Companies in Ukraine see problems pile up, but most tough it out

Metro AG

29/02/2024 08:00

* 
      Blockades, capital controls, insurance costs weigh on
companies
    

        * 
      Survey shows only 2% of firms closed due to war with
Russia
    

        * 
      Companies call for support and insurance backstop
    

  
    By Marc Jones and Olena  Harmash
       KYIV/LONDON, Feb 29 (Reuters) - German supermarket chain
Metro  B4B.DE  and its 3,400 employees in Ukraine have worked
hard to get their business back to where it was before Russia's
full-scale invasion two years ago.
    After a sales slump of 10.4% in 2022 - when the overall
economy collapsed by almost a third as war caused havoc -
revenue rebounded by almost the same amount last year as
domestic consumption recovered. 
    Now Metro faces a new test, as protests by Polish farmers
blockading the borders with Ukraine disrupt supplies coming in -
one of several challenges foreign and domestic firms face as
they navigate doing business in a country at war.
    "The war has taught us to respond flexibly," Olena
Vdowychenko, head of the supermarket giant's Ukraine business,
told Reuters.
    According to Vdowychenko, around 18 of her company's trucks
have been stuck each week at the Polish border in recent months,
sometimes for three to four days. "This is a big problem for
Ukrainian businesses," she said, explaining it was pushing up
costs everywhere.
    Capital controls restricting the movement of profits out of
the country, difficulties in getting insurance and wavering U.S.
financial and military support have been issues for corporate
Ukraine for months, if not longer.
    To make matters worse, border disruptions in 2023 by Polish
truckers have been replaced by similar actions by farmers upset
at cheap Ukrainian grain taking their market share.
    Russia's military also has the upper hand in the battlefield
in the east and south, putting key mining operations out of
action or at risk, and a new mobilisation bill aimed at
recruiting up to 500,000 more Ukrainians threatens staff levels.
 
 
    POINT OF NO RETURN?
    Some smaller companies say an accumulation of problems has
brought operations in Ukraine to the brink of collapse.
    The owner of one UK-based clothing manufacturer, who did not
want to be named because of commercial sensitivities, said the
business had been impacted by border protests, customer
confidence and insurance issues to the point where operations in
Ukraine were at risk.
    "Now we are at the point where we don't think we can
continue," said the owner, adding that the company had been
active in Ukraine for 25 years. "We are still trying though."
    Others, mainly larger firms and foreign operators, are not
sounding the alarm bells yet, although some have relocated away
from the frontlines and there are major Ukrainian corporations
who have defaulted on debt.
    A recent American Chamber of Commerce in Ukraine study
estimated that only 2% of firms had closed and another 10% had
been severely affected since 2022, based on a survey of 125
members who are mostly larger multinationals and bigger
Ukrainian companies.     
    "Multinationals are not leaving," said Alfonso Garcia Mora,
a regional vice president at the International Finance
Corporation, which is part of the World Bank group, whose recent
surveys tell a similar story. "They have really held in there as
much as they can."
    He added that one reason was war-time capital controls
effectively prevented firms from selling up or sending money
made by subsidiaries in Ukraine back home, meaning many were
taking the view that it would be better to stay for a hoped-for
eventual post-war recovery.
    The risk of missile strikes and collateral damage means
firms and organisations need special war risk insurance although
barely any have been able to secure it.
    The clothes manufacturer said it had been unable to insure
goods during transport, while Leverkusen-based Bayer  BAYGn.DE ,
which is building a 60 million euros ($65 million) corn seed
facility near Kyiv, is only finding cover now.
    "We have a number of offers for war insurance and are
looking at which one we take," said Oliver Gierlichs, the
company's Managing Director of Ukraine, adding that it would be
costly however.
    Some development bankers grumble that there is no sign of a
global or Europe-wide insurance backstop, although some
governments are starting to step up.
    Philipp Grushko a board member at the large TIS port near
Odessa expects "small and brave" exporters to restart container
shipping in the next few months, while private equity fund
Horizon Capital says it is even starting to look at possible
stock market floats for some of its firms next year.
    "It is less of a crazy thought these days," Horizon's Vasile
Tofan said.                  
       
    SHIFTING FRONTLINES
    Yuriy Ryzhenkov, chief executive of Ukrainian metals giant
Metinvest, is watching the shifting frontlines carefully.
    Russia's seizure of Avdiivka in mid-February meant the loss
of control over his company's coke plant there, nearly two years
after Metinvest's sprawling Azovstal iron and steel works in
Mariupol fell to Moscow's forces after being badly damaged.
    Battles are now raging within 40 km (25 miles) of two other
big operations - Pokrovsk, where it runs Ukraine's largest coal
mine, and Zaporizhzhia to the south where its biggest steel
plant is located.
    Ukraine's iron and steel sector employed some 600,000 people
and contributed around 10% of Ukraine's GDP before the war. It
still represents a huge share of the economy and contributes
large amounts of tax.
    But Ryzhenkov and others are also worried about the
government's plans to mobilise up to 500,000 more people to
replenish an exhausted and stretched army.    
    "We are hiring people, we are training them and then they
are getting drafted before they even start working," Ryzhenkov
said, estimating that Metinvest was already 9,000-10,000
under-staffed.     
    "That is a big problem we are trying to convey to both the
military guys and the politicians in Ukraine. Hopefully they
will be able to find a way around it because otherwise the
economy will not be able to function."


    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Costs of the war in Ukraine    https://reut.rs/42LxqYj
Direct hit    https://reut.rs/3I4oP9D
Debt dynamics    https://reut.rs/48i0R5i
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Additional reporting by Helen Reid in London and Michael Kahn
in Prague, Editing by Alexandra Hudson)
 ((marc.jones@thomsonreuters.com; +44 (0)20 7513 4042; Reuters
Messaging: marc.jones.thomsonreuters.com@reuters.net  X/Twitter
@marcjonesrtrs))