The streets of Kyiv offer a staggering contrast with alarming headlines from the West. Traffic jams keep clogging the Ukrainian capital, people keep flocking shops, and “coming soon” business signs keep appearing at every corner.
For many of Ukraine’s foreign investors and local companies, it’s business as usual, and the looming threat of the further Russian invasion seems far.
Russia massed over 140,000 troops around Ukraine and in the Russian-occupied Ukrainian territories. As of Feb. 16, NATO, the U.S. intelligence and Ukraine said there was no evidence of Russia pulling back some troops after they finished exercises, despite Russia announcing it.
The risk of a Russian invasion has not yet caused catastrophic economical consequences but it is already having an impact, freezing projects and scaring off some investors. Yet, many foreign businesses decided to stay put.
The 633-member American Chamber of Commerce (ACC) continues to operate in Kyiv, Andy Hunder, its president, told the Kyiv Independent.
Its member businesses continue working but regularly update their contingency plans, which they have had in place for years, he said.
"The members believe in Ukraine, business is resilient, they want to continue working here," Hunder said.
Business as usual
According to a survey published on Jan. 28 by the 1,000-member European Business Association, which polled 136 companies operating in Ukraine, 45% plan to continue operating as usual in the event of a large-scale Russian military attack.
Some 17% said they are considering relocating to the western regions that are less likely to be occupied by Russia, and only 10% are thinking of leaving the country.
According to Hunder, the “business as usual” attitude prevails among the ACC members across sectors, who “believe in Ukraine.” The Ukrainian ACC is the biggest in Europe: Its member companies have invested $50 billion and created over 400,000 jobs in 30 years of presence in Ukraine.
However, a number of triggers could unlock businesses’ contingency plans, including a state of emergency or an official state of war, as well as massive conscription that could put Ukrainian employees’ jobs at risk.
Such triggers could lead to three different grades of contingency plans: hibernation, when businesses temporarily shut down, relocation within Ukraine, and evacuation.
“The plans are there, but at the moment, none of them are being introduced,” Hunder said. “The most important is employees’ health and safety.”
Hunder stressed that businesses tend to listen to the upbeat message from the Ukrainian authorities, repeating not to panic and to keep investing in Ukraine. President Volodymyr Zelensky has been playing down the international warnings of an "imminent" Russian invasion coming from the West.
According to Burak Pehlivan, chairman of the Turkish-Ukrainian Business Association (TUID), this message was well-received in the Turkish business community.
“I agree with the Ukrainian leadership, it’s crucial to protect the Ukrainian economy,” he said. “If Ukraine loses its economic stability, it will be weaker.”
After Turkey and Ukraine signed a long-awaited free trade agreement on Feb. 3 that could lead to $10 billion trade between the two countries, the mood is positive among Turkish companies, despite Russia’s threat. Still, businesses are ready, in “case of bad scenarios,” Pehlivan said.
The “wait and see” attitude is the same among French businesses, according to a source in diplomatic circles in touch with the community, but the French embassy’s message has been less alarmist than its American counterpart since the beginning of Russia’s military build-up.
“We don’t see a massive exodus from investors,” a source told the Kyiv Independent. “Most French businesses have been there since 2014, they have a thick skin.”
This statement is echoed in the latest economic analysis published on Feb. 8 by Credit Agricole, France’s leading bank in Ukraine.
“For the moment, there have not been any major outflows of capital from the country, following the escalation of geopolitical tensions, but this remains a strong and very present risk,” the analysis reads.
Though the panic isn't widespread, some companies have begun to plan relocation from eastern Ukraine to the western part of the country, hoping to put the drums of war behind. The trend is especially visible among the IT enterprises.
A Ukrainian business news site MC Today reported that three undisclosed IT companies from Kyiv and one from Kharkiv, the second-largest city in Ukraine and a hub for IT business located 40 kilometers from the Russian border, made plans to temporarily move to western Ukraine if a full-scale war breaks out.
According to Zhanna Shevchenko, a volunteer helping people find temporary housing in Lviv, one Kharkiv IT company reserved 100 rooms in the Lviv Hotel for 200 employees and their families.
However, according to a survey published on Feb. 2 by the Ukrainian IT Association, only 13% of surveyed IT companies are ready to send their key employees to other cities.
Hunder confirmed this trend to the Kyiv Independent, saying that sometimes head offices and clients based in the U.S. and Europe are looking at moving key personnel based in Kharkiv, and cities closer to eastern Ukraine.
“General managers in Ukraine try to provide an overview about what’s happening, but some still think it's premature to have any major evacuation, hoping for the best,” he said.
So far, data doesn’t show a massive impact of the invasion’s threat on daily consumption.
Stores are full and banks operate normally, while Ukrainians’ consumption remains unfazed by the perspective of the war.
But the Ukrainian economy won’t be left unscathed by the ordeal, Hlib Vyshlinsky, the head of the Center for Economic Strategy, told the Kyiv Independent.
The human cost may be even higher in the long term, Vyshlinsky said, warning of a potential exodus to the West. Poland has already said it would be ready to accept up to a million Ukrainian refugees if need be. The neighboring country traditionally has a large number of labor migrants from Ukraine.
“Not all Ukrainians are patriotic to the point of staying here,” Vyshlinsky said.
Ukraine might also lose a lot of investment in the long term, he warned. “The impact could be felt until next winter.”
On Feb. 14, the hryvnia exchange rate against the dollar in interbank trading fell from Hr 28.05 to Hr 28.50 for $1 in one day, following reports of air travel cancellation in the media.
Ukraine’s infrastructure ministry had to announce a $590 million fund to insure aircraft flying through the country’s airspace, amid reports that global insurers were suspending coverage due to the threat of a large–scale Russian attack.
The Ukrainian currency fall occurred despite investors betting there won’t be a war, according to an article published by the Wall Street Journal on Feb. 11. Although the alarming warnings have been circulating since November, the hryvnia had strengthened against the dollar between Jan. 11 and Feb. 11, appreciating 1.5% over a month.
Vyshlinsky said one way to mitigate Ukraine’s instability is to attract funds from Ukraine’s foreign partners. The country is on the lifeline of foreign governments, according to the expert.
The U.S. offered $1 billion in sovereign loan guarantee to support Ukraine’s economy, while Canada pledged $500 million to Ukraine.
It adds up to the $1.4 billion France promised to help Ukraine, while the European Union also pledged $1.4 billion in financial assistance in solidarity with Kyiv.
Still, it might not be enough. If Russia resumes its naval blockade of the Black Sea, Ukraine could lose as much as $5 billion over just one month, according to an expert with the Kyiv School of Economics.
"Even if there is no invasion on Feb. 16 or Feb. 20, the impact on the economy will be significant," Vyshlinsky said. "We will lose a lot of potential investment."