Below is the July 4, 2024 edition of the Ukraine Business Roundup weekly newsletter. This version has been condensed because the author was not in the office. Subscribe to receive the biggest news in Ukrainian business and technology directly to your inbox. here.
EU accession talks begin
Ukraine and Moldova formally began accession negotiations with the European Union on June 25, in a moment filled with excitement and anxiety about the changes to come.
“This is fantastic news and the start of a great journey. [sic] The workload of the entire state apparatus will increase over the coming years,” Ukrainian lawmaker Yaroslav Zheleznyak wrote in Telegram.
To be sure, the process will be painful for both sides: A months-long blockade by farmers and truck drivers in Ukraine’s western neighbor over easing wartime border controls is a good example of how difficult negotiations can be.
In addition to specific complaints in certain areas, there will be a lot of complaints about the cost of hosting Kyiv.
How much do you talk? European Budget Commissioner Johannes Hahn said Ukraine’s membership would require a 20 percent increase in the EU budget if current rules on agricultural and structural aid remained unchanged.
According to Hahn, a 20% increase in the budget would mean an extra 200 billion euros over the seven-year EU budget period.
“It sounds like a huge amount, but it amounts to just 0.2 percent of Europe’s economic output and is certainly doable. Ukraine has huge economic potential so it is a worthwhile investment,” he said in April.
What are the possibilities? Ukraine’s accession to the EU would enable it to become a shipping hub along the Europe-Asia transport corridor, allowing the EU to expand its trade eastward. Ukraine’s abundant natural resources could contribute to food and energy security and the green energy transition.
China’s technology and defence sectors are powerful innovators and will be invaluable to the EU’s economy and security.
Contrary to what Ukraine’s critics say, the ultimate beneficiaries of Kiev’s accession go far beyond Ukraine’s borders: Ukraine’s accession is not just a matter of how much the EU will have to spend, but also of the benefits it will gain.
It will take many years and a period of reform before Ukraine can actually join, and Russia’s ongoing war will complicate this process but is unlikely to stop anything now officially underway.
IMF & debt restructuring
The International Monetary Fund has provided $2.2 billion in budget support, the fifth such grant Kyiv has received since last year.
The spending brings the total amount disbursed so far to $7.6 billion, just under half of the $15.6 billion program established in March 2023.
This is good news, but The IMF also saw an unexpected recovery in the first quarter of 2024, but worsened its outlook for the rest of the year and through 2025 “mainly due to the devastating attack on Ukraine’s energy infrastructure and uncertainties regarding the duration of Russia’s war against Ukraine.”
The fund lowered its forecast for Ukraine’s gross domestic product (GDP) to a range of 2.5% to 3.5% from its initial forecast of 3.2% in April.
There has been speculation about whether the worsening economic outlook will affect Ukraine’s negotiations with bondholders, as the IMF loan sets targets for what it considers to be affordable debt repayments.
Kyiv is just weeks away from resuming interest payments on more than $20 billion in international bonds after a two-year grace period expires. The country could go into default if it is unable to make payments after a 10-day grace period following the Aug. 1 deadline for its 2026 bonds.
Previous talks have failed to result in an agreement between the two sides because creditors were unhappy with the bailout measures demanded by Ukraine, but Gavin Gray, head of the Ukrainian delegation, said talks with bondholders were intensifying and he expected a conclusion within weeks.
Ukrainian startups attract funding
Two Ukrainian-born technology companies announced significant funding rounds last week. Creationa robotic prosthetics manufacturer Esper Bionics.
Creatio raised $200 million in a funding round led by Sapphire Ventures, along with StepStone Group and current investors Volition Capital and Horizon Capital.
The funding round is a minority investment that values the company at $1.2 billion and is expected to help the startup expand globally as its revenue continues to grow by 50% annually.
In other newsEspel Bionics, a manufacturer of bionic upper limb prosthetics, announced it has raised $5 million in investment to expand production.
The funding round was led by YZR Capital and co-invested by the European Bank for Reconstruction and Development.
As Russia’s war continues, the number of people in Ukraine needing prosthetic limbs continues to grow. Bionic, or robotic, prosthetics could play a major role in rehabilitating amputees and reintegrating veterans back into society.
