A popular political joke in Ukraine says that for many years, no one in the Ukrainian government knew what high tech was - and that is why Ukrainian high tech was successful. Ukraine, a country of 45 million people, accounted for 20% of the GDP in the Soviet Union before the latter's dissolution. In recent years, however, Ukraine's economy has collapsed and is only now beginning to recover from the civil war and destructive conflict with Russia over the Crimean peninsula. Under current prime minister Volodymyr Groysman, Ukraine is trying to attract foreign investors, with an emphasis on high-tech entrepreneurs and investors. High-tech entrepreneurs from Israel have not been absent from this effort.
This is the reason why a delegation from Kiev headed by Ukrainian Deputy Prime Minister, Minister of Economic Development and Trade Stepan Kubiv, and Volodymyr Stavniuk, chairperson of the Ukrainian State Finance Institution for Innovations, is now visiting Israel. The visit is being hosted by Association of Israeli High Tech chairperson Zvi Marom, Chamber of Commerce and Industry Israel - Ukraine chairman of the board Evgeny Shulgin, Israel Ministry of Science and Technology director general Peretz Vazan, and Ministry of Economy and Industry Europe Department director Ami Levin.
The Ukrainians are here to do business. They know that the main resource that interests Israelis is cheap professional high-tech personnel. Managers of five Ukrainian outsourcing companies accompanying the delegation will tell you. According to figures from the government in Kiev, 15,000 Ukrainian computer programmers and software engineers are already employed by the Israeli high-tech industry. The Ukrainians' main mission is to multiply this number by 10 to 150,000 in the coming years - no less than that.
Finally - patent protection
Stavniuk, a physicist by training, is a serious and calculated man. The main tasks entrusted to him reflect the change in the global economic trends, which are being strongly felt in Ukraine. He must find jobs for hundreds of thousands of employees in high tech, which has become the country's main export sector. In addition to supporting foreign companies, Stavniuk is also promoting locally developed technologies. While Israel is regarded as a cyber power, Ukraine is prominent in digital banking.
"Globes": What are you looking for today in Israel?
Stavniuk: "Israel is very interesting to us. It proves that it is possible to develop economically and build a startup nation in the midst of a war, and you have money to support the establishment of such a system. There are special laboratories and institutions of higher education in Ukraine, and I'm sure that we'll find mechanisms for connecting and combining these things.
"There are 220,000 programmers in Ukraine who generate over $3 billion a year in revenue for the country. Unfortunately, some of these professionals are leaving us for other countries. For us the trend towards projects with centers located abroad but development in Ukraine is preferable. According to our figures, at least 15,000 Ukrainian programmers are currently working on Israeli projects. Since Israel is focusing mainly on programming and IT, we'd definitely be delighted to have the 15,000 become 150,000 within a few years."
In recent years, Ukraine has become a symbol of outsourcing in Israeli high tech. A few of the large companies have already been hiring employees there for years, and these companies have also been joined by smaller startups. In a country in which the average wage is $220 a month, a software engineer getting paid $2,500 a month becomes a wealthy man. For an Israeli company, this is a quarter or less of what it pays local software personnel. The differences in mentality are also perceived as smaller than with employees from the Far East.
What is the Ukrainian government doing to encourage this trend?
"We're now building an ecosystem of innovation in Ukraine and the Israeli experience is very interesting to us in this context. We have prepared a national plan for supporting innovation, approved by the government, and we have begun a pilot plan in the matter. This is part of a deep and broad program of reforms focusing on protection of intellectual property."
Protecting intellectual property in Ukraine is a painful subject. Everyone exposed to it knows that there are no protected patents in Ukraine. Rights can be violated and inventions copied with no interference. This fact has kept foreign companies away from Ukraine for years. Who wants to invest in a product and see it copied straight from the drafting table?
The government in Kiev is now trying to address this challenge. The goal is to regain the trust of foreign companies, including Israeli companies, so that they will establish subsidiaries and enterprises in Ukraine and engage in entrepreneurship, not just hire local personnel. The new law states that the amounts charged for patent registration will be used to strengthen industry: first of all, enforcement and protection of the patents themselves and beyond that development of specialties and encouragement of entrepreneurship.
Are you also trying to encourage growth of Ukrainian startups that will sell technology to the world?
