Throughout one and a half years of full-scale war, businesses have adapted to new challenges, and their primary objective now is not survival but recovery and growth. This is the prevailing sentiment among businesses voiced during the European Business Association’s Global Outlook meeting held on September 11. We spoke with officials and business leaders from various industries about their forecasts and plans, and below, we summarized the main ideas and key points.

Oleksandr Kamyshin, Minister for Strategic Industries of Ukraine, emphasized that, in his opinion, the only strategically important sector during the war was the defense-industrial complex. This sector is seen as crucial for Ukraine’s victory and economic recovery. Currently, in this sector, there is an increasing demand for labor, rising wages, and a growing number of new companies, among other things. In other words, the sector is gaining momentum. For example, in the spring, there were fewer than 100 companies in this sector, and now there are more than 200. Additionally, a significant number of Czech entrepreneurs have come to the country to study the sector and understand how to operate here. The future goal of the defense sector is to produce even more.

Mr. Kamyshin pointed out that from an economic perspective, it’s also crucial to shift more enterprises toward military-related activities. This, essentially, can compensate for the loss or reduction in development in the civilian sector for some businesses. Therefore, he urged businesses to collaborate with the defense sector – the Ministry and defense industry enterprises are actively seeking partnerships to fulfill specific tasks, such as repairs and more. The Minister emphasized his commitment to making the defense industry more transparent and understandable. For example, UkrOboronProm already has a long-term anti-corruption strategy in place, and initial results have been achieved – they have collected energy consumption data from all plants and completed procurement. Additionally, he invited startups in the military tech sector to take a look at the BRAVE 1 project, which helps innovative startups go from idea to implementation, providing grants (ranging from 5,000 to 25,000 dollars for this purpose through the Ukrainian Startup Fund).

Ukraine’s Finance Minister, Serhii Marchenko, noted that in 2023, the country’s financial situation is more stable and manageable compared to 2022. Thanks to international support and comprehensive measures taken by the Ukrainian government, priority budget expenditures are fully funded and timely, ensuring stability for 2024. Furthermore, the macroeconomic situation is stabilizing, the hryvnia exchange rate is strengthening, and GDP growth for the current year is projected to be around 3%. However, the level of imports is increasing more than exports, which is a concerning signal for the economy. At the same time, 2024 will not be an easy year, as substantial expenditures need to be allocated to the defense sector, no less than in the current year. The Finance Minister emphasized the importance of cooperation with the IMF and the implementation of structural reforms within the framework of the cooperation program with the Fund. This is critically important for other international partners as well, as collaboration with the IMF is a sign of trust in Ukraine.

Therefore, Ukraine needs to demonstrate transparency and accountability in the use of funds from its partners, particularly through commitments to reforms: effective anti-corruption efforts, establishing the rule of law in the country and ensuring macroeconomic stability. The Finance Minister noted that this year, donors have committed $42 billion in direct budget support to Ukraine. The priority is to create conditions for these funds to work for the country’s economy, stimulating development rather than increasing consumption. However, these funds must contribute to the country’s economy and enable businesses to generate taxes. At the same time, Finance Minister Marchenko emphasized that there are no plans to increase taxes.

The economic results of the past and current years have exceeded business expectations. According to Dragon Capital’s macro forecast, economic growth of +4.5% should be expected this year. The state of the economy in the following year will depend on the course of the war. In the coming days, the Ministry of Finance is expected to present the budget proposal for 2024, which is anticipated to include high expenditures for the defense sector throughout the year. The projected exchange rate for the dollar at the end of 2023 will be 37.5 UAH/1 USD if the National Bank adopts a flexible exchange rate in the fourth quarter. In 2024, the average annual exchange rate for the dollar will be 38.6 UAH, and it may rise to 41 UAH by the end of the year. Inflation is gradually slowing down. According to the forecast, the GDP in 2024 is expected to increase to $190 billion, nearly equaling the record value of 2021.

Currently, Dragon Capital has over 50 different investment projects, including those in the defense sector. According to Tomas Fiala, CEO of Dragon Capital, the government should focus on investors already working in Ukraine, both Ukrainian and foreign. In Mr. Fiala’s opinion, it is these investors who are already present in Ukraine that will continue to invest new funds until the end of hostilities. The appetites of new investors are currently relatively modest, so the government should concentrate its attention on existing companies in Ukraine and their needs, particularly in areas such as combating corruption, ensuring fair courts, and upholding the rule of law.

