21:09 PM Sunday, September 23, 2018
Opinion: The New Ukraine to Overtake the Old Ukraine
Ukraine continues to make gains toward becoming a European nation despite a two-year war against Russia and a decades-long war against corrupt business and political elites.
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KYIV -- Ukraine continues to make gains toward becoming a European nation despite a two-year war against Russia and a decades-long war against corrupt business and political elites.

I’ve had a front row seat as an interested observer and commentator in support of the Ukrainian people ever since they voted to leave the Soviet Union in 1991. They have struggled and still do, but the fact is that Ukraine has become the only post-Stalinist Soviet republic that has a large, vocal and growing civil society.

And that is a reason for optimism.

Two Ukraines?

I believe there are now two Ukraines.

The Old Ukraine lumbers along as a joint venture between a ruthless kleptocracy, that controls big businesses and industries, and a corrupt public sector where everyone from tax officials to building inspectors, prosecutors, judges and politicians are still on the take.

The New Ukraine is leaping ahead as a result of talented, educated activists, IT engineers and entrepreneurs and will eventually replace the post-Soviet basket case of heavy industries.

The IT industry is cornerstone of this shift and is a great source of pride, and should be. But its practitioners also represent a role model for Ukrainians and have become part of the solution, politically as well as economically.

For example, in 2014 after Ukraine’s larcenous President Viktor Yanukovych fled the country he left behind a gutted military to facilitate a Russian incursion.

IT back from the front

Many Ukrainians volunteered to fight and many IT experts volunteered to bolster the national defense by building drones, radio communication systems and raising millions through the world’s first crowdfunding site to buy parts, equipment, medical supplies and build electronics systems.

This army of IT specialists returned to their businesses and continue to demonstrate how Ukrainians, unfettered by cumbersome and corruption governments or institutions, can build world beating enterprises that can compete globally.

Recently, I attended and spoke at the Lviv IT Arena conference which was an impressive gathering of young and successful Ukrainians from across the country.

“We are building something very important for our country and are proud of this,” said conference organizer and tech entrepreneur Andrew Pavliv, founder and CEO of N-iX, a successful outsource company located in Lviv and various cities in the European Union.

“Now there are significant IT clusters in Ukrainian cities and they are growing. The young people also want to get into this business which is a good sign,” he said.

IT by 2020

By 2020, forecasts released at the conference projected:

  1. IT sector revenues will grow from $10 billion to $27 billion
  2. Jobs created, direct and indirect, will grow from 429,000 to 660,000
  3. Exported services will increase from $2.5 billion to $5.1 billion
  4. IT’s share of total exports from Ukraine will growth from 5.2% to 7.5%

Growth to date is why the industry is gaining momentum, attention and traction among foreign investors as well as the burgeoning local venture capitalist industry.

Ukrainians have begun the transition from IT outsourcing to value-added activities such as the development of product companies, game studios and technology startups.

Silicon Valley Takes Note

Helping this process are inspiring stories such as Viewdle – financed by U.S. foreign venture capitalist Jason Mitura. He acquired the rights to technologies, then built a company with 30 employees, exiting within four years to Google for $45 million. One year ago, Snapchat paid $150 million to buy a two-year-old Odessa startup called Looksery.

In the past 12 months, there have been 60 deals and moves by big players from Silicon Valley itself into the country. For instance, Vitaly Golomb runs HP Inc., venture capital arm of Hewlett Packard, and has opened an office in Kyiv to hunt for early-stage opportunities. HP makes $1 billion in profit a week and is looking for the next big thing around the world.

“It’s no longer about Silicon Valley but about Eastern Europe and South Asia, he said.

Likewise, Moscow-based investor Alexander Galitsky has invested in 40 tech companies (25% in Ukraine) through two venture capital fund vehicles. He’s very bullish on Ukraine and its enterprising professionals.

“Kyiv has more startups than Poland’s three biggest cities combined,” he noted.

Meanwhile, Ukraine is developing its own investment sector. An example is Oleksii Vitchenko, CEO of Digital Future Fund in Kyiv, who has invested millions in 15 companies that are “end user” product outfits such as sales organizer software and Attendify, that builds apps for conferences.

“I’m here because I’m a patriot,” he said. “You can create businesses where you want and live where you want today.”

Agriculture’s Sunny Horizon

Agriculture will prove to be another huge economic driver going forward too.

The other New Ukraine promises to be the country’s agricultural sector which will be able to export to Europe tariff free in January. Canada’s Ambassador to Ukraine, Roman Waschuk said in an interview: “Like IT, agricultural exporters are very successful because of huge profit margins. They export to earn dollars or Euros and their costs are in hyrvnia.”

Facilitating these advances is the fact that since the 2014 upheaval the IMF has helped the country forge macro-economic policies that have stabilized its economy, enhanced growth and cleaned up some government agencies. This year, construction starts were up by 10 percent and retail sales by 4.1 percent.

For these and other reasons, Ukraine has maintained investment support in recent years.

Lenna Koszarny, CEO of Horizon Capital in Kyiv, has invested more than US$1 billion in 150 companies over a period of time and she continues to raise funds from investors in order to continue to expand her portfolios.

“We are optimistic and that is why we are here,” she said. “We believe in the country and see grand opportunities and a nation poised for growth. We are happy to be here.”

She speaks for myself and countless others. This is a nation that had had to fight for what the rest of the developed world takes for granted and is finally starting to see results. Slava Ukraina.

Diane Francis is a Senior Fellow at the Atlantic Council's Dinu Patriciu Eurasia Center, Editor at Large with the National Post in Canada, a Distinguished Professor at Ryerson University's Ted Rogers School of Management, author of 10 books and, most recently, a member of the Ukraine Business Journal Editorial Board.

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