How global industrial giants develop production in Ukraine during the war

The authorities must create conditions so that investors are ready to invest in the economy of Ukraine

According to the State Statistics Service, in 2022, due to the war, Ukraine lost 29.1% of GDP. Some of the enterprises are currently under occupation. Those that are in government-controlled territories are partially destroyed or have obstacles in their work (due to the loss of logistics chains, problems with light, water, etc.). In order to independently support the economy, Ukraine needs a large-scale restoration of industry. Ukrainian companies are already trying to develop and modernize its own production, but their resources are quite limited, so we urgently need foreign investments. Who has already taken the risk of investing in Ukraine at the height of the war, and how to attract more such investments – GMK Center will tell.

Iron and steel industry

Apparently, the key investor with foreign capital in steel sector is ArcelorMittal. The operating conditions of the company’s Ukrainian facilities are very difficult: the contact line is still close, unstable power supply due to Russian attacks on the energy infrastructure, and water problems due to the destruction of the Kakhovska HPP by Russian troops. Nevertheless, the company continues to invest in its production in Ukraine. As the CEO of ArcelorMittal Kryvyi Rih Mauro Longobardo told the media, in 2022 the company invested $120 million in its facilities, and in 2023 it plans to invest another $130 million.

The company’s large project – the construction of the «Tretia Karta» tailings storage facility (a complex of facilities for the disposal of production waste) continues without delay. As ArcelorMittal reported, the new tailings storage facility is being built using modern technologies, certified equipment and materials. A special protective screen made of bentonite material will ensure tightness and completely exclude the penetration of technical water into underground aquifers. The construction budget has already amounted to $150 million. The project is planned to be fully completed by the end of 2024.

Investors are also interested in the mining sector. In particular, the Turkish giant Onur Group decided to invest in the mining of graphite ore at the Horodynyavsk site of the Burtinsky deposit in the Khmelnytskyi region. In March, the company received the relevant permit from the State Geology and Subsoil Service of Ukraine. According to calculations, on the basis of the explored reserves of this area, a powerful enterprise with an annual productivity of mining and processing of ore in the amount of 1 million tons and the production of graphite concentrate in the amount of 55.9 thousand tons can be created.

Development of the deposit can begin 7-12 months after obtaining the permit, i.e. as early as 2023. Onur Group plans to invest approximately $50 million in the first phase of field development.

Engineering

There are some difficulties with investments in this area, but the first agreements with foreign partners are also emerging. For example, an American company Amsted Rail is preparing to launch the production of bearings and components for railcars in Lviv. Both cooperation with Ukrainian producers and the construction of a new plant in the region are being considered. Now the company is looking for the territory, warehouses of one of the plants in the Lviv region, in order to move the equipment there.

As the press service announcement stated, Amsted Rail plans to return to the Ukrainian market part of the railway components, the production of which was stopped due to the Russian invasion»

Energy

The energy sector is one of the most affected by hostilities. Ukraine has lost many capacities of alternative generation, in which foreigners, among others, have invested. But for some of them, this did not become an obstacle.

Norwegian company Scatec developed solar energy in Ukraine long before the full-scale war. By 2021, it has launched 5 powerful SPPs in Kyiv, Cherkasy and Mykolaiv regions. Currently, together with the International Finance Corporation (IFC), the company plans to deploy the Scatec Release block-and-set solution for generating and storing solar energy in Ukraine. This will help to diversify generation in our country.

Onur Group also invests in renewable energy. Now the company has a capacity of 150 MW and plans to develop a new project in Zakarpattia region. The installation of wind generators with a capacity of 120 MW will cost the company $150 million. This project is planned to be implemented in two years.

Chemical Industry

In April 2023, the German pharmaceutical concern Bayer announced its readiness to invest approximately €60 million in Ukraine, which will be used for the development of seed production. Before that, the company also announced that it would invest €35 million in a seed plant in Zhytomyr region. Under Germany’s new investment policy, companies investing in the development of Ukraine will have guarantees from the government. Bayer was one of the first to announce its readiness for such investments.

Another German company also announced investments in the chemical industry – «Henkel». The Vyshgorod plant of the company, which specializes in the production of the products of «Glue Technologies» business unit of the Seresit and Metylan brands, was damaged during the hostilities. But production was quickly restored, and in 2023 they planned to invest €60,000 in the modernization of equipment and digitization of production processes.

