Vienna The Ukrainian entrepreneur Tetiana Abramova can still see something positive in the war. “Now there is a chance to take the business abroad,” says the owner of the small textile company Rito/91 Lab. There is now an awareness of Ukraine and its products.
Abramova is bursting with energy, just as many Ukrainians seem to be absorbed in entrepreneurship. Although the war severely affected Abramova’s business at times, the shops in Kyiv and the factory near the capital were spared the damage. Abramova’s company makes knitted dresses for women, and the entrepreneur likes to refer to Italy as a fashion country.
Smart clothes were no longer in demand when the Russian army launched its all-out attack on February 24. Abramova switched production to balaclavas for the army. However, since the Russian army withdrew to the Donbass and the south-east, the joie de vivre has returned a little in Kyiv.
“The situation remains very difficult, but new and beautiful clothes are more in demand than in February,” says Abramova. Nevertheless, only around 40 employees currently work for the company; before the Russian attack on Kyiv, there were twice as many. Around ten percent of the employees have fled abroad.
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While many companies are making ends meet, at least where there is no fighting, the Ukrainian economy as a whole is in a dramatic situation. The Vienna Institute for International Economic Comparisons (WIIW) estimates that Ukraine will lose a third to a half of its economic output this year. At 25 percent of gross domestic product, the budget deficit is expected to be so high that the government will not be able to make ends meet without extensive financial aid from the West.
Abramova’s company makes knitted dresses for women, and the entrepreneur likes to refer to Italy as a fashion country.
(Photo: Future Publishing/Getty Images)
The state needs around five billion euros per month to pay wages, pensions and basic services. However, all these estimates are more than rough, since nobody knows how long the war will last and what dimensions it will take on.
Employees scattered in 14 countries
Theo Schnitfink, founder of the IT outsourcing service provider Symphony Solutions, also fears this uncertainty. Many customers said they wanted to support the Ukrainian economy, says the entrepreneur. Overall, the clients have remained loyal to Symphony Solutions so far; only one bank terminated the business relationship.
“But the longer the war lasts, the more clients will probably see a business relationship with a Ukrainian company as too risky,” Schnitfink fears. And attracting new ones is likely to become increasingly difficult. “What company is looking for trouble?” asks the entrepreneur.
“We have to realign the logistics,” says Pavlo Moroz, who is responsible for relations with the government at MHP.
(Photo: Symphony Solutions/Youtube)
Symphony Solutions is based in Amsterdam: on the one hand because Schnitfink is Dutch himself, on the other hand because he thought the risk of corruption in Ukraine was too high when he founded the company in 2008. However, the largest branch of the IT outsourcing company is in Lviv in western Ukraine. Schnifink employs around 250 people there. About 10 percent of male employees serve in the military, and 50 female employees have fled abroad. They now operate from 14 countries. “Employees can work from wherever they want,” says Schnifink. You learned that during the pandemic.
Companies with production facilities that are also dependent on complex logistics have a much harder time in this respect than IT companies. These include in particular the large listed agricultural companies, of which there are several in Ukraine. One of the heavyweights is MHP, whose shares are listed on the London Stock Exchange. In 2021, it still achieved sales of $2.4 billion with sales of poultry, grain and sunflower oil; more than half of this was generated from exports.
“We’ll pay as soon as liquidity allows,” says Moroz. The investors, all of whom come from abroad, agreed to this.
(Photo: PR/Linkedin)
The company felt the effects of the war directly. Russian bombs set fire to a warehouse near Kiev on March 12. More than 3,000 tons of poultry were charred. In addition, MHP had to stop production in a sausage factory near the eastern Ukrainian city of Donetsk; manufacturing was relocated to the center of the country.
Logistics is the biggest problem
As a large production company, MHP is struggling with various difficulties, but the most serious problem is probably the logistics. Traditionally, Ukraine exported most of its products through Black Sea ports, but these are blocked or destroyed. In April this year, Ukraine’s export volume of agricultural goods was just 31 percent of the level in April 2021, according to MHP data.
“We have to realign the logistics,” says Pavlo Moroz, who is responsible for relations with the government at MHP.
Ukrainian companies are now attempting to export more goods by truck or rail. But these means of transport do not have nearly the capacity of ships, especially since bridges, roads and railway junctions have been partially destroyed. The Russians will probably continue to bomb the infrastructure in a targeted manner in order to hinder the transport of weapons to the combat zones in the east of the country.
Traditionally, Ukraine exported most of its products through Black Sea ports, but these are blocked or destroyed.
(Photo: Reuters)
Further difficulties arise. Much of Ukraine’s rail network is broad gauge, which means that goods have to be transferred from one train to another at the border. And trucking suffers from a certain shortage of gasoline. The government is doing everything it can to alleviate it, says Moroz. Unlike in the past, however, fuel from Belarus is no longer entering the country.
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Since sales are stalling, revenue isn’t flowing as it normally does. In order to protect the tense finances, MHP has postponed the interest payments for three euro bonds by nine months. “We’ll pay as soon as liquidity allows,” says Moroz. The investors, all of whom come from abroad, agreed to this.
MHP production has at least recovered somewhat. Poultry rearing reached 85 percent of the previous year’s level in April. But this is a snapshot. The bottleneck in exports remains, and the Ukraine war has taken so many turns since February that forecasts are unnecessary. The standard formula that listed companies like to use fits for once: You cannot make any forecasts about the course of business, writes MHP in the recently published 2021 annual report.
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