Russia's IT industry faces severe brain drain

18 June 2020

The Russian IT industry will experience a severe brain drain in the wake of the coronavirus (COVID-19) pandemic and ensuing economic crisis, unless the government introduces support measures for the sector, major local IT companies warn.

In 2020 to 2021, 10,000 to 15,000 IT professionals could leave Russia as the overall economic downturned caused by the pandemic is likely to hit the sector, Natalia Kasperskaya, chair of the board of the Otechestvenny soft (Local Software) association, and Valentin Makarov, president of Russoft association, said in a letter addressed to Prime Minister Mikhail Mishustin.

The two associations’ heads warned that the industry will face massive wage arrears and layoffs, unless it receives government support just like other industries that have suffered from the pandemic.

“The software development industry is characterised by major skill requirements and a high entry threshold,” reads the letter, quoted by RBC. “It creates complex products that take years to develop, and in case of company bankruptcies, it will be very difficult or impossible to restore operations.”

“Taking into consideration the fact that wages account for about 80% of IT companies’ expenses, a decline in the industry is set to lead to layoffs,” reads the letter further.

In accordance with the letter, the Russian software developing companies’ average revenue declined by nearly 50% in May year on year, while about 10% of companies reported a decline of more than 90%.

Calls for relief measures

The two associations are calling on the government to recognise the IT sector as an industry that has been hit by the coronavirus (COVID-19) pandemic and provide some relief measures for the sector.

Specifically, the IT sector is requesting the introduction of instalment plans for social security payments by IT companies and income tax for their employees for a period from 2020 to 2024 and subsidies for locally developed software products.

As other industries are experiencing a major downturn as a result of the pandemic, they are cutting back on their IT spending, Renat Lashin, executive director of Local Software, was quoted as saying by RBC.

According to Lashin, payment arrears have been reported for about 50% of all IT-related contracts, while between 10% and 20% of all contracts have been terminated, driving IT firms to reduce salaries or reduce staff.

“A brain drain in the IT industry would lead to the country’s decline in competitiveness in crucial innovative segments such as artificial intelligence, information security, automation medical and defence technology,” he said.

A poll conducted by Russoft among Russian IT companies revealed that over 15% have lost at least of 10% of their employees, while 42% have made at least some staff cuts. According to another survey, between 20,000 and 25,000 IT professionals could lose their jobs.

Digital asset law as another hurdle

Meanwhile, another factor that could have a negative impact on the situation in the Russian IT industry is the new law on digital financial actives, anticipated to be adopted later this year.

The current draft law stipulates that digital assets can only be bought in Russia on foreign exchanges and are subject to declaration.

“The adoption of the digital financial asset law in its current state is likely to speed up an exodus of IT professionals,” Yuri Pripachkin, head of the Russian association of cryptocurrency and blockchain, was quoted as saying by RBC. “People won’t see prospects here. For instance, those who are currently using an e-citizenship as a temporary solution will decide that there’s no future for them here and they’ll just leave. We’ll again lose potential Googles, WhatsApps and Telegrams.”

IT associations have already petitioned the communications ministry to be added to the list of industries hit by the pandemic, but so far nothing has come out of their efforts, even though President Vladimir Putin promised to look into the situation in the IT and communications sectors back in May.

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