This chapter analyses the institutional and policy framework implemented by Ukraine at the national and subnational level to support SME digitalisation, looking at 1) the strategic policy approach Ukraine has been developing over the past years, and 2) the different stakeholders involved in digitalisation policies across the Ukrainian territory and co-ordination efforts.
Enhancing Resilience by Boosting Digital Business Transformation in Ukraine
Abstract
The digital transformation is characterised by its nuanced complexity and diverse effects on economies and societies. Its repercussions are cross-cutting and call for a comprehensive and synchronised approach to policymaking. Policy frameworks, exemplified by national digital strategies, emerge as important tools in this context, translating the government’s vision into tangible objectives and measures, thereby fostering coherence and facilitating stakeholder co-ordination (OECD, 2022[1]). This section therefore examines the approach Ukraine has been building in recent years.
It pays attention to both the national and sub-national levels. Ukraine has been enhancing multi-level governance through ambitious reforms (OECD, 2022[2]). With regards to digitalisation, the country collects valuable insights into digital progress, including skills, across the territory. The MDTU has developed two methodologies to this end. The Regional Digital Transformation Index assesses the digital transformation in regions, covering different aspects such as institutional capacity, internet development, online and offline public service provision, digital education, penetration of basic e-services, digital transformation of industry, and overall business climate1. Considering over 80 indicators, the Index has a maximum score of 1. The 2023 edition reveals persisting gaps across the country, with Dnipro, Lviv and Poltava leading the way (0.908, 0.891 and 0.833, respectively), and some other parts of the country showing quite modest results (Kherson 0.316, Zaporizhzhia 0.289 and Sumy 0.178) (see Figure 2.1). Kyiv is close to the national average of 0.632, with a score of 0.684. One reason for these regional differences identified by the MDTU is a lack of human capital to support digital progress in some regions, e.g., Chernivtsi, Kirovohrad, and Chernihiv.
Note: This index is compiled by MDTU and is measured on a scale from 0 to 1, with 0 as the lowest and 1 as the highest score. The figure is based on 2023 data, with the exception of Luhansk Oblast, where data is from 2022. The index does not cover the temporarily occupied territories
Ukraine’s efforts at both centralised and decentralised digital innovation policy were launched several years prior to the full-scale invasion. It gained notoriety when they proved critical to the country’s wartime resilience. The role of digitalisation in efficient state functioning exemplified by Ukraine’s innovative approaches to countering multi-pronged attacks and attempting to provide undisrupted citizen services garnered interest worldwide. Ukraine’s digital economy, most recognised by its booming ICT sector, was a key engine before the war and its resilience was due in part to concerted efforts following the establishment of MDTU. Prior to the creation of the MDTU in 2019, Ukraine’s digital transformation strategy comprised a number of scattered digitalisation projects and lacking a unified multi-stakeholder ecosystem. The country lagged in comparison to neighbouring EU countries due to its later start. In 2018, the World Digital Competitiveness ranking placed Ukraine in 58th place, well below Czechia (33) and Poland (36), and somewhat below the Slovak Republic (50) (IMD, 2021[5]). The MDTU was tasked with transforming the unco-ordinated digitalisation strategy of prior years to a unified approach, with the designated authority to monitor implementation, respond to arising needs, and digitalise operations, processes, and services. By 2021, Ukraine had risen four places, to 54th: its results during the period 2015-2021, when compared with those of OECD countries, present an encouraging trend. The country stands out as one of the few nations that consistently improved its ranking between 2019 and 2021, positioning itself alongside countries such as Czechia, Greece, and Iceland in terms of evolving behaviour2. Despite this encouraging trend, the country still falls far behind the leading OECD countries – Denmark, Sweden, and the United States.
Efforts to develop a digitalisation strategy were guided by EU integration ambitions
Developing a comprehensive and long-term strategy requires setting high-level objectives and corresponding principles to guide a country’s plans across all policy areas (OECD, 2021[6]). In the case of Ukraine, the objective of joining the European Union (EU) has profoundly influenced the country’s national strategies and action plans across all domains.
The development of a digital strategy was deeply intertwined with EU-UA alignment under the 2014 Association Agreement (AA) with the European Union. The country’s first digital strategy, Digital Agenda for Ukraine 2020, was presented in 2016, two years after the signing of the agreement, and developed along the same standards set forth for the digital growth of EU members as a part of the Europe 2020 Strategy (Yanovska et al., 2019[7]). The Digital Agenda was the country’s first framework aimed at endorsing priority areas and basic principles of digitalisation (Yanovska et al., 2019[7]).
Policy efforts continued with additional documents, such as the Strategy on integration into the EU Digital Single Market submitted in 2018 together with an Action Plan. By 2020, Ukraine had made strides in implementing its digitalisation commitments under the AA, with particular progress in e-governance through the provision of public services by the newly established MDTU (Yanovska et al., 2019[7]). Also in 2020, the digital part of the roadmap of integration into the EU Digital Single Market was updated (Ingram and Vora, 2024[8]). A prolongation of monitoring Ukraine’s adherence to EU digital standards under the AA continued through the Digital support for Policy Support to Ukraine 2021-24. Additional support in the form of bilateral projects was provided by the EU and focused on enhancing digitalisation infrastructure, capacity, communication, and interoperability. By 2022 and Ukraine’s submitted request to obtain EU candidate status, the country’s alignment with the EU acquis, particularly with regards to the EU’s telecommunications orbit and the European Electronic Communications Code, improved. (Ingram and Vora, 2024[8]). Ukraine was the first non-EU country on the EU’s “Third Countries Trusted List” and joined the “Digital Europe” programme (2022), as well as the “Connecting Europe Facility” (2023). “Connecting Europe” allows Ukrainian projects to apply for EU funding and encompasses digital infrastructure. However, only projects in hard infrastructure were realised thus far.
However, several setbacks were also identified and remain to be addressed, such are disengagement by state institutions and lack of adoption of relevant legislation critical to aligning with global digital trends. Development strategies at the national, regional, and sectoral levels tended to be mismatched with the available digitalisation opportunities (Ukrainian Institute of the Future, 2020[9]).
