Keeping Ukraine’s Private Sector Afloat—and Ready for Reconstruction

IFC’s Economic Resilience Action

In over a decade as a fitness instructor in Kyiv, Marina Smal has led nearly every kind ofphoto_2022-06-01_16-38-27-002-1280x960 workout, from kids’ yoga to power stretching to strength training.  At the fitness studio she and her partner established in 2019, she coordinated scores of classes and personal training sessions.  It was exactly the kind of hectic, rewarding schedule she envisioned when the couple decided to invest in their own business.

“For us it wasn’t just a job. It was a dream come true,” she remembers.

So when the Russian invasion of Ukraine began in February 2022, Marina and Oleksandr Matviychuk—life partners as well as business partners—never considered shutting down.  Now that Russian attacks on Kyiv have destroyed 80 percent of the city’s electrical grid, they light candles and use flashlights to keep classes going; when wi-fi is working, they offer classes online. 

Marina Smal leads a yoga class by candlelight during a blackout in Kyiv. Photo courtesy: Marina Smal.

Some training classes are now scheduled around power outages, says Marina Smal, the gym’s co-owner. Photo courtesy: Marina Smal.

It’s important to stay open because in the gym, “there are no distractions, there is only you and your strength,” Marina says. “It is necessary to maintain the strength of the body in order to maintain the strength of the spirit.” But despite the couple’s commitment to the gym, it’s getting harder and harder to keep the business afloat: “Our income is much less, but the costs remain the same.”

It’s a familiar story across Ukraine, regardless of the sector or the size of the business. Russia’s invasion of Ukraine has caused Europe’s biggest refugee crisis since World War II, with 14 million people displaced and “repeated shocks and uncertainty” threatening further harm to key social protections, according to the World Bank.  In addition to the devastating human impact, the invasion of Ukraine continues to inflict substantial economic losses across all sectors—from small businesses like Marina and Oleksandr’s gym to industry leaders like IMC, one of Ukraine’s top 10 agriculture companies.  Corporate survival and eventual reconstruction depend on “access to finance, access to knowledge, and access to technology,” according to Alex Lissitsa, CEO of IMC.

To support resilience throughout the private sector and help the country prepare for reconstruction, IFC’s $2 billion response package will support infrastructure, agriculture, production and commerce, and small-and-medium-sized enterprises (SMEs) during the next 18-to-24 months.  The initiative, known as the Economic Resilience Action (ERA) program, is part of the World Bank Group’s broader response to the Russian invasion of Ukraine. 

The $2 billion response package includes up to $1 billion from IFC’s own account, with additional financing contingent on guarantees from donor governments.  

“Deploying capital during this extraordinary time is essential to keep businesses and vital services running, and, when the time is right, prepare for the massive reconstruction efforts to come.”

—Makhtar Diop, IFC

More than 40 percent of Ukraine’s infrastructure has been destroyed since the Russian invasion began. Photo courtesy: Kataryna Chechel.

The road to recovery

Prior to the Russian invasion, Ukraine’s private sector accounted for up to 70 percent of Ukraine’s gross domestic product (GDP).  Effects of the war have been devastating: The National Bank estimates that 11 percent of businesses have remained shut down as of September 2022, while more than half of all enterprises operate below 75 percent of production capacity. At least 5 million jobs, equivalent to 30 percent of total pre-war employment, have been lost, according to the Ministry of Economy.

The ERA program aims to address the cascading consequences of the conflict on the private sector amid and after the war. Supporting the agriculture sector is a key focus of the program because exports fueled the national economy before the war. In addition, it is a major provider of food security for both domestic and international markets. Some agriculture companies, such as IMC, have managed to maintain operations despite ongoing air attacks and disrupted logistics routes. But they face significant obstacles that include liquidity, limited export facilities, and high logistics costs, according to Alex
Lissitsa, of IMC.

Before Russia’s invasion, Ukraine’s food exports fueled the national economy. Photo courtesy: IMC.

The ERA program complements IFC’s ongoing support of Ukraine, including investment and advisory support that is helping the country maintain its trade flows and retain access to fuel and other essential products. 

“Supporting Ukraine’s private businesses now will help ensure they can keep providing goods, services, and tax revenues,” says Lisa Kaestner, IFC’s Country Manager for Ukraine. “To maximize our efforts, we are working across the World Bank Group, with the Ukrainian government, and with partners who recognizes the leverage that comes with co-investing with an IFI [international financial institution] that is focused on the private sector.”

Wheat is one of the commodities most affected by Russia’s invasion of Ukraine. IMC has maintained operations throughout the war but faces significant obstacles, such as liquidity, limited export facilities, and high logistics costs. Photo courtesy: IMC.

Once the conditions in Ukraine permit, IFC will shift its focus to support recovery and reconstruction—helping businesses restore damaged assets, develop new export-oriented sectors, recapitalize banks, and support distressed assets management.

IFC’s response will be closely coordinated throughout the World Bank Group and with the broader international community. The World Bank will continue to channel donor funding for critical public budget needs through its budget support project series, known by the acronym PEACE. It will also prepare framework operations for Ukraine, which will provide development partners with a vehicle to pool and channel urgent prioritized funding to the Ukrainian government. 

For Alex Lissitsa, from IMC, seeing such a wide range of support helps him and his colleagues stay motivated during this difficult period. He and his company’s management group push forward because “We think about the future, and the future of Ukrainian agriculture. We believe with the help of international financial organizations, we can survive and [help] benefit Ukraine.”

Published December 2022