At this plant in Kyiv, ten vending machines for the sale of bread and food roll off the assembly line every month. There were 500 before the war.

©Mikhail Palinchak/Panos Pictures

The time is 11:50 and the painting machine, spraying powerful jets of paint on a metal plate, suddenly stops.

Production director Vasiliev Vasily sighs and looks at his schedule. “We won’t have electricity again until 4pm. And this is after two days when we had no electricity at all. It's so frustrating."

Essence

What is it about? Although the Ukrainian economy has shrunk by a third due to the war, many industries continue to operate without interruption. Which sectors are doing well?

The steel sector has been hit hard. The agricultural sector, too, but there again increased exports. In particular, the IT sector is doing well again, with exports even growing by 10 percent.

"We are located in a large factory in an industrial area near Kyiv. One wall still shows traces of a rocket attack several months ago. Up to 500 food and bread vending machines rolled off the production line here. Belgium was one of the most important clients, along with Germany, Romania and France."

Now the plant has a maximum of ten per month. “After the war, 30 percent of our raw materials disappeared,” says Vasily. “Now we import them, in particular, from Poland and Slovakia. They are in way within two to three weeks and make our materials half the price, while we could increase our selling prices by only 10 percent.”

The company was threatening to shut down until three investors from Kyiv, after visiting ruined cities like Bocha and Irpin, came up with the idea of building modular homes for those who had become homeless and founded a new company for that purpose: Tera Monada. Thanks to its experience in steel production, this plant turned out to be an ideal production center.

One of the initiators was Maria Shiyan. “I used to import luxury products, but I felt like I couldn’t sit still and do something more useful with my money. With the help of donors, both in Ukraine and in the West, we have already built 15 such houses. And we just won a tender for another 40 houses.”

The example of Tera Monada shows the resilience of the Ukrainian economy. Since the outbreak of the war on February 24th, 2022, countless entrepreneurs have gone into war mode. They refocused on the production of camouflage nets or bulletproof vests, for example, found new places in the safer western part of the country with the help of government officials and immediately began to restore the destroyed infrastructure.

All this could not prevent the Ukrainian economy from shrinking by a third last year and the unemployment rate to rise to 30 percent, according to data from the National Bank and the Ministry of Economy. At least 5 million people have lost their jobs due to the invasion of Russia. On top of that came a killer inflation of 26.6 percent. The country could only survive financially with an infusion of $3 to $3.5 billion in monthly aid and loans from the West.

Ukraine will need $55 billion in international assistance by 2023, including $38 billion to cover a projected budget deficit and $17 billion to rebuild infrastructure, President Volodymyr Zelensky said late last year at the World Bank and International Monetary Fund (IMF) annual meetings.

Heavy industry, which accounted for a quarter of economic activity before the war, was particularly badly hit. Ukraine has been home to several major steel producers, including ArcelorMittal. The country was also a major exporter of machinery such as tractors and other agricultural equipment.

Many production facilities, including the important metal production AzovStal in Mariupol, were destroyed, while others were partially or completely shut down due to power shortages. For months now, Russia has been attacking the country's energy infrastructure with missiles and drones. According to the Ukrainian authorities in Kyiv, it is already half destroyed.

Agriculture, the second most important sector of Ukraine's economy before the war, was also hit hard. Destruction, land occupation, land mines and lack of fertilizer was already making harvesting difficult. And due to the Black Sea ports blockages, the situation is even worse.

Thanks to the only diplomatic success since the start of the war, a deal to prevent the blockade from causing starvation in poor countries, grain ships have been allowed to leave since the summer. In October, the country managed to export 4.2 million tons through its ports. Since the process is very slow, in January this number fell again to 2.4 million tons. According to the Ministry of Infrastructure of Ukraine, some ships are blocked by Russian inspections for another month.

It's not doom and gloom in every sector. Unit.City IT Center in Kyiv is a good example, an old engine factory that has been converted into a business and conference center. Kirill Bondar, Managing Partner of Unit.City, introduces us and shows us a bomb shelter where hundreds of people can work at the same time during an air raid. They have coffee, Wi-Fi, meeting rooms and a presentation room.

