in Ukraine. It equals about 45% of companies. Kyiv is the key location for setting up R&D offices. Other cities that are a perfect fit for setting up an R&D office include Lviv, Dnipro, Odesa, Kharkiv, and Vinnytsia.
Cultural and geographical proximity
Ukraine is close to the Western culture, which facilitates communication and helps in building business relationships. There is a small-time difference with major European cities and the short flight distance between Ukraine and other European countries. Although Ukraine is not part of the European Union as yet, the EU and the US citizens do not need a visa to enter the country. In general, citizens of 64 jurisdictions, including all European citizens, the citizens of the USA and Canada, can enter Ukraine without a visa for a stay up to 90 days within any 180-day period. And on 4 April 2018, Ukraine introduced electronic visas. So, 52 more countries can obtain these visas and they are valid for tourism and business purposes for 30 days and cost $85.
An important step in making Ukraine closer to the EU was approving visa-free travel for Ukrainians. That facilitated business traveling for Ukrainians and eliminated another barrier between Ukrainian and European business worlds. The EU’s approval came in 2017 and followed the reforms in areas such as migration, public order and security, external relations and fundamental rights. On June 11, 2017, the Council of the European Union introduced visa-free travel for short trips by Ukrainian citizens to 30 EU countries and the Schengen zone. Currently, Ukrainian citizens with biometric Ukrainian passports have visafree or visa on arrival access to 128 countries and territories, thus ranking the Ukrainian passport 44st in terms of travel freedom, according to the Henley Passport Index.