2021 summary: annual review of the Ukrainian IT sector transformations
The world is beginning to recover from the pandemic consequences. Mass vaccinations in 2021, Government stimuli, and central bank interventions ended in a deep, but short recession. Although, the contraction lasted two months (from February 2020 to April 2021). It triggered a staggering drop in GDP, shifts in the labor market, renewed supply chains, and the emergence of unexpected trends.
Global economy changes and recovery from COVID-19
As we approach 2022, there is high inflation, growing government debt, and an ongoing pandemic. It is doubtful that most of the forecasts will come true shortly, or growth revert to pre-pandemic levels by 2023 or 2024. The pace of economic growth in the coming year is associated with uncertainty.
First, it is not yet clear when the pandemic will end. The proportion of unvaccinated people remains quite high. Plus, new strains of the virus are appearing. That creates new shocks for the global economy, which are probably to persist until the end of 2022.
Since the virus is mutating, it will take extra time for new vaccines to be introduced. Besides, the world will have to put a lot of effort into vaccinating the population. If spiking COVID cases in certain economies spread around the world, that will lead to further production disrupting and inflation generating.
Secondly, another big risk is the policy of the Federal Reserve in regard to managing inflation. It is not yet clear whether this is a temporary phenomenon or a stable period of the price increase.
The third-quarter real growth rate was only 0.6% quarterly while nominal GDP will most likely continue a positive trajectory. But supply chain disruptions, production problems, tax hikes, changes in supply and demand in the market can wreak havoc on the economy. Supplies will decline and prices will rise. Also, many employers have rethought their business when they relocated production to other countries due to the coronavirus outbreak in Wuhan, China.
Thirdly, the labor market has changed. Job growth is still high, but the main issue remains a shortage of labor. A record 4.4 million people quit in 2021. The number of open vacancies exceeds the amount of unemployed. If this imbalance continues to plateau or grow, it will undermine the economy over time.
The workers did not dare to renew their employment. The population is aging, but resource turnover is growing. This has led to the recent largest increase in wages in 20 years. In turn, production becomes more expensive, and food prices rise. That maintains the current inflation rate. If the Fed fails to react to the current rise in inflation, there are large risks of negative consequences.
What changed in the Ukrainian tech sector this year?
The biggest economic trend of 2021 is that the world is now in a full-blown ESG-driven economy. Due to the environmental, social, and corporate governance, the modern company can achieve maximum involvement and benefit. Level C leaders now need different qualities beyond financial management experience. For instance, resilience, empathy, people inspiring. Companies that have high ESG ratings also saw stock gains, reflected in the MSCI World ESG Leaders' index's rise of 22% in 2021.
The pandemic shed light on the concepts of employee well-being, value, and safety. Or given the fact that 24 million people around the world have decided to rethink their careers and quit their previous jobs. Now employees are dictating market conditions: they demand more wages, benefits, other values (even sustainability). A balance between personal life and work became important, and then the concept of “workation” appeared. This trend is reflected in the labor market throughout the world, but also in Ukraine. Let's take a closer look at its tech sector.
Number of specialists
In 2021, the number of IT specialists exceeded 250 thousand. At the same time, the labor market was able to offer only 112 thousand vacancies. It is worth considering that many companies have suffered from the crisis.
On average, every vacancy in the IT sector has doubled. For example, more professional recruiters have appeared. The Flutter and Big Data categories have 4 times more offers compared to last year. It seems the most popular specialists in the labor market are Front End, QA, Java, .NET, PHP developers. About 10 thousand specialists got a job in the top 50 largest IT companies.
Many specialists prefer remote work. Such cooperation seems to be the most convenient, although some problems remain relevant. In general, the situation in the workplace doesn’t differ from that of other countries. Also, 70% of workers have already been vaccinated with 2 doses.
Besides, companies don’t hurry to move back to the offices. An unexpected quarantine made employers more careful. So, 48% of vacancies on one well-known Ukrainian site were remote.
Popular programming languages
When it comes to learning new languages, developers are interested in learning TypeScript and Rust.
In Ukraine, in the period 2012-2021, the indicator of professionalism has increased. Now, 21.4% of developers have more than 10 years of experience. 10.1% of specialists spent about 5 years in IT. Those with about 1 year of programming experience are more than 13.7%.
Diia City updates
On December 14, 2021, the Verkhovna Rada adopted a law on stimulating the development of the digital economy in Ukraine. For the IT sector, this means low taxation. The employee will have to pay a temporary 1.5% military tax on personal income. Companies will be required to pay a standard CIT rate of 18% or tax on withdrawn capital at the rate of 9%.
Diia City's legal regime is designed to work for the benefit of the IT sector. For its full functioning, a profile register and permanent residence must be introduced.
What trends are forecasted to be around in the tech sector in 2022?
The last two years have been the most difficult in terms of business development. But the new year will still bring us a revival of new tactics and solutions. Let's consider them in more detail.
The workplace will change
The hybrid workplace and telecommuting have become a common trend around the world. This has given rise to new priorities in IT departments, accustomed to managing the main headquarters and some satellite branches & a spider's web of residential homes.
According to the McKinsey Global Survey, many executives have already started or are planning to launch a digital transformation.
Communication will drive innovation
Business travel was part of the tech sector before the pandemic. But companies had to come up with alternative solutions, such as the ubiquity of Zoom calls.
60% of business leaders felt that in-person collaboration is significant to innovation. That means that big changes are coming for the corporate culture. First, the ROI will push the market towards regional conferences. Second, workers will be able to avoid business travel. The fact is that younger generations of employees believe that virtual innovation can be as good as in person. Some will become more resilient by avoiding jet travel.
Service consulting will replace outsourcing
In the early 90s, the first foreign outsourcing companies entered the Ukrainian market and saw great potential in Ukrainian developers. Now things are different because the market is beginning to change. There is a great demand for non-technical professionals who speak English at least at an intermediate level. For example, HR, lawyers, accountants, marketers, product managers.
In 2015, there were 89 thousand specialists in Ukraine, the number of which almost doubled to 190 thousand in 4 years. Each developer wants to feel like a part of the work. So the emergence of offshore research centers, that is, R&D offices will now become an urgent need. In fact, in it, the client and the contractor pursue one goal and are one company. The developers will have access to all the processes of creating a product – from the beginning to the launching. They will be able to move up the career ladder by exchanging experience, becoming part of the corporate culture, and attending training with their American and European colleagues.
This approach will be beneficial for Ukraine since it will help to overcome unemployment (one worker in the IT sector creates 3-4 jobs in other areas). It will become more beneficial for foreign companies, which will be able to save on taxation.
The future of Ukrainian IT
According to the forecasts of the IT Ukraine Association, the IT sector will grow by 22-30% annually. It is assumed that the number of specialists will double by 2024. The situation can be even better if new players enter the market with their products.
One of the priorities for the development of the sector is quality education. The pool of specialties is already expanding, curricula are being reformed and opportunities are being created for their informal development (for instance, the creation of the Information Technology Law: KMA & IT Ukraine course).
We hope that the Diia City legal regime will work in favor of the IT business, without the intention of creating extra constraints in an evolving area. So far, the current conditions enable the IT sector to function in the international market. Thus, 13 billion exports annually and 10% of the country's GDP are quite achievable within 5-7 years.
The severe shocks of the past two years have affected the global economy and politics. New movements appeared, such as ESG, which also affected Ukraine. The country has taken the path of technological sustainability and development. A reliable infrastructure is being created and a mechanism for interaction between all market participants is being established.
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