Ukraine: What's drawing German firms to a war-torn country

At first, it may seem paradoxical: Ukraine has been at war since February 2022, fighting Russian aggression with no end in sight. At the same time, there's mounting interest among German companies in doing business with the war-torn country in eastern Europe.

Currently, more German companies seem drawn by the prospect of substantial deals as the war's destructions are immense, and Ukraine's reconstruction will cost massive sums. The Ukrainian government estimates the country needs $750 billion (€709 billion) by 2032. Some experts expect Ukraine's reconstruction needs to be much higher, somewhere in the region of $1 trillion.

Ukraine aims for speed

Ukrainian President Volodymyr Zelensky has promised that those who invest now will achieve "a good return after the war." Zelensky's reasoning is that the more and the sooner foreign companies engage in Ukraine, the better the prospects for the country's economic development would be. After a steep decline in Ukraine's gross domestic product (GDP) due to the war, the International Monetary Fund (IMF) is anticipating a growth rate of 2% in 2023 accelerating to 3.2% in the coming year.

At a recent German-Ukrainian economic conference in Berlin, German Chancellor Olaf Scholz promised his government's support for German companies willing to engage in Ukraine. "Those who invest in Ukraine today are investing in a future EU member state, which will be part of our legal community and our internal market," he told conference participants.

State guarantees in the offing

Germany is willing to offer state investment and export guarantees to minimize risks for companies. Even damages resulting from combat actions will be covered. Already before the war has ended, Berlin has granted fourteen investment guarantees totaling €280 million ($296 million).

Altogether 30 project proposals are currently being evaluated, and 70 more project ideas are on the table, according to Christian Bruch, deputy chairman of the German Eastern Business Committee. Insurance solutions for transport through Ukraine are still needed, he told DW.

Before the war, about 2,000 German companies were doing business with and in Ukraine, and most have not given up. Not surprising, according to Chancellor Scholz, who hailed opportunities for doing business "not only in the energy sector, such as in hydrogen, but also in the supply industry, agriculture, IT sector, and critical raw materials."

One of the first to heed the German government's call to invest is chemical giant Bayer which produces seeds in Ukraine. Oliver Gierlichs, CEO of Bayer Ukraine says Ukraine's reconstruction "has already started."

The German corporation is planning to expand its subsidiary with €60 million. "This is not a political decision, not a gift to Ukraine, but a purely economic decision, as we see great opportunities in agriculture. For export and also locally because Ukraine will remain the breadbasket of Europe," he told DW. Gierlich says Bayer works in a region "where the risk of war is relatively low."

"We have, of course, taken this into account. There is no zero risk, but from our point of view, it is manageable," he said.

Florian Otto, a leading analyst at the Control Risks consultancy, agrees saying that the risks in Ukraine must be "considered regionally." In the embattled east and southeast of Ukraine, there are "extreme risks" that require a different management. "In the rest of the country … Ukrainian companies are not only functioning but also displaying an astonishing degree of resilience and adaptability," he told DW.

War and destruction draw investment

In the course of the war, Russia increasingly targeted Ukraine's energy infrastructure destroying power plants, power grids and water supply systems. The German government has recently approved a grant of almost €80 million for urgent repairs in these sectors.

The most lucrative business, however, is arms and ammunition supply to the Ukrainian army.

Germany has provided €24 billion for civilian and military aid to Ukraine so far, making it the second-largest supporter of Ukraine behind the United States. An additional €1.4 billion is budgeted for the winter including another Patriot defense system, the Iris-T air defense system, and more Gepard anti-aircraft tanks with newly manufactured ammunition.

German arms manufacturer Rheinmetall is extensively involved in this business. The company has recently registered a joint venture with the Ukrainian state-owned company Ukrainian Defense Industry JSC. Services and maintenance, assembly, production, and development of military vehicles are initially agreed to be carried out "exclusively on Ukrainian territory," a company spokesperson told DW. "The intention is to gradually build up joint capabilities in arms technology in Ukraine."

Dennis Bürjes, a member of the management board at arms manufacturer Flensburger Fahrzeugbau (FFG), also told DW that business with Ukraine "is growing." The company, located near the Danish border, manufactures armored vehicles and employs 1,600 people.

FFG is in the process of contributing nearly 700 armored vehicles to the Ukrainian war effort, including bridge-laying tanks, recovery tanks, and engineer tanks. The company was already involved in arms deliveries "when it was not yet politically opportune to deliver combat tanks," said Bürjes.

During a recent visit to FFG, NATO Secretary-General Jens Stoltenberg praised the company for being "the largest supporter in Europe when it comes to the quantity of armored vehicles for Ukraine."

FFG has now set up a subsidiary in Ukraine "with the aim of not only delivering vehicles but also servicing them sustainably, ideally together with Ukraine as a team," Bürjes, who is heading the subsidiary, said.

Investments come with challenges

Doing business with and in Ukraine, however, is fraught with many problems. For example, what should machinery manufacturers do if the technology they've delivered to Ukraine doesn't work properly or needs repair? Then, there is a travel warning for Ukraine, entailing uninsured risk for companies wanting to send staff to the country.

Oleksandr Kamyshin, Ukrainian minister of strategic industries since March 21, 2023, takes a pragmatic approach to the complex issues pointing to online video conferences as a solution. "When I used to work for the railway, we did extensive repairs on a train only via video conference," he told DW, adding that the train is still running without any problems. Technical assistance can be provided through the internet, he noted, adding: "War and COVID have taught us how to be resilient."