“There are 50 million amputees and 140 million people with paralysis in the world, many of whom struggle to find prosthetic solutions that are functional, accessible and aesthetically pleasing,” the company said on LinkedIn.
The return of Ikea
Swedish furniture giant IKEA has decided to draw up plans to reopen its Kyiv stores in May, Forbes Ukraine reported on June 27, citing two shopping center managers and two commercial real estate consultants.
Who cares? I’m not the only one excited about the availability of cheap household goods: The revival of retail is a sign to other investors who have previously shied away from Ukraine that it’s possible to do business here despite Russia’s war.
“H&M’s revival and success was an important signal for IKEA headquarters, which was also closely watching Inditex’s recovery,” one of Forbes Ukraine’s sources told the paper.
H&M will reopen in November 2023, while Spanish multinational Inditex, which owns brands including Zara, reopened some of its stores in Kyiv on April 3.
Like other multinational brands, IKEA closed its stores in Ukraine just a year after entering the country, and after years of hesitation and discussions with Ukrainian authorities, when Russia launched a full-scale invasion in February 2022.
In a statement to Forbes Ukraine, IKEA subsidiary Ingka Group said its “top priority in reopening its stores in Kyiv is the safety of employees and customers.”
Canada-Ukraine trade
In an interview in central Kyiv last week, Canadian Trade Minister Mary Ng spoke to the Kyiv Independent about the revised trade agreement between Ukraine and Canada, which came into force on July 1, and how it will affect businesses in both countries.
Kyiv Independent: How will a modernized trade agreement help Ukraine’s economy and recovery?
Mary Ng: The last agreement was about trade in goods, but now it has expanded to include trade in digital, trade in services, trade that fosters closer cooperation, and other areas. There are elements that characterize a quality agreement: labor standards, environmental standards, but also comprehensiveness.
Kyiv Independent: Are Canadian companies currently interested in Ukraine, even in the midst of a war?
Mary Ng: Yes, in fact, over the past few years, the Canada-Ukraine Chamber of Commerce has been hosting the Ukraine Reconstruction Conference, which is a very important forum that brings together all the right people to have a dialogue about what we can do together in the reconstruction effort.
Kyiv Independent: Are Ukraine’s business-friendly efforts worthwhile without war risk insurance, and how can Canada protect Canadian investments in Ukraine in the event of war?
Mary Ng: A few weeks ago, our export credit agency, Export Development Canada, signed a memorandum of understanding with other export credit agencies in the G7 countries to cooperate on this very issue. We’ve made very good progress and that work will continue.
Read the full interview here.
What else is happening
EU puts ’emergency brake’ on egg, sugar imports from Ukraine
DTEK has invested approximately $34 million of its own funds in restoring the thermal power plant since the beginning of the year.
DTEK, the country’s largest private energy company, also said it plans to invest a total of 3.9 billion hryvnias ($95.8 million) in repairs and rehabilitation of thermal power plants, the same amount it spent last year. The company said it needs $300 million to $400 million to restore all the facilities affected by the Russian attack.
Naftogaz to increase gas production by 8% year-on-year in the first half of 2024
In the first half of 2024, oil and gas giant Naftogaz Group companies (JSC UkrgasVidobvania and PJSC Ukrnafta) have already produced 7.3 billion cubic meters of commercial gas. “At the moment, gas production is exceeding the operating plan by nearly 2 percent,” Naftogaz CEO Oleksiy Chernyshov said on July 2.
Ukraine’s GDP grew 6.5% in the first quarter
The country’s economy expanded more than expected in the first quarter of 2024, with gross domestic product growing 6.5% year-on-year, according to the National Statistics Office.
Kharkov’s Nova Poshta post office comes under attack by Russia
Nova Poshta, Ukraine’s largest private postal company, said on June 30 that the airstrike occurred near its distribution center, but that “all employees on shifts were in bomb shelters and no one was injured.” “There have also been casualties among residents and truck drivers,” Nova Poshta said, adding that the post office was damaged. Another post office in Odessa was hit by an airstrike in early May.
