Ukrainian IT industry continues to operate as war rages on

If Ukraine's IT sector were to collapse, this could also have an impact on European companies. [Shutterstock/EA09 Studio]

Ukraine’s IT industry is currently operating at about 80% capacity compared to pre-war levels, though it is uncertain whether this trend will continue and what the consequences will be both locally and for Europe. EURACTIV Germany reports.

The war in Ukraine has devastatingly impacted the local economy and global supply chains. While the European automotive industry, for example, is already struggling with supply bottlenecks, the Ukrainian IT sector, which accounts for around 4% of the country’s economic output, has been highly robust so far.

“Despite the ongoing difficult situation, our industries are in good shape,” Konstantin Vasyuk, executive director of the IT Ukraine Association, told EURACTIV.

“We have data that IT companies are currently operating at around 80% of their pre-war levels,” Vasyuk added.

Ukraine’s IT sector has been among Europe’s most dynamically growing IT sectors in recent years. It boasted an annual growth rate between 25% and 30% and around 300,000 employees.

There are several reasons why the country’s IT sector was able to hold its ground since the war broke out.

“We have been in a war-like state since 2014, which is why our companies took precautions before the war broke out so that operations could continue relatively undisturbed,” said Vasyuk.

Since Ukraine’s IT sector mainly relies on services exports, it is also far less location-bound than other sectors, meaning companies rely on flexible working models like teleworking. This also means work processes can be relocated abroad at short notice.

“Many of the Ukrainian IT companies have locations in several countries and, supported by the fairly high mobility of IT experts, can therefore react with flexibility to such scenarios, at least in the medium term,” explained Garry Polushkin from the consultancy German Economic Team.

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Uncertain future

How long and whether the country’s IT sector can continue its operations remains uncertain.

“The further development and extent of economic disruption depend very crucially on the intensity and duration of the Russian attack,” Polushkin told EURACTIV.

But if the hostilities continue, investments could be lost, and contracts could be cancelled.

Ukraine’s IT sector employs almost 45% of its workforce through “outsourcing companies”, which act at least in part as outsourced IT departments for international companies.

If Ukraine’s IT sector were to collapse, this could also impact European companies. Outsourcing company Krusche & Company, for example, warned in the run-up to the war that obstruction of IT services from Ukraine could digitally cripple the West.

However, the importance of outsourced IT departments for international supply chains cannot be compared to that of goods suppliers in other sectors – such as the automotive industry.

“Interruptions in the workflow of IT companies would rather lead to extensions of development cycles, not to interruptions in production,” Polushkin said.

Car-makers buckle as Kremlin's war hits European industry

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High liquidity

So far, however, Ukrainian companies still seem to have a relatively high level of liquidity, as the aid donations, they have made so far show.

IT companies are actively helping the Ukraine government’s efforts to fight Russia’s invasion. According to a survey by the Association of Ukrainian IT Businesses, companies have donated around €25 million to humanitarian aid and the Ukrainian military.

According to Vasyuk, this is partly because customers of Ukrainian IT companies have not yet withdrawn from their existing contracts despite the ongoing war.

However, this could change if the war intensifies.

“We have survived the first test. Now it is important that our clients continue supporting us and maintaining the contracts,” Vasyuk stressed. “We are able and absolutely ready to provide services at the highest level even under these conditions,” he added.

Cecilia Bonefeld-Dahl, the chief executive of the European digital association DIGITALEUROPE also made a plea to the European digital economy.

“In addition to humanitarian aid and technical equipment needed for communication, the business community can help by maintaining and renewing its contracts with Ukrainian tech companies,” she told EURACTIV.

[Edited by Alice Taylor]

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