Complex program on development of innovative sector of Ukrainian economy

1. STRATEGIC NATIONAL PROJECT
“INNOVATIVE UKRAINE”
МАРТ 2014
OPEN LETTER
Dear Ukrainian politicians and ministers!
IT sector of Ukraine has been rapidly developing despite the global financial crisis of
2008-2009 and difficult economic conditions of the present day.
Created from scratch, IT sector is already one of the key export sectors of Ukraine’s
economy, which has created more than 100,000 jobs for highly paid specialists.
We are used to building innovative companies without any support from the government.
However, by taking this path, we are not achieving the maximum possible potential. By
offering a complex comprehensive program, we aim to stimulate the future growth of
innovative component of our country and elicit the maximum out of the intellectual capacity of
Ukraine.
We invite all interested parties from IT community to sign under this statement and/or provide
feedback using this link http://bit.ly/1iZfcK4
Sincerely,
Initiative group within IT community

2. SUMMARY
In Ukraine IT sector (broadly known as Informational technologies) is among top-5 export
categories in Ukraine with extensive potential for future breakthrough in global arena and is
doomed to become the leading industry in Ukraine by 2025.
• Vision: we suggest to initiate a strategically important task for the government – the
creation of the National Project «Innovative Ukraine» (working title). IT is one of the most
developed and innovative sectors of Ukrainian economy. The goal of the project is to
boost innovation in general in Ukraine
• Tools: a comprehensive program that in the short-term requires political will, enactment
of new bills and improvement of their implementation mechanisms. In the long-term, using
minimal investments and the experience of the US, Israel and other countries, the project
will serve as an impetus behind explosive growth of the IT sector
• First steps: tax reform in the industry according to international practice or reform whole
tax system in Ukraine, enactment of the IT and Ecommerce Laws, reform of education
system, stimulating creation of technology infrastructure and implementation of IT
technologies in government structures
2

3. POSSIBLE FIRST STEPS
Include development of innovations and IT in short and long term strategy of development of Ukraine,
particularly potential first steps within next 3 months:
1. Reform the whole taxation structure in Ukraine or pass the law «Tax for IT Companies», that would
preserve the tax inflow into the budget at the same level in short term and significantly increase
budget tax inflow in long run
2. Automate and make public key governmental processes like procurement, taxation and
governmental services
3. Reform education systems that will allow quantity and quality changes in supply of technical force
4. Pass the law «Ecommerce in Ukraine» that will enhance business transparency, decrease risks
associated with doing business and stimulate further growth of the sector
HOW IT COMMUNITY CAN HELP
The IT community is willing to work together with the government and help with planning, development,
and implementation of IT initiatives. We are offering the following assistance to the government:
1. Create an expert group of advisors to assist the government in planning, development, and
introduction of IT initiatives
2. Gather a team of full-time/part-time hands-on specialists to join the "working group" in the
government
3. Prepare a database of companies/individuals that are willing to do pro-bono projects that would
increase transparency, efficiency and create a seamless user experience for citizens interacting with
government structures
3

4. 4
• As the global experience shows (in US, Israel, Singapore and other) transformation toward innovative
economy is possible only with the government support (i.e., stimulus for the sector)
• Ukraine is a well known player on the global IT arena. The forecasted export of Ukrainian IT services will
exceed the one of metallurgical sector by 2025
Profile
association
Ecommerce
Profile
association
Entrepre
neurship
Working
group at the
Cabinet of
Ministers /
government
Profile
association
Vendors
Profile
association
Internet
Profile
association
IT
outsourcing
TRANSFORMATION OF THE IT SECTOR REQUIRES POLITICAL
WILL AND MUTUAL DIALOGUE
Political will,
readiness to
implement
reforms and
multiparty
discussions
Profile
association
Telecom