Following Russia’s full-scale invasion, the EU stepped up its support for Ukraine’s digitalisation by strengthening its assistance to identified national priorities, the maintenance of digital connectivity and electronic services. Russia’s multipronged attacks against Ukraine included operations targeting internet infrastructure, resulting in connectivity breaches that risked leaving parts of the country in an information vacuum. Providing citizens and the government with internet access was and continues to be a matter of urgency and a national priority (OECD, 2022[10]). In this regard, the EU, too, played a critical role in developing a dedicated strategy, providing the MDTU with technical assistance in developing the National Broadband Strategy (currently under development, with a view to foster, inter alia, the rollout of high-speed fibre-optic networks and 5G technology).
Establishment of the MDTU jumpstarted the prioritisation of digital transformation at national and subnational levels
Ukraine was facing several obstacles in its digital transformation, particularly prior to the establishment of MDTU. These included institutional, infrastructural, ecosystemic, and e-governance related issues, leading to a weak digital ecosystem and a lack of measures to encourage digital and entrepreneurial education, skills development, and significant brain drain. Cognisant of Ukraine’s comparatively poor standing and the need for a structured approach, the government started stepping up its state digitalisation efforts following the establishment of the MDTU in 2019 (Ukrainian Institute of the Future, 2020[9]).
The MDTU was designated by the Cabinet of Ministers as the main body ensuring formation and implementation of state policy with respect to digitalisation, coordinating digital development across the government (Cabinet of Ministers of Ukraine, 2019[11]). The MDTU gained more power in 2023 and became the central executive body in the field of electronic communications and radio frequency spectrum.
The MDTU was deliberately staffed with individuals drawn from the private sector, in the hope that they could bring more innovative ideas to the public administration. Its digital strategy was proposed in the form of 94 digital transformation projects, announced in 2021, to be completed over a three-year period (President of Ukraine Official Website, 2021[12]). The projects were divided into 23 categories including sectoral digitalisation projects, such as health, infrastructure, social policy, and a separate category on general digital transformation focused on electronic identity services, e-democracy, digital economy, digitalisation of education, and broadband access and infrastructure. Projects in 12 of the 23 categories have been launched to date. The Diia website lists all different projects as well as sub-projects, including their launch date, if available. It also shows the planned, tangible outcome of each project. However, this does not provide information on the progress towards these outcomes (Diia, 2023[13]). Projects in the other 11 categories were yet to be started at end 2023 (including, for instance, the categories “Justice” and “Agriculture”).
To involve non-governmental stakeholders in policy design, the MDTU created a public dashboard for monitoring project implementation. The public had access to each of the projects through a portal including project description, deadlines, names of officials responsible for execution, and a rating system (President of Ukraine Official Website, 2021[12]).
Digitalisation at subnational level became a sector of the MDTU digital strategy as well. Here, the Ministry of Infrastructure functions as a key accelerator. In 2020, the government assessed its subnational digitalisation progress when developing the State Strategy for Regional Development for 2021-27. Digitalisation at the regional level was found to be weak and concerted efforts for improvement were required. The MDTU in collaboration with the Ministry of Infrastructure introduced regional Concept Papers on improving digital competence (ITU, 2021[14]). Local governments took to adopting the Concept Papers and implementing their tailored action plans on digitalisation with a focus on developing digital skills, launching social initiatives and information campaigns (ITU, 2021[14]). The main objectives set by the Concept Papers included improving co-ordination between ministries and regional authorities.
Another critical barrier to regional digitalisation was the heavily bureaucratised nature of communication between the central government and local authorities. The ULEAD with Europe Programme, together with the MDTU, played a large part in strategy development to tackle this issue. The programme studied the experience of 125 territorial communities to find solutions in streamlining processes and addressing redundancies or barriers.
Additionally, MDTU’s aforementioned 94 digital transformation projects included a category focused on digital development of communities and territories through priority sectors: e-energy, improving energy efficiency in residential and public buildings; e-community, digital transformation of organisational powers of local government and the administrative structures; e-housing, housing and communal services; and e-urban development, digitisation of urban development norms and construction regulations. The specific projects launched in each of these areas can be consulted via the Diia website3. For instance, within e-urban development, several projects on the digital transformation of waste management have been launched, e.g., an online user account for waste management (launched 30.03.2022). With regards to e-housing, for instance, a unified database that helps assess real estate value was launched on 30.12.2021.
Nevertheless, a comprehensive policy approach to SME digitalisation is still lacking
Concurrent with the Digital Agenda, the government adopted a Concept for the Development of the Digital Economy and Society of Ukraine for 2018-20 (hereinafter “the Concept”) and a related action plan. The strategy presented the basic principles of digital economy development at an accelerated pace by eliminating obstacles that impeded growth and recognising the potential acceleration in GDP growth as a result of digitalisation. The Concept tasked the Ministry of Economic Development and Trade with co-ordinating implementation of the digital economy development plans aimed at creating incentives, motivations, and demand, and at shaping the digitalisation of the economy, public and social spheres, as well as defining existing challenges and tools for the development of digital infrastructure (Cabinet of Minister of Ukraine, 2018[15]). The action plan prioritised legislation on the digital economy and telecommunications, infrastructure and strategy development for broadband services, cashless economy programmes, and a programme focused on digital transformation in the regions. However, information on actual implementation is scarce – a governmental report indicates that 16 out of 34 planned measures were taken by Q4 2019, but there are no publicly available insights on implementation beyond that (Ministry of Economy of Ukraine, 2019[16]).
The National Economic Strategy until 2030 (NES 2030) also identified digitalisation of the economy as a key driver for economic growth. Approved by the Cabinet of Ministers in 2021, the NES 2030 outlined priorities within 20 functional and sectoral areas, with plans for breaking down the strategy into specific projects. The strategy benefitted from multistakeholder participations, including representatives of 21 think tanks, 34 business associations, 37 companies, 40 executive bodies, representatives of civil society and Members of Parliament (EU Neighbours East, 2021[17]). The Secretariat of the Cabinet of Ministers headed the design, implementation, monitoring and evaluation of the NES 2030 and co-ordinated among state institutions involved in digitalisation. Target indicators were set for measurement of implementation, which was to be accessed on an e-portal for each given reporting period. Given the circumstances posed by the war, monitoring of the NES 2030 strategy has been put on hold.
