“The backbone of the economy”

The Russian invasion has hit the Ukrainian economy hard. How is it doing now?

We have been struggling, yes. But through a collective effort and international support the macro economic indicators are not bad: we saw an increase in the GDP in 2023 of 5.5 %; inflation rates are going down. So, all in all it could be worse. And this is partially due to the work of the Business Development Fund.

How was the BDF instrumental for the upswing of the Ukrainian economy?

To answer that let me go back a bit in the history of the BDF. In 1996, the German Government via KfW initiated the establishment of the German Ukrainian Fund, which was officially founded in 1999 by the Ukrainian Ministry of Finance, the National Bank of the Ukraine and KfW on behalf of the German government. The main goal was to transform the socialist economy into a market economy and so the purpose was to support small and medium-sized enterprises. Their lack of access to financing had been particularly high at that time. Thus, the German Ukrainian Fund helped to provide this part of the economy with loans.

What role do small and medium-sized businesses play in Ukraine nowadays?

They form the backbone of our economy and constitute 99 percent of the total registered businesses here. Before the Russian full-fledged war started, small and medium-sized businesses employed roughly 80 percent of the Ukrainian workforce. But first the Corona Pandemic and then then the Russian invasion caused a sharp decline in their economic activity.

What did the Government do to halt this decline?

In 2020, President Selenskyi introduced a new product called “affordable loans 5-7-9”. It is a programm that subsidizes interest rates so that loans can be given out with interests below market rates. Depending on the size of the business, they are 5, 7 or 9 %. The market rates then were on average around 26 or 27 % So the affordable-loan-programme makes a real difference for small and medium-sized businesses. In order to make this change visible to the larger public, the German Ukranian Fund was renamed to Business Development Fund – shortly: BDF.

What has been the BDF´s role since February 2022?

After Covid, this was our next huge challenge. It was then decided that the BDF should build an economical front, if you wish. We kept our 5-7-9 loan programme since then and complemented it with a number of new programmes, all geared towards keeping the economy running and cushioning the detrimental impacts of the Russian invasion.

What detrimental impacts did the Russian invasion have?

At first it looked like there would be a new Holodomor, as we call it. Holodomor was a very bad famine in the 1930s. When the full-fledged Russian war started, there was a very high risk that farmers could not continue their businesses. A sharp drop in exports and a lack of food for the Ukrainian people was expected. In order to avoid that, the BDF increased its activities. And we were successful, a Holodomor did not take place. A huge sowing campaign, supported also by the BDF, made sure that the farmers could do their job.

Do you only give out loans with subsidized interest rates or grants as well?

We as the BDF don´t give out anything. We are working together with banks as intermediaries. But since the war started we also offer grants. We saw a need to stimulate banks so that they give out resources to entrepreneurs of small and medium firms. Therefore we started a lot of grant programmes in addition to our classic 5-7-9 product. That happened with the help of international donors, among them very prominently Germany. In some of the grant programmes we work with little sums, like EUR 4.500 to help micro entreprenuers. All that had a great effect and helped to stabilize our agriculture and our economy in general.

You also assist firms to move from East to West…

Exactly. We started a programme in 2022 to relocate businesses from the Kharkiv and Donetsk and Luhansk region to the Western Ukraine. And in 2023 we set up a programm called “bring energy to your business”. It´s aimed at increasing energy efficiency and local renewable energie facilities in order to make businesses more energy independent since Russian attacks are very often geared towards the Ukrainian energy infrastructre. And of course we give out grants for businesses that have been hit by Russian missiles or drones. That´s a part of the ongoing rebuilding effort.

Which sector is your main target as BDF?

It´s agriculture. Ukraine has throughout its history been the “breadbasket” for our region and way beyond. It´s the major sector in Ukraine economy and it was also the most bankable in Ukraine. But industry production is picking up, also as a means to diversify the economy and to get less dependent from imports.

Your promotional programme resembles very much that of KfW, doesn´t it?

That impression is correct. The reason is: We were established with support from KfW on the principles of KfW. However, we are not a bank, we are a financial institution. We also don´t want to compete with the banks in Ukraine; they are our partners, not competitors, for loans and grants alike.

How important was and is Germany for your work?

Very important. KfW helped to build us from scratch. It was a co-owner of the BDF till 2019. Then KfW left, because the job was done. But since then KfW on behalf of the German government supported our programmes on different scales - and has been an essential donor since the Russian invasion. KfW is like a good parent, always on the side of its child. One day I hope that we can give some of that back, in whichever form.

What do you envision for the BDF itself?

At the moment we are only 24 employees here; I think the BDF has to grow and transform into a real nation-wide development institution. That’s my vision. And it has received considerable support during the Ukraine Recovery Conference that took place in Berlin in June 2024.

There is a joint German-Ukrainian initiative called “Vision BDF 2.0”, what does it involve?

This vision consists of three stages: First we want to transform the BDF into a sustainable, reliable and independent institution. For that purpose it has to undergo a comprehensive governance reform. The goal is to revise the Fund´s mandate, business model, corporate governance, legal and regulatory status to perfect its functioning. Secondly, it will apply for undergoing a so-called EU pillar assessment allowing the BDF, in the case of success, to directly attract funds from the EU. And in a third stage the BDF then would have the capacities to enter the capital markets and tap into private investments to finance programs for the recovery of the Ukrainian economy. Germany will support us in the process of implementing this vision.

Are you excited about this prospect?

Very much so because then the BDF can live up to its full potential and service the Ukrainian economy even better.