EBA business leaders discussed the situation in Ukraine and forecasts for 2022
On February 10, the European Business Association held its semiannual event Global Outlook: Reality Check, during which Ukrainian and international business leaders discussed the current economic situation and forecasts for 2022.
The escalation is less likely if there is a decisive response to Russian aggression. This view is shared by Ambassador John Herbst, Former US Ambassador to Ukraine from 2003 to 2006. In his opinion, the invasion of Ukraine will result in disastrous consequences for Russia. The Joe Biden administration does not want to repeat the mistakes of Afghanistan, so the United States is determined to stand firm on Ukraine’s security. The US is actively delivering weapons to Ukraine, preparing sanctions against Russia, and urging its allies to do the same. The US Congress is also discussing the possibility of providing financial assistance to Ukraine so that the country can overcome the negative economic consequences caused by the escalation. It was also mentioned that NATO rejected all Russia’s demands, which means that the alliance will continue to accept new members and maintain the existing system of collective security. Mr. Herbst commented that even after the de-escalation of the current conflict, Russia will continue to exert threats, but the international community would deal with that smarter and stronger.
Tiberiu Dima, the EBA President and Managing director of BASF Ukraine, shared his impressions of the business meeting with the President of Ukraine Volodymyr Zelensky, which took place the day before. The EBA Board was positively impressed by the level of dialogue of the President and his team on the economic situation, as well as issues related to the security and pandemic. And the key message that the Board sent to the President – international business believes in Ukraine, is a reliable partner, and will continue to work in the country.
Of course, currently, there is a significant external impact on the country and the economy. However, it is important for businesses to remember that they are the driving force of the economy. Despite the significant external pressure, which is mostly negative, we should focus on our internal work – what we do and how it affects the country, we must continue our operations.
Obviously, the headquarters of international companies are closely monitoring the situation in the country. However, despite the difficulties, all offices are doing business as usual, continue to grow. And this is the best signal today.
“By the way, January turned out to be one of the best for our company in terms of business results. We see growth in all areas of work, especially in the agro sector. We are not making any cuts and continue, for example, lending to our clients – other businesses, which means we are optimistic about the upcoming course of events in Ukraine,” commented Tiberiu Dima.
According to Tiberiu, business today has to focus on five priorities, namely the continuity of supply chain, inflation, climate challenges, employee emotional and psychological burnout, the prompt quarantine lift, and cybersecurity.
Tomas Fiala, CEO of Dragon Capital, commented on the current macroeconomic situation and forecasts for 2022. The adjustments to forecasts are indeed possible due to the impact of the geopolitical situation. Thus, Mr. Fiala is inclined to believe that Russia will continue the hybrid war without physical invasion of the country, but the psychological offensive will continue. That had a temporary negative impact on the hryvnia exchange rate, from October-November 2021 to mid-January this year there was a depreciation of the hryvnia by 10%, although not as significant as in March 2020 at the beginning of the pandemic, when the national currency lost 13% of the value. Then the NBU was forced to spend $ 2 billion from foreign exchange reserves, but now the central bank has spent $ 1.5 billion, with $ 0.6 billion bought back. Now the hryvnia has strengthened and there is every reason to believe that the panic of the last 2-3 weeks ago is over.
The same can be said about the value of Ukrainian Eurobonds, which fell in the last three months, and then began a gradual recovery. Two other external factors that will affect business in Ukraine are energy prices, including gas, and inflation. So far, inflation in the United States has reached 7.5%, the highest since 1982, in the EU – 5.1%, forcing central banks to raise rates, which is a global trend. Last year, the National Bank began raising the key policy rate by 300 basis points in 2021 and 100 in 2022. In the current situation, the country needs a balanced monetary policy and adjusted interest rates on loans and mortgages which was noted at a recent meeting with the President as he mentioned his ambitions to develop affordable loan and mortgage programs. “Our forecast for GDP growth of 3% this year has not changed, we also expect a stable exchange rate in the first half of the year, and in the second half of the year, the situation may be more difficult, as Ukraine will need to import 8-10 billion cubic meters of gas. We expect an exchange rate of 29-30 hryvnias/dollar and we continue to invest in all our projects, “said Tomas Fiala.
Oleksandr Pysaruk, Chairman of the Board of Raiffeisen Bank, emphasized: “The situation in Ukraine’s banking system is even better now than it was two years ago. It should not even be compared to the 2014 crisis. The system is stable, lucrative, and has sufficient liquidity. Banks operate as usual. We expect good results in 2022: no one guarantees record growth, but the prospects remain positive, “said Mr. Pysaruk.
Volodymyr Avramenko, Founder and СEO, АVK Confectionery, noted that this is not the first crisis that Ukraine and AVK must face. The challenging time has started in 2014, but the company managed to find opportunities to work, continued production and exports, and even refocused on other segments, such as plant-based meat production. In the future, the company plans to switch to raw materials of its own production and transform into a food company.
Oleg Nikonorov, CEO of the Regional Gas Company, talked about the trends that are transforming the energy sector. Thus, Ukraine is becoming part of the global energy market, where there is a growing demand for energy resources. For example, a significant increase in demand in Asian markets has led to a sharp rise in gas prices – we can hardly expect prices to low down. Another popular trend in Europe is decarbonization, which will increase gas demand and affect Ukrainian producers exporting goods to the EU. It is also expected that in 5-7 years hydrogen energy will become widespread, so the Ukrainian energy infrastructure should prepare for the possible use of hydrogen and other synthetic fuels.
In a conversation with Sergii Shakalov, co-founder and CEO of KNESS Group, we talked about the potential of green energy. According to Mr. Shakalov, the Ukrainian energy system can be built exclusively on renewable energy sources which is the basis of his company’s strategy. The last two years were challenging for green energy In Ukraine, so many projects had to be frozen. However, there are current trends that green energy can operate in the market without additional incentives. Russia’s potential aggression will not stop the company from investing. Thus, KNESS Group plans to invest $ 20 million in pre-development projects in Ukraine this year.
Alexander Kardakov, Chairman of the Supervisory Board at Octava Capital, talked about cybersecurity in business. According to Mr. Kardakov, the current situation with information security is a standard risky situation that can be dealt with. In the IT field, important indicators are business continuity, security, and resilience. Cybersecurity in a company can be built if there are technologies, specialists, and processes. Today, the weakness lies in processes, particularly, in the public sector, and this should be taken into account.
The European Business Association is grateful to our speakers for interesting and useful insights, as well as confidence in the future and continuity of doing business in Ukraine. We also sincerely thank our partner Raiffeisen Bank for supporting and facilitating such an important discussion!
View the meeting recording:
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