Additional efforts directed at digital innovation specifically are being provided. At the end of 2023, the MDTU presented the “Global Innovation Vision 2030”, a document outlining a vision and action plan to enhance the innovation ecosystem. This is building on the Strategy for Innovation Sector Development (until 2030) and the NES. Like other government documents previously mentioned, the vision foresees making Ukraine “the most digital-friendly country in the world, with a strong digital economy, digitalised and accessible government, and social services that ensure a high standard of living and minimise corruption at all levels”. Priority innovation areas include: defence tech, agritech, audiovisual, medtech, biotech, greentech, AI, Semiconductors, Secure Cyberspace, Fluid Economy, Edtech, and Govtech – with a view to leveraging innovation for resilience, reconstruction and recovery (WinWin, 2023[18]). The strategy notably focuses on high-tech industries and foresees increasing R&D and human capital for innovation. It also aims at stepping up co-operation and co-ordination with the private sector and international partners to this end, notably via the creation of a new co-ordination body, the State Innovation Agency. The Vision is expected to be transformed into a Strategy.
However, while Ukraine has a strong overall policy framework in support of the IT sector, the strategic documents give limited consideration for the digital transformation of SMEs in “traditional” sectors. Existing policy documents support the development of a digital society and economy, but include few provisions targeting non-IT businesses, especially SMEs. For instance, the NES 2030 does highlight the need to foster digital skills development among firms and a shared technology centre to enhance access to digital technologies, but it does not provide for a comprehensive approach to SME digitalisation. The Global Innovation Vision focuses on digital innovation support but does not outline specific measures to foster digitalisation of SMEs. Moreover, current strategies do not have any targets to evaluate progress on SME digitalisation. The previous SME Strategy did not address this issue either.
The government’s most explicit formulation of SME digitalisation strategy is found in the stated strategic goals for SME development of MDTU’s Diia.Business. The latter lists the various strategic directions it intends to pursue, along with existing gaps and plans for improvement. Increasing the penetration of digital tools and strategy among micro and small businesses is also a strategic goal, with the objective of securing the participation of 10% of SMEs in programmes focused on adapting to the digital environment (Diia.Business, 2024[19]). Most important here is the government’s recognition of the significant barriers SMEs face regarding public services. The government set an objective to digitalise 100% of all SME-related public services to reduce barriers for their further development and to incentivise their own digitalisation. Sustaining continued efforts in that direction, the government in late 2023 launched the e-Entrepreneur project, which will combine twelve business services into one, fully online with no more paperwork (EU4Business, 2024[20]).
The Diia.Business strategic policy document states, “Strategic goals will be synchronized with the strategy of small and medium business development” (Diia.Business, n.d.[21]). Furthermore, the document stresses the need for adoption of a comprehensive SME development strategy that entails a digital first approach (Diia.Business, n.d.[21]). Given the dire circumstances facing the country as a result of the war, and the severity of destruction on all levels, work on a new SME development strategy (after completion of the SME Strategy 2020) was severely disrupted by changes in national priorities, as policy makers focused on confronting the immediate emergency and many policy issues that might have been addressed in separate documents were subsumed into larger plans for recovery and reconstruction. Nevertheless, the Ministry of Economy has been developing, in co-operation with the MDTU and EEPO, a draft SME Strategy for 2024-2027 since end 2023, drawing from OECD work, including insights from the OECD SME Policy Index: Eastern Partner countries 2024, and the findings and recommendations outlined in the present report. The draft document foresees measures to promote digital transformation – such as training, resources, and financial incentives, including for e-commerce, digital marketing and the use of digital business tools – as a priority area. This is particularly envisioned to go hand-in-hand with the green transformation. The Strategy should be finalised and adopted in 2024.
Digitalisation continues to be a priority in draft overarching strategies for the recovery, albeit with more limited attention granted to the digital transformation of SMEs. Ukraine had developed an initial recovery and reconstruction blueprint following the full-scale invasion in the form of a Draft National Recovery Plan (DNRP) in 2022. SME support was prioritised primarily through wartime emergency financing, post-war access to funding through credit guarantees for SME loans, and further functional development of Diia.Business as the one-stop-shop for SMEs and repository of SME-related information. Although SME development didn’t have its own dedicated chapter, the plan focused on creating a conducive regulatory environment and financial tools. While the DNRP dedicated an entire thematic chapter to digitalisation, with a notable emphasis on the IT sector, cybersecurity and e-government projects, SME digitalisation support was mentioned primarily in relation to cybersecurity and, at subnational level, to regional development programs rather than as a standalone initiative (National Council for the Recovery of Ukraine from the Consequences of the War, 2022[22]).
Despite its hasty development and ongoing need for revision due to evolving circumstances, the DNRP set a broad reform agenda for the country. The DNRP was superseded by the Ukraine Plan, introduced in March 2024, presenting a comprehensive framework for economic recovery and transformation until 2027. It includes over 150 indicators across 69 reform directions, outlining the cross-cutting priorities of the green transition, digitalisation, and European integration as well as investment needs and opportunities in each of these dimensions. Investment priorities include i) digitalisation of the economy and development of e-government; ii) support for the development of infrastructure and services in cybersecurity; iii) innovation development, involving creating and fostering the growth of technoparks and innovation clusters, as well as incentivising R&D; iv) venture capital and private equity sphere; and v) restoration and development of digital infrastructure.
Note: this table only entails ongoing policy documents.
Source: (Yanovska et al., 2019[7]; Cabinet of Minister of Ukraine, 2018[15]; Cabinet of Ministers of Ukraine, 2021[23]; National Council for the Recovery of Ukraine from the Consequences of the War, 2022[24]; EU-Ukraine Civil Society Platform, 2019[25]; Ministry of Social Policy of Ukraine, 2020[26]; Cabinet of Ministers of Ukraine, 2020[27]; Cabinet of Ministers of Ukraine, 2021[28]; Ukraine Recovery Conference, 2022[29]; Tarasiuk, 2020[30])
Ukraine has expanded its institutional capacity and strengthened stakeholder collaboration for SME digitalisation
The government improved governance co-ordination mechanism at the national and subnational level
A strong digital transformation strategy ensures policy is co-ordinated in an effective and coherent manner where all levels of government are a part of its implementation and monitoring (OECD, 2019[31]). With the establishment of the MDTU, the government sought to ensure more effective steering vis-à-vis a whole-of-government approach from the Ministry down to district administrations. The institutional framework supporting SME digitalisation now benefits from the involvement of different governmental, and non-governmental (international and private) stakeholders and is spread across the national and subnational level.
