The biggest problem of Ukraine’s economy and six enthusiasts who solved it

After 2014, many Ukrainian companies emerged that specialize in the design and manufacture of unmanned aerial vehicles (drones), unmanned ground transportation systems (robots), and robots operating in and under water. Starting their activity as a volunteer public engineering bureaus, creating drones to repel Russian aggression, some of them evolved to global players. 

New Ukraine, People of Ukraine

Article by: Bohdan Ben
Edited by: Sonia Maryn

Editor’s Note

30 years after independence, Ukraine’s economy is mostly raw-materials oriented, with agriculture and metals making up the bulk of exports — a ratio resembling that of colonial countries. But a new generation of small and medium enterprises (SMEs) are ushering changes into this ratio, having found ways to make Ukraine excel in a number of hi-tech and added value exports. These hidden champions are exporting e-bikes, drones, jewelry, emotions, and more, eroding the grip of oligarchs on the raw-material-dominated economy.

What is wrong with the Ukrainian economy, even now that many of the most important reforms have been implemented? The country is still exporting mainly unprocessed products and raw materials, such as valuable mined reserves or food grown and produced by huge enterprises that in most cases have been controlled by oligarchs since their emergence in the 1990s.

One way to get past this conundrum is to recognize emerging small and medium enterprises (SMEs) that are championing new, innovative, and creative products for the global market — especially in the realm of hi-tech. Most of these individuals started or expanded their activity relatively recently. Now, it is just a matter of time before they gain enough notoriety that they reach a critical mass and start to make a real difference. They have the potential to erode the over-reliance on unprocessed products and raw materials that dominate the Ukrainian economy, curtailing the oligarchs’ influence on the economy and politics.

Statistical picture of still-colonial Ukrainian economy and new promising growth

When comparing the statistics of Ukraine’s exports with other first-world countries (or even neighboring Belarus), Ukraine stands out as the worst possible scenario. Exports are predominantly raw or low-processed products. At the forefront is agriculture.

Top exports are Corn (9%), Seed Oils (7%), Wheat (6%), Iron Ore (6%), semi-finished Iron (5%), and — IT (6%). These are mostly exported to the EU, Russia and China.

Top shows 2019 exports of goods according to oec.world data. In total $49.5bn. (Note: graph excludes data for some $12bn of services that do not apply to these categories).

In 2019, Ukraine was the world’s biggest exporter of Seed Oils ($3.75B). However, this is nothing to be proud of, considering the country’s extremely low share of intellectual exports.

It would be fair to say that economically Ukraine’s colonial status has changed little since the days of Stalin. Although the exploitation of land is not as barbarous as during the 1933 Holodomor (Stalin-manufactured famine that killed more than three million people) it is still very harmful for ecology. 90% of Ukrainian steppe lands are under tillage.

Traveling by vehicle or train, virtually no raw nature is visible and very few villages – rather, kilometers and kilometers of cultivated fields. This choked land ultimately leads to a drier climate, dust storms, and other natural disasters that are becoming ever-more frequent, degrading biodiversity. There are few places in the world with such a high degree of tillage. One of the only analogies would be that of eastern Kansas. Even though the U.S. exports two times more grain than Ukraine, the statistical consequence for them is nowhere near that of Ukraine where grain is the main source of much-needed foreign currency.

50-kilometer-wide satellite image (top) of Kansas biodiversity compared to (bottom) 50-kilometer-wide image of Dnipro banks bordering on steppes, entirely under tillage with little or no diversity.

 

Lauded as one of the top breadbaskets of the world, there is no easy solution for this pros-and-cons dilemma. With over-population, the demand for food increases around the globe, especially in areas that are not able to satisfy the needs of its population. In Ukraine, where food products are the bulk of exports, the increasing damage to this critical resource is cause for alarm and the pressing need for counter-measures.

In summary, 63% of Ukraine’s $49.5 billion exports of goods comes from raw materials or low-processed and resource-consuming products, such as corn and wheat, semi-finished iron, and forested logs or saw-milled lumber. 42% of Ukraine’s exports of goods are food and agricultural products. The comparable percentage for other exporters is 9% (U.S.); 6% (Germany); and 17% (Poland). As mentioned above, these quantities exclude service exports, however here too, Ukraine is also behind most developed countries.

