The following is the July 9, 2024 edition of our Ukraine Business Roundup weekly newsletter. This version is condensed as the author was out of the office. To get the biggest news in business and tech from Ukraine directly in your inbox, subscribe here.
There’s an unpleasant fact about doing business in Ukraine: become too successful and you run the risk of attracting the unwanted attention of unscrupulous forces in Ukrainian law enforcement.
That’s exactly what head of energy company EDS Oleksandr Zapyshny pointed out after what he said was an undue raid on his home and business by the State Security Service of Ukraine (SBU).
Writing on Facebook, Zapyshny said that he attributes the searches to the fact he “finally became a successful entrepreneur and was noticed."
"I told myself many times: I work in this country until the first search," Zapyshny wrote. In other words, he is closing up shop after 15 years of running his energy company in Ukraine. The firm’s work includes the construction of electrical substations and solar panel plants — critical right now amid the energy crisis.
In case you’re only joining us: Businesses in Ukraine have been complaining about an increase in pressure on them from different law enforcement agencies. Following the arrest of well-known investment banker Ihor Mazepa, the government promised changes.
The parliament recently even passed a law to relaunch the Bureau of Economic Security — the main agency behind a lot of this alleged pressure.
In this particular case, the SBU is alleging that the company's management engaged in business with Russia, opening its case under an article in the criminal code that relates to the “assistance to an aggressor state,” the agency told Forbes Ukraine. It also suspects the company of having paid bribes.
It’s worth noting that due to martial law put in place after the start of the full-scale invasion, the government and its law enforcement agencies have a wide mandate to label businesses and individuals “enemies of the state” and thus, take their property or businesses away.
According to Zapyshny, the SBU “broke down the door to the office, took away most of the cash.”
"I have never experienced such humiliation. I was made a traitor to the state and a criminal dealer who embezzles state funds," he also wrote.
The biggest casualty here is Ukraine’s foreign investment. After the search, the company announced it would wrap up its work with Ukrainian state companies and would transfer unfinished production to the Czech Republic.
"We understand the responsibility for terminating the contracts and will pay all the fines according to the contracts, but someone who is more trusted by our SBU will complete the construction of these facilities," Zapyshny wrote sarcastically.
Ukrainian startup investment recovering
Venture capital investments in Ukrainian startups are showing signs of recovery. The volume of deals in the first half of 2024 increased 4.1 times compared to the same period from last year, totaling $283 million.
That’s good news, since last year the decline in the number of investments slowed by 11% year-over-year and totaled $209 million. In 2022, investments reached $236 million.
AVentures said that despite the decline, last year’s figure is still a sign of “remarkable resilience given the war.” It’s still only around a quarter of pre-war levels, however. In 2021, the total number of investments hit $832 million.
The majority of the $209 million of investments in 2023 is distributed among six areas: EdTech (41%) at $85 million; IT Services (14%) at $30 million; Finance (14%) at $29 million; Retail (10%) at $21 million; Entertainment (7%) at $16 million; Other (14%) at $29 million.
The companies that attracted the most funding last year were Preply ($70 million), Fintech Farm ($22 million), DressX ($22 million), Viseven (undisclosed amount), and GoIT (undisclosed).
Unsurprisingly, AVentures lists military tech as a “new surging vertical.” In 2023, investments in the form of equity and grants totaled $6.7 million, and as of June 2024, the number of military tech job postings on the Ukrainian job site DOU increased 6.2 times.
As I reported last week, no-code platform Creatio raised $200 million in a round led by Sapphire Ventures, Volition Capital, and Horizon Capital, bringing its valuation to $1.2 billion and thus a unicorn.
Ukrainian tycoon flees the country
Ukrainian billionaire Hennadii Boholiubov has fled the country illegally, allegedly after learning he could be charged in relation to an investigation into PrivatBank, Ukrainska Pravda reported.
Who’s this guy? Boholiubov was a long-time business partner of infamous Ukrainian oligarch Ihor Kolomoisky, who’s been behind bars since September on suspicion of fraud and other charges. The two are former co-owners of PrivatBank — Ukraine’s largest bank.
In case you forgot. PrivatBank was nationalized in 2016 after a $5.5 billion hole was discovered in its balance sheet, allegedly moved out by its former owners via fraudulent schemes. The two have sued to get their bank back, to no avail.
