“It’s a matter of time, how long we can stand it”: due to the innovations of the NBU, the Ukrainian IT sector will lose $ 500 million in a month
From May 21, 2022, the National Bank of Ukraine lifted restrictions on setting the rate at which authorized institutions can sell foreign currency in cash to customers. Previously, the corresponding exchange rate should not deviate from the official rate by more than 10%.
Now everyone who receives currency on cards must sell it at the official fixed rate (UAH 29.25/USD) and buy it at the market rate (approximately UAH 37/USD).
According to information from open sources, in 2021, the number of representatives of the IT industry registered as sole proprietorships amounted to more than 250,000.
Their number was constantly growing until the onset of the war (from 2020 to 2021, the number of sole proprietorships increased by 26%). Considering that a significant part of the industry consists of sole proprietorships that provide services directly to foreign customers and receive foreign currency revenue or cooperate with Ukrainian companies that export their services, their remuneration is attached to a certain foreign currency equivalent.
As a result, now remuneration can be converted into hryvnia only at the NBU rate. And because of the innovations, the FOP will lose a significant part of the funds during foreign exchange transactions.
Ukrainian IT sector suffers losses
Many representatives of the IT industry believe that instead of supporting small and medium-sized businesses and stimulating their development, the NBU is slowly but successfully leading Ukraine to inflation by printing additional hryvnias.
According to the President of the European Association for Software Engineering EASE Vladislav Savchenko, if this all continues, then very soon the dollar will cost Ukrainians 100 UAH or even more. At the same time, the official rate may stay at the level of 29.25, which will only increase losses.
“Our business closed a $2 billion profit in the first quarter. In view of the fact that in February it was ~$800 million, and in March – ~$500 million. Losses in the IT industry are already almost 20%, and with the new currency policy of the NBU, this figure will grow even more. 20% is just the beginning, ” says Vladislav.
At the same time, Stanislav Kozyar, CEO of Rocque System, is sure that such a step by the NBU is just a transitional stage on the return to free exchange rate formation in the country.
“The current situation in Ukraine is not the worst in the world and has a number of other opportunities for growth and stabilization. The National Bank did everything to provide the population with currency and a stable exchange rate. But this macroeconomic solution is provided at the expense of those who bring the currency into the country. And now one of the main sources is IT and foreign exchange contracts of entrepreneurs,” he said.
For PM Digital Founder & CEO Nikita Popov, the decision of the NBU is clear precisely because of the martial law in Ukraine.
But he also considers it another obstacle in doing business: “ Our employees are losing thousands of hryvnias, the business is barely holding on. We rejoice if we go out and zero, but it already happens to be in the red. It’s a matter of time, how much longer we can hold out .”
Now all contracts will be concluded outside of Ukraine
According to Olga Tsymbalyuk, COO AllSTARSIT, such a monetary policy of the NBU threatens to drop exports in the IT sector.
“Until the end of 2022, a catastrophic decrease in foreign exchange earnings can be expected. To reduce risks, IT companies will open in Europe, increasing the outflow of currency from Ukraine. Is it good for the market? Of course not. Today, Ukraine cannot afford such a development of events,” Olga believes.
This opinion is shared by other residents of the “European Association for Software Engineering” EASE .
Founder & CEO PM Partner Maxim Prokhorov believes that in the future all contracts will be concluded outside of Ukraine, therefore, foreign exchange earnings will decrease significantly.
“This is nothing but secondary taxation . All currency under contracts enters the legal entity by bank transfer. And it is clear that it will be withdrawn in cash. So the mechanics are obvious – 30% are lost on every dollar, ”says Maxim.
According to Nikita Popov, capital will no longer be brought into Ukraine.
“IT and other service businesses working with the Western market will simply stop bringing capital here, because we are losing it out of the blue and soon many will leave the market temporarily or permanently,” he said.
The NBU should stimulate the flow of foreign currency into the country, and not vice versa
Representatives of the IT sector consider the NBU’s innovation to be double taxation, which does not benefit business at all.
As a result, companies will be forced to reduce the payment of foreign currency to Ukraine, and IT professionals will avoid receiving payments for services in Ukraine.
Liubov Mochalova, CEO of the European Software Engineering Association EASE, believes that administrative methods have never led to the economic growth of small and medium-sized businesses, which means that the NBU decision is neither popular nor effective in supporting and developing businesses.
According to Olga Tsymbalyuk, if the NBU does not change its rhetoric and return to an unsecured exchange rate, businesses will not see $500 million in foreign exchange earnings next month.
Stanislav Kozyar believes that the NBU policy should be aimed at stimulating foreign exchange earnings and internal development of enterprises.
“Even in the medium term, this will lead to an even greater outflow of IT specialists and the closure of many IT companies, while foreign exchange earnings in the country will decrease as much as possible. They will look for opportunities in other countries, including opening accounts and crediting them with foreign exchange earnings. Now it looks like another significant blow to the economy, ” he says.
In his opinion, the official rate of the NBU should be the main reference point for the country and the basis according to which the regulator supports banks.
For banks and financial institutions, a single rate must be introduced, higher than the official one. In addition, allow non-commercial payments (transfers between individuals and from businesses to individuals) in currency.
To stabilize, the market must be saturated with currency as a result of free circulation.
According to Maxim Prokhorov, such a decision by the NBU could be understood and even supported if the funds lost on foreign exchange transactions were a military levy , which would hasten Ukraine’s victory in the war.
Representatives of the Ukrainian IT industry recognize that the current monetary policy of the NBU is a threat to small and medium-sized businesses and the entire IT sector as a whole. If Ukraine does not return to an unfixed rate, export industries will continue to lose income and, as a result, will leave the Ukrainian market.
Material: Elena Pilipchak