From the editor: The Kyiv Post spoke with Yevgeny Shulgin, Chairman of the Board of Directors of the Israel-Ukraine Chamber of Commerce and Industry, to better understand the current business relations between Israel and Ukraine and how recent events are affecting them. We had a conversation.
How would you describe the business ties between Ukraine and Israel?
Understanding today’s business relations between Ukraine and Israel requires a deep dive into the history of both countries. Without this historical background, it is difficult to grasp the true current situation and relationship between the two countries.
So what do we see? Our people have long been connected by common culture, social interactions and business activities. Over time, these connections matured, became fruitful, and spread to different levels. Interestingly, these relationships are not necessarily reflected in numbers alone.
While numbers certainly provide information about direct trade transactions, they do not capture the full scope of interactions. This is an aspect that connects the two countries at the level of trust and personal relationships.
More than 500,000 returnees from Ukraine reside in Israel, and tens of thousands more Ukrainian nationals have found a home in Israel in the past year and a half. This situation creates a truly special bond between our people.
The two countries cooperate closely in a variety of fields, from the chemical industry and metallurgy to agriculture and high technology. The high-tech sector plays a special role and is one of the main areas of cooperation between Israel and Ukraine.
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How healthy is trade between Israel and Ukraine?
On January 1, 2021, a new important chapter was added in the history of economic relations between Ukraine and Israel. The free trade agreement between Ukraine and Israel has entered into force. The purpose of this agreement is clear. We want to increase exchanges, reduce barriers to trade and simplify the movement of goods.
As a result, this should lead to an expansion of the exchange of goods and complete the creation of the contractual basis for the implementation of the pan-Euro-Mediterranean agreement in the Israel-Ukraine-EU triangle.
What does this mean for manufacturers? This means that Israeli manufacturers exporting products to the EU can import materials, components and raw materials from Ukraine. And these Ukrainian components become essentially Israeli when it comes to European Union customs rules.
The same applies in the opposite direction. Ukrainian manufacturers can confidently export their products to his EU using Israeli materials. In this case, the customs duty for all participants may be 0%. In fact, this provides Ukrainian manufacturers with duty-free access to many markets in Europe and the Middle East.
The close pre-war air relations between Israel and Ukraine (we’re talking about 4-6 flights a day from Tel Aviv to Kiev alone) are an example of how socio-cultural and human ties shaped the business relationship between the two countries. It serves as an example of how it supports and strengthens. This is a real interaction between our community and people.
Ukraine always has a trade surplus with Israel, as exports to Israel consistently exceed imports from Israel. And now we are only talking about products. The situation in the service sector is quite impressive, with more than 90% of the balances in favor of Ukraine.
A large number of IT services have been and are still being ordered to Ukraine. It goes without saying that the coronavirus has played an important role in this regard. Because during the pandemic, everyone learned to work remotely and the need to be in the office also eased. Therefore, the beginning of the war in Ukraine was easier to overcome in this service sector than in other service sectors, where the physical presence of employees and teams is required.
Israel and Ukraine have large IT sectors. How close is cooperation in this industry?
Currently, cooperation between Ukraine and Israel in the IT field remains at a good level. It is clear that during the outbreak of the Ukraine war, some companies decided not to increase their personnel in Ukraine. But this is all happening in 2022. We can now say that we continue to work closely together.
We would like to draw your attention to the fact that a significant part of the Israeli projects were not executed by directly establishing Israeli subsidiaries, but through Ukrainian outsourcing companies, as is customary in the industry.
Before the Ukraine war began, it was estimated that up to 45,000 Ukrainian developers were working on Israeli projects. We are constantly in touch with many IT companies.
Over the past year and a half, some companies have expanded their workforce in Ukraine. Some companies are cutting back on employees or closing offices. But this is a living mechanism that is developing. Yes, although not as active as in 2021 (we see this in the labor market), we do see developments.
It should be noted that the decline in the number of employees is observed not only in Israeli projects, but all over the world. Although this is a global trend, 2023 was a difficult year for the global economy, affecting service companies and investment businesses.
Relations between Ukraine and Israel remain productive. Business relationships remain intact. Personal relationships are very strong. And business starts with people.
Could you give us an overview of the Israeli/Ukrainian companies you cooperate with in the IT field?
