Ukraine seeks to rebuild its economy with rebel small businesses

LVIV, Ukraine, Oct 8 (Reuters) – Victoria Maslova abandoned her plant-based cosmetics factory in the Ukrainian town of Bucha on the first day of Russia’s invasion of the country, fleeing to Poland with her mother and her three younger brothers when rockets began to hit a nearby town. airport.

A month later, they were back in Ukraine, determined to continue making Maslova’s herbal cosmetics brand, Vesna.

“We love Ukraine. We wanted to go back to our country and work here,” says Maslova, 24, who founded the company seven years ago with her mother, Inna Skarzhynska, 44.

To reverse the economic blow caused by Europe’s biggest war since World War II, the Ukrainian government is pinning its hopes on the entrepreneurial determination of people like Maslova, as well as the return of millions of refugees – and international financial aid to large scale.

Awaiting Russia’s chaotic withdrawal in April from Bucha, a town near Kyiv now known for an occupation that left the bodies of civilians strewn in the streets, Maslova’s mother returned to the factory. The workshop had been looted and was a mess, but she collected some materials and loaded them onto a truck. They set up a new operation in the relative calm of Lviv, some 450 km (280 miles) west near the Polish border.

Five months later, Vesna products are being sold in more countries than ever, including Poland and Lithuania, and Maslova recently won a deal to produce products for a private label in the United States, she said. . All the while, the company has been donating skin and hair care products, labeled “You are our hero,” to women and men serving at the front.

The war, which Moscow calls a “special military operation”, is now approaching its eighth month. Despite Ukraine’s recent battlefield victories, experts believe it could go on for a long time yet, leaving millions of Ukrainians displaced inside the country and nearly 8 million outside its borders.

So, as Ukrainian forces fight to regain territory seized by Russia since the Feb. 24 invasion, the Kyiv government is racing to stabilize the economy and find job opportunities for those who fled. homes, jobs and businesses in the east and south.

The economy is expected to contract by more than a third this year, but with businesses reopening, Economy Minister Yulia Svyrydenko sees output stabilizing and rising by up to 15% in 2023, albeit from from a weak base. And within a decade, it dreams of more than doubling from pre-war levels to $500 billion, aided by foreign investment and European Union membership.

“We always say that we have two fronts: one is the military front and the other is the economic front,” Svyrydenko told Reuters in an interview in the basement of Russia’s imposing Cabinet of Ministers building. Soviet era, where hallways and windows are cluttered with sandbags. “The economic is no less important than the military.”

Small and medium-sized businesses like Maslova’s are at the heart of the government’s efforts.

Economic activity froze across the country after the start of the war, but restaurants, retail stores and even nightclubs are visibly open again in Kyiv, Lviv and other unoccupied cities, even at Zaporizhzhia, near a besieged nuclear power plant.

The Economy Ministry has helped 700 companies relocate from frontline areas, of which 480 have already resumed operations, Svyrydenko said. These businesses are benefiting from the return of around 3 million refugees, which is helping demand, while money is flowing back into the economy thanks to the resumption of exports, notably from three Black Sea ports.

To help displaced businesses get a fresh start, the Ukrainian Investment and Trade Facilitation Center in Lviv is providing businesses with free access to office and manufacturing space, a valuable lifeline.

The task facing the country and entrepreneurs like Maslova is daunting, given a recent World Bank and European Union estimate of war damage totaling nearly $100 billion and ongoing Russian strikes. on civil infrastructure.

Ukraine also faces mounting fiscal problems, despite a debt payment freeze agreed by Western government creditors this month and by private creditors in August. It is seeking foreign aid, but also needs private capital to rebuild.

Any investment will require security guarantees and strong accountability, given what the German Marshall Fund has called Ukraine’s “corrupt history”. in a report last month.

Top economic experts from Ukraine, the World Bank, the International Monetary Fund and other donors will examine some of these questions at a recovery conference hosted by Germany in Berlin on October 25.

The International Monetary Fund on Friday approved $1.3 billion in additional emergency funding for Ukraine that could catalyze support from other donors for a larger, full-fledged program in the future.

“COURAGEOUS COMPANIES, COURAGEOUS PEOPLE”

Iryna Tytarchuk, who runs the Lviv Investment Center, helps connect displaced business owners to resources, including government microloans and loans of up to $68,000, and funds from the U.S. Agency for Development international program for women-owned businesses that helped Maslova get back on her feet. his foot.

“These are brave companies and brave people who didn’t quit everything and went abroad, but decided to start again and again,” she said. Tytarchuk recalled that many companies saw their revenues rebound in 2014 when they moved away from Russian markets after the annexation of Crimea.

“Now even more markets are opening up for them,” she said, noting that a number of British companies had approached her looking for “made in Ukraine” products.

Near the front line, Mykolaiv, 800 kilometers (500 miles) southeast of Lviv, comes under regular artillery barrages. Here, Julia Konovalova bides her time, eager to restart Fresh U & detox, her once-thriving healthy food delivery business, when the fighting stops.

Konovalova remained when more than half of Mykolaiv’s population fled. She donated her supplies to the military when war broke out and has coordinated food aid for the World Central Kitchen relief group in recent months.

“I still have all my equipment. Now I’m waiting for the war to be over, then I’ll start again,” said the former hotel manager. “We just need to survive.”

Near the Russian border, heavy fighting has emptied Ukraine’s second-largest city, Kharkiv, of three-quarters of its 2 million people, although recent Ukrainian advances have retaken neighboring territory.

Rockets damaged Evgeniy Safonov’s wine bar in Kharkiv, but he is already scouting new places in safer towns and wants to eventually return to Kharkiv.

“Our investors are interested even now,” he says. “Call me brave or stupid, I know. But our planning horizon is a matter of days. You never know what tomorrow will bring.

INVESTMENT SEARCH

Svyrydenko admits Ukraine faces big challenges, but says she and other officials are seeking investment wherever they can, citing estimates that every $10 billion invested will generate a 5 percentage point increase. percentage of national production.

His ministry is considering 50 applications from the United States, Germany, Britain and Poland submitted after the launch of a new investment portal “Advantage Ukraine” on the New York Stock Exchange last month that lists 400 billion of investment opportunities, but said it was too early to give details.

The World Bank’s private finance arm, the International Finance Corporation, and the European Bank for Reconstruction and Development also announced last month that they would invest $70 million in a private equity fund investing in companies. technological and export-oriented in Ukraine and neighboring Moldova. It aims to raise up to $250 million over the next 12 months.

Andy Hunder, who heads the American Chamber of Commerce in Ukraine, said Ukraine’s economy was showing “phenomenal resilience”, with internet and banking services working better in wartime Kyiv than in parts of Europe. in peace.

That of the group last surveypublished this week, showed that 77% of its 600 member companies believe the war will end in 2023, and all but 2% plan to continue doing business here.

Yulia Zavalniuk, whose small Villa Verde flower farm about 40 km west of Kyiv was badly damaged by Russian forces four days into the war, initially considered moving to Slovakia but decided to move temporarily in Lviv, while selling plants to continue paying salaries and covering basic business costs.

“Now is the time for us small entrepreneurs,” she told Reuters. “We must be the most creative, service-oriented and quality-oriented in producing goods, selling them and paying taxes,” she said.

Reporting by Andrea Shalal; Editing by Frank Jack Daniel and Jane Merriman

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