Editor’s Note: Our 2019 Doing Business in Ukraine magazine is out. Get a PDF version online or pick up a copy in Kyiv.
Waiting for his flight at the airport in Frankfurt, Estonian Ragnar Saas decided it was high time to start a business. He took his laptop out, filled out several forms, signed them, and paid a fee — all online. It took him 15 minutes to become a businessman.
Saas could do that because his native Estonia provides 99 percent of its government services online. That includes voting, paying taxes, signing documents and buying property.
“Estonia’s e-government allows me to be super effective,” Saas told the Kyiv Post. “Visiting a government office seems so very strange to me, as everything can be done on the internet.”
He makes use of e-government “almost every week” and can hardly imagine his life without it.
And it’s not just convenient. On the national level, digital signature — the ability to sign official documents electronically — saves for Estonia $600 million a year, the equivalent of 2 percent of the country’s gross domestic product.
“E-gov is the reason I am such a big patriot of my country,” Saas said. “Many Estonians like me can’t imagine the world without it. Filling (out) physical papers seems so historic.”
For Ukraine, however, that isn’t history — it’s everyday life. Most Ukrainians still go to a government office to start a company, to a polling place to vote in elections, or to a bank branch to pay taxes. They give officials paper documents and receive paper documents in return.
By not using e-government, Ukraine is wasting both its financial resources on paper and its people’s precious time. More importantly, it is holding back development of its small and medium-sized businesses and failing to harness the full potential of its 172,000 tech specialists, experts say.
‘Spravka culture’
E-government is not an entirely foreign concept to Ukraine. For example, Ukrainians can use the internet to register a business. But only 20,000 out of 1.8 million local entrepreneurs have done that. The reasons are, in part, cultural.
Above all, it’s a trust issue, says Ivar Tallo, a former Estonian lawmaker who played a key role in introducing e-government in Estonia back in 2001; Tallo has also co-founded the e-Governance Academy and advised many governments — including of Moldova, Ukraine, Northern Cyprus, and Palestine — to adopt Estonian e-gov experience.
Ukraine, in his view, didn’t have a systematic approach to implanting e-government. As a result, amateurs and e-government evangelists — not the Ukrainian government itself — set up electronic services. If officials had rolled them out, people would have trusted them more, he believes.
On top of that, Ukraine still suffers from low computer literacy. Many Ukrainians don’t know how to use a computer or mobile phone on an advanced level, Tallo added. Estonia overcame this challenge back in 1996, when it launched Tiigrihüpe, or Tiger Leap, a national program to build computer and internet infrastructure and educate the public.
Because of that “you still have the ‘spravka culture’” in Ukraine, Tallo said, referring to a generic type of paper document that is usually requested by officials in the post-Soviet countries. “And there’s no need for paper documents in the modern world anymore.”
Leap of faith
Both Estonia and Ukraine broke free from the Soviet Union in 1991, but they have taken different paths since then. When Ukraine was signing the Russian–Ukrainian Friendship Treaty in 1991, Estonia watched Finland introduce plastic identity cards with electronic chips.
These smart cards would replace passports, transport tickets, pension and social benefits cards, national health insurance cards and medical and tax records. More importantly for developing e-government, the built-in electronic chips allowed the government to verify a citizen’s identity online.
Many Estonians were thrilled by this Finnish idea, according to Tallo. Some did oppose it, however: the cards were expensive, and there were no services yet that could make use of them.
“That was a chicken and egg situation,” Tallo said.
The Estonian government eventually took a risk and introduced ID-cards in 2001, hoping that online services would follow. Tallo calls it “a leap of faith.”
“Quite an expensive one,” he adds.
Estonia both forced and incentivized people to get those smart cards. It made obtaining them mandatory, but also reduced the fee for a card from $20 to $10. A paper passport, in turn, became more expensive, from $3 to $10.
“We subsidized the way from passports to cards,” Tallo said.
A person uses a smart ID card to verify herself on the internet to use government electronic services. Estonia introduced smart ID cards in 2001, and 99 percent of the population has these ID cards today. (e-estonia.com)
Today almost every one of the 1.3 million Estonians holds an ID card, and 99 percent of government services are available online. This has helped Estonia take 16th place in the E-Government Development Index compiled by the United Nations. Ukraine lags behind at 82nd.
This electronic approach has also made it easy to run business in Estonia, rocketing the country to 16th place in the Ease of Doing Business ranking by the World Bank, where Ukraine remains in the 71st spot.
Ukraine did try to follow this model: in 2016, it issued ID-cards. But Ukrainians couldn’t simply exchange a paper passport for this ID — the government issued smart cards only to those who lost or damaged their paper passports or to children who reached the minimum legal age to acquire a passport.
Only two years later, in the spring of 2018, Ukraine abolished paper passports for good and started issuing ID-cards. Anyone can now get one. In 2018, 1.3 million Ukrainians (out of 44 million) received smart ID-cards, according to the State Migration Service.
