In gloomy Ukraine, an unexpected gleam for one company
With a slumping economy and shaky cease-fire, Ukraine's troubles are unlikely to be solved by its first post-Maidan parliamentary elections on Sunday. But the Vetropack factory outside Kiev is getting by despite the country's misfortunes.
Hostomel, Ukraine — Ukraine's economy may be imploding, the government teetering on the brink of default, and the country's industrial heartland devastated by war.
But Ukrainians, buffeted by repeated storms, still manage to persevere and even succeed in often surprising ways. And a humble bottle factory in a small town near Kiev is a living textbook as to how.
The last time the Monitor visited the Vetropack plant in Hostomel, almost five years ago, the old Soviet-era factory was in the process of upgrading its production lines. But it was being hammered by the savage downturn after the 2008 global financial crisis, which forced it to cut production and raise prices. At the time, workers and management explained they were determined to continue upgrading their technology, improving quality, and venturing into new markets to beat the crisis.
Things are worse in Ukraine today. The costs of the trade war with Russia, and the actual war in Ukraine's east, have yet to be tallied, but everyone agrees they will be steep. Russian financing was cut off following the Maidan revolution in February, and a $17 billion credit from the International Monetary Fund and other Western aid now looks totally inadequate. The economy is expected to contract at least 8 percent by year's end, while inflation is running at around 16 percent and many Ukrainian companies are finding it impossible to service their debts.
For Ukrainians in general, the cost of living is skyrocketing as Ukraine's currency, the hryvnia, has nearly halved in value since the beginning of the year. And while the country will hold its first post-Maidan parliamentary elections on Sunday, enthusiasm for the vote is lacking among many in the crisis-beset country.
"All the economic aid we've received is being devoured by the war and other problems," says Vladimir Sidenko, an economist with the independent Razumkov Center in Kiev. "Now we're facing a harsh winter, which is almost upon us now. Ukraine is two steps away from default. We need more help, urgently."
But here three modern furnaces, which produce a third of the glass bottles used in Ukraine, have barely slowed their rate of production.
That's partly an investment in hope. Management knows that if the crisis goes on much longer they will have to make cuts.
But it's also a tribute to serendipity. The economic warfare with Ukraine's giant neighbor has seen Vetropack extend its market as Russian competitors are shut out amid mutual sanctions. The otherwise disastrous plunge of Ukraine's currency, the hryvnia, has slashed away at the price advantage formerly enjoyed by Russian and Belarusian bottle producers, who enjoy cheaper energy costs.
The company's managers have also been tenacious in maintaining their customers in Russian-annexed Crimea and even in the war-torn Donbass area of eastern Ukraine.
"Strange as it may sound, we still produce for the Donbass and find ways to deliver our bottles there. They pay us too," says the plant's chairman, Andriy Girnyk. "I maintain good contacts with businesspeople over there. We get along, because we understand each other. We're not the cause of all this trouble."
Crimea used to absorb about 15 percent of the company's output. Even though it's now effectively in a different country, with another currency and a hostile bureaucracy, consumption of Vetropack bottles remains buoyant. Mr. Girnyk explains that Crimea, which is geographically cut-off from "mainland" Russia, is difficult to supply with even critical goods, much less mundane things like bottles. So, despite increased logistical hurdles and higher costs, the old connections with Ukrainian providers are still working.
The average wage for Vetropack's about 700-strong workforce is almost double Ukraine's average of about $200 per month.
'Stick to what we need'
Still, workers here say they're hurting.
"Our salaries have been effectively cut by almost half, compared to the dollar, since the beginning of this year," says Roman Yatsuk, a floor manager at Vetropack. "Times are hard. My family has had to cut out a lot of things, put off purchases, just stick to what we need."
And though the falling hryvnia has helped push imported bottles out of Ukraine's market, it has jacked up the cost of parts and materials that Vetropack has to bring in from Europe.
The psychological and personnel impact of the war has taken a toll as well. Eleven workers from Vetropack were drafted when the military operation against east Ukraine rebels began last April, and eight went into combat. They're all OK so far, says Girnyk, but Hostomel – a town of around 15,000 people – lost two local men.
"We're struggling here, because qualified people have been taken away to the army and it's almost impossible to replace them," says Vadim Kuraksa, a Vetropack repairman. "We try to make do, but everyone here wishes this war would end already."
Winter is coming
The most critical problem is the energy shortage caused by Russia shutting down gas supplies in June and the destruction of many coal mines in the war-torn Donbass. A tentative deal to supply Russian gas through the winter keeps getting put off because of Ukraine's inability, or unwillingness, to pay its huge back debt to Russia and pony up in advance for fresh gas deliveries.
Serious energy shortages this winter could be devastating for Ukraine's economy, which has subsisted in the past on cheap Russian gas, and even life-threatening for ordinary Ukrainians who depend on gas to heat their homes. For Vetropack, whose bottle prices are 25 percent energy costs, it could be a serious blow.
""Until now the shortages have been concealed by warm weather. When the heating season begins – and it's coming soon – the problem is going to hit hard," says plant chairman Girnyk.
"The main goal," says Mr. Yatsuk, "is to keep working, do our best, and get through this."