Russian invasion of Ukraine will have limited impact on tech spending

The Russian invasion of Ukraine and its economic and diplomatic response have meant a paradigm shift in the international political situation. The consultancy IDC has predicted a ‘limited’ impact for tech spending worldwide, since both countries total 5.5% of European investment and barely 1% of world investment.

The firm, however, points out that half of those responsible for technology are adjusting your digital transformation plans and that 10% of them will lower your investment. The associate director of IDC’s European market analysis branch, Andrea Siveiro, has stressed that the impact of the geopolitical situation may last “months or even years” andn the panorama of information technologies. Among the possible externalities for the European market, IDC has highlighted that the supply chain may be further stressed due to the reduction in exports of neon gas and palladium, two materials used to make chips and which are present in Ukraine.

Next, we analyze the list of consequences that war can have:

Fluctuation of technological demand

The conflict has halted business operations in Ukraine, while the Russian economy is feeling the first impact of Western sanctions. This will hit tech spending hard in both countries, with a double-digit contraction in local market demand expected in 2022. Meanwhile, spending on technology between the countries of Western Europe can increase in part due to expanded defense and security assignments.

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Energy prices and inflationary pressure

The tensions surrounding the conflict in Ukraine will have wide-ranging consequences on both energy prices and security of supply, especially in some European countries, where the cascading effects on price indices are already being felt. Most countries will have to quickly reassess their energy plans in the near term, and speed up their efforts to reduce their reliance on carbon-based energy sources.

Displacement of competences and infrastructures

More than 100 global companies have established subsidiaries in Ukraine and many more have operations in Russia. the conflict already has displaced tens of thousands of promoters 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 reassessed in light of the conflict.

Availability of cash and credit

The financial sanctions imposed to date are posing serious challenges to the availability of foreign credit in Russia, while creating potential losses on loans issued by EU countries to Russia. Without access to credit, most organizations will be forced to suspend investments in new technology in the short term. The country is also suffering from a severe cash shortage, which is significantly affecting consumer spending.

Supply chain dynamics

Exports of finished goods and technology components to Russia will be significantly affected by the sanctions, but the impact on Western companies will be relatively small given the size of the market. Imports of technological materials from Russia and Ukraine will also be affected, especially in the semiconductor sector, where the supply of neon gas, palladium and C4F6, used in the manufacture of chips. The conflict is also expected to further disrupt global supply chains as cargo is diverted around the two countries and costs rise.

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 refuse to ship orders to Russia, even though 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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