Ukraine needs an economy that grows at an explosive pace to overcome the war’s consequences – Entrepreneur Vyacheslav Mishalov

During preparations for our UBN Network War & Investment live event in Kyiv, we decided to speak about investments with experts. And who is Ukraine’s foremost authority in the investment field, if not a domestic businessperson? Accordingly, we approached Vyacheslav Mishalov – a businessman, investor, co-owner of one of Ukraine’s largest metallurgical plants, DniproPressstal, and co-founder of leading Ukrainian media outlet Informator and Internet provider Fregat. Vyacheslav Mishalov’s entrepreneurial path is particularly interesting given the variety of areas in which he operates, from metallurgy to Internet technologies, from fuel trade to the financial sector and real estate. In view of this, we decided to have a conversation with him:

On the advantages of conducting a differentiated business

– In the last 20 years, Ukraine has been experiencing a large number of tectonic changes that have a strong impact on one or another area of ​​business. Accordingly, being in only one of these areas and only in Ukraine is too high a risk.

– For instance, over the past three years, all the assets belonging to entrepreneurs in the occupied territories, amounting to billions of dollars, have simply disappeared. If an entrepreneur had all their assets tied to the construction industry, their sole venture, they lost everything. After all, there are no sales, construction is impossible, and pricing is unpredictable. Given this, diversification – geographical, inter-industry, etc. – allows businesspeople in Ukraine to survive. A prime example is large retail chains: they lost many assets but managed to continue operating because their business model includes diversification. Therefore, diversification is crucial in the context of Ukraine.

– Of course, one businessperson cannot be an expert in 10 industries, but all businesses are united by business logic: profit indicators, return on investment, etc. And when we talk about diversification, it is important to have management teams, managing partners, for whom this business is the primary one. There are many large diversified businesses in the world, even Google unites hundreds of small businesses. Therefore, the question is in the management system, and of course, it will require additional costs. In addition, this is a more complex organism, such a system is more complicated from both a legal and financial point of view. Therefore, it is important that this management superstructure does not become too heavy.

– At the same time, someone has to make decisions, and the current business climate in Ukraine requires co-owner investors to be prompt in their decision-making, as delays often result in negative consequences.

About promising industries for investment in Ukraine

– In my opinion, the most promising industry in Ukraine right now, which will yield the highest profits, is everything related to the military-industrial complex and its affiliated sectors. This niche surrounding the military has demonstrated remarkable progress over the past three years, yet large investors have yet to enter, despite its vast potential and incredible prospects. I believe that in the next 10 to 15 years, demand for various military products and services will only increase. Thus, Ukraine is currently one of the best places in the world for this type of business and investment.

– The energy sector holds potential, but the biggest issue here is ineffective management by regulators. We currently have a true monopoly in this market, and it is essential to change the relevant legislation; however, this has not been achieved in 30 years of Ukraine’s independence, making the likelihood of it happening now virtually nonexistent. The state currently favors monopolies. This is inefficient, and eventually, the authorities will aim to develop a diversified competitive energy system in Ukraine. Until then, all energy investments are limited to local initiatives, like individual home solar power systems, etc. From the perspective of mass generation, this market is not presently functioning. The guaranteed buyer fails to meet its obligations, and connections to the networks are regulated. Therefore, it’s crucial for large international companies to enter and advocate for their interests with high-ranking officials in their countries. While this may not entail investments of hundreds of millions of dollars, it could still present a favorable business scenario. However, the current market conditions are unwelcoming, making such investments less appealing.

– The authorities, instead of approaching the business community with a genuine proposal to build capacity and diversify the energy system, are not going for it, and such a proposal does not exist, except on paper, not in reality. Although the war showed that diversification is necessary, we have high risks, especially during the cold period.

About what hinders the arrival of foreign investors to Ukraine

– I don’t know of any area where it would be easy for a Western investor in Ukraine. Worldwide, people compete for business because they understand that it creates taxes, jobs, and other benefits. However, in Ukraine there is currently no genuine interest in attracting business. Despite the populist rhetoric in the media, the real situation is that making investments is quite uncomfortable. Large investors seek more than just profit; they desire comfort, predictability, and stability. They want a clear horizon of stability. These are actually straightforward needs. When it comes to significant investments, no one wants to deal with unqualified high-ranking officials who are trying to manage economic processes, as each of their decisions tends to be worse than the last. In this context, it might be better to take no action at all.

