The following is the Dec. 5, 2023 edition of our Ukraine Business Roundup weekly newsletter. To get the biggest news in business and tech from Ukraine directly in your inbox, subscribe here.
An inconvenient truth
Ukrainian diplomats and negotiators brought Russia’s war with them to the UN’s COP28 climate change summit in Dubai this year.
When the summit’s guests enter the summit’s expo hall, one of the first things they see is a brick roof from Kherson Oblast damaged in Russia’s destruction of the Khakovka Dam that flooded and washed away entire villages, Alex Riabchyn, Ukrainian COP negotiator since 2015 and former lawmaker, told me over the phone as he gave me a virtual tour of Ukraine’s pavilion.
To continue further, people have to go around the roof, forcing them to acknowledge its presence. “It’s inconvenient,” Riabchyn said. But so is the war in a world that wants to go back to business as usual, he added. “We are very inconvenient Ukrainians, fighting for our freedom, but we will continue to do so.”
Ukraine is also there to make sure the world doesn’t forget who is responsible for the damage to the country’s environment: Russia. Ukraine’s government estimates that the full-scale invasion so far has caused $55.9 billion in damages to the environment.
The difficult part is more about the climate, according to Riabchyn. The amount of CO2 that has been emitted as a result of Russia's war is 150 million tons — equivalent to the annual emissions of Belgium — and has an estimated cost of $9.6 billion. The issue is getting Russia to pay for this— no easy feat as there is no precedent. Environmental Protection and Natural Resources Minister Ruslan Strilets is expected to announce an initiative to do just that next week at COP28.
With the war still raging, “diesel generators are more important than solar panels, unfortunately,” Riabchyn said, adding that a green reconstruction can’t begin in earnest until the war is over. But he is sure reconstruction — which is sure to be a huge emitter — will ultimately create a greener Ukraine. “I have no doubt about this,” he added.
Budget at risk
EU member states are far from reaching an agreement on a budget deal that includes 50 billion euros for Ukraine ahead of a Dec. 14-15 summit in Brussels, the Financial times reported on Dec. 3, citing officials familiar with the matter.
In addition to Hungary’s continued outspoken opposition to Ukraine’s EU membership, the budget talks are being stymied by the victory of a far-right party in the Netherlands and a German court ruling that said the country could not use Covid-19 funds for renewables, the FT said.
As they bicker among themselves, European leaders seem to have forgotten that the aid is a necessary lifeline for both Ukraine’s economy and its reconstruction, both short and long-term.
The 50 billion euro package is made up of 17 billion euros in grants and 33 billion euros in loans over four years from 2024-2027. To help attract investment to Ukraine, the package would devote eight billion euros over four years in the form of guarantees and loans, provide war insurance, and help mobilize up to 17.8 billion euros in investments.
In my conversations with business leaders here in Ukraine, I hear the same thing over and over again: It is entrepreneurs who are going to rebuild the country. Ukraine already suffers greatly from institutional financial support, which means the only way entrepreneurs can help reconstruct the country is with the help of private sector investment.
Poland protest perils
Unsurprisingly, Ukraine’s largest retailers are feeling the economic effects of the nearly one-month-long blockade on the Polish border.
In her latest, Kyiv Independent contributor Nina Mishchenko spoke with a few of these retailers, including Ukraine’s largest supermarket chain giant ATB, household appliances chain Comfy, and hypermarket chain Epicenter K to hear how the Polish trucker protests were hurting their businesses.
The companies say the blockade has significantly complicated the delivery of imports to the country. Not being able to bring in certain products means an increased risk of shortages, higher wholesale and retail prices, as well as fewer price promotions for customers.
The only bright spot recently was news that Ukrainian and Polish officials had agreed to allow empty heavy-duty vehicles with a total permissible weight of over 7.5 metric tons through the Ugryniv-Dolhobychuv checkpoint, Mishchenko writes.
The entry of empty trucks into Ukraine is no help to Ukrainian retailers who import goods from abroad for their customers, however.
Companies are warning that if the situation continues, the following month could lead not only to shortages but increased prices for consumers.
Read the full article here.
Constructive criticism
The share of private domestic constructive capital — financial flows that are transparent and conform to international standards — in Ukraine is likely between 20-25%, according to a new report by the Kyiv-based think tank Center for Economic Strategies.
Constructive capital’s evil twin is corrosive capital, whose main feature is opaque capital flows that aim to exploit governance gaps. In Ukraine, the total share of corrosive capital is currently at 46%, per the think tank’s estimates. Oligarchic capital continues to dominate in industrial sectors, CES notes.
