EXPERT PERSPECTIVE / OPINION — Early after Russia’s invasion of Ukraine in February 2022, as Russian troops threatened Kyiv and Russian cruise missiles destroyed targets across the country, Oleksandr Kamyshin, Head of Ukrainian State Railways, received direct customer feedback that the bathrooms at one of his stations were filthy.
War is Not an Excuse: The Case for Investing in Ukraine
Kamyshin called the station manager to ask why. “With a war on, there were more important tasks than worrying about a complaining customer,” the manager impatiently replied. Kamyshin’s response: “war is not an excuse.” His message was that attention to high standards and meticulous detail would carry Ukraine through the crisis of war.
For Western firms which hope to participate in the reconstruction of Ukraine when fighting ends, war is not an excuse to wait. Firms that lay the groundwork for investment now, while Ukraine needs it most, will be in a much better position to compete later, and they will help ensure that there is a Ukraine to rebuild.
There are significant financial and moral incentives for Western business engagement in Ukraine, but there is no question that it is risky environment. Russian President Putin desperately seeks to salvage something he can call victory. Kyiv rejects any deal which would allow Russia to regroup, rearm, and resume fighting. The war could easily last for years.
Even amidst its fight for survival, Ukraine is positioning itself for a dramatic economic rebirth by eliminating barriers to entry, streamlining bureaucracy, vigorously tackling corruption, and attracting billions in support from governments and the private sector. Ukraine must reconstruct large portions of its physical infrastructure and at the same time transform a post-Soviet economy into one ready to join the EU.
How should CEOs think about when and how to invest in Ukraine? What are other companies doing? What sectors offer the most opportunity? And what about risks from corruption, and the ongoing danger of investing in a conflict zone?
Samuel Cook, an American entrepreneur facilitating business entry into Ukraine, notes that Western companies that enter Ukraine now can hire the best talent, build critical relationships, and acquire vital ground truth. Per Cook, “investing in Ukraine at war is the perfect example of Warren Buffet’s adage to buy when others are afraid.”
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Ukraine’s IT sector is renowned for its rich talent pool and high impact digital tools. Ukrainian success countering intense and sustained Russia cyber-attacks exemplifies the country's world class IT talent and expertise. Ukrainian-produced IT innovations include DIYA, an app enabling one-stop access to over 20 official documents such as passports, drivers’ licenses, and vaccination records. The boost in efficiency also increases transparency - essential for the anti-corruption fight.
Silicon Valley is helping. Palantir, for example, is working closely with Ukrainian armed forces to help it fight war at the speed of algorithms when identifying targets and threats. Ukraine also applies Palantir tools off the battlefield. CEO Alex Karp stated: “We have built platforms to navigate the vast amount of sensitive data required for the prosecution of war crimes, and we are proud that our software is now being deployed in Ukraine to defend the West.”
Venture capital firms are already supporting Ukrainian startups. Google executive Eric Schmidt and fellow investors have committed $10 million to Dare to Defend Democracy (D3), a Ukrainian incubator that provides young firms with seed funds, mentorship, support for certifications, and access to government and private sector networks. D3, along with Brave1, and other VC firms are providing alternatives to Ukraine’s under-developed capital markets and bank-centric finance system which limit the options for seed capital. Far more is needed.
As a signal of support and interest, over 600 firms from 21 industries have signed the Ukraine Business Compact, an agreement to: (1) invest in Ukraine reconstruction (2) work with companies based in Ukraine, and (3) support Ukraine’s economic growth and development. Prominent signatories include Amazon UK, Apple, AstraZeneca, BAE Systems, Cisco, Citi, Deloitte, Google, McKinsey, Oracle, Palantir, PricewaterhouseCoopers, Rio Tinto, Siemens, and Vodafone.
Meanwhile, some firms have plunged ahead with putting capital and people on the ground.
Rheinmetall, the German defense conglomerate, has invested in domestic production with a $200 million production facility to repair and retrofit damaged armored vehicles, followed by production of up to 400 tanks annually. BAE Systems has established a local office, is providing training and repairs for the Ukrainian armed forces, and is planning to locally build 105 mm light artillery.
Drone producers are similarly active. Baykar, the Turkish aerospace company and drone manufacturer, has broken ground in Ukraine on a $93 million plant to build its Bayraktar TB2 drone. Dozens of other drone platform builders and software providers are present in Ukraine. Bernard Hudson, CEO of drone advisory firm Advanced Archer, describes the Ukrainian drone industry as the most dynamic in the world. “The future of drone warfare includes machines that are cheap, attributable, and everywhere. Much of the future about how drones will be used in warfare is being developed on Ukraine's battlefields.”
