Phillip Hatch: Should reforms succeed, “Ukraine could export $275 billion in technology-related goods and services”
Phillip J. Hatch, a global strategy, workforce and economic development executive, recently completed an exhaustive research project exploring the Ukrainian economy. This study captures the economic impact of the current crisis as well as the risks associated with ongoing corruption and other issues.
A significant part of this study is devoted to Ukraine’s technology-related exports. Considering Ukraine’s population, education rate, and technical and scientific skill density, Hatch believes that the country’s exports of IT goods and services could grow more than 30-fold from its current five-year peak total value of $7.76 billion, should corruption be eradicated and IP rights better protected.
This analysis has been published “IT Ukraine From A to Z,” an industry report just published by Ukraine Digital News. Below are the main excerpts.
Current technology-related exports
Analysis of Ukraine’s technology-related exports reveals the following:
- High-tech goods exports (1) – five-year peak total value: $2.6 billion; exports per capita: $57.52.
- ICT goods exports (2) – five-year peak total value: $706 million; exports per capita: $15.49.
- ICT service exports (3) – five-year peak total value: $5.02 billion; exports per capita: $110.38.
- Total technology goods and service exports – five-year peak total value: $7.76 billion; exports per capita: $170.54.
While Ukraine’s current technology exports are worth several billion dollars per year, technology exports represent Ukraine’s single worst performing industry across the entire country.
Ukraine’s technology exports per capita rate of $170.54 is:
- 10.6 times lower than the Central and Eastern European regional average of $1,808;
- 21 times lower than the European Union average of $3,568;
- 29 time lower than Czech Republic’s rate of $4,965
Industry target: $275 billion
To help us gauge economic potential, we developed a series of models that compare key economic indicators on a per capita basis against a series of aggregated countries. Running Ukraine’s technology exports through our defined models, we have the following theoretical market values:
After careful consideration of all of the above models, we have set a target technology export value for Ukraine at $275 billion per annum.
This amount would put Ukraine near the top regionally in regards to both ICT goods and high-tech goods exports per capita. This target would place Ukraine at the top regionally (slightly ahead of Estonia) in regards to ICT service exports per capita.
In fact, Ukraine’s current technology exports per capita score ranks Ukraine between Surinam and Guyana.
The total target value of $275 billion per annum is aggressive, but completely possible. This would place Ukraine (rightfully so) among global technology leaders such as Korea, Japan and United Kingdom.
Achieving this target would completely transform the Ukrainian economy. If Ukraine were to achieve this target while leaving all other exports flat, Ukraine’s GDP market price would likely exceed $700 billion.
This is Ukraine’s greatest opportunity for growth. Our modeling indicates that no other industry or export has the same room for growth. This is Ukraine’s leading opportunity for achieving a rank of a true global economic leader.
Risk: Corruption and IP protection
By far, Ukraine’s greatest threat to achieving this target is its ongoing problem with corruption and IP protection. In Transparency International’s 2015 corruption perceptions index (CPI), Ukraine ranked low with a score of 27 (up from Ukraine’s 2014 score of 26). This places Ukraine within the bottom CPI quintile globally.
There is a massive and absolute correlation between a country’s CPI and their ability to achieve success with technology-related exports.
In the above chart, we compare both high tech goods exports and ICT goods exports per capita of Ukraine’s peer countries in the bottom CPI quintile against the average high tech goods and ICT goods exports per capita of countries within the top CPI quintile.
The pattern is obvious. No country has ever successfully developed a high-value technology goods exports industry without first resolving ongoing corruption and IP protection issues – regardless of trade agreements, trade zones development, state development programs, etc.
However, a few countries have demonstrated an ability to achieve high levels of technology related service exports.
This ability has been exemplified by Lebanon.
This country, with:
- a tertiary education rate that is 62% of Ukraine’s;
- a nearly identical corruption index score;
- a massive ongoing conflict within neighboring countries;
- and recent military conflicts in the country;
posted 5-year peak values in 2014 for several economic indicators demonstrating higher performance than Ukraine regardless of the above challenges.
If Ukraine were to match Lebanon’s ICT service exports per capita rate of $3,224, its total ICT service exports would be $97.7 billion – an increase of over $92.7 billion from Ukraine’s current ICT service exports levels.
There is an immediate opportunity for Ukraine to grow.
Achieving our target of $275 billion in technology goods and service exports would place Ukraine within the top technology countries globally. This is an achievable target although aggressive.
Read how to achieve this ambitious target in UADN’s report “IT Ukraine From A to Z” (free download).
- High tech goods are products that require a great deal of R&D, intellectual property and a highly educated workforce to define and manufacture. Examples include aerospace, pharmaceuticals, and scientific instruments. This category excludes ICT hard goods that are included in ICT goods exports.
- This category includes telecommunications, audio and video, computer and related equipment; electronic components; and other information and communication technology goods.
- This category includes computer and communications services (telecommunications and postal and courier services) and information services (computer data and news-related service transactions). The indicated amount corresponds to data captured automatically by the IMF and the World Bank, which track and code all cross-border transactions. This indicator includes more than just IT outsourcing (e.g. courier services). IT outsourcing service exports alone are not tracked specifically in the IMF and World Bank system. Their true value is lower than that of the ICT service exports, but arguably higher than the common $2.5 billion estimate — which is based on potentially underreported data from IT firms.