Below is the August 6, 2024 edition of our weekly Ukraine Business Digest newsletter. This version is condensed as the author was out of the office. To get the biggest news in business and technology from Ukraine straight to your inbox, subscribe here.
It was the night before Alyona Mysko’s birthday when she got the word from her financial manager.
The founder of Fuel, a software company that provides financial planning for startups, Mysko was still working from home in Kiev until the night of July 22 when she learned that the company’s bank account was being tapped.
“(Tuesday) was my birthday and the whole day was a situation,” she said. “It was a gift from Mercury.”
Mercury is a US-based fintech firm that provides banking services, focusing specifically on the startup market. It was a step for many firms with Ukrainian founders based in and outside of Ukraine. At the end of July, many of those firms were unusually de-banked.
According to the Mercury, the decision to cut services to Ukraine was a response to US sanctions against Russian-occupied parts of Ukraine. The Ukrainian founders were shocked by the move from a firm that had once wooed them with their Ukraine-specific service offerings.
They say that not only is Mercury punishing them for the invasion, but that the firm is being lazy in shutting down everything to avoid any collision with sanctions violations.
“We are a multi-billion dollar company and we are too lazy to understand whether you are in occupied territory or territory controlled by Ukraine, so we will cut you off as a whole country,” Zinchuk sums up Mercury’s position. “Because we have sanctions or something else. But it’s complete nonsense.”
Affected Ukrainian founders were particularly offended by Ukraine’s presence on a list of banned jurisdictions alongside heavily sanctioned jurisdictions – notably Russia and Belarus.
Since about 20% of Ukraine is occupied by Russia, it is in the unique position of having sanctions at the territorial level rather than nationwide.
This poses particular complications, says Alex Zerden, who has worked at the US Treasury’s Financial Crimes Enforcement Network, the White House’s National Economic Council and as the US financial attaché in Afghanistan.
“You can have something that is compliant for the majority of Ukraine, but then not compliant at a sub-national level in those designated territories that are under Russian occupation,” Zerden says.
Read the full article here.
The latest in the oil pipeline debacle
Hungary will not experience any oil shortages due to Ukraine’s decision to tighten sanctions and effectively block the transit of Lukoil’s Russian crude through the Druzhba pipeline, refiner CEO Mol Nyrt said on August 5th.
“Let’s not cause panic,” Zsolt Hernadi, chairman and CEO, told a conference call in a recording released by the Hungarian company on Aug. 5, Bloomberg reported. “I don’t think it will lead to an actual shortage.”
You may remember though, that Hungary’s government and its friends in Slovakia have run with their hair on fire over the blocked oil transit, saying it would threaten their energy security and asking the EU to do something. Earlier on August 1, the EU said it saw no impact of the new sanctions on the transit operations of companies using the pipeline.
Hernad told the conference that Hungary has 90 days of strategic reserves and can also buy Russian crude oil from Croatia, adding that in fact, it is not so bad that the country has more opportunities to import crude oil.
At the start of the full-scale invasion, the EU imposed an embargo on Russian oil imports, but excluded pipeline supplies and gave some countries time to find alternative supplies.
Instead of shunning Russian oil like everyone else, Hungary and Slovakia stuck together. Both countries import at least a third of their crude oil from Lukoil.
Direct budget support
Ukraine received $3.9 billion from the United States through the World Bank program to finance budget expenditures, Prime Minister Denys Shmyhal said on August 5.
“This is the first tranche of direct budget support from the United States in 2024. In total, Ukraine will receive $7.8 billion in direct budget support from the United States this year, which will allow us to go through this financial period with confidence Shmyhal said. .
What will the money go to? The Ministry of Finance said the support would go to pensions, salaries for teachers, State Emergency Service staff and other state employees, as well as assistance to displaced persons, low-income families and people with disabilities.
“The grant will help the government of Ukraine reimburse priority social and humanitarian expenditures without increasing the debt burden,” said Finance Minister Serhiy Marchenko.
The agreement is part of the Peace in Ukraine project, which has been the World Bank’s main vehicle in providing financial assistance to Ukraine since the start of the all-out war in 2022. Over $25 billion has been raised through Peace in Ukraine.
This new deal will increase the amount to almost $30 billion, most of which was provided by the US, the Finance Ministry said. Since the start of the full-scale invasion, the US has provided nearly $27 million in budget support to Ukraine, with this latest installment coming from a $61 billion aid package approved in April.
Turkey, Ukraine get one step closer to free-trade zone
Turkey ratified a free trade area agreement with Ukraine on August 2, more than two years after the agreement was first signed by the two countries’ current presidents on February 3, 2022, and 26 years after the agreement was first discussed in 1998.
