Letter From Ukraine
by DJ Maughfling
It was November 2022 when I last wrote some words about the situation in Ukraine. Ten months later, the war is still raging in the East. The conflict will soon be two years old, and this war is no longer the world's number one topic.
Our company continues to work at our facilities in Ukraine and Poland. We have faced many difficult moments during 2023. The bombing of our city (Zhytomyr) is reduced to a level, where we are not often disturbed. There is an air defence system positioned somewhere in the vicinity and most rockets are shot down. At least we don't need to face that danger, so we can focus on the abundant flow of other troubles. Always remembering, if the machines stop, the money will stop, and people's income will stop. So, we NEVER STOP!
Primarily, the biggest challenge is loss of people from our team. Approximately 50% of the team from 2021 are not working in our company any longer. It's a complex story and not everyone went into the army - some 30% (approx.) of our team were called up to serve.
The other 20% (approx.) left for other reasons connected to the war. We have replaced those missing 50% of staff with other staff or processes. You can easily imagine the impact of losing half the company workforce.
Replacing them with less experienced people and the impact on the business. Each new person is 70% as effective as the one who left. I would not criticize anyone for leaving, and do not know how I might have handled the situation myself if I were faced with the awful prospect of fighting at the front (I'm British, so that is not my situation).
'the biggest challenge is loss of people from our team'
With the death toll on the Ukraine side at an unparalleled high, it's not surprising that some of the people are reluctant to pick up weapons. This fact is impossible to miss as I drive through the city, passing a cemetery that is dedicated to Ukrainian military.
Between 2014 and 2022, there were constantly one or two new flags each month. Every fallen soldier has a flag planted at their grave. Between the start of this year and my writing this letter, the rest of the graveyard has been filled up (possibly 1,000 additional graves). To give an example, that brings home how dreadful war is, one of our staff is married to an officer, whose troop (Platoon) consisted of 30 soldiers at the end of 2022. Today, only five are remaining. That means 25 soldiers are injured or dead.
This is visually recognizable when one looks over the fence of any cemetery in Ukraine. The situation was bound to change with the Ukrainian offensive. And the offensive was unavoidable if Ukraine is to secure its own land. We should not be under any illusion. If the war spread further than Ukraine, it would be our cemeteries filling up - and that's what allied governments are trying to avoid.
Business is the blood of the economy
As a result of the war, there is a grey market growing in Ukraine, resulting in the loss of tax income for the state. The government needs to show its foreign partners that tax income is stable, and that they will be able to support the mounting debts to the other nations and financial institutions that help keep the military support flowing.
If the USA give a billion dollars to Ukraine, in terms of military equipment, that's not a real gift and should be paid back at some time. As long as Ukraine can show its competence, the river of aid keeps flowing.
There is a finite list of taxable pathways for a government, any government, to be able to collect revenue - VAT/sales taxes, duties, personal income tax, property taxes, corporate tax, social taxes - these make up most of the governmental income. Ultimately, elsewhere, all of these are connected to companies. Without companies, the economy collapses.
With the loss of people from companies and organizations, the tax revenue has been dropping. This forces the government to squeeze a little harder. "Get more from less." In turn, this is driving many companies towards the grey market. Where goods are sold for cash and salaries are partially paid with that cash. A double blow to the budget, because VAT (sales tax) will not be declared on goods sold for cash. A downward spiral of action and reaction.
'the graveyard has been filled up'
Supersprox doesn't sell anything in Ukraine and our company remains in the list of top taxpayers in the city. Not because we employ the greatest number of staff or pay the highest salaries or make the best profits. Its only because we work transparently. More for our own sanity, than our benevolence towards the state. As the government tries to squeeze more tax out of the remaining companies, it only hurts those who still operate within the tax laws. Those in the grey market are not suffering and moreover, they bring more difficulty to the honest ones.
The national bank/government are also obliged to tighten fiscal controls, to avoid currency devaluation or the outflow of US Dollar and euro from the country. We are all aware of the Argentinian economy and its troubles. How easily Ukraine could end up in the same situation if they take the wrong turn. Apart from winning this war, Ukraine also needs to win back economic trust from the population. These days, nine from ten people who come for a job interview refuse our offer because they want to work unofficially.
The Future
Having said all that, we have been able to spread our risk and maintain our output. Moving some of the production from Ukraine to Poland helped us to keep volumes stable when we were losing staff in Ukraine.
We have been automating processes wherever we can during this period - that will help us in the future. It is easy to exist when everything is going well, and we feel like business heroes. When it's all upside down, the situation demands more experience, determination and plain hard work.
I'm reminded of the years when I started my business career. The first ten years were very tough. Out of money and no prospect of developing the business further. Then in one moment, the markets changed, and the business took off. Back then we were exclusively based in the UK, and although 'Black Wednesday' in 1992, when the UK crashed ignominiously out of the European Exchange Rate Mechanism (ERM), was a domestic disaster for UK Inc. - we were among the exporters who benefited. Albeit for all the wrong reasons.
'without companies, the economy collapses'
Suddenly Supersprox sprockets were 30% cheaper for companies in Europe and USA. I got in my car and drove to Mattighofen, Austria. KTM was a smaller company back then and I walked in to become OEM supplier overnight.
What I want to say is that opportunity from adversity is as true today as it was 30 years ago. I am carrying that thought through all these difficult days. Only the person who gives up is guaranteed to fail! All others stand a chance of success.
The decades before the war were good for Supersprox, but I believe surviving it will push us towards an even brighter future. But let it finish sooner, rather than later!