5. REPRESENTATIVE ASSOCIATIONS OF THE IT INDUSTRY
ASSOCIATION DESCRIPTION
IT Ukraine Association
• Development of software development industry in
Ukraine
Victor Valeyev
Ukrainian high-tech initiative
• Promotion of Ukrainian IT outsourcing
• Development of IT outsourcing
Victor Maznyuk
Internet Association of Ukraine
(IAU)
• Development of Internet access and services
• Protection of consumers and telecom operators
Tatiana Popova
Ecommerce committee under IAU • Ecommerce development Alexander Olshanskiy
E-business association of Ukraine
• IT business development
• Legislative activity
Yuriy Chayka
Association of information
technology companies
• Transparent IT market formation and development Ellina Shnurko-Tabakova
Council of competitiveness of
Ukrainian IT and communication
technologies industry
• IT sector development
Igor Lisitsky
Telecom chamber of Ukraine • Development of telecom sector Konstantin Grytsak
INFORMAL DESCRIPTION
IT Tent at Euromaidan
• IT support of Euromaidan
• Consolidation of IT projects for society transformation
Maxim Plakhtiy
Venture ecosystem • Development of entrepreneurial IT ecosystem Venture funds, accelerators
Ecommerce law • Ukrainian Ecommerce law Olga Belkova
5

6. Yevgen Sysoyev AVentures Capital ys@aventurescapital.com
Eugene Leng AVentures Capital lengeug@gmail.com
Andrew Pavliv N-ix
Aleksiy Anikin Global Technology Foundation
Alexander Kardakov Datagroup, Incom
Alexander Olshanskiy Imena.ua, Ecommerce Committee
Andriy Kolodyuk AVentures Capital
Andriy Logvin ModnaKasta
Dmitri Lisitski Ukrainian Media Holding
Dmitry Shymkiv Microsoft Ukraine
Dmytro Gadomsky Juscutum
Dmytro Havrylenko AVentures Capital
Evgeniy Utkin KM Core, DeNovo
Ellina Shnurko-Tabakova Association of information technology companies in Ukraine
Eveline Buchatskiy EastLabs
Ilia Kenigshtein LR Group
Katerina Kostereva Terrasoft
Maxim Plakhtiy Karabas.com, IT Tent
Mykola Palienko Prom.ua
Maxim Yakoover Chasopys
Olga Belkova Member of Parlament, EastLabs
Olena Vardamatska Wolf Theiss
Roman Khmil Ciklum
Taras Dumych Wolf Theiss
Taras Kytsmey SoftServe
Torben Majgaard Ciklum
Tatiana Popova Internet Association of Ukraine
Victor Galasyuk Bionic Hill
Victor Valeyev Association IT Ukraine
Viktoriya Tigipko TA Venture
Vlad Voskresensky InvisibleCRM
Yuriy Peroganych Association of information technology companies in Ukraine
Yuliya Sychikova Mitten
Yuriy Chayka MoneXy, E-business association of Ukraine
We invite all interested parties from IT community to sign under this statement and/or provide feedback using this liink http://bit.ly/1iZfcK4
CONTACTS
WORKING GROUP MEMBERS INCLUDE:
6

7. APPENDIX: IT INDUSTRY IN UKRAINE AND COMPLEX
PROGRAM TO UNLEASH FURTHER ECONOMIC
POTENTIAL OF UKRAINE
7

8. IT OUTSOURCING
IT INDUSTRY OF UKRAINE: OVERVIEW
• $2B market
• 50,000+
engineers
• 500+ firms
• 25-30% growth
• 5,000+
engineers
• 100+ centers
• 30-40% growth
R&D CENTERS
• $1-2B worth
• Thousands of
engineers
• 1,000+ startups
• 50-100% growth
STARTUPS
• $2B locally
• Thousands of
engineers
• 100+ firms
• 40-50% growth
ECOMMERCE
• IT sector is a multibillion dollar market and one of the most important export categories of Ukraine
• IT industry is highly competitive at the global stage and will continue being a major driver behind
Ukrainian economic growth over the next 10 years
8

9. IT OUTSOURCING: OVERVIEW
9
• #1 in CEE by #
developers and $ volume
• Top30 outsourcing
destination (Gartner)
• Top5 strongest software
developers, outstripping
US (TopCoder)
• Top10 most certified IT
professionals
With top-notch software
engineers
Ukraine is the global
outsourcing player
Competitive cost And contracts with the
leading global
companies
92
21
US Ukraine
Annual software
engineer salary, $k
Ukrainian IT outsourcing grow 5x
faster than global
And will double over the
next 3-5 years
27%
16%
4%
CAGR% 2009-2013
Ukraine
Eastern Europe
Global
2
4
2013 2016
Market size, $ billions

