War reshapes Ukraine’s economy as businesses forge new paths
ARCHITECT Oleh Drozdov has set his mind on moving his home and business from the Ukrainian eastern city of Kharkiv to more than 1,000 kilometers (over 620 miles) to the west within the days of the Russian invasion in early 2022.
And now, with the war in its third year, his practice may finally be returning to growth as businesses like his adapt to the conflict and search out opportunities alongside the formidable challenges.
“The storm is over. There are many holes in our boat, but we are moving forward,” Drozdov said from his office in a historic building in the center of Lviv, a city of some 700,000 people close to the Polish border.
On the city’s outskirts, cranes dot the skyline and industrial parks and other projects are being built.
In some ways, Drozdov & Partners is well placed to adapt to the shock of war. It is small and footloose, and in a country where millions of people and thousands of companies are displaced, demand for buildings and renovations is high.
“Some new opportunities have started to open up slowly,” said Drozdov. “There are investments in this part of the country as businesses and people are relocating.”
His practice is among 19,000 companies that have registered in new locations within Ukraine since the invasion, according to Opendatabot, which provides data from official registries, in a mass migration of businesses from east to west that may never be reversed.
“Thanks to the adaptability of businesses, support from partners and government programs, Ukraine is increasingly taking on the characteristics of a wartime economy,” First Deputy Prime Minister Yulia Svyrydenko told Reuters.
“If we compare the economy’s structure in 2023 with that of pre-war 2021, we clearly see this transformation. The Ukrainian economy is showing resilience and adaptability ... proving its ability to navigate through difficult times.”
WEST OF UKRAINE FARES BETTER
In the east of Ukraine, where fighting has raged during offensives and counteroffensives, towns and villages lie in ruins. Kharkiv is being heavily bombed.
A study by the World Bank, United Nations, European Commission and the Ukrainian government published in February estimated the total cost of rebuilding the economy to be $486 billion, a figure that continues to rise as more damage is incurred.
Far to the west, urban centers are faring better.
Viktor Mykyta, regional governor in Zakarpattia, which borders Poland, Slovakia, Hungary and Romania, described a rush of new businesses ranging from salt production to furniture and textiles.
Before the war, the mountainous region’s economy relied heavily on tourism and remittances sent home by Ukrainians working abroad.
“When the war broke out, a lot of businesses moved, jobs were created, and the budget began to be filled,” Mykyta said.
Officials in the Lviv region report a similar trend, with logistics, energy, construction and IT firms among those setting up operations there.
Of the few wartime foreign investments announced, most are in central and western regions, partly because they stand to benefit most should Ukraine succeed in its aim of joining the European Union one day, analysts said.
Projects include Turkish Onur Group’s plans to invest $50 million in graphite mining in the western Khmelnytskyi region and a further $150 million in renewables in Zakarpattia.
Germany’s Bayer said it would invest 60 million euros ($64.3 million) in its corn seed production facility in the central Zhytomyr region, while Ireland’s Kingspan Group has announced a $280 million investment in a facility in the Lviv region.
In Kharkiv, Ukraine’s second-largest city, the reality is very different. Oleh Synehubov, the region’s governor, said 70% of large enterprises had been destroyed, relocated, or suspended their operations.
“Our regional and city budgets have fallen by 40%,” he told Reuters.
World Bank data shows that businesses in eastern Ukraine experienced a 70% slump in sales between the invasion and the end of 2023, and those in the south had a drop of 63%. In comparison, companies’ sales in the western part decreased by 39%.
NEED FOR WORKERS
Official data on the impact of the war on different sectors is patchy, and recent trends could change if there are dramatic shifts on the battlefield. Russian attacks on energy infrastructure are also a major challenge for many firms.
After the economy collapsed by a third in 2022, it rebounded by 5.3% in 2023, and the government forecasts growth of 4.6% this year. The steel industry, once Ukraine’s key exporter, contracted by about 80% in 2022 and grew only 8% in 2023.
The economy ministry said that so far in 2024, the fastest pace of growth has been registered in construction, processing, transport and retail.
The defense industry has also expanded significantly. According to Ukraine’s strategic industries ministry, the number of defense manufacturers has more than doubled since February 2022.
As some sectors have expanded, job vacancies have grown fastest in the west of the country, according to Work. ua, an employment portal that reported a record number of wartime vacancies in April.
Vacancies were up 55% in Zakarpattia at the end of February compared with pre-war levels, while the Lviv region had about 8,500 vacancies open at the start of March, up 23% from before the invasion.
A recent survey from the European Business Association, one of Ukraine’s leading business groups, showed that about 74% of companies have suffered staff shortages – the result of millions of people fleeing overseas and hundreds of thousands of men serving in the military.
Drozdov has struggled to hire enough staff at his practice and fill vacancies at an architectural school that he also runs.
Mindful of the long-term task of rebuilding the country, Drozdov is launching a master’s program for young architects focusing on rebuilding the shattered east region. He hopes to return one day to Kharkiv.
“When there is an opportunity, we will return there physically. It will be a gradual process.”