Poverty Escape Mission: 5 Barriers and 5 Solutions
Oleksiy ZhmerenetskiyCoordinator of COLO Business Club, innovations expert
"As a significant global trend, corporations look for technologies in so-called open innovation platforms with hundreds and thousands of teams offering their innovation solutions. In Ukraine, the Innovation Development Platform may be mentioned here as the example. Such platforms enable talents’ direct contacting of innovation customers, and enable businesses’ minimising of their costs along with a wide choice of technology options."
Republished from LIGA.net
What hampers innovations in Ukraine, and how can we tackle this problem?
In the Kyiv International Economic Forum (KIEF), very interesting figures were mentioned by McKinsey Company, expecting that 60-70% of the GDP growth in the forthcoming years will be connected with the emergence of new industries and technologies, especially those related to processing of large amounts of data, i.e. Big Data industries and technologies.
Since the global downtrend of economic and GDP growth is expected to keep on until 2025, the only way for our country to break away from poverty is to bank on the fast growing and emerging industries.
It requires implementation of innovations everywhere. This is the ‘blue ocean’ sought for by businesses. We have numerous problems; however, solutions are also available.
Barrier 1 – Weak protection of intellectual and material property rights. This is the key preventing factor for investors.
Solution. We should strive for changes locally, rather than try to change the situation countrywide. Special economic areas are the right tool here. It has been long tried out in China, by way of example. As a matter of fact, the Chinese launched development from the areas with a quite different business climate.
Such experience was adopted by Turkey. Special economic areas enable foreign investor’s operation in international law jurisdictions. Special economic areas take advantage of the tax remission system or no taxes, except for the individual’s income tax. It was the way followed by Singapore, attracting international investments by cancellation of all taxes, other than the individual’s income tax, for foreign investors.
Nowadays, all international corporations streamline their taxes through the offshore areas. Even the US giant businesses pay the corporate tax in the amount of pocket change. The key budget revenues are procured by taxes imposed on employee. Since employees’ profits are very high, the treasury revenues from taxes are considerably higher there. It means that special economic areas benefit from human capital assets and simple safe conditions for businesses.
When a decade passes and investors come, the rules can be changed. But, they should be guaranteed first.
Barrier 2 – Talent outflow to other countries. We have the staff deficit everywhere – from sophisticated occupations to professional workers, welders, builders, etc. Our people do not see any opportunities, nor have confidence in the country.
Solution. Inspiring speeches of the country leaders should be supported by the possibilities for the community to apply professional knowledge. Orders from the defence sector, agriculture, industry, and other major sectors having finance, are required. However, the proper conditions have to be procured now, so that businesses could proceed with investments in development and engage talents. For instance, hi-tech jobs, investments in scientific developments, purchases of innovative equipment, etc. shall be exempted from taxes. The cost of modernisation should be reduced. This is the only way to retain talents in Ukraine and motive businesses.
Barrier 3 – Persistently lagging technology education.
Solution. The Government should procure more state orders for hi-tech jobs. The Ministry has to provide for such priority in its programs and guidelines. In addition, the practice of foreign professors engagement to open new departments in educational institutions (like it was done in Japan and other countries when they had no own resources) is worth applying.
International traineeships and trainings of Ukrainian high school teachers and students should be financially supported for the priority hi-tech occupations. Such practice would bring about bridges between global and Ukrainian knowledge pools.
Barrier 4 – Weak start-up environment.
Solution. First of all, the venture capital is required. Presently, venture funds in Ukraine operate, in general, a very small capital. Foreigners are not willing to come, since they fear, and do not understand the market. Consequently, venture investors should be motivated. For example, they may be partly exempted from taxes. A separate law governing the venture capital should be finally passed. The governmental micro-financing of innovation projects at early stages has to be provided for in order to mitigate the risks faced by investors.
Secondly, according to the global practice, start-up environments usually emerge at universities offering strong technology vocations. Everyone knows that Silicon Valley was launched at Stanford University. In Ukraine, several flagship universities (with the optimal surroundings, such as infrastructure, environment, transport, etc.) should be also chosen. If necessary, the required infrastructure, electricity, sewerage, etc. should be procured, and, in addition, a special economic area has to be created. This is exactly the way followed by Poland, for example.
As a significant global trend, corporations look for technologies in so-called open innovation platforms with hundreds and thousands of teams offering their innovation solutions. In Ukraine, the Innovation Development Platform may be mentioned here as the example. Such platforms enable talents’ direct contacting of innovation customers, and enable businesses’ minimising of their costs along with a wide choice of technology options.
Barrier 5 – Lack of trust in relations of the community, business sector and officials.
Solution. The block chain mechanism should be applied as the appropriate tool here. We have a hundred thousand of IT professionals, we have the block-chain community. At the same time, the number of block-chain conferences is growing in Ukraine, since block chains are willing to engage our programmers into their structures in other countries.
The second technology component is the guaranteed implementation of contracts, discharging of obligations, etc. As we can see, implementation of block chains for auctions has been the issue of interest for several years. The land registry is switching to block chains. There is even the program of block chain migration for all databases and registers. In my opinion, the overall penetration of this technology in the country will be only contributed by the lack of trust in relations of our officials, community and business sector.
Since Ukraine has the volatile official currency, the crypto-currency is seen as the alternative to diversify risks and get extra funds for mutual payments bypassing banks.
Germany is a good example here. In Germany, Federal Lands (analogues of our local communities) have the power to issue regional currencies, including such issuances based on block chains. A regional currency enables municipality’s additional support of priority sectors, business and scientific researches. Such funds help community players get a lower loan cost and accelerate the currency turnover. In terms of decentralisation, it would be very helpful for Ukraine. The Germans started without such technology level, while we can start with the hi-tech basis in place.
Push to grow
Our putting pressure on the Government is of great significance to have innovation projects implemented globally. The problem of all governmental documents is that they are placed onto a shelf, and nobody even looks at them. The community and business sector should keep officials on their toes to make them implement the strategies developed, i.e. provide for appropriate funds in the budget, prepare draft decrees and laws so that such strategies could be accomplished.
We have not totally lost our human resources. Ukraine still has the huge technology potential in the agricultural sector and defence industry. We start with a virtually clean slate, which means that we can demonstrate a better growth pace and performance. The low basis will ensure our crouch start and much space for experiments, meaning such benefits for both, major international corporations, and Ukrainian companies.