Building materials industry

Irish company Kingspan Group – one of the largest investors who came to Ukraine during the full-scale invasion of the Russian Federation. The company is a world leader in the production of high-tech energy-efficient building materials. Currently, the company is starting an investment project worth more than $280 million. It is planned to build a construction technology campus in the Lviv region, which will consist of 6 production zones, including the production of advanced insulation materials and solutions for centralized heating. The complex will focus on the production of construction products with high added value. In addition, the project envisages the creation of green production with a low carbon content, which will have a positive impact on the environment. The start of production is planned for 2024.

German company-producer of building materials Fixit, despite the war, is building a second plant in Ukraine. It will be located in Lviv. €5 million was invested in the construction project of the plant even before the beginning of the Russian invasion. Fixit has now received investment insurance from the German government and invested an additional €7 million. As early as the end of 2023, the new plant in Lviv plans to produce building materials for the restoration of destroyed infrastructure in Ukraine.

The Russian attacks destroyed a huge number of buildings, due to which there was a lot of construction debris, and the possibilities of its processing also interested investors. For example, an Israeli company GreenMix plans to build a factory with ecological processing of construction waste in Kyiv region. The relevant negotiations took place in August 2022.

Food Industry

At the end of 2022, the Swiss company Nestlé started construction of a new plant in Smoligov, Volyn, for the production of instant vermicelli. In general, about 40 million French francs (over $6 million) are going to be invested in the construction of the plant. They plan to start producing products there already in the first quarter of 2024. By the way, these products will be supplied both to the Ukrainian market and to the markets of European countries.

Part of the leading Danish brewing group, Carlsberg Ukraine, suspended the activities of its enterprises at the beginning of the full-scale war, but later resumed the operation of facilities in Kyiv, Lviv and Zaporizhzhia. Last month, the company announced that it had invested UAH 1.5 billion in the opening of a new production line at the Kyiv Brewery, which will allow for an 80% increase in production in cans. According to the report, the feature of the new line is modern technologies, full automation, compliance with the requirements for the safety of service personnel and the safety of the product produced on it.

Last month, it also became known that the American tobacco company Philip Morris will invest more than $30 million in the launch of a new production facility in the Lviv region. Preparatory work will begin in July 2023. The company expects production to begin in the first quarter of 2024.

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As you can see, even despite the war, Ukraine attracts significant investments from companies from all over the world. These are both close partner countries, such as Germany and Turkiye, and more distant ones: the USA and Israel. The amounts of their investments are also different: from tens of thousands to hundreds of millions of dollars. It is very important that most of the investing companies had experience of working in Ukraine before the war and are investing in the development or expansion of already launched production.

As the head of the analytical department of IC Concorde Capital Oleksandr Parashchyi notes, foreign companies present in Ukraine invest in our economy mainly for practical reasons:

«They earn money, but at the same time, they are very limited in their ability to take it abroad, as Ukrainian companies do, too. That is why foreign companies are trying to invest them in Ukraine. If they work in our market, they understand what is happening here, the specifics of the work and security risks. Accordingly, many companies operating in Ukraine, but owned by foreign businesses, are now investing in their recovery and development,» the analyst notes.

In addition, according to him, relatively high inflation is currently encouraging investments. In practice, investing in production, even with risks, is more profitable than watching their depreciation. In fact, investors currently choose the less critical option among the two bad options for saving funds.

Such investment from a dead end is not the way that can lead to dynamic GDP growth. It is important for us that investors choose Ukraine as the best place to make a profit, and not as the only option to avoid losses. Unfortunately, our investment climate is far from favorable.

As the head of the Center for Economic Recovery, adviser to the Prime Minister of Ukraine on public grounds Kyrylo Kryvolap notes in his analytical material, our country does not possess a set of legal, economic, social and cultural institutions, organizations, mechanisms and incentives that determine the mode of allocation, management and use of resources and assets.

«One of the problems is restrictions on currency transactions. Even after the NBU’s recent cautious steps toward currency liberalization, there are still restrictions on debt servicing, dividend payments, etc. Which means a reduction in opportunities for reinvestment. Not to mention the fact that new investors do not enter Ukraine, understanding all the potential difficulties,» the expert writes.

He also singles out among the obstacles to investments: the level of protection of property rights, budget and tax policy, low level of freedom of movement of financial resources.

It is important to note that the Ukrainian government should start eliminating these obstacles not in words, but in practice, already at this stage, without waiting for the end of hostilities. Then foreign investors will invest understanding their benefits and will give preference to investments in Ukraine.