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December 1, 2022

Ukraine’s plans for its digital recovery may be too bold

Ukraine’s plans to become a post-war digital powerhouse may be overestimating post-war goodwill among its closest allies.

By Sophia Waterfield

Within the first 15 minutes of Russia’s invasion, Ukraine’s army of coders got to work saving their country. Typing furiously from bomb shelters underneath Kyiv, Lviv and Odesa, divisions of coders, technicians and cybersecurity experts volunteered to shore up essential government services against the invaders’ cyberattacks. At first, they were an army without leaders.  

“When it started, it was total chaos,” recalls Marina Krotofil, a senior technical advisor with ISSP who, at the time, was busy organising an aircraft to fly supplies into Ukraine from the U.S. “There were no channels, there were no groups – there was nobody managing the talent.” 

But what united Ukraine’s IT sector in the opening days of the war, explains Krotofil, was a burning desire to defend the country in the only way they knew how. “We just self-organised,” she says proudly. From there, says Krotofil, a close-knit collective of technicians was formed – one that, ultimately, has kept Ukrainian government services online throughout the war. “We immediately built this chain of trust,” she says.  

Their task has been immense. According to the World Bank, Russia’s invasion of Ukraine is likely to lead to the latter’s economy shrinking by as much as 45%, with the country’s telecommunications grid particularly badly affected. According to one estimate from the OECD, almost 11% of base stations are now inactive because of missile strikes and other Russian attacks. The quality of data transmission has also declined by 13% on average over fixed internet networks and by 26% over mobile networks.   

Yet, despite this relentless pummelling from Russian artillery and missile attacks, Ukraine is winning the war. As of the time of writing, the Ukrainian military has regained 54% of the total land area Russian forces have occupied since the start of the invasion. While these advances are expected to slow amid plunging winter temperatures, increasing attention is being paid within the Ukrainian government to the nation’s post-war economic recovery – through which, pronounced its minister for digital transformation Mykhailo Fedorov, Ukraine would become the “world champion of digital.”

What’s more, the ministry knows how to make that happen. Known as the ‘National Recovery Plan,’ Fedorov and the Ukrainian government envision a program of modernisation across the economy – from defence and agriculture, energy and IT – that will see the country ‘leapfrog economic growth’ and vastly improve its living standards. The engine for this growth will be digitalisation, explains the plan, the kickstart a massive and sustained injection of funding from the country’s western allies. The timetable for this plan begins, optimistically, in 2023. Questions remain, however, as to whether the US and Europe will decide to bet on Ukraine’s IT sector as enthusiastically as they have its armed forces. 

Ukraine’s telecommunications infrastructure has been battered as a result of Russian missile attacks. Even so, Kyiv plans to build back better, with huge levels of investment designed to restore and expand its IT sector. (Photo by Tomasz Ozdoba / Shutterstock)

Brain drains and recovery plans  

Somehow, Konstantin Vasyuk remains a man determined. When the war began, the executive director of the Ukraine IT Association presided over some 300,000 technicians, themselves responsible for creating $7bn worth of exports and contributing 4% of the country’s GDP. Now, that workforce is depleted. According to the UN, the war has displaced a total of 1.5 million Ukrainian citizens, most of them women and children. With most able-bodied men recruited into the armed forces, and 20% of Ukraine’s IT technicians being women who now live abroad, Vasyuk has been left to represent an industry facing decimation.  

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“How do you bring people back to Ukraine?” he asks. “As the war continues on for longer, people might decide to stay in other countries. They’re willing to come back, but when you live abroad for 1 – 2 years, it’s always much more difficult [to return].”  

Some might. Before the war, and many months into it, Ukraine’s IT sector was hailed as the jewel in its economic crown. According to the National Bank of Ukraine, IT exports from the country actually grew by 23% in the first half of 2022 compared to the previous year, an expansion fuelled by the historic strength of Ukrainian IT education and its companies’ lower hourly rates compared to regional competitors. Even so, exports are slowing – growth dipped to 13% between July and September, according to The Economist – while power cuts arising from Russia’s campaign against the Ukrainian energy grid are impeding the ability of IT businesses to function. Even without the war, concedes Kyiv, the sector continues to suffer from low levels of diversification and remains overly reliant on outsourcing. The start-up scene is also much smaller compared to its regional competitors. According to Dealroom Data, the sector attracted only $22.2m (£18.34m) in VC investment this year – a 25% dip compared to 2021, and minuscule compared to the likes of Poland ($408m) and Lithuania ($238m).  