"This is certainly an important goal and we are taking it upon ourselves to aid new entrepreneurs, protect their patents, and help them market their ideas, while providing pre-seed financing. Up until now, entrepreneurs in Ukraine have had no way of getting help in the early stages. The state left this arena and there were no tools in higher education. This is the reason why a large proportion of the Ukrainian inventions were registered abroad. In effect, it's reverse outsourcing of ideas and developments, and we want to change this."
Can we expect a new Silicon Valley to arise in Odessa in another few years, for example?
"Definitely. We're inviting Israeli companies to centers in many areas, such as biotech and agriculture. There are also outer space centers on the Dnieper River. We'll be glad if Israeli investors found Ukrainian companies, but I'm convinced that we can also find other mechanisms that will fulfill the interests of both sides. This is exactly one of the delegation's goals - to find points for cooperation with Israeli technologies and the financial capabilities in Israel. As a government agency, I can establish joint ventures with the private market and also invest in businesses or joint funds."
A country in a state of economic war
Another aspect of the Ukrainian reforms is reflected in the banking industry. Ukrainian banking has also acquired a bad reputation, and the current government is working on regulating the market and closing down dubious companies. One of the tools it plans to use to enhance transparency is development of blockchain technologies.
"The government made a strategic decision that blockchain is one of the key areas in which the state is investing. We're already switching entire systems, for example land registration, to this technology. We're using it to build a transparent economy, so that foreign players will have confidence in it. We're also building a digital economy, paperless commerce, and electronic stock exchanges."
We are hearing quite a bit about hacking in Ukraine. Among other things, there are cyber wars between Ukrainian and Russian hackers and also pro-Russian Ukrainian hackers attacking the country's infrastructure. What are you doing about it?
"Ukraine is in a state of economic war, and some of this is reflected in cyber attacks against national infrastructure. The agency I head held a conference on the subject of cyber defense. The figures and statistics we have are very frightening. Half of infrastructure in Ukraine is under attack. Cooperation with Israel, a country with many capabilities in this area, can therefore be very interesting."
What about dealing with the hackers themselves?
"I haven't yet seen a country that has found a comprehensive solution to hackers, but jobs and livelihoods have to be created for them so that they do constructive things, not harmful things. The important goals is to create infrastructure for a proper livelihood for them, while on the other hand dealing with the people who are funding their activity."
Who are they?
"I only wish I knew."
Are you referring to Russian involvement?
"All right, there was a case of a virus that caused a great deal of damage to infrastructure in Ukraine and it came from Russia. It was communicated through Russian software used by important parts of our economy. We're already cooperating with Israeli cyber companies in this matter."
Is Israeli innovation at risk?
Behind the Ukrainian delegation's visit is long-term cooperation involving the Manufacturers Association of Israel through the Association of Israeli High Tech and the Chamber of Commerce and Industry Israel - Ukraine. As the Israeli high-tech market grows and personnel needs are created for which employees cannot be recruited locally or requiring record-breaking salaries, there are more calls for the two agencies to find suitable solutions in Kiev or Odessa.
"Unfortunately for the Israeli high-tech industry, there is now no choice other than to turn to foreign outsourcing companies in order to find employees," Marom says. "The industry is suffering from a severe shortage to topnotch personnel essential to its further development. We're known worldwide as a power in innovation, but we need an ever-increasing number of talented people with the best education. For lack of choice, Israeli companies are looking for employees overseas to fill the professional vacuum. The Israeli government isn't doing enough; it is regarding the success of Israeli high tech as guaranteed, which it is not. Scientific and technological education needs to be promoted on a far bigger scale than is being done now. A strategic policy has to be formulated, the discussion of which has been repeatedly postponed."
Shulgin says that outsourcing in Ukraine began spontaneously, but the expanding demand and the number of companies involved mandates reorganization. The Chamber of Commerce Israel - Ukraine recently formulated a plan for facilitating a flow of employment and development capabilities between the two countries that will also facilitate investments by Ukraine in Israel. "The business activity is substantial," says Chamber of Commerce Israel -- Ukraine CEO Vlad Cherkassky. "40,000 people fly between Israel and Ukraine each month. The potential for growth should be encouraged in the framework of a joint plan."
Published by Globes [online], Israel business news - www.globes-online.com - on July 29, 2018
© Copyright of Globes Publisher Itonut (1983) Ltd. 2018