There are hundreds of such companies. As a chamber of commerce, we interact with many, but not all, chambers of commerce. Some companies prefer to stay in the shadows, especially the major stock exchanges, which do not reveal what they do in certain countries.
On the other hand, there are well-known Israeli companies that are actively engaged in public relations activities and have employees located in Ukraine. These companies include Payoneer, Wix, MyHeritage, Playtika, Similarweb, Playtech, Moon Active, Plarium, and more. Of course, this is not a complete list.
In addition to large corporations, there are also a huge number of startups and small businesses. There are also several hundred Israeli companies that interact with Ukraine’s IT sector on a project-by-project basis, that is, on an as-needed basis.
Most companies remained in Ukraine after February 2022. Yes, new projects are decreasing. This is due to the search for alternative solutions and the diversification of risks. Israel is also starting to consider Eastern Europe and Portugal. They started talking about India again. The market requires continuous updates and exploration of new opportunities.
Which cities in Ukraine and Israel enjoy close economic and business ties, especially in the IT sector?
When it comes to economic exchanges, it doesn’t really matter to Israel which cities it interacts with. They usually operate regionally. Israel’s major high-tech centers are located in the Central Region, Jerusalem, Haifa, and Beersheba.
At the oblast level, Israeli cities have sister cities in Ukraine, including Bat Yam and Vinnytsia, Rishon Lezion and Kharkow, Ashdod and Zaporizhia, and Haifa and Odessa. These pairs of cities will cooperate, sign memoranda of understanding and discuss joint projects.
Thanks to Ukraine’s decentralization, city leaders are increasingly interested in business development and actively working to attract investors and new business opportunities.
The Chamber also works with Ukrainian cities to help government and business communities establish connections with Israeli partners.
What areas of the IT industry are Israeli/Ukrainian IT companies working on?
As for areas, it is easier to name the areas in which Ukraine and Israel do not cooperate. Israel does not outsource its military industry or cybersecurity-related fields across its borders. This is the government’s position. Almost every other IT sector has some form of interaction.
How have the October 7 massacre by Hamas and the ongoing conflict in Gaza affected relations between Israel and Ukraine?
Unfortunately, Israel is used to crises (by the way, this is why Israel was not afraid of the Ukraine crisis) and is immune to difficult situations. This immunity provides room for maneuver.
Many companies are preparing for a crisis, with management and employees serving and already working in combat conditions. Each new crisis sparks a surge of new and innovative ideas, projects, and technologies in areas such as cybersecurity, mechanical engineering, marketing, media, the military, the food industry, and medicine.
True innovation happens in times of crisis. Unfortunately, this is what drives progress. Therefore, Israel will move forward.
We have always seen an increase in investment in Israel and an increase in GDP after every period of crisis. While Israel faces short-term challenges related to the military service of its citizens, this could also be an opportunity for Ukraine, for example, to strengthen its engagement with Israel and compensate for the loss of personnel. For Israel, as a relatively small country in terms of population, staffing issues remain important and require attention.
The events of October 7 were a great tragedy for both Israel and Ukraine, given that Ukrainian citizens also died as a result of attacks by the terrorist organization Hamas.
Today, our two sides agree on another issue: the inappropriateness of the Iranian government’s actions and the threat it poses not only to our country but to the entire world.
How has the business relationship between the two countries been affected?
First of all, as I said earlier, people suffered, including the Ukrainian people, and this is the most important thing. Of course, plans for business meetings were interrupted while the event was taking place. We know of cases where foreign partners came to Israel to plan deals, but the negotiations were interrupted or never took place.
Also, for example, in the past, as a chamber of commerce, we organized an official delegation of representatives of Ukrainian municipalities to the manufacturing plant of the “safety room” RB DOORS, since the theme was the construction of protected spaces and air raid shelters. did. This is particularly important for Ukraine. That is, this factory is located in the city of Ashkelon, which is currently under constant shelling. And, of course, other businesses and employees in the region are also facing these challenges.
Ukraine continues to export products to Israel, and so far there has been no significant change in the flow of funds (compared to a month ago, not with pre-war Ukraine). In Israel, the banking system is functioning normally without any delays.
The only difficulty arises from the fact that many people in Israel have joined the army. This temporarily affected the efficiency of business processes. But now the situation has stabilized considerably.