“We are an island of stability and light,” he says. With generators, eight internet lines and a Starlink satellite connection, this site can weather the power outages that are crippling the country.

Initially, IT companies also suffered from the war. Typically, Unitcity employs 3,800 people. That number has halved, says Bondar. “Large Western companies such as Microsoft have moved their offices to Poland, Spain, Portugal or Slovenia. But many Ukrainian companies have no other choice. They must continue to bring results to their clients. So we see more and more people coming back. Our site is often the only workplace for IT people sitting at home in the dark and cold. By the end of spring, we hope to reduce the vacancy rate to 5-10 percent.”

According to the latest data from the IT sector, exports of Ukrainian IT companies will grow by 10 percent in 2022, generating a turnover of USD 7.5 billion. “There is no other choice but to become the IT hub of Europe,” says Bondar. “It used to be an economic dream, now it's an economic necessity. Look what Israel has done to its economy. This country was also threatened by a hostile environment and invested heavily in technology. We will have to follow this example."

28 Software is one of the companies that continues to work at Unit.City. With 100 employees and a turnover of around $1 million, the company creates word games for apps like Word Madness and Word Farm Adventure, among other things. “Our main clients are Israelis. A few bombs won’t stop them,” laughs founder and CEO Mikhail Antonovich in his fashionable office.

So he has a plan B ready: a 700-square-meter country house with a powerful generator, Starlink internet connection, a fireplace, and an indoor pool. “We keep shuttle buses ready and they can start working in eight to ten hours,” says Antonovich. Remarkably, this house is located in Boetsa, a city that suffered immeasurably from the Russian occupation at the beginning of the war, but has already been largely restored.

This symbolizes the resilience of the Ukrainian economy. But there is a big problem: attracting funding and Western investment. That's why Andriy Kolodyuk, a technology entrepreneur and investor and Chairman of the Supervisory Board of the Ukrainian Venture Capital and Private Equity Association (UVCA), is trying to warm up Western banks, funds, investors and entrepreneurs to keep Ukraine on the radar.

A few weeks ago, during the World Economic Forum in Davos, he organized a roundtable at which large investors such as JPMorgan or Morgan Stanley, together with pension and venture funds, expressed interest in investing in restoration of the country.

But you don't have to wait that long. Even now there are opportunities,

says Andriy.

There are already 14 funds that are raising new funds to provide Ukrainian entrepreneurs with a fresh capital during the war. But you can also take advantage of opportunities as an entrepreneur. For this, it is not necessary to go to Ukraine. For example, you can work with a joint venture. Our the association helps with this.

Flemish export agency Flanders Investment and Trade (FIT) also recently revealed that it believes it is time to turn Ukraine's attention. And in two weeks, the Belgian-Ukrainian Business Club (BBC) will open in Brussels, designed to stimulate business contacts between the two countries.

According to Andriy Kolodyuk, interesting sectors are energy, water treatment, healthcare and technology. Reduced customs tariffs apply to agricultural and food products, as well as building materials if you want to export them to the European Union. Companies from Poland and Germany have already seized on it.

Ukraine is, of course, a warring country, but Andriy points out that more and more Western countries, including Germany, France and Poland, are offering some sort of military property damage insurance.

Do not forget that many companies from the war zones have moved to the west of the country, where it is relatively safe.

In the long term, according to organizations such as the World Bank and the European Investment Bank (EIB), the reconstruction of Ukraine will create a market worth more than 1,000 billion euros. It's not just about rebuilding the country. Europe also hopes for the digitalization of Ukraine, ensuring food security on the continent and the availability of rare raw materials. “The potential is huge, and entrepreneurs will play a leading role,

says Andriy Kolodyuk.

What opportunities are there for entrepreneurs and investors? Areas of interest are energy, water treatment, healthcare, technology, agriculture, food and construction. After the war, a real boom is expected, but opportunities are already opening up.

See the original on DE TIJD: http://bit.ly/3I8ADs8

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