War challenges Ukraine's gig economy

Working from a Lviv cafe before the war  credit: Reuters/SOPA Images
Working from a Lviv cafe before the war credit: Reuters/SOPA Images

Freelancer platforms Fiverr and Upwork are especially popular in Ukraine, but Western customers are becoming wary.

Serhiy Protsenko, a Ukrainian who emigrated to Poznan in Poland last November, manages a small and successful visual effects studio that receives orders via freelancer websites like that of Israeli company Fiverr (NYSE: FVRR). In recent years, Protsenko and his partners, who still live in the Ukrainian city of Chernihiv, have created special effects for American advertisements and films.

Among the films they have worked on are Netflix's action comedy "The Last Mercenary " starring Jean-Claude Van Damme, and Australian science-fiction film "2067". Protsenko and his colleagues are currently finishing work on Guy Ritchie's new film "Operation Fortune", starring Jason Statham and Hugh Grant, due to be released this year.

The reality of Protsenko's life, however, is rather less glittering than the films that he adorns with computerized effects. Artists like him who receive work through freelancer platforms like Fiverr and Upwork (Nasdaq: UPWK), he says, have found themselves with a double problem following the Russian invasion of Ukraine. Apart from the struggle for mere survival and the need to find a functioning work environment, he says that the number of orders through these platforms has dwindled almost to zero.

"Before the war, I would get three or four approaches a day, and generally I would choose the projects I was interested in working on, and reject the rest," Protsenko told "Globes" in a Zoom call from Poznan in the west of Poland. "As soon as the invasion started, the flow of orders almost completely dried up. It could be that the customers, who are almost always American, fear that working with us will be high risk, and that we won't deliver on time."

The truth is that the customers aren't entirely mistaken. One of Protsenko's partners still lives in Chernihiv, which is under constant shelling and is where 53 civilians were killed last Wednesday. At least ten of them were hit by Russian shelling while they stood in a queue for bread, according to regional governor Viacheslav Chaus, as reported by Reuters and CNN. Protsenko says his partner has been working from a shelter with no lighting for almost two weeks, and recently without heating either. His mobile telephone connection is unreliable, and his last hope for communication with the outside world is through a cellular Internet connection, since the landline has been out of service for a while. A third partner took his whole family from the city to a town in the west of the country, and he too reports repeated Internet outages.

Profit warning

Many tech companies, among them Israeli companies such as Wix, Playtika, and Plarium, were very active in Ukraine until the Russian invasion three weeks ago. Since then, these companies have been making efforts to evacuate their employees and their families to safer areas, and have been hit by delays to critical development projects. But it appears that for the freelancer platforms, such as Fiverr, US company Upwork, and Ukrainian company Freelancehunt, the damage is much broader. This is because companies of this kind are dependent not just on their direct employees, but also, in fact mainly, on the most important resource as far as they are concerned - the independent providers of services such as video editing, marketing materials writing, software development, and translation.

A week ago, Upwork and then Fiverr announced that they were exiting the Russian market. Upwork even added a profit warning. The company said that it would have to revise its sales forecast, citing "increased risks and uncertainties, as well as an untenable operational position and dire geopolitical situation associated with the ongoing Russian war against Ukraine." While Fiverr does not disclose information about the geographical spread of its revenue sources, Upwork revealed that 10% of its talent and customers were in Ukraine, Russia and Belarus.

A check by "Globes" on employment social network LinkedIn has found that Upwork is more dependent on Eastern Europe than is Fiverr. Fiverr has more freelancers than Upwork in India, Bangladesh and Pakistan, while the reverse is the case in Ukraine, Russia and Belarus. According to the search via LinkedIn, Fiverr has 260-plus freelancers in Ukraine. Upwork has more than 3,000 there. It should be pointed out, though, that most freelancers have accounts on more than one platform.

Despite the considerable difference in these numbers, the shock waves from Upwork's profit warning reached Fiverr as well. Fiverr too saw its share price drop. Like many other tech companies, these two companies have sustained significant declines in their share prices in the past year, but from March 7 to the close of trading last Wednesday, Fiverr's share price fell 2.3% and Upwork's 3.4%.

