Total Sales of IT Products & Services Amounted to EUR 1.42 Billion, Says PMR

29 May 2013 • by Natalie Aster

Ukrainian IT market went up only minimally in 2012, experiencing a decline in the second half of the year. Prospects for the sector have remained largely dependent on the overall macroeconomic situation in the country.

Total sales of IT products and services in Ukraine increased by merely 2.9% year on year to UAH 14.6bn (€1.42bn) in 2012, according to the report “IT market in Ukraine 2013” by PMR. The market was performing relatively well in the first six months of last year, however, in H2 2012 the leading market players faced sales stagnation. Macroeconomic uncertainty and expectations of a sharp devaluation of the Ukrainian national currency forced companies to postpone new IT investments. The private sector was buying fewer personal computers, and the usual seasonal sales peaks in August and December were similar or even weaker than in 2011.

Report Details:

IT market in Ukraine 2013
Published: May, 2013
Pages: 134
Price: US$ 2,520.00

Value (UAH bn) and growth rate (%) of IT market in Ukraine, 2007-2013
 

Booming sales growth in 2010 and 2011 helped the Ukrainian IT market return to the 2008 level, when IT spending in the country reached its maximum. But if measured in hard currency, the value of the market is still approximately 25% smaller than four years ago due to the devaluation of the national currency. We also need to mention that average prices of personal computers were declining in the last four years, and this is the other explanation for why market value measured in euros in 2012 is smaller than in 2008. A positive trend of 2011 and 2012 was some recovery of IT investments in the public sector and in the segment of state-owned companies. These investments were partially connected to an upgrade in transport infrastructure and facilities for the UEFA European Football Championship 2012, as well as the financing of the creation of national databases and information systems. Ukrainian system integrators mentioned that IT projects in the public sector in 2012 had broader scope and higher complexity in comparison to government projects in the past.

IT market structure

The structure of the IT market in Ukraine is more relevant for emerging markets, where hardware purchases dominate the IT spending of private users and companies. The penetration of personal computers in the country was approximately 19 to 21% in 2012, and this creates conditions for further stable demand for laptops and desktops (we considered there were 8.5 to 9 million installed personal computers in Ukraine in December last year). The growing popularity of tablet PCs became an additional development driver for hardware sales last year.

The IT services market is steadily developing, but growth is limited. The market depends on new investments in IT by local companies and the government. At the same time, in 2011 and 2012 the demand for external outsourcing, support and maintenance of information systems was quickly growing, and this growth pulled the value of the entire IT services market up. At the moment, outsourcing of support and maintenance is mainly used for expensive and sophisticated IT equipment, but Ukrainian companies are paying more attention to this model because it helps them optimise costs. In 2012, outsourcing services were actively promoted by Ukrainian providers (IT companies started to invest in the development of necessary skills and capabilities), which facilitated the development of this market.

Macroeconomic update

Real quarterly GDP growth (%, y-o-y) in Ukraine, 2010-2012
 

GDP growth in Ukraine in 2010 and 2011 was a result of the recovery in the Ukrainian economy and in export sales after their sharp decline in 2009. The country enacted almost no reforms to build a solid background for further economic development and to protect national business and the public sector from the negative impact of possible changes in foreign markets. As a result, the Ukrainian economy remains highly vulnerable to developments on specific export markets. In 2012, global demand and the prices of black metal declined (value share of black metal in Ukrainian exports was 26.4% in 2012) and GDP in Ukraine grew by only 0.2% year on year last year.

Although GDP in Ukraine showed some minor growth in 2012, its quarterly dynamics present a better understanding of the country’s economic development. The Ukrainian economy was growing in the first six months of 2012, however, in the second half of the year it was already declining. In 2012, the Ukrainian economy also functioned with a growing deficit in the public budget. The deficit increased from UAH 23.6bn in 2011 to UAH 53.4bn in 2012 (the public budget was approximately 24.2% of GDP in 2012). All this forced the Ukrainian government to increase internal borrowing by issuing more treasury bonds. The government was also actively using the hard currency reserves of the National Bank of Ukraine to maintain the stability of the national currency and pay its external liabilities (also, reserves were used to finance the import of Russian gas).

One of the consequences of this policy was an increasing cost of money in the country. The ratio of loans given to companies to GDP declined from 60.4% in December 2011 to 57.9% in December 2012. In the corporate sector, almost 100% of the loans last year were short-term loans provided for a period of less than 12 months. The average interest rate for corporate borrowings in the country increased from 14.9% in January 2012 to 16.6% in December.

The second negative impact was a growing deficit of the current balance of external payments, which already exceeded the peak level of 2008. Since summer 2012, Ukrainian businesses and society have permanently expected a devaluation of the national currency, and this does not facilitate investments in the country.

Development forecasts

“General prospects for the IT industry in Ukraine in 2013 and in the next few years remain uncertain. Ukrainian IT businesses build their plans for the year based on optimistic and pessimistic scenarios, and even those companies that expect the market to grow in 2013 mention that a decline is equally possible. In fact, the development of the Ukrainian IT market in the next three to five years depends entirely on the macroeconomic and political stability of the country. In particular, an open question is if the Ukrainian government has a sufficient budget to continue investing in its e-governance initiatives. Another question is whether the expectations of Ukrainian businesses will be positive enough to launch IT projects postponed in Q4 2012 and Q1 2013. A lot depends on the situation of the export markets and political developments in relations with the EU and Russia” – comments Pawel Olszynka, an ICT market analyst at PMR.

Ukrainian companies and government and home users have a significant organic need for IT products and services. IT market growth could be also facilitated by the implementation of e-government services (in Q1 2013, the Ukrainian government only approved the list of services that will be available online and launched a web portal in testing mode) and the expected elaboration of 3G-UMTS and 4G-LTE operating licenses in the country. The new deadline for granting 3G-UMTS licenses in Ukraine is the end of 2013.

In the beginning of 2013, only 28% of the IT companies PMR interviewed expected annual market growth to be higher than 10%. These companies are usually niche players, for example, system integrators that provide CRM solutions or outsourcing service providers. Ukrainian companies also mentioned that most of their IT budgets in 2013 will be used for support and maintenance of existing IT systems and the main competition for resources will take place between in-house IT departments and providers of outsourcing services.

More information can be found in the report “IT market in Ukraine 2013” by PMR.

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