On September 9th, Kharkiv IT Cluster presented a report of the regional IT industry research titled KHARKIV IT RESEARCH 2021 conducted in partnership with KPMG, a Big Four member company. According to the results, the regional industry includes over 510 service and product IT companies, and the number of IT specialists has exceeded 45,000. In the span of the two pandemic years, the IT industry in Kharkiv has grown by 29%, and its total sales volume in 2021 is estimated at 1.5 billion USD, which is a +53% growth vs 2019.
The findings and the key challenges of the IT industry development were discussed at the largest IT event for top management by IT business owners, representatives of public authorities, investment funds, and professional communities. The forum gathered more than 500 guests from all over Ukraine and over 30 speakers in four discussion panels.
The event was kicked off by the Ukrainian Vice Prime Minister Mykhailo Fedorov, and the Ministry of Digital Transformation and Ministry of Education and Science of Ukraine team was actively involved in discussion panels.
“The Ukrainian IT sector has a massive potential. Our specialists are already working with Fortune 500 companies. We are proud of our startups of the Ukrainian origin. Our businesses such as Grammarly, People.ai, GitLab, and Reface are already known around the world and have become bona fide unicorns. We are laying the necessary groundwork to make sure more and more such companies are founded in Ukraine. We are about to launch one of the best tax and legal regimes for IT companies called Diia City. The research presented by Kharkiv IT Cluster today is an important analytical work, which will help both the country and the whole IT community better understand the region's opportunities, needs and outlooks in terms of high tech development. The research has shown, yet again, how powerful and promising Kharkiv is in terms of IT development. I’m grateful to Kharkiv IT Cluster, which is one of the most active associations in the industry, and a champion for all the players in the market,” said Mykhailo Fedorov.
The findings gathered by KPMG demonstrate key metrics of positioning IT Kharkiv as a key Tech location in the Eastern Europe, attracting both IT specialists and clients from all over the world.
The report results show that, as of mid-2021, there are 511 active IT companies in Kharkiv working with 45 thousand specialists in various areas of specialization. Since 2019, the number of IT specialists has grown by 29%, and the industry volume growth, according to KPMG's baseline assessment scenario, will hit nearly 1.5 billion USD by the end of 2021, which will correspond to a 53% growth.
Traditionally, Kharkiv vastly outnumbers the country's other IT locations in terms of IT companies and IT specialists, second only to the capital. As far as concentration of IT specialists is concerned, Kharkiv is just as strong as Kyiv.
One key aspect of Kharkiv IT market is the diversity of the IT companies of different types and scales, including both large and medium-sized service companies, such as NIX Solutions, Softserve, EPAM Ukraine, Sigma Software, CodeIT, as well as those in the IT consulting business, e.g. AltexSoft. The fact that growth of money turnover experienced by the industry significantly outpaces that of specialist headcount clearly shows that Kharkiv IT community is creating increasingly complex IT solutions and IT products offering substantial added value.
“We are not exporting raw assets, but creating high quality IT solutions and IT products that are in global demand. At the same time, we are constantly investing in our own country by spending the money made in Ukraine, thereby helping create new jobs outside the industry and consistently supporting education, culture, and various charity projects,” said Oleksandr Medovoi, Head of Kharkiv IT Cluster Supervisory Board, founder of AltexSoft.
The export of IT solutions and IT products to the US (78%), European Union (15%) and Israel market accounts for over 95% of the IT industry sales. Some of the major industries in which Kharkiv companies have been offering their IT services for the last two years, include healthcare, e-commerce, education, insurance, and retail. Kharkiv IT companies are traditionally just as strong in developing services for media, entertainment, gaming, banking, fintech, telecom, logistics, and manufacturing industries.
In the last two years, the IT industry has taken the lead in terms of not only the foreign currency revenue, but also the tax contribution it generates. Based on KPMG's estimates, the volume of all taxes received by the country on account of Kharkiv IT industry will reach almost 12 billion hryvnias in 2021, and this number will grow up to 16 billion by 2026, according to the baseline forecast. The event put an increased focus on the Diia City project and its implementation. All of the panelists have agreed that it is critical to maintain the current tax level in the IT industry, ensuring that the budget gets more funds through growing economy, not through growing tax rates.