Allocation of key responsibilities for strategy design, implementation, monitoring, and evaluation varies across OECD countries, but most fall within two approaches. The first includes high-level designation, such as leadership by the head of government, and the second at a ministerial level with responsibility falling on one or several ministers tasked with strategic co-ordination (OECD, 2019[31]). In Ukraine, the designated high official charged with leading the strategy is the Minister of Digital Transformation. Following Russia’s full-scale invasion and increased efforts in the field of digitalisation, Parliament voted to expand the Minister’s duties and reappointed the Minister of Digital Transformation in March 2023 with the status of Deputy Prime Minister for Innovation, Education, Science and Technology, to empower the Minister’s role in government and expand the reach across policy areas.
The government also created the new position of Chief Digital Transformation Officer (CDTO). On the one hand, CDTOs are appointed within ministries (at the level of deputy minister) to act as focal points across layers of government and are tasked with implementing digitalisation policy, including SME digitalisation. National digitalisation policy, such as Diia initiatives, must be implemented by the CDTO (as per a directive from the MDTU). On the other hand, CDTOs are also appointed to engage and develop digitalisation at regional and community level. Provision of digital officers at the national and subnational level is a critical step in improving stakeholder involvement in operational co-ordination of strategy implementation (OECD, 2019[31]). CDTOs first appeared in all ministries in 2020, followed by regional administrations by the end of the same year. Given the cross-cutting nature of digitalisation, CDTOs play a critical role in development and implementation of digitalisation policies. CDTO placement in varying sectors and levels of government facilitates the adjustment of digital strategies to their respective bodies or sectors. The MDTU acts as the single entity where strategic digitalisation efforts are consolidated, while the CDTOs act as the organisational co-ordination mechanism, securing synchronisation of digitalisation policy across multiple levels of government. CDTOs also help ensure digital transformation policy is not bottlenecked at the top tiers of government or concentrated in national bodies but trickles down to all branches and territories. They can report to MDTU, but are primarily working under their individual line managers, e.g., the heads of local governments, and coordinate with their regional community. This approach is also part of Ukraine’s overall efforts to decentralise the government. Both national policy efforts and local level projects and programmes are tracked and reported bi-weekly vis-à-vis a CDTO dashboard across all regions.
The MDTU made a concerted effort in accelerating digitalisation at the subnational level through the aim of expanding CDTO presence, but CDTOs have not yet been appointed at the municipal level. Additionally, further elaboration on CDTO co-operation and support of SME digitalisation support at the local level is required. The MDTU’s goal for subnational level CDTO expansion was in the form of a “25-38-1400” strategy (Bilyk, 2022[32]). Ukraine comprises 27 regions, two of which were temporarily occupied and therefore not under the government’s control, leaving 25 regions. Therefore, the “25” in the of “25-38-1400” goal corresponds to CDTOs at regional level. The 38 represents 38 CDTOs to be represented in Ukraine’s largest cities and the 1,400 the number of CDTOs across municipalities. As of early 2024, there are 18 CDTOs in 19 ministries, 24 CDTOs in the central government, and 13 CDTOs in regional administrations. Data on CDTOs in municipalities are not available and therefore likely not yet implemented. However, the government has expressed its ambitions to install digital leaders in all territorial communities (Government of Ukraine, 2023[33]). Ukraine should continue pursuing expansion of CDTOs in all bodies and levels of governance – including through mayors, who, following the decentralisation reform, are responsible for appointing CDTOs in their cities.
The work of the CDTOs on a local level was to be guided and co-ordinated through a sub-product of the Diia ecosystem, Diia.Digital Community. Diia.Digital Community was intended to be a knowledge management platform to assist CDTOs in regional digitalisation through provision of guidelines, recommendations for implementation of digital tools, and a digital transformation plan, as well as a tool to connect municipalities and communities to implement digitalisation projects. The test version was launched by the MDTU in January 2021 with plans to scale it up one year later. However, work on the platform stalled following Russia’s full-scale invasion. As of June 2023, the portal had not yet been created.
To coordinate digitalisation-related efforts across other government bodies, the Cabinet of Ministers of Ukraine further established the Intersectoral Council on Digital Development, Digital Transformation and Digitalisation. The MDTU provides organisational support to convene this. The Council involves members of the Verkhovna Rada as well as of different ministries. Importantly, it includes the Ministry of Economy, another central player in Ukraine’s SME digitalisation efforts, under which the EEPO functions and whose supervisory board includes the Cabinet of Ministers, the Ministry of Economy, as well as the MDTU.
The government has utilised a multi-stakeholder approach in its large-scale national SME development project: Diia.Business Support Centres
Diia.Business Support Centres (hereinafter simply “Centres”) are the government’s leading effort in a comprehensive approach to SME digitalisation support involving citizens, the private and public sectors, and international players. They constitute the second component of the Diia.Business initiative and were established from 2020 onwards. A strategic direction of Diia Business was increasing support to SMEs at the national and subnational levels; therefore, the establishment of Centres became a large-scale national initiative to meet these ends.
Diia.Business Support Centres exist both virtually and offline, the latter in the form of physical centres located throughout the country. They facilitate co-operation with local NGOs, contribute to strengthening the SME infrastructure, and offer overall support for local SMEs. More specifically, they offer services such as consultations, educational programmes, and a catalogue of business ideas to businesses and entrepreneurs. They also cater to SMEs with little to no digital maturity, offering them consultations, trainings, and other programmes to assist with digitalising businesses (see Chapter 3).
