The following is the July 4, 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.
EU accession talks begin
Ukraine and Moldova on June 25 officially began their accession talks with the European Union in a moment full of excitement — and anxiety — about the changes ahead.
“This is great news and the beginning of a path with a loooot [sic] of work for the entire state apparatus in the coming years,” Ukrainian lawmaker Yaroslav Zhelezniak wrote on Telegram.
Indeed, the process will be painful, for both sides. The months-long blockade staged by farmers and truckers in Ukraine’s western neighbors over wartime easing of border restrictions is a fine example of how tricky the negotiations might get.
In addition to the particular grievances in specific sectors, there will likely be a lot of grumbling over the costs of welcoming Kyiv.
How much we talking? European Budget Commissioner Johannes Hahn said he thinks the bloc’s budget will need to increase by 20% when Ukraine joins if existing rules for agricultural and structural support remain the same.
According to Hahn, a 20% increase in the budget means an additional 200 billion euros over the seven-year EU budget period.
"It sounds gigantic, but it corresponds to only 0.2% of the European economic output, and it is certainly feasible. It is a worthy investment because Ukraine has huge economic potential," he said in April.
What kind of potential? With Ukraine in the EU, it would be a transport hub in the Europe-Asia transport corridor, allowing the bloc to expand its logistics eastwards; Ukraine’s rich natural resources could contribute to food and energy security as well as the green energy transition.
Its tech and defense sectors are strong innovators that would be invaluable to the EU’s economy and security.
Contrary to what Ukraine’s detractors may say, the ultimate beneficiaries of Kyiv’s accession extend far beyond the country’s own borders. Ukraine joining isn’t just about what the EU would have to spend, but what it would gain.
Ukraine has many years and reforms before it actually joins. Russia’s ongoing war will complicate this process, but it’s unlikely to stop what is now officially in motion.
IMF & debt restructuring
The International Monetary Fund released a $2.2 billion tranche for budget support, in the fifth tranche Kyiv has received since last year.
The disbursement brings the total released so far to $7.6 billion, or just under half of the $15.6 billion program established in March 2023.
This is good news, but the IMF also worsened its outlook for the rest of this year and into 2025 after unexpected resilience in the first quarter of 2024, “largely due to devastating attacks on Ukrainian energy infrastructure and uncertainty about the length of Russia’s war against Ukraine.”
The fund lowered its gross domestic product forecast for Ukraine to a range of 2.5-3.5%. Its earlier forecast in April put that figure at 3.2%.
As IMF lending sets the goalposts for what it considers to be affordable debt payments, there is speculation over whether this weaker economic outlook will have an impact on Ukraine’s negotiations with bondholders.
Kyiv has just a few weeks left before interest payments resume after a two-year moratorium on more than $20 billion in international bonds ends. The country could default if it fails to pay after a 10-day grace period following the Aug. 1 deadline on a 2026 bond.
So far the talks have failed to lead to any deal between the two sides as creditors were unhappy with the relief Ukraine asked for, but Ukraine mission chief Gavin Gray said discussions with bondholders were intensifying and he expected their conclusion within weeks.
Ukrainian startups attract funding
Two Ukraine-born tech companies announced sizable sums of funding over the last week: innovative no-code software company Creatio, and robotic prosthetics company Esper Bionics.
Creatio raised $200 million in a funding round led by Sapphire Ventures, along with the StepStone Group and current investors Volition Capital and Horizon Capital.
The funding round, a minority investment, puts the company’s valuation at $1.2 billion and is expected to help the startup expand globally as its revenue continues to grow 50% year after year.
In other news, Esper Bionics, a producer of bionic upper-limb prosthetics, announced it had attracted $5 million in investments to expand production.
The funding round was led by YZR Capital, and co-financed by European Bank for Reconstruction and Development.
As Russia’s war continues, the number of people in Ukraine who will require prosthetics also continues to grow. Bionic, or robotic, prosthetics could play a huge role in rehabilitating those who have lost limbs and reintegrating veterans.
“There are 50 million amputees and 140 million paralyzed individuals in the world, with many struggling to find functional, accessible, and aesthetically pleasing prosthetic solutions,” the company said on LinkedIn.