Boholiubov left Ukraine by train from Kyiv to the Polish border town of Chelm, reportedly with another person’s documents, and entered Poland with his own documents, Ukrainska Pravda reported. He is reportedly residing in Austria.
The State Security Service of Ukraine announced on July 9 that it officially suspects Boholiubov of illegally crossing the border and of passport fraud.
Consumer confidence in Ukraine wanes
In June of this year, Ukrainians' assessment of the current situation and economic expectations fell sharply — and consumer sentiment dropped to its lowest level since the start of the full-scale invasion, the Center for Economic Strategy (CES) shows in its latest monthly chart published in the Kyiv Independent.
What’s to blame? The culprits are likely continued power outages as the energy crisis in Ukraine deepens amid Russian attacks and a new mobilization drive gets underway, according to CES’s economist Maksym Samoliuk.
One of the most interesting parts of this data shows that even after the start of the full-scale invasion, Ukrainians were by and large feeling good about their prospects.
“The outbreak of the full-scale invasion caused a paradoxical surge in optimism: while the financial situation of Ukrainians deteriorated significantly, the belief in a better future ‘after the victory’ caused economic expectations to skyrocket,” Samoliuk writes.
But now, “It seems that the period of unjustified optimism is coming to an end: the gap between the assessment of the current situation and economic expectations is narrowing.”
Check out the interactive chart here.
Old guard pushback continues to haunt Ukraine’s arms procurement cleanup
Amid a push for reforms in Ukraine’s Defense Ministry, Maryna Bezrukova took the reins of the ministry’s Defense Procurement Agency early this year, tasked with purchasing weapons for Ukraine’s military and transforming the previous leadership's bad business practices.
Her main task was to cut better deals with arms suppliers, Bezrukova told Kyiv Independent business reporter Dominic Culverwell in his latest. For that, she needed to remove unnecessary intermediaries.
Third parties sold weapons they gathered from producers or stockpiles to the Defense Ministry at inflated prices. They then pocketed the profit. Sometimes, the contracts have been paid for, but the arms never arrived.
Ukraine has probably lost “tens of billions of hryvnia” on such defense contracts, Bezrukova told the Kyiv Independent.
But obstacles stand in Bezrukova’s way, according to Daria Kaleniuk, co-founder of the Kyiv-based NGO Anti-Corruption Action Center, which is involved in the procurement reforms.
Shady third-party traders and employees within the Security Service of Ukraine (SBU) are allegedly obstructing the new arms procurement agency’s reforms.
"There are units within the Security Service that try to continue robbing the country and maintaining monopoly control over some sectors of the economy. The arms sector, because of its natural secrecy and complexity, has been their absolute monopoly," Kaleniuk told the Kyiv Independent.
Read the full article here.
What else is happening
Labor shortages drive up wages in Ukraine, central bank says
Ukrainian companies are forced to offer higher wages as they are faced with increasing labor shortages, according to a report by the National Bank of Ukraine (NBU). According to the NBU's report, the offered monthly salaries have continuously grown from around Hr 13,500 ($332) in February 2022 to roughly Hr 19,500 ($480) in May 2024.
Nova Poshta opens first branch in France
Ukraine’s largest private postal service opened its 100th branch outside of Ukraine in Nice, France, the company said. It’s now the 14th country where Nova Poshta (known as Nova Post abroad) has opened branches since the start of the full-scale invasion.
Ukraine considering transiting gas from Azerbaijan to EU, Zelensky says
Kyiv is in talks to transit gas from Azerbaijan to help the EU replace Russia as a supplier, President Volodymyr Zelensky said in an interview with Bloomberg on July 3. European benchmark prices went down after the announcement, Bloomberg reported.
Bureaucracy preventing allocation of funding to protect Ukraine's energy infrastructure, media reports
Ukraine's government has not distributed EU funding for the reconstruction and protection of energy infrastructure worth 150 million euros ($162 million) for four months due to "bureaucratic obstacles," Ekonomichna Pravda (EP) reported on July 4, citing sources familiar with the situation.
Turkey, Romania, Bulgaria start Black Sea demining operations to foster Ukraine exports
Under the Turkish-led deal, the three countries will oversee efforts to clear mines that have been drifting in the Black Sea since the start of Russia's all-out war, Bloomberg reported. Other NATO members are not involved in the initiative.
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