The establishment of new Centres is initiated by local NGOs or proactive individuals, who also lead them. The EEPO does not dictate where Centres are to be based. Instead, the government presents the idea to potential partners or proactive individuals who are eager to open a Centre in their area. This entails strong government collaboration with the private sector, civil society, and international organisations, since it is only with their support that a Centre may be established. The government prepared a 44-page presentation document detailing the benefits of and requirements for establishment of a Centre which was sent out to interested NGOs (Diia.Business, n.d.[34]), and made applying to establish a Centre easily locatable on the Diia Business platform. Centres must be in areas with a large flow of people, and they must meet aesthetic and technical requirements, with detailed safety provisions, and a method to conduct cash-less transactions, among other things.
Funding to establish and operate a Centre does not come from the public budget, instead the initiators are tasked with securing financing from private or other sources. The Centres are either self-funded, funded through donors (e.g., GIZ, USAID), international corporations (e.g., Mastercard, Visa, Nokia) or the private sector (e.g., Avrora, Multimarket, Ajax, Caparol), or through a combination of those. It is however expected that Centres led by NGOs should be sustainable and not dependent on donor funding. To date, 14 Centres were established throughout the country, with a reduction to 12 following the temporary closure of the Kharkiv and Mykolaiv Centres due to the war. The offline nature of the Centres aims to target the segment of the population with less experience of technology or limited access to it. Since business incubators and accelerators are concentrated in large cities, regional Centres may act as a lifeline to the populations residing outside central hubs and avoid overconcentration of services in the metropolises. Additionally, Centres could consider adapting their advice based on the more prevalent industries in their regions, allowing for a more decentralised and less Kyiv-centric approach to SME support.
The EEPO does lead the design, implementation, reporting, and monitoring of the Centres. Once a Centre is approved and created, a “franchise book” is provided outlining clear instructions on all aspects of Centre operation, co-operation, reporting, and personnel training. The franchise book assists the government in ensuring SME support (including digitalisation) falls in line with national SME and digitalisation policies through stated clear objectives and allocation of responsibilities among stakeholders. Monitoring is conducted by the Centre, which is tasked with reporting to a centralised government dashboard. Centres also conduct weekly calls with the EEPO to report on their activities and the government has been known to call into centres posing as a customer requesting services in order to audit Centre adherence to mandatory protocols and quality.
Given the dire situation facing the country, finding an active population or partners ready to invest time and energy in the establishment of a Diia.Business Support Centre may prove difficult. However, the Diia.Business network of Support Centres keeps expanding: the last three centres were opened after the outbreak of Russia’s full-scale invasion – one in Warsaw, Poland (in May 2022), one in Rivne and one in Lutsk (in March 2023), and three requests have been received in Q1 2024 to open new centres in different regions, illustrating continued demand and willingness of regional partners and donor organisations to support such initiatives for SMEs in regions.
The EEPO’s goal is to open a centre in each territory comprising of more than 50 000 people (Diia.Business, n.d.[34]). A city is comprised of approximately 50,000 inhabitants, anything below is a town or rural area (Dijkstra et al., 2020[35]). Given the aforementioned Centre requirement to be located in an area with a large flow of people and the government’s goal of establishing Centres in each territory comprising 50,000+ individuals, Centres will be primarily city-based. This poses a risk to availability of Centre resources and services to more rural communities. The virtual component of the services may be utilised; however, SMEs in towns and villages far from urban centres may not be aware of the existence of such programmes.
Indeed, awareness of support services across the Ukrainian territory is uneven and SMEs in the municipalities often struggle to access relevant services (Kyiv International Institute of Sociology, 2022[36]). For instance, less than 60% of village/small city inhabitants have used e-government services, as compared to approximately 70% in larger cities. Moreover, only 43-50% of village/small city inhabitants use Diia, as compared to 58.5% in large cities (Kyiv International Institute of Sociology, 2022[36]).4
Recognising this, a representative of the Poltava Centre applied to the MDTU for approval to launch a “Diia.Business Bus”. The idea was to travel throughout the region, especially to remote villages, less likely to be as well connected to the administrative centre, and to conduct awareness-raising campaigns about SME support services, education, and trainings Diia.Business offers. Unfortunately, the project was submitted around the time of the full-scale invasion and has not been realised. Greater efforts on information campaigns and awareness raising targeting SMEs in the rural areas, who are also likely to be less digitised, may aid in SME digitalisation development.
With regards to digitalisation-related support, two Digital Innovation Hubs (DIH) have also been established in Ukraine. These are modelled on the example of European Digital Innovation Hubs (EDIH), which have been founded to speed up the digital transformation of SMEs across the EU. Box 2.1 provides detailed insights into how DIHs and EDIHs work. However, these are located in big cities (Kyiv and Lviv) and thus do not take away from the need to reach more remote SMEs.
Digital Innovation Hubs (DIHs) serve as focal points for SMEs and can foster digital innovation and adoption by facilitating collaboration between businesses, research institutions, and government entities and providing access to mentorship, funding, and expertise. European Digital Innovation Hubs (EDIHs) are integrated into the Digital Europe Programme. They receive 50% of their funding from the European Commission and 50% from the respective member state, associated country, or region, or from private sources. They provide services in four main categories: i) access to technical expertise and the opportunity to “test before invest” in new technology, often through the involvement of third-party companies; ii) support to identify financing and investment opportunities; iii) provision of trainings and skill development; and iv) access to the innovation ecosystem and European network to share skills, resources, and knowledge. Through participating in EDIHs, companies gain access to a wealth of European best practices, fostering community, co-operation and knowledge exchange between different stakeholders. Simultaneously, their local presence enables them to engage with enterprises on the ground (e.g., in their native language).
In 2023, the MDTU started the national pre-selection of DIHs in Ukraine, receiving up to EUR 4.5 million support from the Digital Europe Programme. To date, two DIHs exist in Ukraine: the Centre 4.0 of the Igor Sikorsky Kyiv Polytechnic Institute and the Hub Laboratory of the Internet of Things: DIH I4MS, aiming to boost the local innovation ecosystem, involving manufacturers, academia, entrepreneurs, and the public sector. The EDIH network’s impact on the digital maturity of the businesses they support is measured through a custom-developed digital maturity assessment tool. This measures the current level of digitalisation within above customers’ processes (an SME or a Public Sector organisation) and puts forward recommendations for improvement. The digital maturity of SMEs is assessed across six dimensions, including i) digital strategy and investments, ii) digital readiness, iii) human-centric digitalisation, iv) data management and security, v) interoperability, and vi) green digitalisation.