International organizations have not ceased their support of Ukraine since the beginning of the full-scale invasion. In particular, the International Finance Corporation (IFC) has invested over 400 million dollars since then, with more than half of the funds directed towards supporting critical exports and imports. Some donor funds’ purposes have been changed in response to the current needs. For example, 50 million euros from the energy efficiency program were redirected to the immediate repair of multi-story buildings affected by the conflict and the support of cities providing temporary housing for internally displaced persons. Olena Voloshyna, the head of the IFC office in Ukraine, provided this information.

According to the World Bank’s assessment, Ukraine’s reconstruction needs amount to 411 billion dollars, of which 14 billion are required this year. The World Bank identifies the most affected sectors as the housing sector, energy, trade, transportation, and agriculture. Recently, the IFC conducted its own study to determine the role of the private sector in the recovery process. According to this study, the private sector can generate around 70 billion out of the 411 billion needed without significant progress in reforms and nearly 140 billion with successful reform implementation. Moreover, the recovery of certain sectors, such as retail or agriculture, can be fully covered by private funds (except for the irrigation system in agriculture). Furthermore, if Ukraine can demonstrate successful reforms, the amount of private sector investment could increase to 434 billion dollars, addressing critical needs within the RDNA framework and other sectors.

To support SMEs, IFC offers banks a partial credit risk guarantee, enabling the allocation of additional credit resources. According to Ms. Voloshyna’s opinion, the private sector, which used to generate 70% of GDP before Russia invaded Ukraine, requires more support. To address this, the IFC Board of Directors has approved a support program worth 2 billion dollars, with 1 billion dollars coming from IFC’s own resources and the remainder aimed at accumulating through partnerships with donors and development partners.

Oleksandr Komarov, President of Kyivstar, calls 2023 a consistently difficult year. However, the industry is gradually recovering. Despite a significant decrease in the subscriber base (around 10%), there is some growth, particularly with a 25% increase in internet usage. Kyivstar is actively restoring capacity and expanding infrastructure. In the past year, following the operation in Kharkiv, 700 sites were restored, and an additional 1200 sites were built since the beginning of the war. During this time, LTE was introduced in over 3000 settlements where it was not available since the start of the conflict. At the same time, Mr. Komarov points out that a morally and psychologically challenging factor for the team is the presence of sanctioned minority shareholders in the company. Approximately 48% of Veon’s shares are owned by the international investment company LetterOne, based in Luxembourg, which includes sanctioned individuals among its minority shareholders. As a result, the company is forced to operate while taking this risk into account and under increased media scrutiny.

In Kyivstar, they expect the situation to improve in 2024. The company, along with other operators, is preparing to return to temporarily occupied territories and is actively planning for the restoration of communication services in Crimea. Kyivstar plans to reinvest $600 million in Ukraine’s economy. Additionally, the 15 billion in taxes paid by the company also contribute to the country’s defense capability. Kyivstar is getting ready for the challenges of the winter season and assures that they are better prepared than last year. They have changed their approaches to dealing with the aftermath of shelling and have increased the number of generators to 2,000 (compared to 700 last winter) and the number of people involved in recovery efforts.

As Alessandro Zanelli, CEO of Nestlé in Ukraine and South and Eastern Europe, explained, there has been growth in the FMCG industry this year – a 17% increase in monetary value, while at the same time, there has been a 7% decline in volume. Therefore, volume recovery will be a crucial task for the next year. The market significantly declined in 2022 due to the physical absence of goods at the beginning of the invasion, the loss of nearly 9 million consumers, and the occupation of some territories. Now, they have managed to overcome almost all the challenges, ensure the availability of goods through imports or local production, establish logistics, restore active communication with consumers, and even introduce innovations and launch new products, supplying them to store shelves. Mr. Zanelli also considers the resilience of the retail industry to be an extremely important factor in the development of the FMCG market, as it adapts very well to the conditions and challenges of full-scale war, including blackout periods, while simultaneously recovering and expanding.

Nestlé has completely shifted its work priorities – from a focus on financial results and market share increase to safety, employee support, societal contributions, and the ability to continue operations. The company has devoted significant efforts to support the physical and financial well-being of its people, mental health support, rehabilitation programs for veterans, and support for Ukrainian society as a whole. This year, the company has allocated approximately 8 million Swiss Francs for charitable purposes, in addition to last year’s 13 million. This year, the company is demonstrating a 10% growth in monetary terms, which is slightly below the market. At the same time, this year, they have experienced a 5% decline in volumes (compared to a 15% decline last year). All factories are operational. Currently, safe working conditions are in place at these facilities, and they are operational, including for exports.

European Business Association would like to thank all speakers and participants for interesting insights and lively discussion, as well as Kyivstar for supporting the event!

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