The importance of hidden champions

Given these circumstances, the future looks bleak for Ukraine. However, a new up-and-coming generation may prove to change the economic landscape altogether. The millennial generation has primarily come on the scene after Independence. They have never suffered firsthand the oppression of the Soviet Union. They have always been connected to the West and share the same freedom of thought and opportunities for creativity. They are looking beyond the traditional mainstays of agriculture, forestry, mining, and other raw-resourced exports that bring little benefit to the economy of their homeland.

By exploring new avenues, these energetic entrepreneurs are already proving positive results. For example: in just five years, exports of Ukrainian jewelry have increased three times; exports of electric heaters 3.5 times; and exports of broadcasting equipment, including drones, nine times.

IT exports are showing an incremental increase of about 20% each year — a result even more impressive when viewed in terms of the general economic decline in 2020-2021. During this otherwise stagnant period, IT has only accelerated its growth. Specific enterprises with particularly innovative, young entrepreneurs are behind this promising trend.

In the 1970s, German business leader Hermann Simon coined the term “hidden champions” to describe SMEs. The “champions” differ from the mainstream in their focus on the niche market. Allowing for maximum utilization of resources in the most efficient way, these businesses quickly excel to become leaders.

The importance of small and medium companies should not be underestimated for their crucial role. Not only can they shore up the development of the local economy, they can also empower and expand the middle class, write analysts of the Ukrainian Center for Economic Strategy. The center is a non-governmental research body dedicated to promoting sustainable and inclusive economic growth:

Small and medium companies are the backbone of any national economy. An economy with a high share of strong SMEs enjoys several benefits, such as inclusive and sustainable growth and economic growth based on knowledge and innovation. SMEs are also more flexible and community embedded.

Ukraine has several large enterprises in the aerospace, aircraft, and military industries which have shown favorable development in recent years. But what can bring the majority of Ukrainians to achieve economic stability, and not depend on a small number of highly concentrated entities? The answer may indeed lie in the thousands of burgeoning medium-sized enterprises that are bringing to the marketplace their unique products. Certainly, Ukraine has not yet reached the level of Germany in terms of successful medium-sized enterprises that occupy specific niches, but as demonstrated by the data above, it is on its way.

The most unique products of the last five years that have entered the global market

Euromaidan Press selected some of the most singular and innovative enterprises that are moving Ukraine forward.

Jewelry business Kochut

Kochut is a jewelry business founded by three brothers, Yuri, Roman, and Ihor Kochut, in 2015 in Uzhhorod. In seven years, they have gone from a mini-workshop at home, to a boutique in Vienna and more. Their extensive online catalog and sophisticated marketing of their products are impressive. The enterprise is known as a niche designer that moved away from the classic design of jewelry — smooth surfaces with simple details — instead of creating exclusive handcrafted jewelry, unique furniture, and wooden decor.

Schooled in engineering, the Kochut brothers are especially exceptional in their design of rings, pendants, and other adornments as “organic,” reflecting traits of nature as well as fables, folk tales, and other fantastical symbols, and perhaps most surprisingly architectural masterpieces. Their jewelry is based on one-of-a-kind design in handcrafted settings whose quality and distinctiveness is a trademark.

At the same time, Kochut.org is a huge manufacturer with multiple artisans. Already famous in Ukraine, their market includes Germany, Austria, the Czech Republic, as well as the United Kingdom and America. Their business plan is to open 100 outlets in more countries by 2023. Their current collection includes pieces with unusual names like Twig, Oak Bark, Notre Dame, Celtic Amulet, and Citadel.

In 2017 they acquired a large workshop and launched the third iteration of their website which increased sales by 50%. The owners emphasize the importance of a good website as a marketing tool, saying, when done well, a website will take you at least half the way to success.

Хто в Україні виготовляє ювелірні прикраси: КУПУЙ УКРАЇНСЬКЕ: Хто в Україні виготовляє прикраси « Публикации | Мобильная версия | Бизнес.Цензор.НЕТInterestingly, they began their careers working with armor production, reconstructing military gear, tunics, and ancient battle scenes.

“And once we made a very fractional hauberk and our father told us that such pieces should be made from silver,” they recall. “So, we started making our first jewelry. Our main feature is the original design to which we came after long two years of intensive work.”

When opening their first showroom, the Kochuts decided to find special work tables for their crafting — something that suited their distinctive work. Not finding anything satisfactory, they created their own, and thus a new brand of unique furniture was born, combining old techniques of woodwork with the new technology of epoxy resin.

