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Services

Ukraine’s service industry is one of the most promising branches of the country’s economy today. More than 40% of the country’s workforce is in this sector.

The service industry’s share of GDP domestically is over 50%. Over 2004-2010, this sector demonstrated an impressive pace of growth and strong profit margins. Annual turnover is currently $20bn and growth has been averaging 25% per year, with revenues rising an average of $1.8bn monthly. Growing volumes of services rendered can be seen across all regions in Ukraine, mainly a result of the steady rise in real disposable incomes.

In Ukraine, these high indicators are traditionally driven by transport, post and telecommunication, which account for nearly 60% of annual volumes of all services: nearly 30% comes from transport and the remaining 30% from post and telecommunication. Relatively new segments of the service sector, such as real estate and legal services, already account for nearly 25%.

In addition, transport and communications services account for 25–27% of added value for the entire industry. Trade and medicine, which have far lower turnover than transport services, account for 33% of added value in this sphere. The remaining 40–45% of profit is provided by property services, education, consulting and so on.

The share of services provided to individuals constitutes 31% of all services rendered. The most popular among such services are technical service and repairs (93%), education (89%), air transport (85.0%), photographic services (82.4%), various personal services (76.5%), hotels and lodging (74.1%).

Services that are rendered abroad are a major part of Ukraine’s exports and a source of commercial capital in the country. Today, the export of services is about 10% of GDP.

The main buyers of Ukrainian services in 2010 were Russia, the United Kingdom, Cyprus, the US, Germany, Switzerland, Belgium, Turkey and Canada. The main sellers of services to Ukraine were Cyprus, the United Kingdom, Russia, Germany, the US, France, Austria, Switzerland, Turkey, Sweden, China and Poland.

Ukraine’s main competitive advantages in services, especially on international markets, are inexpensive skilled labor and a convenient location. Ukraine’s geographic advantage is mainly important for transport networks, such as highways, railways, ports, airlines, and oil and gas pipelines.

Ukraine renders transport services abroad mostly, while actively importing insurance, financial and advertising services. The most attractive areas for foreign investors are wholesale trade and brokering, and property services. The share of foreign capital in these segments is the highest among services.

Among the most popular services exported from Ukraine are transport (69.5%) and various business, professional and technical services (12.4%). The share of transport services among services imported to Ukraine is 20.7%, government services are 14.8%, professional and technical services 18.4%, financial services 13.7%, and royalties and licenses 6%.

Exports of air transport services dropped by 14% in 2010, to $1.06bn and financial services fell 17.6% but pipeline transit services grew to $4.3bn or 68% up from 2009. Computer services expanded by 18.1%, royalties by 275%, and architectural services by 31%. The import of financial services declined by 15%, computer services by 5%, business, and professional and other technical services by 8%. The import and export of insurance services both rose in 2010.

Ukraine has all the fundamentals in place for turnover in the service industry to continue to pick up pace in 2011-2012. This will be spurred in particular by the European Football Championships that are to take place in Ukraine in 2012. The main segments that are expected to grow in this period include banking, retail, healthcare, and tourism—both resorts and tour operators who handle international travel for Ukrainian consumers. These are services regularly used by the middle class. Other promising segments include business-to-business (B2B) services such as consulting and auditing and IT services and communications, which constitute nearly a third of all services in developed countries.

Ukraine is the world’s fifth biggest exporter of IT services and has the highest outsourcing market volume in Europe. The country’s IT sector is showing the fastest-growing rates and is expected to exceed $1 billion in value in 2011.

According to the annual review of IT outsourcing markets in 16 Central and Eastern European countries conducted by the CEE Outsourcing Association (CEEOA), Ukraine’s exports of computer software will exceed $1 billion in 2011, amounting to 10% of the total figure for the CEE region.

Ukraine is the world’s fifth biggest IT services exporter and features the highest outsourcing market in Europe, estimated at $800mn in 2010. The country continues to hold the 4th position in the world for the number of IT specialists, following the US, India and Russia.

Annual turnover in the telecoms sector shows that it continues to lead this branch. The highest growth was in mobile communications, radio and television broadcasting and radio communication, and computer communication.

The mobile sector remains the most interesting segment in Ukraine’s telecommunications market. The total number of mobile subscribers in the middle of 2011 was 55 million.

Internet access has risen dramatically in Ukraine in less than a decade. Today, nearly 11 million Ukrainians use internet services daily. The number of second and third-level domain names registered under Ukraine’s “.ua” internet domain was 547,775 in March 2011.

Major international telecommunications companies are already represented in Ukraine. A number of strong domestic companies are also operating, such as Miratech, SoftLine, SoftServe, Infopulse, TelesensKSCL Ukraine, and TESSART.

Experts expect this growth to go in two directions simultaneously:

• rising sales;

• expanding product lines, especially new services for clients, special terms and guarantees. But this is something that only a few majors will be able to do.

The development of fiber-optic communications lines with the introduction of CWDM and DWDM technologies and the growth in broadband access networks remain among the highest priority areas in the expansion of telecoms networks.

Ukraine has unique human resources suitable for the development of telecoms services. The country has its own history of developing the basic foundations of an information society. This includes a world-renowned cybernetics school, a concept and program for IT development that were drafted already at the beginning of the 1990s, the professional development of a wide range of ITC, math and cybernetics specialists, a variety of ICT manufacturing facilities, a broad-based IT-related regulatory and legislative base, and a slew of national information and analysis systems.

Every year, Ukraine’s colleges, institutes and universities graduate 50,000 IT specialists, including mathematicians. The country is fourth in the world after the US with 194,000, India with 145,000, and Russia with 68,000 certified programmers. More than 300 IT companies operate in Ukraine today, mostly in offshore software development. 30% have been doing business in this market for more than 10 years. In addition, there are nearly 250 small companies and independent programmer groups, whose share of the market is estimated at 40%. The average salary of factory workers who are in the IT product and services export business ranges from $300 to $1,200 in Ukraine, while managers make between $800 and $2,000. These companies are mainly oriented on developing vertical decision-making in healthcare, manufacturing and commercial services.

All this confirms that Ukraine has the necessary conditions for an optimistic assessment of the telecoms sector’s future. Experts emphasize that the market is still at the active formation phase and market leaders are aware of the need to consolidate forces in Ukraine and cooperate with international partners. The massive brain-drain of IT specialists abroad has nearly stopped. Many are even returning and launching their own businesses in Ukraine. The main competitors in the battle for market share with Ukrainian developers are India, Russia, Romania, China and Belarus.

Telecoms market players predict that Ukraine’s IT market will continue to grow in 2011.