10. IT OUTSOURCING: ACTION PLAN
• Growth of the
sector
• Increase in budget
revenues
• Increase in
demand of IT
engineers and
simulation of IT
industry growth
Long-
term
Short-
term
ResultsRecommended actions Resources
• Strengthen the image of Ukraine as one of the
world's technology leaders in the IT industry
• Enable transparent and seamless process for
registration of new companies and regulation of
their business activity
• Reform tax system within industry according to
international practice or reform the whole tax
system in Ukraine
• Stop the practice of raider takeovers of the IT
companies and enhance the public control
against illegal actions directed at IT companies
• Reform the education system (program, quantity,
quality) according to market needs
• Increase the number of state-financed students
studying technical disciplines at the leading
Ukrainian universities. Introduce programming
classes in the curriculum of the secondary
schools
• Information
• Administrative,
legislative
• Political will and
enactment of the
bill by Verhovna
Rada
• Financing and
coordination with
Ministry of
Education
• Ukrainian IT outsourcing industry competes with India, China, Russia and Eastern Europe, where governments
extensively support the sector
• Future rapid development of the sector can be boosted with the government support and will require training of
more than 100,000 new professionals over the next 5-7 years
10

11. AMERICA
OVER 100 R&D CENTERS IN UKRAINE
11
EUROPE ASIACIS
750 ppl.
600
250
150
100
300
250
200
300
150
100
1100

12. R&D CENTERS: ACTION PLAN
Long-
term
Short-
term
• Ukraine can implement the successful experience of Israel, Singapore and other countering, in creation and
promotion of IT clusters
• Creation of innovative centers can be financed through private-public partnerships, with major part of financing
coming from private investors
• Boosting the
attractiveness of
innovative initiatives
• Attraction of
international
companies,
stimulation of
innovation, increase
in tax revenues
ResultsRecommended actions Resources
• Administrative
and information
• Funding, legislative
framework
• Legislative
framework to
encourage the
opening of new
development
centers (not only
IT)
• Promoting Ukraine in the international arena as a
global leader in IT technology
• Make compliance of protection of Intellectual
Property rights according to world standards
• Simplifying procedures around obtaining working
visas by western specialists (particularly IT)
• Creation of technology infrastructure
• Enabling an attractive business environment for
international companies that are opening R&D
centers and hiring IT professionals
• Stimulating the creation of IT clusters and
technoparks through public-private partnerships
with the majority of funding coming from the latter
12

13. ECOMMERCE AND CONSUMER INTERNET
13
$2B
market
1.8%
penetration
Electronics, apparel and ticketing are
the major categories
1.5
2.0
10.0
1.5%
1.8%
4.6%
0%
1%
2%
3%
4%
5%
0
1
2
3
4
5
6
7
8
9
10
11
2010 2011 2012 2013e2014e2015e2016e2017e2018e
5x rise over the next 5 years
eCommerce, $B
Online/Total sales, %
($USD B)
Other
Groceries
Personal care
Auto parts
Books
Jewelry
Sporting goods
Tickets
Other
Events
Hotels
Air
Apparel
Social
Online
shops
Shopping
clubs
Electronics
Appliances
Phones
IT
Laptops
Photo

14. ECOMMERCE AND SERVICES: ACTION PLAN
Long-
term
Short-
term
• Stimulation of
innovations
• Development of
innovative services
• Decrease in
corruption of import
of goods and
increase in tax
revenues
ResultsRecommended actions Resources
• Political will and
enactment by
Verhovna Rada
• Financing of
investment
attractive projects
• Financing,
administrative
• Pass “The Ecommerce Law” that regulates
Ecommerce and eDocuments
• Simplify (or eliminate) the license for e-money
and its administration procedure
• Develop logistics infrastructure and services
provided by UkrPoshta (Ukrainian postal services)
or provide state loans to private logistic operators
for infrastructure development
• Open custom-license warehouses on Ukrainian
territory of all key vendors-suppliers
• «The Ecommerce Law» will consolidate the key aspects of e-commerce at the legislative level, reduce
business corruption
• Logistics and payments infrastructure are the two pain points, the alleviation of which will accelerate the future
growth of the sector
14

15. $1B+ WORTH STARTUPS IN TOTAL VALUE
15
MARKET
GlobalCISUkraine
SECTOR
Online
services
Mobile eCommerce Software

