Reiner Perau sees no significant differences when comparing his current life in Berlin and Kiev. The economist has been commuting between these cities, located nearly 1,400 kilometers apart, since he took over as the head of the German-Ukrainian Chamber of Industry and Commerce at the beginning of the year. "Life in Kiev seems perfectly normal on the surface," Perau reports. This changes when there are frequent air raid alarms, especially at night, and when the anti-aircraft defense system shoots down Russian missiles and drones. But people react differently to these situations.

Ukraine has been in a state of war for over 600 days. People die every day, especially on the front lines in Donbass and the south. Russian forces repeatedly shell Ukrainian cities. Nonetheless, the security situation has significantly improved since protective measures, mostly provided by Western countries, were put in place. The German Eastern Business Association now considers the war risk in most parts of western and central Ukraine to be "manageable." Perau also believes that the security situation allows for business trips to most Ukrainian regions.

The Ukrainian economy has proven to be resilient. The gross domestic product (GDP) plummeted by 29% after the outbreak of the war. Nevertheless, a small growth is expected this year, with the government anticipating a 4% increase. Florian Otto, a risk analyst from the consulting firm Control Risks, who recently traveled to Ukraine with a business delegation, reports about local companies displaying "remarkable adaptability and innovation." Risks in the country need to be examined on a case-by-case basis, says Otto. It depends on the region and the business model.

Around 2,000 German companies are active in Ukraine. Hardly any of them abandoned the country after the Russian invasion last year, including those directly affected, such as Knauf. The construction materials manufacturer from Lower Franconia lost a gypsum board factory in Donbass due to Russian shelling during the initial months of the war. The company now plans to build a new factory in western Ukraine. The Chamber of Commerce in Kiev notes a general interest from the German side in new investments.

For instance, Bayer, the multinational pharmaceutical and life sciences company, is investing an additional 60 million euros in its seed plant near the Ukrainian capital. Currently, a third dryer is being installed to increase production capacity by 50%. Two bunkers are also planned to enhance safety for employees. Through these investments, Bayer plans to hire up to 1,500 additional employees, explains Oliver Gierlichs, CEO of Bayer Ukraine. Withdrawal from the country has never been a consideration. "Ukraine remains an interesting country for investments," states Gierlichs, who lives in Kiev. The focus in the seed sector is on the Ukrainian market, but increasingly also on exports to the West.

The war has naturally influenced trade figures: German imports from Ukraine remained relatively stable at 3.1 billion euros in 2022. However, exports decreased by 11% to 4.8 billion euros. In the first eight months of 2023, exports experienced a significant increase of 52%, primarily due to the delivery of German military goods.

The foreign trade landscape is currently undergoing changes: Ukrainian companies are seeking new markets and sales channels. According to the Kiev government, only 22% of exports went to Western Europe in 2021. This year, the figure rose to almost 57%. Nonetheless, the situation at EU external borders often leads to frustration. German companies like Leoni complain about truck waiting times when exiting to Poland, reaching eight to ten days. The automotive supplier, that employs 5,000 people in Ukraine, initially could not deliver cable harnesses to its German customers after the war broke out. Production resumed after two weeks. But a just-in-time delivery under these border conditions is hardly possible today.

The German government is currently trying to maintain economic relationships using various instruments, particularly through investment and export credit guarantees, which – quite unusually – have been retained despite the war. In recent months, the Ministry of Economics has adjusted its approach, improving coverage conditions: Among other things, bank guarantees are no longer necessary. Investment guarantees have also been expanded to cover property damages up to total loss, as well as certain payment risks.

The inclusion of damages caused by combat operations is seen as a "strong signal" by Julia Braune, the head of the state-owned foreign trade company GTAI (Germany Trade and Invest). She points out that, in addition to already granted guarantees, there are currently 30 project applications and 70 preliminary inquiries. More and more investment projects are being announced. Since the summer, Edna Schöne, Executive Board Member at the credit insurer Euler Hermes, which has operated as Allianz Trade since last year, has noticed significantly increased demand from the corporate sector. In the short-term trade business, 200 limits have already been issued in 2023, with a new coverage volume of 140 million euros – significantly more than in 2022.

"We are on a really good path," says Schöne. Before the war, Ukraine was one of the top 10 markets for the former Euler Hermes, where 500 million euros were insured. Today, along with colleagues from Poland, the company still leads in covering risks in Ukraine within Western Europe. European export credit agencies are currently exploring how they can jointly implement even more projects in Ukraine through collaborative efforts.

The political leadership in Kiev is currently making various efforts to convince EU companies of the potential of the Ukrainian market and encourage them to invest without waiting for an end to the war. For the German-Ukrainian Business Forum, which was attended by around 500 interested parties in Berlin last Tuesday, Prime Minister Denys Schmyhal traveled with four of his ministers. Schmyhal promised a "policy of maximum investment facilitation."

His government has identified several focus sectors where Western investors are given special attention. This includes the construction industry, which is crucial for the reconstruction of buildings and infrastructure on the desired scale. The country lacks its own glass production. Based on official information, there is also a lack of cement capacity of about 3 million tons per year. For concrete, the shortage is as much as 10 million tons.

There are also plans to significantly expand the domestic defense industry, which is not solely related to the ongoing war. In Kiev, it is referred to as a "growth engine" that the sector is expected to develop into in the medium term. The joint venture initiated in May by Rheinmetall and the state-owned company Ukrainian Defense Industry JSC is considered exemplary. This joint venture, which was registered by Ukrainian authorities in mid-October, will be involved in maintenance, assembly, production, and development of military vehicles locally. In Berlin, a (breakfast) meeting was held recently with 25 other German defense companies and the Ukrainian Minister for Strategic Industries, Oleksandr Kamyshin, who now expects more market entries.

According to many experts, the energy and raw materials sector also offers significant potential for expanding bilateral economic relations. It includes natural gas deals and, in the medium term, the delivery of green hydrogen, as well as critical raw materials. Ukraine has resources such as titanium, lithium, and other rare earth elements. Many new projects are currently being initiated in the renewable energy sector, particularly in wind power, solar energy, and biomass.

However, the question remains about how the Ukrainian energy system will withstand further targeted attacks by Russian forces. Last winter, Kiev counted 300 hits that destroyed about half of the infrastructure – some of which was quickly repaired. Economic Minister Robert Habeck recently described the fact that the energy supply remained largely stable as a "man-made miracle."

In addition to energy infrastructure and numerous residential buildings, Ukraine has also restored around 400 schools and 800 healthcare facilities during the ongoing war. Seventeen destroyed bridges have been rebuilt and are now operational. Work is still ongoing on 53 others. One hundred fifty kilometers of railroads have been repaired. But can companies rely on this continuing and the infrastructure in the country holding up?

Regardless of the ongoing EU accession process, Ukraine will need billions in budgetary support for the next few years. The EU and G7 countries are primarily responsible here. In addition, there are commitments from the German side, such as those from KfW, which has been active in the country since the 1990s. The KfW Development Bank is currently handling 31 financing projects totaling 1.26 billion euros. This includes specific measures for maintaining state functions and emergency infrastructure – essential measures for any further economic activity, even in times of war.