ICT Russian war

6 consequences of Russian invasion on the ICT market

Actualidad March 18, 2022

The Russian invasion of neighboring Ukraine has shocked the whole of Europe and the entire planet. The consequences of this war offensive are already being felt in different areas of our daily lives. At a time when the economy seemed to be recovering after the pandemic, the markets are once again being affected. Russian invasion on the ICT market

The Information and Communication Technologies (ICT) market will be no exception. In fact, IDC has published a report on the initial impact of the Russian invasion on the ICT market. In this Befree blog post we will summarize the data from the report.

Global impact of the war

The most common diplomatic and economic responses to the Russian invasion have been sanctions and trade blockades. The prices of such important goods as oil and natural gas have skyrocketed, making daily life more expensive for everyone. Specifically, the price of petrol has risen by 6%, and natural gas by nearly 30%.

In turn, both Russia and Ukraine are two of the main exporters of products such as wheat and sunflower oil. Difficulties in trade due to the war have also caused the prices of these goods to rise.

The end of relations with Russia imposed by the vast majority of the world’s countries and the completely unfavorable situation for trade have ultimately led to a rise in the prices of various products. This crisis is evident in many markets and sectors.

The ICT sector: six consequences

Although at first glance it may not appear to be a sector that has been hit hard, the collateral damage to the economy has also affected the technology sector. More specifically, the ICT market. IDC, an expert in market analysis, has published a report on the initial consequences of the Russian invasion of the ICT market.

According to the IDC study’s own press release, Andrea Siviero, associate research director of European Customer Insights & Analysis, more than half of the organizations surveyed are re-evaluating their IT spending plans for 2002. In addition, 10% of them are planning tough adjustments.

Regarding the ICT market, although Russia and Ukraine will see sharp declines and slow recoveries, on an overall basis the impact will not be as severe. The two countries together account for 5.5% of all European ICT spending, and only 1% globally. However, IDC does foresee a total of six consequences on ICT markets of different scales.

1- Fluctuation in economic demand

The conflict has halted business operations in Ukraine, while the Russian economy is feeling the first impact of Western sanctions. This will strongly affect technology spending in both countries, with a double-digit contraction in local market demand expected by 2022.

Meanwhile, technology spending among Western European countries may increase in part due to expanded defense and security allocations.

2- Energy prices and inflationary pressure.

The tensions surrounding the Ukraine conflict will have broad implications for both energy prices and security of supply, especially in some European countries, where cascading effects on price indices are already being felt. Most countries will need to quickly reassess their near-term energy plans and accelerate their efforts to reduce their dependence on carbon-based energy sources.

3- Relocation of skills and infrastructure

More than a hundred global companies have established subsidiaries in Ukraine, and many more have operations in Russia. The conflict has already displaced tens of thousands of developers in Ukraine and has led to the relocation of some services in both countries. These relationships, along with the physical assets and personnel associated with them, as well as any future expansion plans, will need to be re-evaluated in light of the conflict.

4- Availability of credit and cash

The economic and financial sanctions imposed to date are posing serious problems for the availability of foreign credit in Russia, while generating potential losses on loans granted by EU countries to Russia. Without access to credit, most organizations will be forced to suspend investments in new technologies in the short term.

At the same time, the country is also suffering from a severe cash shortage, which is significantly affecting consumer spending. Thus, the Russian population is finding it difficult to afford basic day-to-day purchases.

5- Changes in the dynamics of the supply chain

Exports of finished goods and technology components to Russia will be significantly affected by the sanctions, but the impact for Western companies will be relatively small given the size of the market. Similarly, imports of technology materials from Russia and Ukraine will also be affected, particularly in the semiconductor sector, where supplies of neon gas, palladium and C4F6, used in chip manufacturing, will be significantly reduced.

The conflict is also expected to further disrupt global supply chains, as cargo is diverted around the two countries and costs increase.

6- Exchange rate fluctuations

The value of the Russian currency plummeted in response to the initial sanctions, making imports of IT equipment and services considerably more expensive. As a result, many companies are refusing to ship orders to Russia even if payment is possible.

This also means that Russia’s own manufacturers of computers, servers and communications equipment will not be able to operate. Geopolitical tensions are also affecting other currencies in the region, including the Euro.

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