Safety for employees, support for defenders, and optimism: how business holds the economic front

On May 17, the European Business Association met with business leaders to learn about the impact of the full-scale war waged by russia on various companies and sectors of the economy. So during the EBA Global Outlook: Economic Front, we talked about the damage caused by the war, the pace of business recovery, the teamwork, salaries, and support for Ukraine and its defenders.

Tiberiu Dima, Managing Director, BASF Ukraine, stressed that the safety of people was the priority for their company. The adaptation of operations to regulatory measures imposed by the state came after. While focusing on coordination efforts to relocate almost half of the team and their families and support employees who were enrolled in the Armed Forces or the Territorial Defence, the company continued business activities and operational processes and provided support to its partners and customers.

The company retained all employees, continued full employment benefits, and even implemented an annual wage increase. Moreover, it raised about 5.2 million euros to support Ukraine, therefore 1 million euros donated by BASF to the German Red Cross,  2.1 million euros donated by BASF employees around the world to be disbursed towards BASF Ukraine employees, and a matching amount of 2.1 million euro donated by BASF to UNHCR to support efforts for Ukrainian refugees. Tiberiu thanked his team for their resilience, determination, and courage, and expressed gratitude to the Armed Forces of Ukraine, which made it possible for many businesses to resume gradually their work. BASF continues to invest in local R&D projects and maintains its full commitment to Ukraine.

We talked about the state defense industry with Yuriy Husyev, CEO of Ukroboronprom, who said that since the beginning of the full-scale military aggression there have been more than 100 attacks on the concern’s enterprises, some of which are destroyed completely. Now, Ukroboronprom faces a major challenge in providing the Ukrainian army with weapons and equipment. To do this, companies are working in an enhanced mode, more than a thousand new people have been hired, and cooperation with international partners has begun.

There is no doubt that the defense industry will play a crucial role in ensuring the security of our country and the world. So now Ukroboronprom is being transformed from a state concern to a joint-stock company. Ukrainian defense began with domestic weapons, and now the country needs to move forward in cooperation with international partners to build a new defense industry. For example, in partnership with the Ministry of Digital Transformation of Ukraine, Ukroboronprom is forming a new ecosystem for startups in the defense market. Many Ukrainian soldiers and people are optimistic, we have confidence in our victory because we are defending our land, as well as freedom and the future of Europe and the world.

Dragon Capital forecasts that the Ukrainian economy is expected to decline by 30% this year if the war continues. With the soon end of the war and the resumption of ports, the decline may be smaller. At the moment, the company sees the resumption of large industrial companies, increased electricity consumption, the return of people, and adaptation to new realities, which allows us to hope for a faster pace of economic recovery than at the beginning of the war. According to Tomas Fiala, CEO of Dragon Capital, the exchange rate will remain fixed, after which the gradual liberalization will begin, but a dramatic devaluation should not be expected. Dragon Capital economists also expect moderate inflation this year – at the rate of 20%, which is not so bad given the current circumstances.

The company itself suffered significant losses due to the destruction of three warehouses near Kyiv, with a total area of almost 130thousand square meters. Nearly $ 70 million will be needed to rebuild them. Starting from March, thanks to the efforts of the Armed Forces, Dragon Capital has been able to restart businesses, as well as resume investment in some facilities in western Ukraine and Kyiv. However, this year the company does not expect profits. The main task now is to bring all businesses to break even, retain the team, present investment opportunities to Western investors, and raise the maximum amount of investment for Ukraine.

Mauro Longobardo, CEO, ArcelorMittal Kryvyi Rih, said that the company did not stop working for a day, in particular, mining operations, although they are now only 50-60 kilometers far from the front line. In the first month, mining production reached about 30% of pre-war times, today they have grown to 80%. Logistics remains the biggest problem, despite effective cooperation with UZ, as the main export routes used to pass through ports that are currently blocked. This situation is holding back the growth of production, but the company is trying to use the railway to export products to the ports of the Baltic Sea. Meanwhile, given the removal of some quotas and restrictions by the EU, Canada, and the United States, the company is looking for new markets.

The team in Kryvyi Rih is extremely motivated and continues to work; people are aware of their important role and responsibility despite all the difficulties. The company retains all employees, pays salaries, and allocates jobs to IDPs in the metallurgical industry. The prewar plans for large-scale investments have not been canceled but postponed for some time until the situation stabilizes. Mr. Longobardo is convinced that ArcelorMittal could be one of the engines to reboot the Ukrainian economy after the war.