Talks on the deal did not begin until 2007, after stalling for years over grain and metals disputes.
Once the agreement is implemented, Ukraine will remove import duties on 56% of industrial goods and 11.5% of agricultural goods. Turkey will remove import duties for 93.4% of industrial goods and 7.6% of agricultural goods.
Turkish exports to Ukraine increased from $198 million in 2017 to $1.5 billion in 2022, while Ukraine’s exports to Turkey increased from $776 million to $2.59 billion in the same period, according to data from Observatory of Economic Complexity (OEC).
“After the ratification of the agreement, all countries on the Black Sea coast, with the exception of Russia, will join a single economic space,” said Economy Minister Yulia Svyrydenko, who was in Turkey on August 1 for discuss the agreement. with Turkish Trade Minister Omer Bolat.
The agreement awaits ratification by Ukraine’s parliament, the Verkhovna Rada.
Petcube, Ukraine’s multimillion-dollar pet-tech company
Alex Neskin’s chihuahua puppy cried constantly every time his owner left the house. Not wanting angry neighbors to slam his door, the Kiev-based entrepreneur invented a toy to distract Rocky the puppy while he was at work.
Neskin attached a camera with a laser pointer to the top of a motor. He could move the laser remotely through a web browser and keep an eye on Rocky through the camera. Soon, the puppy felt more at home just playing with the red laser dot.
Realizing that nothing else like it existed on the market, Neskin saw an opportunity to grow his rudimentary toy. Together with co-founders Andrey Klen and Yaroslav Azhnyuk, the trio created Petcube, a multi-million dollar company that has sold nearly 1 million products worldwide since its founding in 2012.
“The main focus of our research is that the pet market was and still is recession-proof. It’s growing every year, because we take care of our pets, and there’s no reason for that to drop,” Klen, who is also the company’s CMO, told the Kyiv Independent.
Over 12 years, the company has attracted more than $24 million in investment and created a range of products, from basic home cameras to a remote-controlled treatment dispenser. Now the company is developing its own AI model to solve pet health problems.
Read the full story by business journalist Dominic Culverwell here.
What else is happening
American crowdfunding company Buy a Coffee will no longer serve new Ukrainian accounts due to sanctions on territories occupied by Russia
After Ukrainians were unable to withdraw money from their Buy Me a Coffee accounts to their Ukrainian bank accounts over the past week, the company’s tech support responded saying that “due to recent policy changes and increased requests legal and sanctions, we are no longer accepting new (content) creators from Ukraine.” With about 20% of Ukraine’s territory subject to sanctions, “it has become extremely difficult to accurately verify and control locations, which creates significant risks of error,” the company told a Ukrainian user.
$15 million dry port under development near Vinnytsia
A dry port is being built near the central Ukrainian city of Vinnytsia to better connect the country’s central regions with Odesa terminals and the EU through the Mostysk container terminal located near the Polish border, the deputy mayor announced on August 5. of Vinnytsia Andriy Ocheretny. The port should be operational by the third quarter of this year, he said, adding that the operation of the port should create about 100 jobs.
Poland’s labor shortage grows as the flow of Ukrainians slows, data suggests
Companies in Poland are seeing growing labor shortages as the flow of Ukrainians (and Belarusians) into the country slows, Polish newspaper Rzeczpospolita reported on August 5, citing data from Credit Agricole bank. As the immigration potential from those countries has slowly been exhausted, “it is possible that the government will tighten its migration policy, which would affect the flow of workers from more distant countries,” Rzeczpospolita said.
Ukraine is capable of producing over 3 million drones a year, the ministry says
Ukraine has the production capacity to produce more than 3 million drones a year, but requires funding from foreign partners as the state can only cover part of the budget, Deputy Minister of Strategic Industry Hanna Hvozdiar said on July 30. Denmark became the first country to buy weapons and equipment for Ukraine’s military from a local manufacturer, and Kiev is currently in talks with the United Kingdom to help buy domestically produced drones for Ukraine’s Armed Forces, according to Hvozdiar.
Death rate in Ukraine for 2024 is 3 times higher than birth rate, data shows
Ukraine’s birth rate continues its downward trend in 2024, as official data shows one newborn for every three deaths in the first six months of the year, analytics service Opendatabot said on August 5. About 87,655 children were born in the first half of 2024, while in the same period 250,972 citizens died for various reasons. The numbers are likely to be incomplete due to Russia’s ongoing occupation of Ukrainian territories.