As a signal of support and confidence, major international Investment groups including Blackrock, JP Morgan Chase, Dragon Capital, and Horizon have pledged significant private sector funds, some to be invested now, but most of which would be unlocked when fighting ends.
According to Andrew Forrest, founder of the Australian mining conglomerate Fortescue, "when the war ends in a way that satisfies the Ukrainian government, the global investment will pour into Ukraine.” Forrest himself has pledged $500 million for Ukraine as seed funding for a Ukraine Development Fund being established by Blackrock and JP Morgan Chase targeting $25 billion in contributions from governments, sovereign wealth, institutions, and private investors.
The European Investment Bank, the European Bank for Reconstruction and Development, and the US Agency for International Development have together donated or pledged billions in investments of direct aid to support critical industries, small businesses, and humanitarian efforts.
David Petreaus, former CIA Director and current KKR partner, is a strong advocate of supporting Ukraine’s private sector. Nevertheless, he notes that Ukraine is a market for “adventure capital.” Many financial institutions will not have the appetite to navigate Ukraine’s risky operational environment.
The war has no end in sight, and Ukraine’s pool of experienced leaders and managers who can meet Western expectations for governance, compliance, and results is limited. There is debates as to whether Ukraine, historically dogged by corruption and an oligarch-centered economy, can overcome internal challenges to rebuild efficiently and transparently.
Ukraine’s post-Soviet economic record is grim. It was cursed with poor managers, corrupt officials, maddening bureaucracy, organized crime, and don-like oligarchs. Add to this political infighting and Russian efforts to destabilize the country. On the 2022 Transparency International Corruption Perception Index, Ukraine was ranked 116th out of 180.
But Russian’s invasion has created an opportunity which Ukraine is seizing to shatter the old system and develop a modern Western economy, tightly integrated with Europe.
President Zelensky has described the war on corruption as a second front. Since the war began, Ukraine has enacted anti-corruption legislation and established four anti-corruption bodies, including the Specialized Anti-Corruption Prosecutor's Office and the National Anti-Corruption Bureau of Ukraine. The Chief Justice of the Supreme Court was arrested for taking a $2 million dollar bribe, a senior security official was detained after amassing over $5 million in illegal business schemes, and the Mayor of Odessa was charged with public corruption.
Most recently, Ukraine initiated criminal proceedings against 112 heads of local military recruiting offices for abusing their positions. Per Zelensky, “Every ‘military commissioner’ against whom there is a criminal investigation will be held accountable…. Officials who confused their shoulder straps with profit will be brought to justice.”
Coinciding with top-down anti-corruption efforts, Ukrainian oligarch wealth and influence dropped dramatically after the Russian invasion. Those who were Russia-aligned found themselves exiled. Others lost influence and power as their fortunes halved and control over media diminished. Most recently, a Ukrainian court order tycoon Ihor Kolomoisky to be detained while under investigation for money laundering and fraud – a notable signal as Kolomoisky had backed Zelensky presidential campaign.
The bottom line for investors: the war has incentivized and empowered the administration to fight the corruption that has dogged the country for decades. Ukraine’s determination to join the European Union and NATO ensures that anti-corruption progress will continue. Ukraine is concentrating on structural issues critical to investor confidence, but Western business practice and expertise are also essential.
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Oleksandr Kamyshin has moved from his railroad role and is now Ukraine’s Minister of Strategic Industries, responsible for producing the munitions, drones, and vehicles Ukraine needs to prevail against the Russian invaders. He has dramatically raised domestic weapons production and seeks to transform Ukraine’s defense industry from one which is 80 percent state owned to one 80 percent private-sector-led. "Ukraine will become an arms arsenal of the free world,” Kamyshin declared in a July 2023 interview. “We want our country to become the largest arms manufacturer in Europe."
Expect a similar transition across energy, IT, agriculture, and other industrial sectors. Ukraine is determined that the horrific price it is paying to defend the nation will galvanize investment in a brighter future. Ukraine is positioning itself for postwar integration into Europe, the West, and broader global markets. Winning the peace will be as important as winning the war.
What steps should businesses interested in Ukraine take now? Visit Kyiv, Odessa, Kharkiv and other cities in Ukraine. Speak with officials, businessmen, people in the street, and soldiers back from the front. Witness the determination, optimism, and dynamism of all these sectors of society. Experience the incredible work of Ukrainian air defense units protecting Ukrainian cities and infrastructure. Only by being on the ground can one see the yawning gap between media’s stream of dire images and the reality of a nation keeping calm and carrying on.
Once fighting ends, companies will line up for an opportunistic land rush. But the firms that help Ukraine to protect its population, win its fight, and prepare for the future, are the ones that will be best positioned with the experience, the staff, and the networks needed to prosper after the war.
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