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Successfully investing in Ukraine

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last updated on 16 June 2023 | reading time approx. 4 minutes

 

 

 

How do you assess the current economic situation in Ukraine?

Currently, the economic situation in Ukraine is highly dependent on the hostilities caused by Russia’s military aggression against Ukraine.

In 2022, the Armed Forces of Ukraine regained a significant part of the territories occupied in February-March 2022 and pushed the line of active hostilities to the east and south of Ukraine. This allowed businesses to re­sume operations in the regions liberated from occupation.

As a result of the military aggression of the Russian Federation, part of Ukraine's territories are still occupied, and businesses in other regions have suffered significant losses due to destruction, damage to facilities, dis­rup­tions in operations and energy supply, and difficulties in selling products. In particular, exporters lost part of their revenues due to restricted shipping on the Black Sea. Demand for goods and services declined due to the forced migration of millions of Ukrainians to neighbouring countries, as well as rising prices.

During the autumn and winter of 2022-2023, the Russian Federation caused damage to Ukraine's energy sys­tem, but the staff in the power industry managed to prevent a complete energy catastrophe. For businesses, the attacks on the energy system led to changes in the work schedules of enterprises, a decrease in production, and partial closure of facilities. The energy crisis caused additional losses to the Ukrainian economy. However, in most cases, businesses adapted to the changes and continued to operate.

For agriculture, the results of 2022 were somewhat better than in other industries, as the business itself is fairly evenly distributed throughout Ukraine, and thanks to the grain deal, Ukrainian farmers were able to resume ex­ports, which in autumn 2022 began to approach pre-war levels. But mine contamination is already a major pro­blem for the industry and will remain so for many years.

Despite this, Ukrainian businesses and Ukrainians have demonstrated an impressive ability to adapt to difficult conditions. Most businesses continue to operate during the large-scale war, albeit at lower capacity. Farmers have carried out another sowing season, power engineers are doing the impossible to maintain the stability of the power grid, the IT sector is operating quite steadily, and the trade and service sectors have quickly adapted to working in the face of constant shelling and air raids. Some Ukrainians are returning to the country.

According to the Ministry of Finance of Ukraine, in 2022, Ukraine's economy contracted by 29.1 percent; tax re­venues to the general fund of the state budget (excluding several factors, such as inflation and forced tem­po­rary VAT non-refunding) increased by 2 percent compared to 2021, amounting to UAH 627.7 billion. Inflation is declining at a faster pace than initially forecast, from 26.6 percent in December 2022 to 17.9 percent in April 2023.

According to the National Bank of Ukraine, the unemployment rate increased from 9.8 percent to 25.8 percent last year, and it is forecast that unemployment in Ukraine will remain high this year.

 

How would you describe the investment climate in Ukraine? Which sectors offer the largest potential? 

It is understandable that in the current situation many foreign companies are not yet ready to invest in Ukraine. Nevertheless, many of them decide to make new investments in Ukraine. Ukraine needs foreign investments, because this is the only way to get the ailing economy going, to create new jobs and to give the people in Uk­raine new perspectives. The German government supports the German investments and secures the invest­ments. According to the German Ministry of Economics, 11 projects are currently covered by 21 investment gua­rantees with a total capital cover of 221 million euros by the German government, 21 applications are currently still open according to the Ministry (as of April 2023). The German government also secures German exports, especially the railroad wagons with grain, and seed exports. 

It is hoped that the war in Ukraine will soon come to an end. If a peace agreement is reached, Ukraine's GDP will grow rapidly in the next few years. Ukraine wants stronger ties with the EU and wants to move quickly with the reconstruction of the country. Many European countries have already pledged reconstruction aid to Uk­raine. It is therefore fully conceivable that after the war Ukraine will become the largest construction site in Europe, which in turn means very great opportunities for investors. 

The following industries offered great potential until the outbreak of the war in Ukraine and they will be of great importance again after the end of the war: 
  • food industry
  • construction industry
  • agriculture;
  • light industry;
  • automotive industry
  • IT sector
  • mechanical engineering
  • logistics


What challenges do German companies face during their business ventures into Ukraine?

At the moment, the biggest challenge is to continue economic activity during the state of war. Many companies and their employees have returned to Ukraine. In the winter months, the energy shortages and related power cuts were a great challenge not only for the companies but also for the whole population. As 7 million Ukrain­ians have left their country, labor shortages are a major challenge in some regions of the country. The offices as well as the authorities continue to work so that the administrative matters can be settled without any problems and delays.
 

Why should companies decide to enter/remain in the Ukrainian market?

Companies should already be looking to the future. Every war will end at some point. Then new, interesting in­vest­ment opportunities will arise. Ukraine has always been a country with very well-trained personnel and has benefited from its proximity to the EU's external border. The future close connection of Ukraine to the EU, the possible EU candidate status, would mean enormous opportunities for economic growth for Ukraine. 

In addition, Ukraine has a great deal of natural resources, especially large gas reserves and lithium. The overall picture promises enormous investment opportunities and positive development for Ukraine. 
 
Unfortunately, the outbreak of the war had a braking effect on the economy. Now, many foreign investors are reluctant to invest in Ukraine. But there are also a lot of investors who dare to enter the Ukrainian market right now. From our point of view, it is right and important to keep Ukraine in focus as an investment location for the future and to plan already now the investments after the end of the war.

 

In your opinion, how will Ukraine develop?

It all depends on the duration of the war. 

According to the World Bank, Ukraine's economy will grow by 0.5 percent this year after a staggering downturn of 29.2 percent in 2022.

Ukraine has also been granted candidate status for EU membership. In the new status, Ukraine will have access to EU financial assistance intended for countries preparing to join the EU, which comes in the form of grants, investments, and technical assistance. On the other hand, this status obliges the Ukrainian parliament to im­ple­ment several economic and political reforms to bring Ukraine in line with EU standards in many areas of economic, political and social life.

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