Ukraine’s approach to SME digitalisation benefits from the active involvement of non-governmental actors
Internationally backed programmes and foreign governments contribute significantly to scaling up SME capacity through targeted programmes and financial support
The approach to SME digitalisation should embody views of all ecosystem stakeholders to avoid overlaps and duplication and to best utilise their willingness to support. Currently, internationally backed programmes and private funds are the government’s primary sources for funding SME-related initiatives. Most of the public budget is being reallocated to wartime initiatives and continued reliance on external funding is likely. This dependency is partly justifiable due to the urgent needs posed by the war but increasing public capital availability for SME support will be critical in the long-term.
Leading SME support initiatives and institutions bear the fingerprints of international key players in Ukraine’s SME sector (i.e., USAID, GIZ, EU). The largest donors include USAID and UKAID which are particularly supporting Prozorro5 and Trembita; the Swiss Agency for Development and Cooperation which focuses its efforts on supporting digitalisation of public services and e-democracy tools (e.g., d-DEM for petitions, local budgets, and consultations), as well as digitalisation for municipalities and e-education; and the EU, working towards enhancing administrative capacity (Ingram and Vora, 2024[8])6. The US government is a key partner of the MDTU’s Diia initiative and provided USD 25 million (approx. EUR 23 million) for its initial development with plans to export the app to other governments subsequently attracting funds for the state budget (Bloomberg, 2023[42]). USAID has supported 4700 SMEs through grants and helped secure USD 64 million (EUR 58.4 million) targeting SME support for the government’s investment promotion initiative, Advantage Ukraine (USAID, 2023[43]). The EEPO’s budget in 2021 comprised of EUR 1.3 million, of which EUR 475 000 came from the 2021 State Budget and EUR 754 000 from donors (OECD/EBRD, 2023[44]). Following the full-scale invasion international funding significantly increased with a state budget allocation of EUR 900 000 and donor funding exceeding EUR 1 million. The EU is working closely with the government in SME support, including at the subnational level. In February 2023, the government, in partnership with the EU, launched a digital transformation support programme for Ukrainian municipalities and regions where applicants must come from populations with less than 50,000 people, hromadas, and selected applicants will develop digital transformation projects for piloting (EU Neighbours East, 2023[45]). USAID’s project, Competitive Economy Program (CEP) is one of the most comprehensive SME support initiatives. CEP provides SMEs with opportunities to showcase their products at export fairs nationally and internationally, connects start-ups to Silicon Valley, provides relocation services for SMEs displaced by war, and provides financial support to SMEs in the form of direct grants. CEP also works with the government to identify state regulatory tools impeding business development growth indicating regulations requiring nullification.
Private equity funds are few in Ukraine but those with an active presence have a long history in the country and play an important role in SME support. The Western NIS Enterprise Fund (WNISEF), for example, has worked in Ukraine for over 29 years and co-operates closely with the MDTU on SME-related initiatives, but all financial support for SME programmes is provided by the fund, not the government. Instead, government support appears in the form of information sharing and promotion of WNISEF initiatives on government platforms, such as Horizon Capital, also present in Ukraine for more than 29 years, has played a large role in securing funding for SME development. Following the war, the fund attracted more than USD 250 million (EUR 228.3 million) for SME-related support, the first largest fund for Ukraine and was signed by the president (President of Ukraine Official Website, 2022[46]).
The presence of non-governmental actors in SME support initiatives is beneficial, as it allows broader policy and strategy input and fills a financial gap. Recovery and reconstruction will be a monumental endeavour requiring co-ordination of partners on a grand scale.
The private sector provides additional inputs, but connections between stakeholders could be further enhanced
Finally, Ukraine’s digitalisation ecosystem benefits from the involvement of private sector actors and initiatives. The rapid growth of the IT sector is encouraged by the development of some support infrastructure such as incubators and accelerators – e.g., 1991 Open Data Incubator, or the recently launched digital accelerator “Innovation Ukraine”.
Business associations also contribute to both development and implementation of policy in the fields of SMEs and digitalisation, notably hands-on inputs and projects. The Ukrainian Cluster Alliance (UCA), for instance, unites over 2000 companies that are clustered (60 clusters in total) according to their sectors. These include 1) Engineering, Automation, Metalworking, Machinery, Aerospace, and IT; 2) Agri-Food; 3) Medical; 4) Textile Industries; 5) Construction, Wood, and Furniture; and others (Ukrainian Cluster Alliance, 2023[47]). The different regional clusters further support the Ukrainian Armed Forces and territorial defence. In terms of financial support for businesses, UCA made I4SME/Horizon Europe funding available to SMEs. Moreover, the Alliance is cooperating with regional business clusters, encouraging international networking, developing innovative marketplaces for exporting SMEs (Land4Developers), and reskilling and upskilling initiatives. Beyond this, it has developed its own innovation model and KPIs (Land4Developers, 2020[48]). This foresees a step-by-step development including 1) Value Chain and Support Zones (e.g., cluster associations, regional development centres, etc.); 2) Innovation Zones (e.g., centres of expertise, R&D labs, etc.); 3) Incubation Zones; and 4) Experience Zones. UCA collaborates with donors and international partners, e.g. through Memoranda of Understanding with the European Cluster Alliance with the EU and EIT Manufacturing (since summer 2022) (EIT Manufacturing, 2022[49]). Beyond this, several innovation parks, created by private companies, exist in Ukraine (in addition to the 40 science parks founded by state-funded institutions). The first one, UNIT.City, was established in 2017. Building on this, in 2021, UNIT.Kharkiv was established. These parks include businesses, residential complexes, innovative educational institutions, and R&D centres, amongst others.