The return of Ikea
Swedish furniture giant Ikea decided in May to make plans to reopen its store in Kyiv, Forbes Ukraine reported on June 27, citing two managers of shopping centers and two commercial real estate consultants.
Who cares? It isn’t just this author who is excited about being able to buy inexpensive home goods. The return of retail is a sign to other investors who have hitherto stayed away that despite Russia’s war, business can be done in Ukraine.
"The return and success of H&M was an important signal for the head office of Ikea, and they also closely followed the recovery of Inditex," one of Forbes Ukraine's sources told the outlet.
H&M reopened in November 2023, while Inditex, a Spanish-owned multinational company that owns Zara and other brands, reopened some of their stores in Kyiv on April 3.
Like other multinational brands, Ikea closed its store when Russia launched its full-scale invasion in February 2022 just a year after it had opened its doors in Ukraine and after years of hesitation and talks with Ukrainian officials.
The company's "main priority for the resumption of store operations in Kyiv is the safety of our employees and customers," the Ingka Group, which is part of the Ikea group, told Forbes Ukraine in a comment.
Canada-Ukraine trade
In an interview in central Kyiv last week, Canadian Trade Minister Mary Ng talked to the Kyiv Independent about a revamped trade agreement between Ukraine and Canada that went into effect on July 1 and how it will bolster both Ukrainian and Canadian businesses.
The Kyiv Independent: How can the modernized trade agreement help Ukraine's economy and its reconstruction?
Mary Ng: Before we used to trade in goods, that was what the last agreement covered, and now it's expanded to cover areas like trade in the digital sphere, trade in services, trade that facilitates greater collaboration. There are elements that are hallmarks of a high-quality agreement. That includes standards for labor, for the environment, but also inclusivity.
The Kyiv Independent: Are Canadian businesses expressing interest in Ukraine now, even during the war?
Mary Ng: Yes. In fact, the Canada-Ukraine Chamber of Commerce has held Rebuild Ukraine conferences for the last couple of years. It’s a really important forum that brings together all the right people to help have that dialogue about what we could be doing together in the rebuilding effort.
The Kyiv Independent: Do Ukraine's efforts on enabling a business environment make sense without war risk insurance? And how can Canada protect Canadian investments in Ukraine during the war?
Mary Ng: A couple of weeks ago, our export credit agency, Export Development Canada, signed an memorandum of understanding with other export-credit agencies across the G7 on a collaboration on this very issue. We're making really good progress and that work will continue.
Read the full interview here.
What else is happening
EU introduces 'emergency brake' on eggs, sugar imports from Ukraine
According to the newly implemented rules, an emergency brake can be applied to imports of eggs, poultry, sugar, oats, maize, groats, and honey. The measure will be automatically triggered if import volumes reach the average yearly imports recorded between July 1, 2021, and Dec. 31, 2023.
DTEK has invested around $34 million of its own funds to restore thermal power plants since start of year.
DTEK — the country’s largest private energy company — also said it plans to invest a total of Hr 3.9 billion ($95.8 million) in repairs and restoration of its thermal power plants, which is in line with last year's investments. The company says it needs $300-$400 million to restore all of its facilities hit by Russia.
Naftogaz increased gas production by 8% y-o-y in first half of 2024
In the first six months of 2024, oil and gas giant Naftogaz Group companies – JSC Ukrgasvydobuvannya and PJSC Ukrnafta – have already produced 7.3 bcm of commercial gas. “At the moment, gas production exceeds the operating plan by almost 2%,” Naftogaz CEO Oleksiy Chernyshov said on July 2.
Ukraine's GDP up 6.5% in first quarter
The country’s economy expanded more than forecasted in the first quarter of 2024, with gross domestic product increasing 6.5% from the year before, the State Statistics Service said.
Nova Poshta postal depot in Kharkiv hit in Russian attack
Nova Poshta, Ukraine's largest privately owned postal service, said on June 30 that the strike had hit near the distribution center, but "all shift workers were in the bomb shelter and were not injured." "There are victims among the population, as well as truck drivers," Nova Poshta said, adding that the depot was damaged. Another one of its depots was also hit in Odesa in early May.
