Ukraine’s 1,000 largest private businesses earned $187 billion last year, almost 3% less than in 2019 when their total revenue reached $191 billion, according to a survey published on Aug. 17 by the analytics site YouControl.
The top 1,000 enterprises include big retailers like ATB, Silpo and Epicenter, agriculture firms Kernel and MHP, tobacco distributors Tedis and Philip Morris and energy company D.Trading, which is part of oligarch Rinat Akhmetov’s energy conglomerate DTEK.
According to YouControl, companies in oil and gas, energy generation and metallurgy made the biggest profits. Together, they generated nearly $77 billion or 42% of the total revenue of the top 1,000 businesses.
Sports and entertainment, tourism, engineering and architecture are the least profitable industries, the survey found.
Winners and losers
During the quarantine, 118 of Ukraine’s private oil and gas businesses earned $29 billion, nearly 4% less than in 2019. According to Ukraine’s economist Oleksiy Kushch, this is a worldwide trend: As global oil prices plummeted on lower demand and falling investment, the Ukrainian oil and gas industry suffered too.
Another reason, Kushch said, is the crisis in Ukraine’s state-owned oil and gas company Naftogaz, which lost $684 million in 2020. It was Naftogaz’s first unprofitable year since 2015.
The oil and gas market is expected to rebound this year as oil prices rise due to growing demand, said energy expert Gennady Kobal.
“The oil prices went up in July-December last year and kept growing rapidly in the first half of 2021, so the companies that work in the oil industry earned more,” Kobal told the Kyiv Post.
Companies that work in wholesale trade, transport, coal mining, mechanical engineering and coke industries also had less profits in 2020, according to YouControl. Energy and retail industries, in turn, were the leaders in revenue growth.
According to Kobal, energy companies profited because gas and oil became cheaper. The launch of the electricity market on July 1, 2019, also benefited the industry, making it more competitive and less regulated, Kushch told the Kyiv Post.
This year the profit of private energy companies is expected to decrease as oil prices go up, Kobal said. In addition, Ukraine’s energy market struggles with price fluctuations. Low prices benefit businesses and high prices benefit energy companies, according to Kushch.
“It negatively affects the price expectations of the business,” he said.
The revenue growth of retail businesses is overestimated, according to Kushch. Ukrainian retail showed better numbers last year because it became more transparent following the popularity of online payments.
As people use cards or mobile payments instead of cash and companies pay their employees officially, rather than under the counter, it has become easier to track the flow of money.
“That is why it seems that the profit of retail companies goes up,” Kushch said.
Business dinosaurs
Many companies from Ukraine’s top 1,000 were registered 15-27 years ago, according to YouControl. For example, agricultural giant Mironivsky Hliboproduct, or MHP, was founded in 1998; the confectionary company Roshen that belongs to Ukraine’s former president Petro Poroshenko began in 1996. Akhmetov’s steel giant Metinvest launched in 2006.
The registration date of many businesses coincides with the change of political leadership in the country, YouControl said. “Business has always been dependent on politics in Ukraine and politics intervened into business,” said Paul Kukhta, the chief policy officer at Kyiv School of Economics.
“Instead of growing a business, Ukrainian entrepreneurs think about how to circumvent the rules, avoid taxes. They do not earn on business, but on games with the state,” he said.
Many old-school businesses are also reluctant to attract investment because they don’t want to share their profit, Kushch said.
“They block the investment, the development of small businesses and startups,” according to Kushch. “That is why the economic space is occupied by old players who do not let anyone in.”
Another problem is the concentration of big businesses — over 50% — in Kyiv or industrial cities like Dnipro, Odesa and Kharkiv, while conditions in smaller towns and regions are deteriorating. Ukrainians from areas with fewer opportunities tend to move abroad to earn money, Kuchta said.
The smallest number of big companies is registered in Lugansk (6), Kherson (5) and Chernivtsi (3) oblasts, according to YouControl.
In total, there are over 340,000 private companies in Ukraine as of 2021, compared to 284,000 in 2014, according to the State Statistics Service. But Kuchta said that these numbers do not represent the real situation on the market, because there are many “fake” companies, subsidiaries and businesses that work in the shadows.
“The goal of politics is to create a system of rules which will help entrepreneurs to build their country,” Kuchta said. “In Ukraine, the rules are constantly changing to meet the needs of the moment or corruption whims.”
