Invasion or not, the Ukrainian economy is already paying the price

In his open-plan office in central Kyiv, technical manager Dmytro Voloshyn lists the tricky questions he has faced in recent weeks as fears surged about a possible Russian invasion.

What if things get worse? What to do with foreign staff? What will happen if martial law is declared? What if the banking system collapsed? What if the Internet is cut?

“We basically had to prepare a contingency plan with answers to all these questions,” he told AFP, showing a chart on his laptop detailing different options for different scenarios.

Preply, the company co-founded by Voloshyn in 2013, bills itself as one of the leading online platforms connecting language students with teachers around the world. It employs some 400 people in Kyiv and Barcelona.

With its clean-lined offices, plants climbing on the walls, its cafe for employees, it looks like a Silicon Valley start-up and is considered one of the success stories of the Ukrainian high-tech sector.

But like the rest of the Ukrainian capital, it is currently living a strange double life. Work is proceeding normally, people are going about their daily tasks and nothing seems out of the ordinary.

At the same time – as Western leaders warn of the threat of Moscow troops massed on the border – some people are preparing for the worst.

According to a survey by the European Business Association, which includes many multinationals operating in Ukraine, 40% of its members have already prepared emergency plans and 40% intend to do so.

The risk of a Russian attack on Ukraine freezes the plans of some local companies and scares off some investors Photo: AFP / Sergei SUPINSKY

“We have a plan, but we are not executing it because we are convinced that the situation will remain as it is,” said Voloshyn, 34.

Voloshyn points out that Ukrainian businesses, like the general population, have grown accustomed to living in a heightened state of alert since the Kremlin seized Crimea in 2014 and began fueling a separatist conflict there. is who killed more than 13,000 people.

“We are not panicking because we know this situation has already been going on for eight years for us,” he says.

“It was always that kind of tension here in Ukraine, and now it’s more immediate and it’s obviously escalating, but we’re not in panic mode.”

In fact, the 2014 crisis boosted his business. This pushed them to expand their business overseas as Ukraine’s economy slumped and they sought shelter from the turmoil.

The risk of a Russian invasion, which Moscow denies having plotted, has not yet caused such catastrophic consequences as it did then.

But it is already having a very real impact, freezing projects and scaring away some investors.

President Volodymyr Zelensky has sought to counter alarmist warnings from the West to stabilize the economy President Volodymyr Zelensky has sought to counter alarmist warnings from the West to stabilize the economy Photo: AFP / Sergei SUPINSKY

The central bank lowered its growth forecast for 2022 to 3.4% from 3.8%.

It has also had to spend more than $1 billion so far this year to keep the local currency, the hryvnia, afloat as worried investors moved money out of the country.

Despite this, the currency has still fallen to its lowest level in four years, fueling inflation and undermining household purchasing power in one of Europe’s poorest countries.

The situation has prompted President Volodymyr Zelensky to try to counter some of the more alarmist warnings coming from the West, insisting that the priority was to stabilize the economy rather than cause “panic”.

For Sofya Donets, an economist at the investment firm Renaissance Capital, Ukraine is currently in a better position than in 2014 to withstand the financial pressure.

It has more than doubled its reserves and is due to an influx of Western aid, with the European Union pledging an additional €1.2 billion and talks are underway to release new funds from the International Monetary Fund. .

“However, this only works to mitigate the effect of prolonged turbulence, but not of full-scale military conflict,” she said.

Currently unable to borrow on international markets, the Ukrainian state remains dependent on its international donors.

The government complains that the country suffers from a geopolitical situation beyond its control despite economic “fundamentals” which it insists are solid.

“We have lived since 2014 in a state of permanent threat from Russia, and now it becomes news for the world,” Finance Minister Sergiy Marchenko said in an interview with the Ekonomichna Pravda website.

“The tension cannot rise permanently,” he insisted to reassure himself.

In the meantime, companies like Voloshyn’s are gearing up.

But even if the worst does not come, economists warn that the surge in tensions is further denting the country’s longer-term prospects.

“The risk premium for doing business in Ukraine has certainly increased,” said Lilit Gevorgyan, economist at IHS Markit.

“This perception of risk will not diminish significantly unless tangible progress is made between Ukraine and Russia in resolving the conflict. The chances of the latter are slim.”

Christi C. Elwood