The following is the Jan. 30, 2024 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.
All for show?
Following the shocking detention of well-known businessman Ihor Mazepa, business leaders in Ukraine met with Ukrainian officials to once again express their dismay at what they say is unjustified pressure on business by law enforcement officials.
On the surface, at least, it appears their message was heard. Over the past week, President Volodymyr Zelensky has made moves to address the concerns of the business community in Ukraine, including the creation of a business support council and the launch of the Ukrainian Economic Platform.
According to the president, the council will include prominent Ukrainian businessmen and is meant to "strengthen our economy, our society.” It is yet unclear exactly what their responsibilities will be as members of the new council.
For its part, the Ukrainian Economic Platform is supposed to be “a tool for effective communication, which will always be supported by operational decisions — by what state institutions do or change, and that will create a new, normal history of relations, in particular, between law enforcement and entrepreneurs,” Zelensky said on Jan. 26.
The government also said on Jan. 29 that it had submitted a draft law on restructuring the Economic Security Bureau — the agency that’s supposed to be responsible for investigating economic crimes. Revamping the bureau is one condition of the International Monetary Fund’s financing for Ukraine.
It remains to be seen if the proliferation of councils and draft laws will actually put an end to the raids, confiscations, and detentions of business people. Critics of the draft law aren’t so sure.
Lawmaker Yaroslav Zhelezniak said the draft law "cements the system and people from the President's Office" who currently work at the bureau, adding that the selection process for the head of the bureau is also "prescribed in such a way that it will be easy to postpone or manipulate.”
"The draft law directly violates the obligations to the IMF, the EU, and the G7," so if accepted by parliament in this form, the law will "immediately lead to the suspension of funding,” he said.
Mass attack
Late last week on Jan. 25, several critical state-owned companies reported cyberattacks on their systems.
The country’s state-owned gas and oil company Naftogaz and Gas Networks, a gas distribution service from the Naftogaz Group, Ukraine's state railway Ukrzaliznytsia, and Ukrposhta, the Ukrainian postal service all reported disruptions on the same day.
Naftogaz said it was hit by a large-scale cyberattack on one of its data centers, causing its website and call center to crash. Ukrzaliznytsia said a hack prevented some of its customers from buying tickets online.
Another technical malfunction was reported by Ukrtransbezpeka, a government agency providing transport and traffic security. The difficulties affected the agency's website and the Shlyakh system, which allows drivers to leave Ukraine to transport humanitarian or other crucial supplies.
Cyberattacks are a common tool used by both sides of the Russia-Ukraine war. In one of the most devastating strikes, Russian hackers targeted Ukraine's leading telecommunications provider, Kyivstar, causing communication outages nationwide last December. Ukraine's mobile bank Monobank was also hit by a massive distributed denial-of-service (DDoS) attack last week.
It’s still unclear who was responsible for this latest attack, but the same day as the interruption, a Russian group of hackers who call themselves the National Cyber Army claimed responsibility for the attack on Ukrtransbezpeka, without mentioning the others, the Record reported.
Shifting the balance
Since the start of Russia’s full-scale invasion, thousands of Ukrainian businesses have been forced to relocate, mainly from the east and south to the safer central and western regions of the country.
Many of them have moved with the help of a government relocation program. The initiative helped move 840 companies between March 2022 and October 2023.
Moving away from front-line regions and Russian-occupied territories has saved many companies from bankruptcy, Kyiv Independent business reporter Dominic Culverwell writes in his latest. It has also helped develop the economies of host regions that have seen less development in the past, such as Ukraine’s western regions.
In terms of reconstruction post-war, experts are predicting they will be focused on western Ukraine. “If we are talking about future investment flow to Ukraine after the war, I think it'll be concentrated in western Ukraine,” Serhii Fursa, deputy managing director at investment firm Dragon Capital, told the Kyiv Independent.
But businesses relocating from east to west also risks shifting the economic balance of the country. Future investment could disproportionately favor one part of Ukraine and risk leaving the front-line regions in the east, heavily scarred by the invasion, lagging post-war.
Read the full story here.
Helping Ukraine within Ukraine
With $37 billion in external financing needs combined with the goal to become more economically self-sufficient, Ukraine will have to explore more effective options when it comes to donor assistance, Economy Minister Yulia Svyrydenko writes in a recent op-ed for the Kyiv Independent.
One of these options has been the "help Ukraine from within Ukraine” concept whereby humanitarian aid and equipment is sourced from within Ukraine, as opposed to being transported across the border.
Svyrydenko says this approach improves the effectiveness of donor assistance to Ukraine in three ways: it employs local businesses, provides jobs and salaries to Ukrainians, and up to 40% of the money spent on manufacturing will later end up in local and state budgets as taxes – money that will help fund Ukraine’s war effort.
One example is the Swiss-commissioned Bohun-2 all-terrain vehicles for Ukraine’s State Emergency Service from the Kyiv-based company Quadro International that employs over 200 Ukrainians. Another example is Denmark, who purchased 34 school buses manufactured in Ukraine.