A freelancers' paradise

In the past decade, Ukraine has become a paradise for freelancers. US and UK companies of all sizes have found high-quality university graduates there with a technological bent, good English, a Western outlook, and, of course, low pay demands in relation to what they supply. Because of this phenomenon among other things, Ukraine's high technology exports grew 36% in just one year, from $5 billion in 2020 to $6.8 billion in 2021. For 2019, the figure was $4.2 billion. The figures are from the Ukrainian Association of Information Technology.

The period of the Covid-19 pandemic, in the which the difference between local and remote workers became blurred, and the rise in the pay of programmers in Western countries, led technology companies to recruit many workers in Eastern Europe: Israeli IT company Aman Group, for example, reported a 20% increase in its workforce, by 400, in Eastern Europe last year. Giant UK software house Ciklum, which employs 800 people in Ukraine for Israeli companies, has doubled in size since 2020.

New laws passed in Ukraine that give tax breaks to self-employed people doing work for foreign companies have also contributed to making freelance work a paying proposition in the country, to the extent that 3% of Ukraine's workforce, about half a million people, are freelancers. "There are many advantages to freelancer status in Ukraine," Protsenko says. "You're paid in dollars, and instead of working as a salaried worker in a studio, which takes the greater part of the profit on the projects it receives, you can earn twice or three times as much as a freelancer compared with what you earn as an employee."

For all that, the war has put the freelancers, especially those required to carry out large and complex projects, in a problematic situation. Protsenko reveals that he has received an offer to work as an employee in a Canadian studio, which he is considering seriously. "Freelancer means being free, but since I've been working as a freelancer, I have hardly any free time. There are no weekends without work," he says.

For their part, the freelancer platforms are not ignoring the service providers' plight. In addition to logistical assistance in evacuating their direct employees, the companies are having to preserve their freelancer base and prevent a drift that will lead to many of them abandoning the platform. Fiverr, for example, announced at the end of last week that it would return all the commissions charged to Ukrainian freelancers in the past month, and that it would also restrict the ability to give a negative rating to creators who were late in providing services because of the security problems in the country. Fiverr even promoted these businesses on its homepage and on a special page dedicated to Ukrainian providers still available for work.

Still, from our conversations with several of the providers, it would appear that not all of them have heard the good news. A woman with whom we spoke from central Ukraine, who asked to remain anonymous, said she had yet to see any special treatment from Fiverr. "They don’t care about the freelancers," she says. "I received an e-mail from them suggesting that I should switch my page to vacation status, and the payments due to me did not arrive earlier as promised."

Advantages even in wartime

Not all the freelancers, however, have been harmed by the situation. Nastia, a translator from Krivyi Rih in the Dnipropetrovsk oblast in East Ukraine, who provides translation from English to Ukrainian and Russian, has actually seen a rise in orders on her Fiverr account following the closure of the Russian market. "People are taking an interest in the situation and are ordering work connected to the Russian invasion and the refugee crisis," she told "Globes". A programmer who specializes in e-commerce websites who fled to Germany, and who also asked to remain anonymous, said orders had declined since the start of the war because his nationality was mentioned on the business's page, but added "being a freelancer in wartime has proved itself."

Among the advantages of the freelancer platforms in wartime are the flexibility of working alone rather than as part of a team that could be disrupted by communications problems or military draft; the ability to work from anywhere; and the possibility of selling to Western countries, where demand has not been hit. Nevertheless, even after the war in Ukraine ends, it is not certain that the country will go back to being the freelance capital of Eastern Europe, as it has been up to now.

Published by Globes, Israel business news - en.globes.co.il - on March 21, 2022.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2022.

Working from a Lviv cafe before the war  credit: Reuters/SOPA Images
Working from a Lviv cafe before the war credit: Reuters/SOPA Images
Twitter Facebook Linkedin RSS Newsletters גלובס Israel Business Conference 2018