Crisis, yet stable. How is Ukraine's IT sector faring in the third year of the prolonged war?

The Ukrainian IT sector is increasingly sinking into crisis. Research and statistics show a consistent decline in service exports, a reduction in the number of vacancies, and a slowdown in industry growth quarter after quarter.

However, not all segments are experiencing the crisis in the same way. Product companies, which create their own solutions, have maintained their positions and, for the first time in history, surpassed the service sector in terms of the number of hired specialists. Nevertheless, even in this segment, significant reductions occurred by the end of 2024.

The labor market is shrinking, although the pace of decline has slowed. About 20% of specialists work abroad, and companies are actively expanding their offices outside Ukraine, particularly in Poland.

Despite everything, the Ukrainian startup ecosystem exhibits positive dynamics, rising in global rankings. Additionally, a new defense sector is forming with a hundred startups that could drive development. Although the uncertainty that began in February 2022 still weighs heavily on the industry, the efforts of companies and the government provide hope for adaptation and stabilization.

A persistent sense of uncertainty remains: there is a risk that negative trends will continue into 2025. The uncertainty that emerged in February 2022 is increasingly impacting the Ukrainian IT sector.

Second Year of Decline

In 2023, the export of the Ukrainian IT sector not only did not grow, but fell by 8.5% to $6.7 billion. The situation did not improve in 2024. The industry continued to grapple with challenges dictated by military realities.

The first two quarters of 2024 were worse than the same period in 2023. Companies exported services worth $3.21 billion, which is $170 million less than in the same period of 2023, and 14.3% ($535 million) less than in 2022.

This trend continued into the third quarter, which turned out to be the worst for the industry during the large-scale war. According to optimistic scenarios, a 4% decline in exports is expected in 2024, while a pessimistic scenario predicts a 6% decline (to $6.3-6.45 billion).

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Even under such conditions, the share of computer services remains the second largest category of Ukrainian exports after the agrarian sector, accounting for 38%. In geographical distribution, the highest revenues for Ukrainian IT came from the USA, UK, Malta, Cyprus, Israel, Switzerland, and Germany. The United States remains the leader of the year, providing about $2.4 billion.

Over the past two years, interviewees of EP have assessed the main reasons for the decline differently: sometimes emphasizing the impact of the war, other times focusing on the recession in the tech sector. In 2024, the determining factor was indeed the factor of the large war.

"The main challenges are the mobilization of key specialists, limited opportunities for booking and leaving the country, missile attacks, and increased tax burden," explains Stepan Veselovsky, CEO of the Lviv IT cluster.

For foreign clients, Ukraine has been in the "red zone" of risk for the third year. It doesn't matter where the team is located: in Lviv or Kharkiv, as under equal conditions, the choice in favor of Ukraine is made rarely.

"The main challenge was to convince clients to start projects in Ukraine, to make the risks of doing business in wartime imperceptible to them," says Yaroslav Lubinets, co-founder and chairman of the board of SoftServe, to EP.

Moreover, clients are increasingly paying attention not only to the war but also to their financial difficulties, opting for companies from other countries, particularly from India. The situation is further complicated by the internal unpredictability of state regulation.

"Take the sudden cessation of e-booking: businesses understand the importance of minimizing abuses and inspections, but it's crucial that these are conducted without halting the ability to book key specialists. The increase in tax burden has created additional challenges for businesses," adds Veselovsky.

Talent Market

Over the past two years, optimism in the IT market has diminished. In 2023, the total number of employees in the 50 largest companies decreased by 10,700 people. Although the situation improved somewhat in 2024, the overall trend did not change. Thus, in the first half of 2024, layoffs decreased to 2.9%.

The main reasons for the layoffs are the legalization of workers abroad (Ukrainians who managed to leave the country are being registered in foreign offices of companies), a decrease in the number of projects, and the dismissal of specialists who were on the bench.

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According to the IT Research Ukraine 2024 study, 51% of company leaders plan to expand their representations, and more than a third of them intend to open offices abroad. Poland remains the most popular choice for this purpose. 6% of leaders reported plans to close their offices in Ukraine.

In such circumstances, the rules in the market have started to be dictated by employers. For most IT specialists, the situation looks like this: it's possible to find a job, but it's difficult.

Product companies are leading in hiring workers, but they usually do not seek programmers. Due to the shortage of personnel, filling positions for marketers and analysts is becoming more challenging. The search for non-tech specialists resembles the recent struggle for programmers. In December, 4,584 vacancies were posted on DOU - 573 fewer than in November. This is one of the lowest figures for the year, which is explained by the approach of the holidays.

In the second half of 2024, the market showed growth: +9% in vacancies, with the most significant increase among remote (+12%) and international offers (+26%). In Lviv, the dynamics are also positive (+3%), while in other cities, particularly Dnipro and Odesa, a decline was recorded. The number of vacancies for specialists without experience increased the most (+33%), as well as for specialists with more than five years of experience (+11%).

The decrease in activity is noticeable even among candidates: responses to vacancies decreased by 2,700 compared to November. The average number of responses to a vacancy in December dropped to 24.6 - the lowest level in two years.

Resilience of Product Companies

Despite the overall negative trends, the situation in the industry is heterogeneous. For the second consecutive year, product players among IT companies show the highest growth.

According to DOU data, in the first half of 2024, 18 companies showed growth in the number of specialists: nine product, five hybrid, three service, and one outstaffing company. The largest growth was seen at Ajax Systems (417), Genesis and SKELAR (300 each), indicating a revival in the industry.

Product IT companies have been a model of stability. They create their own solutions, which they sell directly to clients. This provides steady income and greater autonomy even amid a global economic recession or war. In 2024, this trend became particularly noticeable: for the first time, the number of specialists in product companies nearly equaled that in the service sector.