February 15, 2024

The Liberation of Ukrainians: The end of the war in Ukraine, a bet for foreign investors

Despite an uncertain military situation, more and more multinationals are betting on Ukraine, lured by the potential of the post-war period and the prospect of entry into the European Union. But their growing weight in the country’s economy raises fears of deleterious consequences for labor law.

Please find the full article (in French) here.

Please find the English translation of the article below:

by Théophile Simon, special correspondent in Lutsk, Kyiv and Kryvyi Rhi
Published on February 15, 2024 at 07:59 p.m.

Interviews, reports, analyses… Two years after the invasion of Ukraine, the “Liberation of the Ukrainians” once again gives a voice to the inhabitants of a wounded country. From Kyiv to Kharkiv, from Lviv to Donbass, an intimate and committed tour of Ukraine in the face of a torn society. All the articles in our dossier.

Nestled in the valleys of northeastern Ukraine, the Nestlé factory in Torchyn has regained its pre-war dynamism. Some employees are still mobilized by the army and a new bunker is a reminder that Russian bombs have not disappeared from the Ukrainian skies. But the production lines are once again chunting up sauces and soups at full capacity. “The only problem is that our foreign subcontractors no longer come to Ukraine to repair machines. So, we learned how to repair ourselves, via video conferencing,” smiles Oksana Khmaruk, the chief engineer, as she inspects the production of borscht bags.

After two years of war and significant financial losses, Nestlé’s Ukrainian business is back on track. So much so that the Swiss multinational recently decided to build a new €40 million plant not far from the one in Torchyn. On this January morning, along a road heading towards Poland, a group of workers are digging through the snow in the foundations of the future industrial site. By September, 400 new employees will produce thousands of tons of noodles and condiments here, a third of which will be exported to Europe.“This new plant is our biggest investment in Ukraine in ten years. This is in addition to the €30 million invested in 2023 in our other production sites across the country,” said Alessandro Zanelli, Nestlé’s country director for Ukraine, from his offices in central Kyiv. The military situation is still uncertain, but Ukraine’s fundamentals remain robust: its workforce is excellent and its agricultural resources are still accessible.” The Swiss giant’s new factory also aims to give the Ukrainian government a change: for refusing to leave the Russian market, the company has been registered by Kyiv in the infamous register of “sponsors of terrorism”.

An air raid siren suddenly rips through the skies over Kyiv. The hundred or so employees grab their computers wearily and head for the building’s underground car park, where a makeshift open space has been set up. “Alerts can last for several hours, so we set up this space so we could continue working. That’s our daily life,” sighs Alessandro Zanelli as he settles under the pale halo of neon lights in the car park. Bundled up in their coats, the manager and his employees get back to work as best they can.

Unlocking the system

Doing business in Ukraine remains a combat sport. Despite a return to growth in 2023, the country’s gross domestic product remains a quarter below its pre-war level. Nearly six million Ukrainians are still refugees abroad, cutting into the available workforce. The prospect of a long war, confirmed by the failure of the Ukrainian counter-offensive last summer, encourages Ukrainians to build up stockings rather than invest their savings. The central bank, meanwhile, has raised interest rates to prevent capital flight. As a result, the banking system is struggling to irrigate the economy.

 “High interest rates encourage banks to invest their funds rather than lend. Raising money remains complicated, says Tomas Fiala, the founder of Dragon Capital, one of the country’s leading investment banks. Financial markets are still shunning Ukrainian debt, as half of the state budget is now financed by the West. If this aid were to run out of steam, the country’s financial system would therefore be seriously depressed. The current blocking of aid to Ukraine in the US Congress sends a very bad signal in this respect.”

However, Ukraine’s economy urgently needs to get a makeover: taxpayers’ money from Ukraine’s allies is expected to cover only a quarter of the cost of reconstruction, estimated at more than twice annual GDP. While struggling in the face of the Kremlin’s assaults, Kyiv must therefore engage in a gigantic seduction operation aimed at private capital.

