IT-industry in Ukraine: Count not neglect

IT-industry in Ukraine: Count not neglect

The preliminary data of the National Bank of Ukraine on the export earnings of the Ukrainian IT-industry for 2017 was recently announced. Thus, according to information published by several media, last year total income of information technology sphere amounted to $2.48 billion, and growth was equal to 7.6%. At the same time, at the beginning of this year, in the infographics prepared by the IT Ukraine Association, the proceeds amounted to $3.6 billion, and growth was recorded at the 20% limit. "Where did you get more than $1 billion, and why is there such a difference in the estimates?" - the inquisitive reader will ask. And they will be right - this is an interesting question in which someone may perceive distortion of facts or manipulation of data. We introduce to you the intricacies of figures and reports to find out how the revenue of the industry is counted by various organizations.

Backstory 

Despite the great attention to IT-industry and software development in Ukraine, there is still no unified approach to calculating the exact amounts of export earnings and the determination of the economic factor of the industry. For example, in 2016, the volume of export of IT-services from Ukraine had at least 3 (!) Different versions of the assessment: from the State Statistics Service, the National Bank of Ukraine, and the consulting company PwC.

Last year the results were as follows: 

PwC estimated the outsourcing market of Ukraine at $3.2 billion. 

According to the NBU, the export of computer and information services was $2 billion. Note that this amount does not include the export revenues of the telecom segment - this is important, and we will return to this fact later 

And the lowest figure for the export of services was provided by the State Statistics Service - only $1.4 billion. 

Different approaches to calculating 

The explanation of such a big gape (more than 40% of the difference between each indicator) lies in the difference in the calculation methodologies and data taken into account when assessing export volumes.

Unfortunately, we do not have information regarding the calculation system used by the State Statistics Service. 

The dynamics of the balance of payments of the National Bank of Ukraine includes the segment of “telecommunication, computer and information services", the data of which reflect the currency earnings of the sector. In order to have a number directly for the IT-industry, we need to combine the indicators of computer and information services, without taking into account telecommunications. But there is a nuance.

The factor that significantly affects the official final figures of NBU is the failure to include in the column "Telecommunication, computer and information services" the revenue that Ukrainian IT-companies receive from consulting, business process analysis and other types of non-transferring services. the software product from the executor to the customer. Income from such activity in the report of the NBU is contained in the column "Other services". However, "other services" today make up a significant share of revenues from the industry, since the usual notion of "outsourcing" (performance of production functions), Ukrainian IT-business has already begun to develop packages of integrated ready-made solutions for its customers.

Affects the estimation of export earnings and the use of the industry model of the private entrepreneurship, which replaces the incentive industry instruments that have long existed in other countries.  

"The main reason for the differences in the calculation of non-residential private entrepreneurs' revenues is that in the description of the services rendered there are often tokens for remitting proceeds to the column "Other services". For example, sometimes older developers provide services "Consulting the team developers of the client in the development of software". Since such services do not have the fact of transferring the program code, this can be considered as advisory services and fall under the heading "Other services". The same applies to such "live chat" spheres as business intelligence, software testing, UX/UI and other areas of work that result in reports or all kinds of recommendations," – says PwC Ukraine expert.

But it doesn’t mean a false or incorrect methodology of the NBU. The latter fully complies with international standards, which in their turn simply do not foresee the existence of entrepreneurs in the form that exists in Ukraine.

PwC uses a different approach in its research and is based on a costly model that was calculated on the basis of data provided directly by IT-companies. Such a method involves all factors of influence and is traditionally considered to be the most appropriate as an industry whose orders were made by an international company as well as an expert community.

Note that each of the approaches to calculating the volumes of IT-service exports has its advantages and disadvantages and in no way excludes or refutes each other. That is, the financial results for 2017 and from the NBU (the previous amount of $ 2.48 billion), and from PwC ($ 3.6 billion) are relevant. Manage official government data or information provided by an international consulting company - a separate choice for everyone. Industry growth in 2017 according to NBU data. What is it really? 

Speaking about the figures and results of the year for the industry, it should be noted that the latest information on the growth of the information technology industry by 7.6%, which is based on preliminary data of the NBU and published by some Ukrainian media, is false. And that's why. 

According to the NBU, the export revenues from computer and information services (which exactly correspond to the IT-industry in the National Bank report) in 2016 amounted to $2 billion (2), of which $ 1.97 billion are computer services. The $2.3 billion number that appeared in the aforementioned publications as a summary for the industry in 2016 includes export revenues from computer, information and telecommunication services.

$2.48 billion - the preliminary result from the NBU in 2017(3) - relates only to revenue from computer services, and data on foreign exchange earnings from other types of services are not yet available. That is, the recent annual growth rate of 7.6% is false, as the publications compared somewhat different in nature – a combination of three categories of services (computer, information, telecom) was compared with only one category (computer services).

If we talk about the growth of the IT-industry in 2017, based on the available data of the NBU and the comparison of the correct categories (computer services, which exports amounted to $1.97 billion and $2.48 billion in 2016 and 2017, respectively, respectively), then this number will be 26%. However, this percentage is not final, as there are no data on revenues from information services that are also an important component for Ukrainian IT.

In general 

It is worth remembering that there is still no single and unanimous approach to calculating the export earnings of the Ukrainian IT-industry. But consensus has been reached in the fact that about 90% of the Ukrainian IT-market participants are working on foreign orders, and on average, between 2011 and 2016, the industry grew by 2.8 times and continuously continues to grow, without lowering the pace. And you will agree, fine.

We hope that with this text, we have succeeded in clearing where and how to count certain figures about the activities of the domestic IT-industry.