Yulia Kiryanova: The battlefield and the economy are equally important


We encourage foreign companies to come to Ukraine now and not wait until the war is over. Especially when it comes to western Ukraine, says Yulia Kiryanova, president of the Ukrainian company Smart Holding.

Interview on Rzeczpospolita website

What would you change in your business decisions knowing that the war will last at least two years?

In business, you never make decisions that affect short-term operations. We have our strategic horizon and, of course, budget at least a year ahead. So, when the war started, we had plans ready until the end of 2022. Naturally, they were not normal, because war is nothing normal. And in none of our plans did we necessarily assume that the war would end in 2023 or 2024. Therefore, all the scenarios were conservative.

How much is left of your business after these two years?

This is a very sad story. It was imprinted by two "black swans", as we call the threat in Ukraine. That is, Russian aggression, but also the decisions certain elements of the government in Kyiv. In companies in which we are majority owners, the Russian attack stripped us of roughly 15 percent of our assets, i.e. the physical destruction of our infrastructure. In terms of revenue, there were not great losses in the first year of the war - some 20 percent less than forecast. But still, our business was profitable.

Then the second "black swan" appeared, and our revenues were reduced by 80 percent. This was because costs increased dramatically. It was our decision to keep key people employed to support them during the war as well as maintain our ability to resume operations. In addition to having to pay the people who worked for us, we continued to be burdened with all kinds of taxes, as if this war didn't exist. Our financial reserves went to it, and at the moment we have fallen into losses. This is a dramatic change.

The government withdrew some of our licenses and seized some assets motivated by the activities of the founder of Smart Holding, who had not been associated with the company for a long time. Personal sanctions were applied against him, which immediately affected the business. All this happened in April 2023.

Are you still investing in Ukraine?

At the beginning of 2023, we had investment plans amounting to 3 billion hryvnias. However, the impacts I mentioned have contributed to us having no immediate investment plans. I regret it because we are familiar with the Ukrainian economy and know how to assist it.

You travel a lot and talk to business partners. In your opinion, is Ukrainian business well understood in the world?

Ukrainian private companies do not widely participate in talks with foreign institutions, because these are intergovernmental contacts. During the conferences in Lugano, or in London, Ukrainian private entrepreneurs were not participants in these discussions. We have seen some slight change in approach by the government after London, but private sector involvement is still random and hectic. So we go abroad ourselves and seek partners there. Only in this way will we be able to secure some position in the process of rebuilding Ukraine. We have both ideas and experience, which could be better used by the Ukrainian authorities. They rely on their own solutions or use advisors.

When we talk to foreign officials about our initiative, they always emphasise their commitment to supporting Ukraine in the war against Russia. We are grateful to them for this. Because the main goal of the Ukrainians is to win this war. But these talks rarely concern the economy.

When I meet with business associations, trade unions, and embassies I always emphasise that the sovereignty of a country is only possible if it has a strong economy. Only such a country will be able to get out of the post-war collapse and get on with rebuilding what was destroyed. Of course, I understand the great effort to defend the country, but the attention should be divided equally: between the battlefield and the economy. I've seen plenty of beautiful slides of what Ukraine should look like after the war. But nowhere have I come across a strategy for how this should be achieved. Especially since we can't count on massive foreign investment during wartime.

A few weeks ago, French hotel group Accor announced the opening of a new hotel in Kyiv. Does this mean that foreign private capital is still flowing into Ukraine even now?

Yes, such investments are taking place. That's why we encourage foreign companies to appear in Ukraine now, rather than waiting for the war to end. Especially when it comes to the western part of the country, where it is considerably safer than in the central and eastern regions. In the West, the manufacturing and arms industries have revived, such as drone production. In this case, the government has behaved excellently, not just focusing on tax collection but providing incentives for investment. There have also been investments in the IT sector, and a logistics centres has been established in Ukraine. Some of thishas been supported by war risk insurance, which is the best incentive.

Who would you currently encourage to invest in Ukraine?

The Ukrainian economy used to be driven by agriculture, metal&mining, IT, chemical industries including the production of fertilizers, and construction. At the moment, the role of key booster is captured by the defense sector. Thus, active companies in this industry have great chances to succeed in our country.

Regarding agriculture, I would encourage companies specializing in food processing. The idea is to sell less but with greater profit. The real estate industry could be attractive, although any development should have war-risk insurance; otherwise, the risk is too high.

Investments in the production of construction materials seem to be crucial for country redevelopment which will be needed after the war, though immediate reconstruction of the zones damaged by the Russian warfare forces is essential for survival.

The chemical industry, especially the production of artificial fertilizers, is also important. Before the war, Ukraine was a significant producer of them, as well as a significant importer. Now it is a good time to increase local production to support growth in agri sector. Another industry is pharmaceuticals, which is literally flourishing. Unfortunately, this "flourishing" is depressing because the reasons for the boom are known. It's not only due to the war but also because today Ukrainians are forced to buy cheaper food just to have money for medical treatment.

The European Bank for Reconstruction and Development assures that it supports Ukraine and the private sector, also indicating readiness to share risks. Are you in contact with them?

Smart Holding does not use EBRD funds, but I know they are core investor in Ukraine. They will collaborate with the European Investment Bank and the IFC, directing funds towards the country's reconstruction. All the funds Ukraine receives from the European Union for the private sector are channelled through international financial institutions. I know they closely cooperate and are considering whether a change in the criteria for supporting our country is needed because they must be altered. Some of our companies have been devastated, and extending credit to them involves risk.

You're talking about investment opportunities, but will an entrepreneur who decides to start a business in Ukraine find workers there?

We have a catastrophic shortage of labour, mainly caused by refugees who left the country and mobilisation, as the war has led to a massive brain drain. So, one must be prepared that workers are less qualified, and you have to pay them more than before the war. If someone is highly qualified, they will find a job immediately. On the other hand, the situation is such that one Russian rocket can cause the loss of places of employment and worse literally by the minute.

Has the war changed interpersonal relationships in the Ukrainian business environment? Do you support each other, or are you fiercely competing for what's left in the economy?

We compete with each other because that's the nature of the private sector. But when it comes to tension between certain elements of the state and our community, we are united like never before. This was evident recently when one of the entrepreneurs was arrested at the border in connection with suspicions of irregularities in land acquisition 12 years ago. He happened to be representing Ukrainian business at the Davos forum. The bail he had to pay amounted to 700 million hryvnias. His arrest shocked us because it was another proof of the pressure exerted by the authorities on the Ukrainian private sector. Eventually, he was released after 2 days following business community intervention with the government. We asked a lot of very direct questions at that time. The result is a three-month moratorium, after which we are to hear what solutions will be proposed, including changes in legislation regarding long-term solutions. The economy will never be sustainable when private business is excluded from it. Not to mention that it severely affects Ukraine's image as a country to invest in now.

International financial institutions praise the Ukrainian authorities for effectively combating corruption. Do you see the effects of this fight?

Unfortunately, corruption still exists. And during the war, it is evident that there are people who want to take advantage of it while it is still possible. The government as a whole is determined to punish corrupt officials. While this is one solution to combating this practice, the best way of doing so would be an overall reform of the state itself. Legislative changes are needed, and a smoothly functioning capital market. Punishment alone without reforms will not bring the desired long-term results. But surely, there will be time for that.

What you're saying, nonetheless, sounds more optimistic than when we spoke in the summer of 2023?

Because I am a born optimist. Because I believe in my country. Because, after all, this war will end someday, and Ukraine will change.