16. STARTUPS: ACTION PLAN
Long-
term
Short-
term
• Increase in number
of innovative
companies and
government
revenues
ResultsRecommended actions Resources
• Administrative
• Minimal financing
• Legislative
• Financing that
depends on national
priorities
• Promotion of entrepreneurship at the highest level
• Simplification of foreign companies registration by
Ukrainian citizens
• Cooperation with international programs that help
stimulate entrepreneurship
• Enhancement of development institutes, stimulation of
the ecosystem via inviting foreign guest speakers,
publishing business/scientific literature, awarding
grants, supporting innovation in all regions of Ukraine,
supporting conferences etc.
• Development of laws which will allow to structure
corporate governance and minority investments
protection rights of investors
• Launch the project «Yozma Ukraine» – analogue of
Israeli Yozma project that became a major driver
behind breakthrough of tech sector in Israel
• Found Government Venture Company for private/public
co-investments in best startups that would award grants
to best projects
• Create development institutes to assist universities with
the commercialization of scientific developments
• Ukraine has a number of successful startups valued at $50-100mm, and their number is growing exponentially
• Founders with Ukrainian roots, like Max Levchyn (PayPal) and Yan Koum (Whatsapp), created multibillion
companies in countries with right ecosystems
• Experience of Israel and Baltic states show that it is possible to build multibillion-dollar IT companies from
scratch (Skype)
16

17. ISRAELI EXPERIENCE: YOZMA PROJECT
17
A government initiative in 1993 offering:
• attractive tax incentives to foreign venture-capital
investments in Israel
• tax incentives
• Match of any private investment with funds from the
government 1:1
Ukraine possess expertise, infrastructure and talent to build innovative economy. Government
should initiate the creation of private-public VC funds to accelerate growth, attract foreign
investments and expertise.
EXPERIENCE
PROJECT: YOZMA
RESULTS
NUMBERS
• Initial budget $100mm
• Assets under management >$170mm
• Number of investments >40
Russian Venture Company (RVC) use Yozma
experience extensively and appointed Yozma’s
founder Yigal Erlich to the Board of Directors
Growth of IT sector 1991 2000
Venture investments $58mm $3.3B
Number of companies funded 100 800
IT sector revenue $1.6B $12.5B
• Israel is #1 globally by the volume of VC investments per
capita
• 70% of Israeli growth is attributed to high-tech sector
(global leader)

18. IT IN GOVERNMNET
Long
term
Short
term
• Substantial
enhancement in
productivity,
eradication of
corruption, high
return on
investment
• Increase in
productivity,
transparency and
revenue budget of
Ukraine
ResultsRecommended actions Resources
• Political will and
market level salary
for the best IT
specialists
• Financing of the
highly profitable
investment projects
• Political will and
minimal financing
(European grant
awards for specific
projects are
possible)
• Attract first-class IT specialists and entrepreneurs
to develop government strategy for
implementation of IT tools within the government
(customs, procurement, eGovernment etc)
• Arrange tenders for procurement of government
IT technologies
• Automate various government services (issue of
references, certificates, passports, incorporation
documents etc)
• Automate public procurement process
• Automate and increase transparency in customs
• Automate and increase transparency of VAT
• As of today, Ukrainian government hasn’t implemented the best IT tools and practices already successfullly
used in business
• Investments in government IT infrastructure will substantially low corruption and improve transparency,
productivity and performance
18

19. Long-
term
Short-
term
• Increase in tax
revenues,
implementation of
new telco services,
increase in their
accessibility for
Ukrainian citizens,
decrease of «digital
gap»
ResultsRecommended actions Resources
• Political will and
changes in current
legislature
• Administer 3G and 4G/LTE licenses via
transparent auctions to all interested Ukrainian
operators under commitment of network coverage
of the majority of the Ukrainian territory
• Protect the critical elements of network
infrastructure (prohibition of server removals,
network shutdowns)
• Simplify the process of obtaining permits and
licenses
• Provide uniform and equal access rights for all
interested parties to telecommunication
infrastructure: telecommunications cable ducts,
elements of municipal infrastructure, residential
buildings etc.
• Inefficient regulation, especially in RFR, results in capital outflow, absence of the next generation mobile
network and inhibits the introduction of new services
• Vulnerability of critical elements of telecom infrastructure leads to customer churn in favor of foreign suppliers
of services and poor quality of service within the country
TELECOM: ACTION PLAN
19