However, some business sector representatives argue that, despite stated ambitions, Ukraine only has a limited number of incubation zones (e.g., business angels, incubators, and accelerators, etc.); and experience zones (e.g., test labs, techno parks, etc.) (Land4Developers, 2020[48]). Beyond this, innovation parks and similar institutions face difficultiesith regards to a lack of supportive infrastructure, regulatory obstacles, and weak investment incentives for innovation. Moreover, co-operation between certain stakeholders involved in SME digitalisation policies could be stepped up. While Ukraine benefits from some joint public-private initiatives, several gaps could be addressed. UCA, for instance, has developed many initiatives pursuing similar goals to those of EEPO and use similar measurements of success, but reports a lack of co-operation with the government. This not only leads to bottlenecks in the innovation and digitalisation ecosystem, but also slows down progress towards Industry 5.0 as well as the development of sustainable support instruments and tools for SME (digital) development (Sobolevska, 2023[50]). It risks doubling workload and disregarding potential for progress and innovation. Moving forward, a common framework and a streamlined approach to business digitalisation and innovation, including common KPIs, would elevate the efforts of both the public and the private sector. In this regard, UCA proposes three measures, including 1) the creation of a network of specialised centres to support SME digitalisation; 2) the creation of a network of incubators and accelerators according to their industry/sector; and 3) the creation of a network of independent experts to consult SMEs (Sobolevska, 2023[50]).
Regarding the last suggestion, SMEs in traditional sectors indeed tend to lack integration into existing networks / ecosystems. While the IT sector is flourishing, it has been quite export-oriented so far and has limited contacts with other sectors inside the country (Knuth, Saha and Poluschkin, 2021[51]). Enhanced exchanges between digital firms and businesses in non-IT sectors would be highly beneficial for both sides, e.g., by increasing SMEs’ awareness of market solutions for the digital transformation and encouraging tech companies to develop digital tools addressing other sectors’ needs.
Refine the policy framework to foster the digital transformation of (non-IT) SMEs
The government has made digitalisation a priority and has already developed several national documents and strategies outlining its ambitions for the digital transformation. However, there is a limited number of SME-related provisions in national and subnational documents for the digital transformation, especially regarding the digital transformation of firms in non-IT sectors.
Moving forward, the government could consider the following:
In the short/medium-term, streamline measures for SME digitalisation into one policy document:
This can be done either in an SME Strategy or a National Digital Strategy7. As Ukraine is currently preparing a new national SME strategy, the upcoming document would be a good opportunity to effectively harmonise SME development measures with digitalisation-related provisions. Streamlining digitalisation-related provisions into the SME Strategy can i) enhance the awareness and attention to SME digital policy issues across the government; ii) facilitate the engagement of multiple stakeholders required for broad-based support; and iii) foster co-ordination in strategy development and implementation (OECD, 2022[10]).
To achieve strategic goals, the strategy must state clear objectives and measures, as well as expected outcomes that align with said objectives. It should also be linked to a clear and dedicated budget reflective of Ukraine’s long-term budgetary capacity and recovery needs. Objectives should be cognisant of destruction of infrastructure, relocation of business, reshaping of industries, and the like. Lessons can be drawn from the government’s responses to the COVID-19 pandemic, where SME digitalisation rescue packages, immediately following the start of the crisis, saw substantially greater support than post-crisis recovery plans (OECD, 2021[52]). Similarly, the Ukrainian government cannot lose momentum in providing SME digitalisation support when transitioning from crisis-response mode to long-term recovery. An improved policy strategy can guide sustainable SME development and recovery.
Beyond this, in the medium-/long-term, Ukraine could consider addressing digitalisation, including that of SMEs, in regional development strategies. Given persisting disparities across regions, individuals and firms in Ukraine, SME digitalisation policies should account for regional specificities and varying levels of hardship. As mentioned above, Ukraine has a State Strategy for Regional Development 2021-2027, but this does not include measures fostering the digital transformation of SMEs. Furthermore, in an assessment of the strategy, the Kyiv School of Economics noted that it could better reflect the needs of the regions, arguing that a top-down approach to developing regional development policies is not suitable given limited knowledge about regions and local communities (Kyiv School of Economics, n.d.[53]). Some of Ukraine’s regions have already developed their own development strategies, which also account for digital progress – such as the Cherkasy region, with its Cherkasy Regional Development Strategy 2021-2027 which, however, does not include provisions related to businesses’ digitalisation (Bilyk, 2022[54]). This area could be considered when developing future regional policy documents.
Strengthen the institutional framework for SME digitalisation across levels of governance
The government is committed to improving the institutional framework at national and subnational level. The current approach could be complemented by the following:
In the short- and medium-term, strengthen co-ordination mechanisms to design and implement SME digitalisation policies at all levels, particularly at the local level. As mentioned, CDTOs are critical to driving digital transformation at all levels and sectors of government, improving growth and strategic planning. The government has made strides in creating CDTO positions at the ministerial and regional administration level, but the municipalities remain underrepresented. While CDTO presence in cities should be increased by mayors, the government could further elaborate CDTO roles in SME digitalisation support and ensure close co-operation with other SME digitalisation stakeholders. To this end, regular check-ins between CDTOs, the local population, and businesses (especially SMEs), for instance through public-private meetings, could be organised. Other formats might range from a weekly hotline, an online chat-function, to offline meetings in townhalls or the like. Monitoring of CDTOs should also be ensured, to guarantee the quality of the work and minimise the risk of a fragmented policy approach.
Raise awareness of the benefits of digitalisation and support services, especially in villages and smaller cities. While Diia.Business support centres have proven to be an effective driving force for promoting digitalisation, their establishment primarily in city-level territories may leave SMEs in more rural areas under-served. Apart from fostering further expansion of Centres across the territory, more could be done to promote awareness (and by extension uptake) and conducting outreach campaigns to rural areas about Centre support services, as the use of e-government services is still uneven across the territory. Some efforts are being provided – e.g., the online component (Diia.Business) seeks to foster outreach in remote areas. The government noted in 2021 that not enough people were aware of success stories of SME digitalisation (Bilyk, 2022[54]); since then, a wide range of success stories is being shared on the website in different areas (beyond digitalisation), e.g., “women entrepreneurship” and “impact and investment”. However, uptake of support services could be further encouraged, as the use of e-government services is still disproportionate across the country’s territory. Considering that residents of villages and smaller cities indicate that they primarily learn about e-government services through TV, radio, or social media (Kyiv School of Economics, n.d.[53]), the EEPO could envisage, for instance, collaborating with local TV channels to include advertisement of its (and Diia’s) services and identifying communication media / websites used locally, potentially with support from marketing and social media experts.