Philip Sweens, Managing Director, HHLA International GmbH, said that their terminal in Odesa was closed at the beginning of the full-scale war, and the families of the company’s employees were evacuated to Hamburg. Although the terminal is not damaged, the movement of ships in the Black Sea is blocked, and it is impossible to approach Ukrainian ports due to mines. The company is currently trying to facilitate the movement of cargo to the EU by rail, with the biggest issue currently being the lack of railway platforms. After the end of the war, the operation of the terminal can be resumed as soon as navigation is available again on the Black Sea and HHLA is very committed to continue the operations of the terminal in Odesa.

We talked with Sergii Naumov, Chairman of the Management Board, about the situation in the banking sector and, particularly, the work of Oschadbank. As a critical infrastructure company, Oschadbank has made serious preparations in advance to adapt swiftly to martial law if necessary. Since February 24, the bank’s branches have been operating stably and providing services where it is safe. In the beginning, there was a significant problem with the lack of cash and its delivery, but it was quickly resolved. The transfer of cash, particularly to the regions, was important for the stable operation of all systems in order to conduct transactions and payments. Besides, cash had to be delivered to the combat zone – to pay pensions, salaries, and benefits. The Oschadbank workers showed real heroism when delivering the cash as they were aware of the significance of continued payments in times of war.

Initially, customers were actively withdrawing funds from their accounts, but soon the trend was reversed. Since the beginning of the war, physical clients have entrusted Oschadbank with an additional UAH 15 billion and this is the best evidence of trust in the financial institution. Oschadbank remains liquid and actively invests in military bonds. To support customers, credit vacations were provided and commissions for some transactions were canceled. Since March, the bank has focused on SME financing, especially in the agricultural sector. As a state-owned bank, Oschadbank will follow strategic directions of development, determined by the Cabinet of Ministers on May 7 for the war and post-war period. The main goal of the bank now is to support the economy.

Andriy Vavrysh, Saga Development Founder, said that the real estate market in Ukraine has been virtually frozen all this time, no agreements have been made, and market participants do not understand the further development of the situation. In western Ukraine, there is temporary demand for real estate, mostly in the secondary market. There is migration within the country – which leads to increased demand and it is likely that the market will adjust to it. At present, it is difficult to predict the consequences for the industry, realizing that there is a conditional six months of uncertainty and impossibility to predict the development of the war. Real estate prices are likely to rise as building material prices rise sharply. However, the demand for new buildings will return only after people have at least some certainty about tomorrow. Currently, the company is recruiting some staff, auditing, developing materials, and resuming work on certain projects in progress. Meanwhile, many employees have been mobilized to the Armed Forces. There are also people who have left the company or are not working. That is why the future of the company and the industry will significantly depend on further military developments.

Valery Krasovsky, CEO and co-founder, Sigma Software Group, shared the situation in the IT business with us. With the full-scale war, the company evacuated and helped its IT specialists relocate to the western regions of Ukraine. Thus, Sigma Software has opened new offices in almost every major city in western Ukraine. The entire infrastructure was relocated to Europe in 2014, and the company applied for the program from the Ministry of Digital Transformation to ensure a stable Internet and received Starlink as a backup channel in case of disconnection. However, Ukrainian telecommunications companies have done their best to ensure stable connections and the company can continue to work and communicate with its customers who are mostly from abroad.

The company financially supports the Come Back Alive Foundation, numerous humanitarian hubs, and organizations, and volunteers among its specialists. Besides, Sigma Software provided its specialists who joined the Armed Forces and the Territorial Defense with all the necessary equipment, it purchased drones and protective equipment. Sigma Software also established a charity fund for humanitarian aid to the city of Kharkiv and the region and specific assistance to the army. To date, the fund has spent more than $ 600,000 on evacuation, the needs of the population, and the Armed Forces. The company’s partners are also involved in fundraising, and since the beginning of the war, more than $ 2.5 million has been donated to Ukraine.

A major challenge for the IT industry today is to enable IT, professionals, from product and service companies to travel abroad freely to communicate with customers and teams where needed. This issue is gaining now the awareness and great support from the Ministry of Digital Transformation and the Ministry of Economy.