“Diia City resident companies will be able to choose between income tax (18%) and distributed profit tax (9%). The special rates for IT company employees are established as follows: personal income tax is 5%, single social security tax is 22% of minimum wage, military tax is 1.5%. In addition, tax bill #5376 establishes a number of tax incentives for investors. These tax rates, agreed upon with the industry and publicly supported by a number of business associations, are among the lowest in Europe. They ensure the Ukrainian IT industry will have room for development,” says Olha Mahaletska, Head of Office of the National Investment Council.
This year marked the first time that some insights on how much IT companies give for charity were presented. In 2020, the Kharkiv IT industry and IT specialists spent a total of 580 million hryvnias on charity projects, from helping the region fight COVID-19, specifically through the IT4Life project, to some of the more traditional charity efforts such as supporting education, the military, children, destitute people, as well as cultural initiatives (for instance, Kharkiv Music Fest), infrastructure and environmental projects. This number has grown by almost 60% vs 2019 and has reached 2% of total income or around 30% of Kharkiv IT industry profits.
At the event, this topic was dedicated a separated discussion panel which raised money for the Tabletochki charity fund to meet monthly needs in medicines and consumables of the 100 cancer-stricken children who undergo treatment in the 5 departments of National Specialized Children's Hospital “Ohmatdyt.”
IT industry has already formed a strong middle class of young, yet ambitious people who care about the world. An average compensation of an IT specialist in Kharkiv is an equivalent of 2,260 USD. In addition, every IT specialist creates 3.5 workplaces, so the powerful IT community in Kharkiv region alone enables an additional 160 thousand people secure full-time jobs in different industries, from building residential and office spaces to providing domestic services, to maintaining shops, schools, and kindergartens.
The IT Research 2021 results characterized Kharkiv as a region conducive to building a career in IT. Young talents traditionally choose Kharkiv region with the TOP 3 criteria in mind:
● Getting a quality IT education
● A wide range of professional development opportunities
● The city's developed infrastructure and cultural diversity
It is worth noting that the two COVID years have transformed the way IT companies and specialists live and work. Currently, over 50% IT specialists are still working remotely, as lack of office spaces becomes a problem once again. The report data suggests that only 10% of category А and В office spaces are vacant, and by 2026, the IT industry might need an additional 200 thousand square meters of office spaces. Responding to this challenge may include developing new IT parks, from huge tech cities like Ecopolis HTZ and ecosystem projects, such as Unit City, to category A business centers by market leaders such as Avantazh.
But the biggest challenge, that might slow down the IT growth in Ukraine, apart from the uncertainty regarding the tax and regulatory pressure, is serious lack of human capital.
The demand for IT specialists of all levels is much higher than the supply in 2021. For that reason, on September 9th, a separate panel was dedicated to a heated debate regarding an IT education reform between representatives of the Ministry of Digital Transformation and the Ministry of Education and Science of Ukraine joined by members of the Kharkiv IT Cluster, leading IT companies, and other communities. After all, lack of competent specialists cannot be addressed exclusively through IT companies’ investments any more — the business, the government, and the education need to be aligned to ensure a sustainable growth of the Ukrainian IT industry and economy.
The research results make experts optimistic in their forecasts, provided that the challenges mentioned above are addressed together.
“KPMG’s research results show how much effort we have put in. Just like with the challenge of government regulations, the only way we can address the problems of IT education and shortage of skilled specialists is through teamwork. Over the last 6 years, Kharkiv IT Cluster has created a powerful portfolio of education projects that are ready to be scaled nation-wide. One company, no matter how big, will not be able to address the deficit of skilled specialists — the only way it can be done is through the IT industry's joint effort,” said Oleksandr Medovoi, Head of Kharkiv IT Cluster Supervisory Board, founder of AltexSoft.
One of the Kharkiv region’s strengths is a consolidated IT community actively driven by the Kharkiv IT Cluster nonprofit organization, which brings together over 140 leading IT companies and partners to develop the technology business ecosystem. The IT market players’ ability to join efforts in order to overcome common challenges, and the strong potential of education establishments, events, and conferences help create comfortable yet highly competitive environment for the IT business.
“IT is not a standalone industry any more. It’s a phenomenon that has become one of the critical parts of the Ukrainian economy, and has already formed a new generation of people with the European mindset and values,” said Olga Shapoval, Kharkiv IT Cluster executive director.
Further advancement of the technology industry will ensure ongoing investments in developing human capital, supporting joint charity initiatives, and creating Kharkiv’s favorable image as a key Tech location with the highest concentration of IT companies offering the highest level of technical expertise, to drive international cooperation.