The material is prepared based on speeches at the panel session ‘The IT industry in Eurasia – different paths, common challenges?’ Speakers of the panel: Rashad Azizov, Head of the Department of Innovative Development of Information Society and Electronic Governance, Ministry of Transport, Communications and High Technologies of the Republic of Azerbaijan; Ana Chirita, Strategic Projects Director at National Association of ICT Companies (Moldova); Oleg Kondrashov, CEO of EnCata company (Belarus); Matthew Murray, Former US Deputy Assistant Secretary of Commerce (moderator); Juan Navas-Sabater, Lead ICT Specialist, Program Leader, World Bank;  Farid Safarov, Director General, Directorate for Digital Infrastructure on Transport at Ministry of Infrastructure of Ukraine.

The IT sector is viewed by the experts as a way of accelerating the development of values that are essential to creating institutions that will guide market economies, build democracy, and strengthen the rule of law in Eurasian region. The information technology sector is a core enabler of the national economy.

In Ukraine, digital infrastructure is considered a fundamental foundation for all macro and micro economic processes, way to improve the commerce, as well as one of the key instruments of the interaction between the state, the citizens and businesses. The country aims to implement service provider digitalization as a mechanism for simplification of the government-citizen interaction. One of the main challenges in this process is the lack of information from local authorities. In Ukraine, only 30% of the data is available, the rest of the data has never been collected.

Moldova has 99% percent of internet coverage with a population of 3 million people. The country has 23.000 people working in the ICT sector and approximately 2.000 people graduating from the respective faculties of universities and vocational institutions. The country has experienced significant growth, as ten years ago these figures were close to zero in Moldova. Since then, the number if IT services export has doubled every year the IT industry demonstrated turnover worth $300 million at the end of 2018.

In terms of policies and legislation there are several pillars that need to be tackled in order for the IT industry to grow. The first is creating enabling business environment. Under Moldova’s legislation, every company that is operating in the country, benefits a 7% single turnover tax. That resulted in opening of over 500 companies, which are members of the Moldova IT Park. The second challenge is providing the right workforce for the IT industry. Moldova started implementing educational programs for various groups including schoolchildren, university students, startups etc. The first donors for educational programs included the USAID and the government of Sweden, who provided the first $4 million. Today, global and local companies, and the government of Moldova finance the educational programs.

The situation in Azerbaijan is very similar to what is happening in Ukraine in Moldova. There are many programs designed to develop the IT industry, most of them are supported by the state. The main challenge is to bring the private sector closer to establish PPP projects in the IT sector. The country is trying to attract more private funds to the high-tech parks, because most of them are considered to be the state bodies. The second challenge is lack of the synergy between all the state bodies as there is risk that every state body will be building its own small ecosystem. Often, roadmaps are moving from one ministry to another losing time for the real change to be implemented. The aim of digitalization to make all the state bodies close to each other, elaborate common standards of negotiating with the private sector, the common rules of PPP etc.

Due to the World Bank’s analytics on the impact of the digital economy on employment, trade and innovation, there are many externalities that come from developing the IT industry and infrastructure. One of the Bank’s studies shows that a 10% increase in broadband penetration gives at least between 1-1.5% increase in GDP growth, which is a significant result. There’s also impact from internet penetration to export growth. There is also a correlation between ICT jobs created and jobs in the general, the overall economy through the multiplier effect. These results show that investing in digital economy supports economic and social development.

Some of the preliminary results of other studies demonstrate that if the current trend stays the way it is in in Ukraine, the GDP growth may develop. GDP growth attributable to broadband may be just 0.6%, but if there is an accelerated growth of broadband speed, it can reach up to 1.5% impact, which is a significant increase. The same applies to jobs, if Ukraine is able to reach the level were ICT jobs are about 3% of the global employment in the country, then there can be another more than 600.000 jobs created in the economy, that that is a huge impact. The World Bank’s studies prove that the impact of digitalization individually is much smaller than the impact of working across borders through harmonized policies across multiple countries.

According to the World Bank’s studies, the most of the countries in the region are facing similar challenges, which include the need to continue to grow exports. In addition, as the IT sector develops, there is inflation in salaries and in some countries this has reached a level that could become a problem. Moreover, access to VC finance is seen as a problem across most of the countries. There are also issues related to IT skills – the main problem is the lack of qualified candidates, the number of STEM graduates is insufficient compared to Finland or Poland.

The World Bank conducts a number of programs aimed at supporting digital economy, as it has an impact on overall economic development: EU for Digital designed to support broadband development in the Eastern Partnership countries, Digital CASA for Central Asia and South Asia, to name just a few.

The panelists believe several measures are necessary to create the enabling environment for entrepreneurial growth in the IT sector.

• These include fiscal incentives for the industry, which has worked well in Moldova and Belarus.
• Developing strong human capital is also essential, as the industry cannot function without well-trained people. Educational initiatives at schools, vocational education, and entrepreneurial education are seen as effective steps to be taken. Collaboration between universities, including with the universities, located in the EU, could be of great use.
• Government’s role should be supportive – creation of special ecosystem for the IT industry, opening of high-tech parks has already demonstrated positive results. Importantly, the state bodies should have common understanding and share common approach towards private sector, and specifically IT sector. The businesses need predictability, reliability from government. The initiatives to unify the government streams and public streams that deal with innovation make sense, as when in the country’s government, state bodies are competing with each other, when their attitude differs, the private sector cannot operate effectively in such an environment. The state’s task is to make ecosystem players understand and feel that they are dealing with one player. This has a value for introducing essentially stronger institutions over time. Moreover, some state bodies should consider the idea to hire Chief Digital Officers, who will be responsible for the development of digital issues inside the sphere of competence of the state body.
• Creating enabling environment should include educational policies, as well as tax and customs policies. The regulatory framework should be open to competition; it should be liberalized in such a way that promotes more private investment.
• High-speed connectivity needs to be developed in order to enable the selling of the services, especially for those export oriented. This can be done much better through regional approaches than on an individual basis.
• Establishment of regional groups within countries to enable their own research and education networks, designed to exchange knowledge, exchange researchers and participate in joint research programs to developing solutions for the IT industry.
• Deregulation of the process of the launch of startups and introducing tax incentives for the startups.
• Creating legislative basis for investors. Creating good conditions and transparent regulation for new ecosystem players to rise up for angel investors, to develop for venture capital funds.
• Creating the overall rule of law in the countries. The regulations should be streamlined and made clear. The businesses should get approvals instantly and there should be a history of multiple inspections by different organizations and agencies. The firms need to know from the beginning of the year what kind of inspections they are going to receive over the course of the year and not be subject to three different agencies coming to ask for similar documents and checking papers. Instead of paper-based records, everything can be done online. Transition to digital business environment is probably the best the basis of this.
• Fostering intellectual property rights protection as a stimulus to encourage startups develop their products within Eurasian countries.

Important best practices in Eurasian countries demonstrate that the government culture is shifting from being a rent seeker to being a service provider, and that is why the digital tools are becoming so important to their role. The governments are trying to shift away from interference, trying to shift towards smart regulations based on an assessment of the impact of those regulations on business.