A person takes a photo of an ‘e-Estonia’ neon sign. Having electronic government services is not just convenient. On the national level, digital signature — the ability to sign official documents electronically — saves Estonia $600 million a year. (e-estonia.com) ((c)Jelena Rudi)
Estonian experience
After such a success with the e-government at the domestic level, Estonia decided to share its e-experience with other nations: it introduced electronic residency, which anyone can obtain.
Being an e-resident means one receives an Estonian smart card and, thus, can use all the e-government services remotely, including business registration and the services of European Union banks. But the card holder won’t have a residency permit or a visa and will have to pay a flat 20-percent Estonian tax rate.
Today, 55,000 people have already obtained Estonian e-residency, and 3,500 of them are Ukrainians. Only Russians and Finns slightly outpace them.
Ott Vatter, the director of the e-Residency program, told the Kyiv Post that opening its “digital borders” helps Estonia generate additional revenues and connect local companies with international ones.
According to him, e-residents have so far paid over 10 million euros to Estonia in direct taxation alone, which is “much more” than Estonian taxpayers pay for the e-Residency program. The country may be gaining even more from the business connections the program creates, the executive added.
But e-residency doesn’t only help Estonia. It is a win-win for everyone, Vatter said. It has won popularity with Ukrainians, in particular, because “Ukraine is among (the) worst affected by location-based restrictions on a wide variety of online tools and services.”
For example, online payment system PayPal functions only partially in Ukraine. Local users can’t receive money on their PayPal accounts. Meanwhile, U.S. businesses widely use this service: marketplaces like Amazon, eBay, Etsy, Craftsy, Ravelry, and many others request PayPal as the only payment option. Many Ukrainian freelance workers, who want to sell handmade goods through these stores, have to rely on shady intermediaries or look for other loopholes.
“These location-based restrictions are depriving an entire country’s economy of additional income that could be generated from abroad,” Vatter said. “This explains why Ukraine is e-residency’s top market: the program helps unleash their entrepreneurial potential.”
Electronic corruption
Using e-residency, however, is a short-term solution for Ukrainians, according to Vatter. If the people here want to change the country for better — to uproot corruption and make Ukraine more democratic and wealthy — they should embrace e-government, he said.
Ukraine is working on that: apart from ID cards, the country has created a separate body that controls the development of e-services, the State e-Government Agency. It appears to be very ambitious as it publishes roadmaps of e-services it will launch and talks up how it will help fight corruption.
However, the agency may not be free from corruption itself. Investigative journalists from Channel 24 (owned by Lviv Mayor Andriy Sadoviy) found that private company Advanced Data Integration won eight tenders worth $1.3 million and held by the State e-Government Agency in 2017–2018. The firm did this through another state company, Derzhinformresurs, which carried out the auction. The founder of Advanced Data Integration used to work for the e-Government Agency.
According to the Accounting Chamber of Ukraine, the agency has misused a total of at least $2.5 million from Ukraine’s state budget in the last two years. An internal audit made by the agency itself, however, detected no such violation.
Meanwhile, Ukrain’s newly-elected President Volodymyr Zelenskiy has supported the idea of electronic government.
Giving a speech at tech conference iForum on May 23, he claimed that using a mobile application to request governmental services is “30 times cheaper than talking to a bureaucrat.”
“You can think I am a naïve dreamer, but I do want to create ‘country in the smartphone,’” he said, referring to an app through which one could get information about the government, communicate with officials, and be involved in managing the country.
Five days later, on May 28, the president launched a social program called Lift to attract people to contribute ideas and seek state jobs focused on changing Ukraine — including digitally. In the first three days, people sent 200 ideas aimed at digitizing the country.
Estonia’s recipe for Ukraine
The E-Government Academy’s Tallo thinks that, in order for any country to have its own e-government in the future, it has to take four steps: spread the internet everywhere, store government data digitally, connect the databases, and give people smart ID-cards.
For now, Ukraine has checked two of these boxes: it has mobile 4G internet with the world’s 4th cheapest tariffs and the government bodies store data online. What’s left, Tallo said, is to connect the databases and distribute IDs for online verification.
IDs are on the way, he said, but connecting databases looks like a challenge.
For example, today, when applying for a foreign passport, Ukrainians need a certificate proving they have no criminal record. So people get that document from one government body and then hand it over to another. If the databases were connected, the government bodies could communicate directly.
Solving this problem depends on the government. Ukrainian tech people have always published “nice papers” about e-government, but there has never been a concrete plan from top officials, Tallo said.
“There’s clearly a question of mismanagement,” he added.
“Your politicians were proud of Ukraine’s IT sector 10 years ago. Quite rightly so, but they haven’t been using this expertise,” Tallo continued. “At the same time, if today you don’t have an electronic document management system, I think you can’t call yourself a modern country.”
Meanwhile, Estonian tech businessman Saas, who is running his co-working venue Lift99 in Ukraine as well as Estonia, thinks Ukraine needs e-government.
“Every country needs it,” he said. “Electronic government reduces corruption risks a lot. So Ukraine needs it even more.”
The Kyiv Post’s technology coverage is sponsored by Ciklum. The content is independent of the donors.