– As a result, there are almost no Western investors in Ukraine, and those who do arrive are earning huge profits. However, this amounts to legalized robbery. For traditional businesses, there is little reason to enter Ukraine today.

On the role of the state in forming a favorable business environment in Ukraine and the effectiveness of industrial parks, grant and credit programs

– A favorable business environment in Ukraine can only be achieved by reducing the number of officials by at least half, as they are unable to fulfill their duties effectively. This reduction will allow the system to function more smoothly. Currently, every process in our country has become excessively bureaucratic. Ukraine needs an economy that grows at an explosive pace to endure the war and its aftermath. However, genuine business in Ukraine is struggling to survive.

– Currently, in terms of state support for business, only credit programs are partially working for small amounts and for small projects. After all, the question is in the risks: the state is ready to issue small loans on collateral, but is not ready to share the risks.

– When it comes to industrial parks, their feasibility is questionable. For instance, I have no desire to enter the manufacturing business in Ukraine. I also don’t see many people eager to start a manufacturing business in Ukraine, even if military risks are set aside. The thing is that investment and business logic must be competitive. It’s essential to understand the margin of safety. Since it takes several years to create and launch production, the question of sales markets then arises… Overall, those manufacturers already in operation are trying to stay afloat, but there are no newcomers.

– When I speak with Western funds, they say Ukrainian businesspeople who have survived deserve medals. They have done this in spite of everything happening now.

On the effectiveness of the privatization process in Ukraine

– Privatization has been ongoing for 20 years, so I don’t understand why they are taking so long to sell, because everything has its price. In my opinion, privatization has not been successful in our country. We just need to sell everything quickly and give away what hasn’t sold. The state is an inefficient manager, and this holds true all over the world, not just in Ukraine. A private owner is the best manager; this is an axiom. In Ukraine, we have been selling state property for an unreasonably long time, and much remains unsold. It must be sold within six months at any price, as it is still profitable for the state. Clear requirements must be established for the State Property Fund of Ukraine and the Agency for the Investigation and Management of Assets. The poor management decisions by officials that we have observed now constitute a crime against the state.

On future plans for business in Ukraine and on international markets

– Of course, I have plans for international development, particularly in the manufacturing sector (machine building and metallurgy). We are currently exploring different platforms, and this is not about relocating, but further development, which we will carry out from new locations, closer to the end consumer. We are focusing on the EU market, where we already have expertise. Generally, for Ukrainian businesses, this is paramount. All export-oriented businesses should target Europe. We need to compete in this market. It is a significant, large market, where contractual obligations are met very effectively. Therefore, I believe that Ukraine is an ideal place to establish our foothold in European markets. Europe is becoming an increasingly substantial consumer of metallurgical and machine building products. And, given the context of rearmament, the consumption of all related products will rise.

– At the same time, new projects this year are on hold because the situation is so unstable that it’s entirely unpredictable, and treating it like a casino isn’t a business strategy. We are already involved in a significant number of projects, so our focus should be on their development and improvement, as well as on working and paying taxes and salaries. Of course, there’s also a focus on development within Ukraine, but right now the turbulence is too high, so it’s best to wait.

On what Ukraine should be like in 10-20 years

– I hope for a healthy, peaceful, and prosperous future, with quality universities and hospitals and a strong economy that fosters a respectful attitude toward business. Ukraine has every opportunity to become a fantastic and comfortable country, especially for its own citizens. The state and its authorities must begin to value and respect all Ukrainians. Only then will results follow, attracting both tourism and investors. However, first, local residents must be well-off. These opportunities must be seized, so it is our responsibility as voters to influence this process and express that we desire comfort and a peaceful country, where stability is assured and there is respect for doctors, teachers, businesspeople, workers, and veterans. This is the kind of Ukraine I want to see in the future.