“This is a significant problem in the context of Ukraine's sustainable development. An increase in constructive capital has the potential to exert a positive influence on both economic and social growth,” the report reads.
The report also notes that about 20% of capital in Ukraine is impossible to define, either because we don’t know much about some companies, or because they have features of both corrosive and constructive capital, for example, the company does well but avoids taxes, or vice versa.
But before we start writing off Ukraine as corrupt after seeing these seemingly low figures, more research is needed. First, Ukraine is the first country to take stock of its capital according to these terms, so it’s hitherto unclear how it would stack up against other countries, Volodymyr Landa, one of the report’s authors said.
What’s more, CES did not draw a “straight red line” between what exactly constitutes constructive and corrosive capital. Landa says that’s up to the government and the subject of public debate.
What Landa is really interested in is whether 25% is enough. It’s hard to say at the moment, he says, but what is clear is that it’s less than the share of corrosive capital and that should change. The CES offers recommendations in its report, that as Landa admits “are nothing new” to civil society, but they’re a start.
Demining farmland
A newsletter about Ukraine’s priorities for the near and far future is incomplete without news on demining the country’s agricultural land.
The American company Tetra Tech has started providing the necessary technical assistance and training to demine farmland in Ukraine’s Kyiv, Odesa, Sumy, Kherson, and Kharkiv oblasts, Ukraine’s Agrarian Policy and Food Ministry said on Nov. 30.
Around half a million hectares of agricultural land in Ukraine need to be demined, Denys Bashlyk, deputy minister of agrarian policy and food said. In total, more than 5 million hectares of Ukraine’s 42 million hectares of arable land are now unusable due to mines, explosive contamination, and Russian occupation.
While there are about 20 demining companies currently providing services in Ukraine, the amount isn't nearly enough to remove the mines quickly to ensure the farmland can be used, according to Bashlyk.
Without the proper demining equipment, farmers often take it upon themselves to remove mines they find in their fields. We at the Kyiv Independent unfortunately regularly report on their casualties.
What else is happening
Infrastructure Minister: 7 million metric tons of cargo transported through Black Sea humanitarian corridor. Since the Black Sea humanitarian corridor opened in August, 200 ships have passed through it, carrying 7 million metric tons of cargo from Ukrainian ports, including almost 5 million tons of Ukrainian agricultural products, Infrastructure Minister Oleksandr Kubrakov announced on Dec. 4. As of the time of his announcement, Kubrakov said that 31 ships are currently loading cargo at ports in Odesa Oblast, and another 30 are transiting through the corridor.
Rheinmetall aims to start production of armored vehicles in Ukraine in 2024. German arms manufacturer Rheinmetall plans to build the first armored vehicles on-site in Ukraine from the summer of 2024, CEO Armin Papperger said in an interview with German business magazine WirtschaftsWoche on Dec. 2. The first Fuchs armored personnel carriers could be produced in Ukraine by late summer 2024, about six to seven months after signing the relevant contract, Papperger said.
Central bank lifts restrictions on FX sales. The National Bank of Ukraine on Dec. 1 lifted all restrictions on financial institutions linked to the sales of foreign currencies to the public, the central bank announced. "The de facto existence of such restrictions is one of the reasons for the multiplicity of exchange rates. By lifting them, we have reason to expect that this will allow us to keep the difference between cash and non-cash exchange rates at a minimum," said NBU Governor Andriy Pyshnyy. In October, the central bank announced it was transitioning to a floating rate system.
Official: Ukraine develops new electromagnetic warfare systems. New Ukrainian-made electromagnetic warfare systems to protect soldiers from radar-guided weapons and FPV drones were successfully tested and recommended for use, Deputy Defense Minister Ivan Havryliuk told ArmyInform on Dec. 1. One of these systems is designed to combat all types of Russian drones, suppress satellite navigation signals, and create a variety of false signals, according to Havryliuk.
Nearly 8,000 companies have changed their region of registration since the start of the full-scale invasion. Ukrainian analytics company Opendatabot found that 7,820 companies changed the region of their registration following the start of Russia’s war. The company found that 27% of the companies left Kyiv, while another 22% moved to Kyiv. Companies have also relocated to Kharkiv and Odesa oblasts, despite their proximity to the front lines. The most popular route for relocation was from Kyiv to Odesa, with 350 companies making the move. Almost half of the companies that changed their region of registration, or 44%, are in the wholesale trade sector.
