Ukraine’s Other Battle for Survival: Keeping Companies in Business

Two years after Russia’s large-scale invasion, Ukraine is littered with shards of glass, and Moscow’s attacks blow out more panes endlessly.

Ukraine doesn’t have a functioning window-glass factory up to the task. Instead it must import sheet glass, including from Russian ally Belarus.

Liski, a Ukrainian investor with stakes in several companies, wants to build a glass plant near Kyiv, at a cost of roughly $240 million. He is lining up European equipment suppliers and says he is ready to invest about $80 million into the project, but faces headwinds funding the rest because banks are nervous about lending during the war.

“The biggest problem is not people, technology or equity," said Liski. “The biggest problem is to raise project finance."

Liski’s headache resonates across Ukraine, where alongside the war to eject Russian troops, a quieter battle for national survival is raging: Ukraine’s fight to keep its businesses running.

While less visible than Western efforts to supply Kyiv with weapons, it is no less vital. Commercial activity generates jobs, tax revenue and resources to keep the country fighting.

The European Union’s agreement on Feb. 1 to support Kyiv with roughly $54 billion in grants and loans over four years to fund state functions fills part of the shortfall. International financial institutions including the European Bank for Reconstruction and Development, the EU’s European Investment Bank and the World Bank are also providing lifelines.

The support, which still leaves Ukraine short of money, is vital because armed combat is brutally expensive and maintaining an economy during wartime is treacherous. For Ukraine to continue fighting and have a hope of rebuilding, it must not only prevail on the battlefield but also in its factories, cities and farms.

“The strategy for Ukraine winning the war has to be that the Ukrainian economy is stronger than the Russian economy," said former U.S. special representative on Ukraine Kurt Volker.

To weaken Russia’s economy, the U.S., EU and their allies have imposed unprecedented sanctions and export controls, but their impact has been slow amid Russian evasion. The other half of the equation is supporting Ukraine’s economy, even as Russia keeps trying to destroy it.

Among the biggest targets for Russian attacks have been housing and infrastructure, particularly energy, which Ukrainians have raced to repair, at enormous cost. DTEK, Ukraine’s largest private energy company, last winter spent roughly $120 million rebuilding, company officials said. This winter, Russia has focused less on energy infrastructure, so rebuilding costs have been lower, and DTEK is looking to expand, particularly into green energy.

Chief Executive Maxim Timchenko said DTEK can handle the logistics and dangers of constructing a wind farm during war, but money is more challenging.

“The only seriously limiting element is access to capital," he said.

Ukraine currently needs roughly $100 billion in support annually, of which about $40 billion is budget support and $60 billion is military aid, estimated Timothy Ash, an economist at RBC BlueBay Asset Management in London. If the war ends and Ukraine prevails in some way, it could require $50 billion a year for reconstruction over a decade, he said.

“That’s a massive commitment over a 10-year period," he said at a gathering DTEK organized during the World Economic Forum in Davos, Switzerland, in January.

Obstacles to supporting Ukraine’s economy abound. It was weak before the war started, beset by inefficiency, poor infrastructure and corruption. Since Russia’s invasion two years ago, Moscow has targeted civilian areas and Ukraine has lost large parts of its industrial and agricultural base to fighting and Russian occupation.

Farm fields that once helped feed the world are now battlefields. Ports that once exported Ukraine’s grain are now destroyed or beyond reach. Factories and mines that once paid salaries and supplied vital goods now lie in ruins or sit in Russian hands.

Investors and lenders are hesitant to bankroll enterprises that might face destruction or struggle to operate because staff are off fighting or casualties of war.

“We have no illusion that this war is a sprint—it is a marathon," said Gennadiy Chyzhykov, president of the Ukrainian Chamber of Commerce and Industry.

Sergey Ustenko’s family business, Carpathian Mineral Waters, sells carbonated soft drinks and snacks across Ukraine and has been expanding during the war, even as the overall market shrank. Now they want to build a new factory at a cost of roughly $20 million, which would create roughly 100 jobs, he said.

Ukrainian banks will lend at most about one-fourth of that amount, at an interest rate of roughly 20%, and require valuable collateral, Ustenko said. He understands banks’ nervousness, but it creates a heavy burden on entrepreneurs.

“You take all the risk personally," he said.

His one fallback, he said, is grants and loans offered by Western international financial institutions such as the EBRD and the U.S. Agency for International Development, which are in the range of hundreds of thousands of dollars, not millions. The application process isn’t easy, but he plans to apply for one or two because even a small sum can make a big difference, he said.

“Getting the money is a sign of quality," Ustenko said.

To get capital to small businesses, the Ukrainian government is establishing what it hopes will be a $1 billion recovery fund. With advice from BlackRock and JPMorgan Chase, Kyiv hopes to use the fund as a catalyst for a larger volume of private investment.

Rostyslav Shurma, deputy head of the office of President Volodymyr Zelensky, said at the Davos event that project leaders are striving to winnow down a list of potential projects for when the fund kicks off, potentially later this year, but finding Ukrainian entrepreneurs who can talk the same language as international investors is challenging.

“There is a shortage of bankable projects," particularly among small businesses, Shurma said. The fund, he said, is one among several economic experiments.

Energy, despite being a Russian target, is drawing some international funding, in part to promote a shift from imported fossil fuels. One hitch is that wind farms and turbines are big, obvious targets. A Russian drone strike this year knocked down a newly built turbine in southern Ukraine.

But distributed power generation from wind farms and rooftop solar arrays is harder for Russia to destroy than traditional, centralized thermal power generation plants, said DTEK’s Timchenko. One missile can take an entire traditional power plant offline, but is likely to damage only a fraction of a wind- or solar-power facility, he said.

DTEK last spring opened a new 19-turbine wind farm in southwest Ukraine, about 60 miles from the front. Work on the roughly $215 million installation began in 2021. After a pause following Russia’s invasion two years ago, work resumed in mid-2022 and the facility came online last May, generating power for 200 homes.

DTEK, working with Danish turbine producer Vestas Wind Systems, now plans a second, larger phase, which could cost more than $450 million.

Ukraine’s lack of capital is reminiscent of Europe 75 years ago, said Volker, a former U.S. ambassador to NATO. In the wake of World War II, European countries that had recently been enemies resisted trading with each other. Soon, fear of Soviet aggression and American encouragement overcame that, but European leaders told Washington they needed protection against threats from Moscow.

The North Atlantic Treaty Organization emerged in 1949 as that umbrella, protecting a nascent trading area that evolved into today’s EU.

Military protection from Russian attacks—in part to reassure business leaders—is now what Ukraine seeks, and the goal underpins its aggressive push to join NATO. That will take years, and meanwhile members including Great Britain, France, Germany and Denmark have signed security deals with Kyiv to offer a degree of protection.

For now, Ukrainians know they must strive for self-sufficiency, both in combat and the economy.

“Ukrainian entrepreneurs who stay in the country and create jobs are the most patriotic," said Liski, the investor.

Write to Daniel Michaels at Dan.Michaels@wsj.com