While Ukraine is grateful for all the help from international donors, regardless of where they source their aid, “relying on Ukraine-based manufacturers will make aid deliveries to Ukraine faster, cheaper, and more effective while also helping to stimulate the country’s growth,” Svyrydenko wrote.
Read the full piece here.
Talking business with Bayer Ukraine
In a recent interview for our Talking Business in Ukraine series, we spoke to the managing director and CFO of Bayer Ukraine, Oliver Gierlichs. The German giant is one of the largest pharmaceutical agricultural companies in the world and employs around 700 people in Ukraine.
The company has donated 20 million euros to support the country throughout the war, and even announced a 60-million-euro investment into its corn seed production facility in Pochuiky, Ukraine.
The Kyiv Independent: How do you assess the current business climate in Ukraine from Bayer's perspective?
Oliver Gierlichs:The solidarity within the business community has been the most exceptional throughout my career. There's a profound acknowledgment of the shared difficulties, fostering an atmosphere of collaboration. Additionally, we appreciate the open dialogue with the government and authorities, who are ready to listen and adapt to business needs.
The Kyiv Independent: As a European Business Association board member, what are the government's expectations from major businesses, and what support do businesses need in Ukraine?
Oliver Gierlichs: There's room for improvement in making Ukraine a more favorable business environment. Legislative and regulatory alignment with the EU, acknowledging Ukraine's specificities, is crucial. We urgently need transparency and predictability in the mobilization process to plan for our workforce and future.
The Kyiv Independent: If you were to invite other companies to invest in Ukraine now, what message would you convey to encourage their participation?
Oliver Gierlichs: The unique selling point of being a part of the country's development during challenging times cannot be overstated for companies considering investment in Ukraine. Coming now demonstrates a commitment that goes beyond mere opportunism.
Read the full interview here.
What else is happening
Key corruption index sees Ukraine improve, Russia worsen in 2023. Transparency International's 2023 corruption perception index saw Russia drop to its worst score in years, while Ukraine's score has improved, continuing the decade-old trend. According to the recently published index that includes 180 countries, Ukraine went from the 144th least corrupt country in 2013 to 104th last year. It has also improved its score from 25 points to 36 over this period, with a higher number signifying less corruption. In 2022, Ukraine was at the 116th place with a score of 33. Russia's ranking went from the 127th least corrupt country in 2013 to 141st 10 years later, while its score dropped from 28 to 26. In 2022, Russia ranked 137th with a score of 28.
French billionaire agrees to pay at least $500 million for mobile operator’s Ukraine units. French billionaire Xavier Niel said on Jan. 29 that his investment company, NJJ Capital, is ready to pay upwards of $500 million for leading Turkish mobile phone operator Turkcell Iletisim Hizmetleri AS’s Ukraine units, giving NJJ control of Lifecell LLC, LLC Global Bilgi and LLC Ukrtower. Niel told a group of journalists on Jan. 29 in Paris that the deal “makes sense” as NJJ telecom operations are already in neighboring Poland through the French communications company Iliad where there is a lot of roaming traffic with Ukraine, Bloomberg reported. “It’s an asset we’re not paying very much for compared to its profits,” Niel said. The final price of the transaction will be revealed after the deal closes.
Bloomberg: EU preparing to rule out Ukraine gas transit deal with Russia. The European Union is preparing to rule out a renewal of a deal between Kyiv and Moscow that has allowed Europe to receive Russian gas through Ukraine when it expires at the end of the year, Bloomberg reported on Jan. 26, citing anonymous sources familiar with the matter. The European Commission argues that even countries most dependent on Russian gas supplies, such as Austria and Slovakia, would be able to find alternative sources in the event of a cutoff, the sources said. The European Commission will discuss the issue with member states in February before formally presenting the plan to energy ministers at a meeting in Brussels on March 4, the sources told Bloomberg.
Ukraine's railway company to hire veterans to monitor infrastructure with drones. Ukraine's state-owned railway company Ukrzaliznytsia said on Jan. 25 that it is creating a unit that will use drones to monitor and protect railroad infrastructure. The unit will be staffed by former railroad workers who have been wounded and returned from the front line. Ukrzaliznytsia has partnered in this project with the Kruk UAV Operator Training Center, whose instructors will teach employees how to pilot drones and conduct UAV (unmanned aerial vehicles) engineering training. The company said the UAVs will be used to prevent the theft of its property, record offenses, inspect infrastructure during martial law, and help investigate transport accidents.
Minister: Ukraine to start building 4 nuclear reactors in 2024. Ukraine plans to start the construction of four new nuclear reactors this summer or autumn to compensate for the lost capacity of the Russian-occupied Zaporizhzhia Nuclear Power Plant, Energy Minister Herman Halushchenko told Reuters on Jan. 25. All four new nuclear reactors will be built at the Khmelnytskyi Nuclear Power Plant, which currently has two units, in western Ukraine. Two new power units will use Russian-made equipment that Ukraine wants to import from Bulgaria. The other two will be based on equipment produced by the American company Westinghouse. The construction of the third and fourth reactors at the Khmelnytskyi plant began in the 1980s but was put on halt. If Ukraine receives reactor pressure vessels soon, it could have one of the Soviet-era VVER-1000 units ready in 2.5 years, Halushchenko said.