Several international institutions are lending a hand. The World Bank has created a specific insurance policy covering the physical damage caused by the war. The European Bank for Reconstruction and Development has invested €3.8 billion alongside private companies. Nestlé is benefiting from this windfall to build its new factory, as is Dragon Capital to create an industrial park in Lviv. The initial results of this incentive strategy are rather timid. After collapsing in 2022, foreign investment in Ukraine picked up again in 2023. But the flow remains far from its pre-war level, and mainly concerns companies already established in the country.

Sirens of the Single Market

The opening of negotiations for accession to the European Union, voted by the Twenty-Seven in December, could accelerate the trend. “This would represent a huge economic opportunity. We are very much in favour of it,” said Oliver Gierlichs, Bayer’s head of Ukraine. The German pharmaceutical and agrochemical giant, which bought Monsanto in 2018, rules over 6,000 hectares of farmland across Ukraine. “Ukraine is a great agricultural power. Its entry into the single market would benefit European consumers. The pharmaceutical sector, on the other hand, is underdeveloped, as Ukrainians often pay for their medicines themselves. If Ukraine joins the EU and develops, it’s a safe bet that the state will subsidise health care more.”

The head of the company does not mince words. In the spring of 2023, he convinced his management to invest €60 million to expand his seed processing plant south of Kyiv. A project that is attractive enough for Bayer to have the luxury of declining the World Bank’s aid. “Investors need to come to Ukraine before the last shell is fired. In doing so, they will gain a reputation for being there when Ukraine needed them most, which will be a decisive advantage for years to come. It’s also a good time to buy land at a good price and recruit top talent. Once peace is signed, it will be a tug-of-war,” predicts Oliver Gierlichs.

Ukraine, Europe’s next Eldorado? At a time when Western industry is looking for an alternative to Chinese factories, the scenario is convincing as far away as America, where the investment fund Chicago Atlantic Trident is preparing to pour $350 million into Ukrainian real estate. “Ukraine could have an even more spectacular trajectory than Poland, whose economy has doubled since joining the single market two decades ago,” predicts Dmitriy Lampert, one of the fund’s partners. The two countries have roughly the same population, but Ukraine’s GDP is four times smaller despite having twice the size of the territory and more diverse natural resources.”

Race for competitiveness

Not all Ukrainians are happy about these appetites. In trade union circles, some fear that the war will open their country to the four winds of world capitalism. “The war is pushing Ukraine down a very harmful neoliberal slope,” says Vitaliy Dudin, a specialist in social law and a member of the NGO Mouvement social. The government wants to make the country more attractive to investors by unravelling labour laws. This strategy began before the Russian invasion and then accelerated with the declaration of martial law in 2022. It gives crushing power to employers, marginalises trade unions and has suspended labour inspection. The executive now wants to make some of these emergency provisions permanent.”

In mid-January, the Ukrainian government unveiled its plan to reform labour law. The text provides, among other measures, for an easier dismissal and a tripling of the overtime ceiling. However, those who criticise the reform will not carry much weight against the multinationals. From Kryvyi Rih, the cradle of Ukrainian metallurgy, Luxembourg-based steelmaker ArcelorMittal is already warning of the “loss of competitiveness” of Ukrainian industry. The company injected €150 million in 2023 to keep its blast furnaces afloat and holds the title of the largest foreign investor in Ukraine.

“The war has caused the price of logistics and electricity to skyrocket, while we are still paying two-thirds of our 20,000 employees who have been placed on furlough. This will not be sustainable forever, warns Mauro Longobargo, the director of ArcelorMittal in Ukraine. The key in the short term is to provide Ukraine with the necessary security guarantees to bring down costs, for example by keeping the Black Sea corridor open and providing more anti-aircraft batteries to protect electricity infrastructure.” With the loss of the other two major national steel mills, both located in Mariupol, in occupied territory, ArcelorMittal alone could soon account for 10% of Ukraine’s GDP. There is no doubt that his desires will be studied in high places.


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