Russia's all-out invasion of Ukraine sparked the most technologically advanced war the world had ever seen. On land and sea, in the air and in cyberspace, Russia and Ukraine deploy rapidly advancing technologies almost every day. Although Russia enjoys overwhelming superiority in terms of conventional military power, manpower, and resources, Ukraine needs a vibrant and sophisticated technology sector that includes approximately 300,000 IT professionals. It also benefits from a digital culture that is deeply rooted in Ukrainian society as a whole. This technology ecosystem is proving to be Ukraine's secret weapon in its war against Russia.
Naturally, Ukraine's current priority is the development of defense technologies that will help ensure victory against Russia. This sector is likely to remain at the heart of Ukraine's technology ecosystem long after Russia's defeat, and has great potential to shape the future growth of the country's overall digital economy. Currently serving as a testing ground for many of the world's most advanced defense technologies, Ukraine is already becoming a center of innovation and has every chance to establish itself as a world leader in the field of defense technology.
In parallel with the focus on defense technology, Ukraine's IT industry continues to expand. In fact, the IT sector is probably the only sector in the wartime Ukrainian economy that has continued on a growth trajectory since February 2022, creating new jobs, implementing new projects and attracting investments. There is. The Ministry of Digital Transformation of Ukraine is doing everything possible to help IT companies not only survive, but also thrive, despite the unique challenges created by the Russian invasion. This includes creating favorable tax and legal conditions through the Diia.City platform, launching free developer training opportunities, promoting IT education reform, and increasing support for Ukrainian startups. included.
Get the latest information
As the world watches Russia's invasion of Ukraine unfold, UkraineAlert delivers the best insights and analysis from Atlantic Council experts on Ukraine directly to your inbox twice a week.
Founded just two weeks before the start of Russia's full-scale invasion, Diia.City aims to offer the world's most attractive tax incentives to companies operating in the IT and technology sector. When we developed the architecture of the Diia.City platform, our goal was to demonstrate that lowering tax rates actually increases tax revenue for national budgets. This was confirmed by the latest annual data of the State Tax Service of Ukraine. In 2022, companies residing in Diia.City paid more than 4.1 billion hrivres in taxes. This represents a 22.5% increase over the previous year. Currently, more than 600 companies are located in Diia.City. The list includes young Ukrainian companies and international giants such as Samsung, Visa, Nokia, Ajax Systems and Global Logic.
Another current priority is support for Ukrainian startups. Even amidst the fear and chaos of Russian invasion, Ukrainians continue to innovate. In fact, during the past 18 months of war, there have been many examples where Ukrainians have developed innovative new products that help defend the country. To facilitate this trend, we are working to develop a dynamic venture capital investment ecosystem. Since December 2022, the Ministry of Digital Transformation has started supervising the Ukraine Startup Fund, which has become the country's largest angel investor. The fund has already backed over 350 startups and is currently focused on defense technology projects.
Ukraine's main defense technology platform is the BRAVE1 initiative, a technology cluster for the development of the country's defense technology industry. BRAVE1 was launched in spring 2023 by the Ministry of Digital Transformation of Ukraine, the Ministry of Defense, the Ministry of Economy, the Ministry of Strategic Industries, the National Security and Defense Council, and the General Staff of the Armed Forces of Ukraine. The main goal of BRAVE1 is to create a rapid trajectory of innovation in the defense and security sector. Any company or defense technology startup can find partners and receive support through the cluster. The overall objective is to create a system that streamlines the launch of defense technology projects. By mid-2023, BRAVE1 had around 400 projects registered, around 200 of which also underwent military testing. Projects currently under development are prioritized by Ukraine's military leadership and include drones, robotic systems, electronic warfare, artificial intelligence tools, cybersecurity, communications and information security management systems.
Eurasia Center events
International investment is needed to fully utilize Ukraine's technological potential. Security concerns will inevitably cast a long shadow over Ukraine's investment climate, but there are tentative signs of progress as awareness of Ukraine's technological potential grows. The European Commission's European Innovation Council announced in May 2023 that it would allocate 20 million euros to the development of start-ups and innovative projects in Ukraine. Meanwhile, the “Seeds of Bravery” project in cooperation with the Ukrainian Fund for Innovation and Development was selected by the EU's main partner and created opportunities for hundreds of domestic start-ups to receive financial support and growth opportunities. This includes mentorship programs from top figures in the international technology industry. Ukrainian authorities also actively support the participation of Ukrainian startups in international trade events such as London Tech Week, Viva Tech and TechCrunch Disrupt. This has already allowed Ukrainian startups to raise more than $10 million in additional funding in 2022.
In addition to investments, more direct international engagement is needed to strengthen Ukraine's technology ecosystem. With this in mind, Ukraine plans to launch an e-settlement initiative by the end of 2023. This will allow citizens of other countries to operate high-tech businesses in Ukraine and benefit from favorable conditions, including attractive tax rates. During the pilot phase of the project, e-residence rights will be available to nationals of Slovenia, India, Pakistan and Thailand. This list will expand as the program evolves. This initiative aims to provide e-residents with a fast, convenient, and fully automated experience without the need for direct interaction with state authorities. Approximately 1,000 e-residents are expected to participate in the first phase, which could generate $1 million for Ukraine's budget. More importantly, it will introduce Ukraine to a new generation of technology professionals from around the world and raise the country's profile as an emerging global technology hub.
The current war has served to emphasize the strategic importance of a strong technology sector. Fortunately, Ukraine has been moving in this direction for several years and was able to quickly adapt to wartime conditions. Beyond the existential challenge of defeating Russia and securing Ukrainian statehood, I am now more convinced than ever that the high-tech sector will be the main driver of Ukraine's future GDP growth. Ukraine's economy will become increasingly digital in the coming years, and the country will develop its reputation not only as an exporter of IT services, but also as home to a wide range of globally competitive technology brands. To achieve this, we encourage international technology companies to expand their operations and open offices in Ukraine, as both Palantir and SpaceX have done since Russia's full-scale invasion began. We will continue to create favorable conditions for
Over the past 18 months, Ukraine has demonstrated its ability to implement new ideas in the technology sector with remarkable creativity and efficiency. The wartime situation has accelerated an evolutionary process in the country's technology sector that has been underway for more than a decade. This is propelling Ukraine to the status of a digital superpower. It is now clear that Ukraine has the potential to become one of the world's top ten innovation-driven economies. This will play an important role in the country's future prosperity and will also help protect the security of Ukrainians.
Mykhailo Fedorov is Ukraine's Deputy Prime Minister for Innovation and Development of Education, Science and Technology and Minister of Digital Transformation.
References
The views expressed in UkraineAlert are solely those of the author and do not necessarily reflect the views of the Atlantic Council, its staff, or its supporters.
of Eurasian Center Its mission is to strengthen transatlantic cooperation to promote stability, democratic values, and prosperity in the Eurasian region, from Eastern Europe and Turkey in the west to the Caucasus, Russia, and Central Asia in the east.
Follow us on social media
and please support our work
Image: Evhen Natok, 22, a former Ukrainian military officer, repairs a homemade unmanned ground vehicle in his workshop in the Kiev region of Ukraine during the Russian attack on Ukraine. July 5, 2023. (Reuters/Alina Smutko)