Furniture by Kochut

Yakusha Design studio and furniture brand Faina

Viktoria Yakusha started her design business in 2007, launching her unique furniture brand Faina in 2014. The Yakusha collection includes products reminiscent of Ukrainian cultures, such as the bandura instrument and ancient talismans like motanka works.

Furniture and design by Yakusha

Working predominantly with clay, the studio is largely known for its interior design, much of it inspired by the 7,000-year-old Trypillian culture which existed on Ukrainian land. Aspects of this culture are combined with contemporary art. Following the philosophy of living design, the FAINA collection is released two times per year — during the Winter and Summer solstice, days of natural renewal.

In 2019, Yakusha’s work was recognized as rating among the five best office spaces in the world, by the Dezeen Awards, and the studio’s founder received the title of Designer of the Year. That same year, the studio opened a permanent FAINA showroom in Brussels. Yakusha is represented in more than 20 countries, including Italy, the UK and America.

One of the studio’s most famous projects is called “Living Minimalism about Freedom,” which has become the theme of its works as a whole. The Yakusha philosophy is to create a fully natural space, yet one that emphasizes comfort for the consumer. Victoria Yakusha’s success is truly outstanding. In only five years, her FAINA inventory has turned over 35-fold.

Success does not come without challenges. The business must ensure all exports comply with international quality certification. In particular, all goods must meet ecological standards and be sustainable, in addition to being creative.

“We have all the wood with stamps, to know from whom we buy materials, and we can always provide these documents to partners. You need to be environmentally friendly in everything: in production and communication, and approach to doing business,” says Yakusha.

 

Drone production companies

Ukraine has been a regional leader in space and aircraft industries, since the Soviet regime housed its large state enterprises in the country. Today, this arena consists largely of new medium enterprises founded by enthusiasts looking to develop new drone technology. Dozens of manufacturers fill the landscape, but the most popular is Drone.ua which makes drones specifically for sales to entrepreneurs in agriculture, cartography, the mining industry, telecommunications, the oil and gas industry, civic emergency services, and the military. Founded in 2014, the company has been exporting to the EU since 2016.

Как зарабатывать на технологиях — опыт украинского производителя беспилотников DroneUA

Founder of Drone.ua, Valeriy Yakovenko. Source: delo.ua

The entire drone market is thought to belong to China, but the founder of Drone.ua, Valeriy Yakovenko, says this is not the case. Rather, the drone market is ever-expanding and Ukrainian production is making its way into the world market. In fact, in recent years Ukraine has seen a boom in the production of drones — moreover, this increase is not due solely to the military demand in eastern Ukraine, where the Russia-Ukraine war has raged for seven years.

“We understood from the beginning that the mass market was closed to us due to strong Chinese presence, and focus on industrial drones. We managed to develop models that cost less than $3,000, while Western counterparts cost $10,000 – $15,000,” says Yakovenko.

The company started as a distributor of Chinese drones in Ukraine and partially in the EU. However, year-by-year it has developed many of its own models. Over time, the company recognized that the physical drone is not, in fact, an end product. It is an instrument to process information that is vital to any given industry or entrepreneur.

The agricultural business we work with does not need the device itself, but the picture it gives. Therefore, gradually our key niche became not the sale of drones, but information service – photo processing and analysis. The result that the customer receives is, for example, coordinating where they need to use pesticides. We first moved into this niche in Ukraine and then in the EU, and in the end it allows us to lower the price of the drones themselves – we can afford to sell them cheaper if we sign an agreement to process the information they give,” says Yakovenko.

AeroDrone бросает вызов наземной технике - Крылья - Все об украинской авиации

Unmanned plane that can seed fields by Aerodrone

Another Ukrainian company AeroDrone shows much promise. Their advantage is being able to produce economy-priced aircraft of a reasonable size. In other words, unmanned planes that can work autonomously, doing anything from seeding fields to delivering fence posts. A drone can seed 100 hectares in one hour, while using dozens of times less fuel than ordinary planes.

 

Another Ukrainian company Ukrspecsystems develops military drones, including those which can carry missiles.

Holding of emotions “! FEST

Beginning as a creative idea to entertain tourists in Lviv, this business turned into a huge holding that owns big networks of restaurants, special event halls, and publishing houses. Other lucrative undertakings include manufacturing goods for export; making Ukrainian brand-name fashion; publishing books and selling book rights, and manufacturing chocolate liqueurs. The company has recently started operating micro-breweries.