In the medium- and long-term, foster peer learning and integrate SMEs in digitalisation networks. As mentioned, SMEs, in Ukraine as elsewhere, lack networks – notably with other SMEs and with Ukraine’s blossoming digitalisation and innovation ecosystem. Encouraging peer learning between SME managers, including from the diaspora, would be an effective way to help them develop skills and learn from each other’s experience, between government-led support programmes. There could be both an offline and online component, e.g., with a “sharing” function on the website to enable SMEs in different regions to share their struggles or ask questions to their peers. “Diia.Exchange” might, for instance, be a suitable name for such initiative. Sweden and Italy offer interesting examples in that regard (Box 2.2). Measures could also be taken to strengthen the network of existing DIHs and sector-specific support centres (e.g., FabLabs, Innovation Parks, innovative clusters, industry-specific incubators and accelerators, etc.).
The Italian “Mentoring for International Growth” offers an online network for SMEs and business experts
Launched in 2018 by the Italian Union of Chambers of Commerce, Industry, Crafts, and Agriculture (Unioncamere), the “Mentoring for International Growth” project aims to support the growth and export of SMEs in Italy through establishing mentoring-relationships between SMEs based in Italy (mentees) and Italian businesses and entrepreneurs abroad (mentors). The project’s goal is to establish an international network between these. A central focus is on supporting SMEs to enter foreign markets and to increase their exports.
Mentors are selected by the Italian Chamber of Commerce which provides a list of trusted entrepreneurs online. Their services are offered on a voluntary basis. Mentees, in turn, must register with the local Chambers of Commerce, and are selected based on a project proposal as well as the availability of suitable mentors. Unioncamere acts as a coordinating point between mentors and mentees.
Once established, mentoring is set to last 8 months, with a minimum of 30 contact hours. As SMEs and mentees are not based in the same countries, most mentoring takes place virtually.
The Swedish “Kickstart Digitalisering” initiative provided in-person opportunities for SMEs to connect with digitalisation experts
Sweden’s “Kickstart Digitalisering” initiative (2017 – 2020) offers a good practice example on how an offline network of Digital Innovation Hubs can support SMEs in the very early stages of their digitalisation journey. Using a peer-based and co-learning approach to identify SMEs’ digital transformation needs, it helped SMEs define, and take, initial steps towards digitalisation.
The initiative was based on a series of free-of-charge workshops over a six-week period, with fees covered by the Swedish Agency for Economic and Regional Growth. The workshops were led by experts, who were selected either by the Swedish Teknikföretagen or the IUCs (Sweden’s Industrial Development Centre), sharing their knowledge on key digitalisation processes with the participating SMEs. At the later stage, workshops also covered more technical skills, such as the use of e-invoices or CRM.
A total of 627 companies participated in the initiative, with the great majority reporting high satisfaction rates with the workshops. Most participating companies had 50 or less employees (75%) and 70% were from the manufacturing sector. The other 30% came from the service sector.
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[9] Ukrainian Institute of the Future (2020), Ukraine 2030E - a Country with a Developed Digital Economy, https://strategy.uifuture.org/kraina-z-rozvinutoyu-cifrovoyu-ekonomikoyu.html#summary.
[43] USAID (2023), One Year Later: Helping Ukraine Win the War and Build Lasting Peace, https://www.usaid.gov/sites/default/files/2023-02/Feb242023_OneYearLater.pdf.
[18] WinWin (2023), Ukrainian Global Innovation Vision, https://winwin.gov.ua/en (accessed on 17 January 2024).
[7] Yanovska, V. et al. (2019), Digital Transformation of the Ukrainian Economy: Digitization and Transformation of Business Models, EDP Sciences, https://www.shs-conferences.org/articles/shsconf/pdf/2019/08/shsconf_NTI-UkrSURT2019_05003.pdf.
← 1. Beyond this, MDTU, together with the East Europe Foundation, has developed a second index, the Territorial Communities Digital Transformation Index. This is a tool for measuring and monitoring the current level of digital transformation of Ukraine’s territories in terms of i) digital economy, ii) development of digital skills, iii) digital infrastructure, iv) digitalisation of public services, and v) digital transformation of local governments (MDTU, n.d.[61]).
← 2. Data is not included for 2022 due to limited reliability and availability of data as a result of Russia’s full-scale invasion.
← 4. Other factors such as age or education also play a great role in this, with younger people being more likely to be digitally educated. In 2023, only 2.1% of 18–29-year-olds reported they had no digital skills, as compared to 17.4% of those aged 60-70. 65.4% of young people (18-29) have above basic digital skills as compared to 12% of 60–70-year-olds. Beyond this, the MDTU found that the digital skills of people without vocational or higher education are lower than those with secondary special education, and especially of those with higher education (Ministry of Digital Transformation of Ukraine, 2023[62]). With regards to the use of e-government services, in 2021, 82.5% of respondents to a survey by the Kyiv International Institute of Sociology among 18-29 years old used at least one e-government service, vs. only 28% of people aged 70 and above (Kyiv International Institute of Sociology, 2023[63]).
← 5. Prozorro was Ukraine’s first major step towards digital government. It was launched in 2015 as an e-procurement system and is designed to create efficiency, transparency, and competitiveness. Now, it provides a central platform for the entire procurement process. According to Ukraine’s government, this has saved approx. USD 1 billion per year in procurement spending (Ingram and Vora, 2024[8]).
← 6. Other donors include: Global Affairs Canada, GIZ, German Federal Foreign Office, OCHA, SIDA, UNDO, UNICEF, and WHO.
← 7. Many OECD countries have such designated strategies outlining a coordinated and holistic approach to their digital ambitions as well as the challenges these imply. The OECD, through its Going Digital Framework, has identified the key policy domains to include in such strategies and compiled an overview of key measures and principles to be considered when developing such document (OECD, 2022[10]).