War is raging in eastern Ukraine, rockets are falling, people are dying, every day – for more than a year. Unlike at the front, life in the capital Kiev seems largely normal, but the grim reality can never be completely ignored. Why are German companies investing in a country where war is being waged?
“To be honest, I was reluctant beforehand, saying that this is now primarily about emergency aid and not too much about investments,” says Michael Harms, executive director of the German Economic Committee on Eastern European Economic Relations. After two days of talks in Kiev with business representatives, heads of authorities and politicians, he changed his mind. Harms is part of the delegation of six business representatives and an envoy from the development bank KfW, who traveled to the country attacked by Russia with Federal Economics Minister Robert Habeck (Greens).
High demand in various industries
Harms points to the stable situation in the west of the country, including the capital Kiev. And demand is high in sectors such as building materials production, agriculture, logistics and the energy sector. But he also concedes: “The real reconstruction, the big wave of investment, will only take place when the war is over.”
The fighting has by no means left its mark on companies that are actually active in Ukraine. At the very beginning of the Russian war against Ukraine, which expanded in February last year, the Bayer factory was attacked, says Matthias Berninger, who is responsible for sustainability and relations with politics and civil society at the pharmaceutical and crop protection group Bayer. “That was a big shock for us. And then we thought, ‘What do we do now?'”. It was only in 2019 that his company opened one of the most modern seed factories in the world in Ukraine, at a cost of 200 million euros.
The answer was: keep going. “We will invest another 60 million in expanding capacity,” says Berninger. “The idea is very simple: we believe that Ukraine is the best location for seed production in Europe.” At the moment it is mainly about the production of corn seed, sunflower seeds should be added.
The Freisinger Fixit Group, which produces building materials, was also active in the country long before the Russian war against Ukraine spread, and now has two locations. “In the last six months we have had to contend with massive power outages, which were unavoidable due to the massive attacks on the energy infrastructure,” says Kraus. “In the last six months, until recently, we were only able to produce on the night shift because there wasn’t enough electricity available during the day.” Employees went to the military. And some didn’t come back either.
Investment protection by the federal government
In order to make work in the Ukraine palatable or at all possible for German companies under these conditions, the federal government is protecting their investments. This has been happening in the case of Ukraine for years – but is now continuing under the expanded Russian war of aggression. “We don’t usually do that,” says Habeck. “We can’t secure investments in a war zone. If it’s shot up, the risk is too high. But we do it here.” Ukraine desperately needs such support: the economy collapsed in the war year of 2022, and gross domestic product fell by more than a third. Imports and exports fell by around 20 and 30 percent respectively compared to the previous year.
The guarantee given was a “game changer” for his company, says Kraus. This means that the construction of the new plant can continue. According to the Ministry of Economics, the federal government is currently securing eleven projects in Ukraine with 21 investment guarantees with a total capital cover of 221 million euros. Three of these have been added since Russia’s large-scale invasion of Ukraine on February 24 last year. According to the ministry, another 21 applications with a total funding of 48 million euros are still open.
The federal government also insures German exports to Ukraine, 2022 in the amount of 144.2 million euros. This involves, for example, securing rail wagons carrying grain exports and exports of crop protection products and seeds.
“Very difficult legacy, very bad image”
Harms, representative of the Committee on Eastern European Economic Relations, believes that politicians must advertise Ukraine, but also make sure “that the framework conditions are good, keyword corruption and the like.” Ukraine has “a very difficult heritage, a very bad image”. But the country is on a very good path.
“I’ve never seen progress like this in the fight against corruption in Ukraine in the last three or four years,” assures Fixit manager Kraus. Bayer representative Berninger is also positive: Seven or eight years ago, corruption was still a decisive factor in not investing. That is different today, the government takes the fight against it very seriously.
But the consequences of the current war could end up haunting Ukraine for a long time to come. Some of the field work becomes a “lottery game,” says Bernininger. “Because we know that the Russians, even as they retreated, deliberately left mines in fields in such a way that they really only explode when you drive over them with heavy equipment.” As often happens in agriculture.