Inside the Gas Lamp restaurant.

Co-founders Andriy Khudo and Yurko Nazaruk started in the early 2000s with two goals. The first was simply to open 15 restaurants. By franchising and spreading their network of Lviv chocolate workshops across the country they brought them all under a national umbrella. The second goal was a little more ambitious — to become a global brand.

A souvenir bottle with the insignia of Aviatsiya Halychyny.

Some of their restaurants are especially popular among Lviv tourists: Gas Lamp boasts a collection of thousands of vintage lamps; Kryivka (Hiding Place) where a Ukrainian insurgent welcomes visitors with the patriotic greeting Glory to Ukraine; and Lviv Chocolate which manufactures its own handmade chocolate.

Another distinctive business is the clothing brand Aviation of Galicia, which offers the sale of clothing either online or in shops. Each piece includes Ukrainian symbols or landmarks, as do many accessories, like the water bottle bearing the Aviation of Galicia insignia. The purpose is to revive the memory of Ukrainian aviation as part of the modern army and to demonstrate to the world that Ukrainian products can be of high quality.

“This project has its own line, charisma, and aspires to become global. Very often people wear clothes and use things regardless of what is depicted on it. The purpose of our brand is to help people feel like a bearer of Ukrainian values,”says Yurko Nazaruk.

Графік роботи офісу та книгарні Старого Лева у Львові 2 грудня!

The main office of Staryi Lev (Old Lion) publishing house

The Staryi Lev (Old Lion) publishing house is one of the most successful Ukrainian publishing houses globally. It sells the rights to publication of Ukrainian books in 26 countries worldwide. The publishing house also takes part in the most famous book exhibitions, held in cities like Leipzig, Bologna and Frankfurt. It also publishes versions of English books using its main advantage – the unique design of books and the bookstores they are sold in.

Finally, the !Fest brewery Pravda is gaining momentum, aiming to export beer to as many countries as possible. Eight of the best European brewery experts — representatives of different nationalities — combined their expertise to create the Pravda brewery.

We understood that in Ukraine, in Lviv, there are long traditions of brewing, so this is where you can make a good start and make beer according to a unique recipe, which will have a chance to be sold all over the world,” says Yurko Nazaruk.

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DelFast manufacturer of electric bikes

DelFast is a Ukrainian company that has developed a high-powered electric bicycle with a range of 380 kilometers — 30 kilometers further than the electric car Tesla — running at a maximum speed of 80 kilometers. DelFast began operating in 2014 as a courier service for small loads. After launching a campaign on Kickstarter to raise funds, it started producing its own electric bikes. DelFast has achieved significant success with coverage in popular Western media like TechInsider, Mashable and Yahoo. Currently, the company is an active exporter of electric bikes of its own production abroad.

On its global map of retailers, the company shows it has entered the European and North American markets and has started selling to Asia, Africa and Australia.

Startup UATAG

A bonus sixth enterprise to this list, UATAG, is not yet global but has already raised interest within the broader business community. Founder Taras Rodtsevich created the business to help identify forgeries of valuable objects. The formula was innovative — using pieces of shattered glass for detection. After employing the technique himself, Rodtsevich demonstrated the product to his friends. Raising the problem of counterfeiting in the art world, a friend suggested a startup.

UATAG unique labels made of shattered glass

The idea came to mind two years ago. My friend, an artist, said that in the world of art a lot of things are forged and people cannot distinguish the original from the copy. He hypothesized that certain objects could be protected by creating unique drawings. But there is a problem that even a unique picture can be copied,” says Radosevich.

To find something truly unique, Radosevich and his friend tested different materials to determine which would be best in realizing the theory. They experimented with patterns on broken stones and leaves, but patterns on the stones were difficult to make out, and leaves withered quickly. They decided to go with glass.

In order to create a unique pattern that can be identified, the key is not to randomly shatter the glass, but instead to use a strictly controlled process. The pattern of cracks should not be too dense and, most importantly, no crack should reach the periphery of the particular glass piece. In other words, it should not be possible for the glass to fragment further. The cracks of the glass need to be fully contained within the piece.

As unique as this invention is, it is still very affordable. Rodtsevich estimates that the protection of one object from forgery will cost only $5.00 or less a year.

We position all protection not just as a label, but as a comprehensive service – this includes the production of the label, the database and all the support – everything you need for a particular case,” says Taras Rodtsevich.

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Edited by: Sonia Maryn

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