Kyiv intends to tackle this malaise root and branch, explains Vasyuk. “By the end of 2023, at least 6,000 students will receive a new speciality in the field of IT,” he says, as part of the Ministry of Digital Transformation’s National IT Generation project. It’s an investment made with Ukraine’s long-term future in mind, adds Vasyuk. “For every 10,000 specialists,” he says, “the annual turnover of the IT industry in Ukraine will increase by $250m”.  

The National Recovery Plan also envisages significant additional investment in digital transformation across post-war Ukraine, calling for approximately $2bn of public and private investment between 2023-2030 for the IT sector alone. This will, the report continues, be combined with an out-and-out effort by the Ukrainian government to install 5G networks across the country, and an attempt to rejuvenate the country’s start-up ecosystem by increasing grant funding and creating new innovation hubs and arrangements like Diia City, a low-tax membership programme for IT businesses based in Ukraine. Split into three phases – the wartime economy, post-war recovery and the ‘New Economy’ that emerges from these rounds of investment – this strategy, argues Kyiv, will ultimately lead to the IT sector encompassing some 10% of Ukrainian GDP.  

A destroyed school in Chernihiv. An immediate problem Ukraine faces lies in acquiring the computers necessary to maintain the digital literacy of its young population, most of which are still engaged in remote learning. (Photo: Drop of Light/Shutterstock)

Ukraine’s post-war dreams

For the plan to work, explains Vasyuk, it needs outside help – and lots of it. Ukraine has been no stranger to international aid over the past year, having received billions of dollars worth of offensive and defensive military systems in addition to significant financial assistance to prop up its ravaged economy. There’s also a longer history of capacity-building between Kyiv and western law enforcement agencies to shore up Ukrainian cyber-defences against Russian cyberattacks.  

Since the invasion, this commitment among Ukraine’s western allies has evolved into a pledge to help the country resist the Russian military for, in the words of EU Commission president Ursula von der Leyen, “as long as it takes.” Whether that will extend to Ukraine’s post-war recovery is uncertain. According to the Kiel Institute for the World Economy, which compares the aid announced by Kyiv’s allies to the amount actually disbursed, only €3.6bn out of the €12.3bn pledged has so far been spent. Even then, claims the think tank, the reality is that a minimum of $60bn will need to be provided to rebuild Ukraine and ‘cushion the population from the shocks of war.’ The Recovery Plan itself, meanwhile, has a projected price tag of $750bn over a decade and contingent on huge donations from allied governments and international institutions – an unpredictable line of credit, perhaps, given the likelihood that current global economic volality is likely to persist for some years and have more influence over spending decisions in London, Washington and Brussels than the moral imperative to rebuild Ukraine after a Russian defeat.

Support for Ukraine’s post-war digitalisation plans will also need to come from international investors. While it’s clear that the IT sector in particular could still experience strong growth after victory, that potential energy is being slowly sapped by the continued damage to infrastructure wrought by the Russian invaders. “Many people have lost their jobs in Ukraine, and many businesses were simply destroyed,” says Vitaly Sedler, CEO of Ukrainian company Intellias and president of the Ukraine IT Association.

As such, adds Sedler, it’s essential for the international business community to continue contracting Ukrainian software engineers. Holly Porter agrees. The managing director of the UK-based Chartered Institute for IT recently partnered with the Ukraine IT Association to push this same message out into the British business community. “At the moment we want to really showcase the breadth of skills that [Ukrainian] professionals have,” says Porter. The institute has links to more than 300 different businesses, the majority of which are in the UK, and Porter thinks that by continuing to hold joint events and webinars, both organisations can ram the message home that Ukraine – despite the war – is still open for business.  

She also believes that Ukrainian IT companies have a lot to offer and, perhaps, might teach some UK companies and government departments a thing or two about how to work agilely under pressure. There is also a massive skills demand within the tech sector. According to Tech Nation, there were over two million vacancies for tech roles in the UK between May 2021 and 2022. Porter says that British businesses need to recognise that the Ukrainian IT community could help to meet that demand.   

In the meantime, though, more immediate help is needed to shore up the country’s IT sector – starting with encouraging more of its school leavers to join the industry to secure its post-war future. While Ukraine has fallen back on distance learning to keep its youngest citizens in education, the country needs a minimum of 130,000 laptops, Vasyuk claims, to maintain digital literacy. They don’t have to be new, he says – just functional enough for children to use for online learning. 

Read more: The war in Ukraine is showing the limits of cyberattacks

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