Scroll down the Instagram profile of Kachorovska, a clothing company in Ukraine, and one can spot the precise moment that Russia invaded. Stylish photography of long legs and high heels gives way to walls of text calling for action and donations, and unglamorous images of shoemakers in baggy clothing. The firm has teamed up with other outlets to produce 1,000 pairs of boots for soldiers every week.
“For army boots you need very thick leather,” explains Alina Ocheretiana, the owner. The stuff she uses for women’s boots is not up to scratch. So other companies make the parts of the shoe; her workers sew them together. The gear will be shipped across the country to branches of Ukraine’s Territorial Defence force, which are sending their orders via private message on Instagram. Thanks to a crowdfunding campaign, Kacharovska can continue to pay its workers while providing the boots free of charge.
This kind of improvisation is visible throughout Ukraine, as the country struggles to keep functioning despite an all-consuming war. Its war economy has so far been characterised by chaotic grassroots initiatives rather than centralised government planning. But the Ukrainian authorities are preparing to reshape society, including what workers produce. “Wartime economics involves precise planning of what is needed,” said Denys Shmyhal, Ukraine’s prime minister, on March 6th.
Three needs stand out. The first is to get past the initial shock of war wherever possible. The country’s GDP has fallen by half in the first days since Russia invaded, reckons the central bank. Many people have abandoned regular duties to flee, fight or take care of relatives. The government wants citizens to return to economic activity for the war effort. “If you were forced to evacuate, find a job in the new place,” wrote Oleksiy Reznikov, the defence minister.
The second need is to cater to places where fighting rages. One official at a big Ukrainian bank describes how management wakes up each morning and decides which branches are safe to operate that day (usually a quarter fail to open). When missiles are flying, companies and workers stay inside. For firms moving fuel the risk is even graver. “When you do not know where the next clash between armies will begin and you are towing a huge gas tank, it is like driving a bomb,” says a CEO in the industry.
Worst of all is the chaos in towns encircled or occupied by Russian troops, such as Mariupol. Internet, water and electricity are mostly gone, food cannot arrive and “humanitarian corridors” to allow civilians to escape have reportedly been mined and fired on. Workers from Naftogaz, the state oil and gas firm, risk their lives trying to fix infrastructure damaged by battles, says Yuriy Vitrenko, the company’s CEO. The forced shutdown of 16 gas-distribution stations as of March 6th left residents in many towns without gas, including around 100,000 people in Kyiv, the capital.
The final need is to assist the exodus of millions of Ukrainian refugees, typically moving in the opposite direction to the supplies for the frontline. Already more than 2.5m people, equal to 6% of Ukraine’s population, have crossed the borders into neighbouring countries. There is huge demand for food and fuel along the routes to safety. Long lines and empty shelves are a familiar picture even in unscathed cities such as Lviv, in western Ukraine. Volunteers offering ready-made soup and sandwiches brought from across the border help alleviate the shortages.
Adding to Ukrainian companies’ difficulties in preserving their services is the need to divert resources to the war effort. Banks have handed over most of the armoured vehicles they normally use to move cash to the army, which uses them to supply forward positions and to evacuate casualties. A huge share of the fuel supply is used for military purposes. Lorry drivers are scarce, since many of them have stopped working and taken up arms instead. Food producers are scrambling to get their wares to hungry soldiers.
Nonetheless many supermarkets and shops continue to be restocked overnight. Nova Poshta, a private postal service, has used its logistics network to ship tonnes of “Humanitarian Mail” across the country. Banks are still operating remarkably smoothly, thanks to nearly a decade of reform. Pensions and salaries are still being paid. Shops are encouraged to take payments with cards, rather than cash, since cash needs to be moved around. Ukraine’s big banks quickly implemented a new scheme to allow customers paying with cards at stores to withdraw up to 6,000 hryvnia ($200) in cash at the same time, in the hope of reducing the amount of cash that retailers will need to ship to their vaults.
Russia has begun to target fuel supplies, in the hope of debilitating the Ukrainian army. On February 27th a fuel depot belonging to KLO, a popular chain of petrol stations in Kyiv, was hit by a Russian missile. The firm has also seen imports of petrol from Lithuania via Belarus cut off, by order of the Belarusian government, which is closely allied with Russia. But KLO can still import petrol from EU countries without too much trouble. Demand is also down, as so much normal activity has stopped. Firms that a month ago were fierce rivals are now sharing fuel and staff.
The agricultural sector is suffering, too. The cost of fertiliser and pesticide have climbed, which may impinge on the next crop-sowing season, which should begin by the end of this month. MHP, the country’s biggest poultry producer, points to the interrupted supply of feed additives for its chickens and turkeys among its worries. Many firms are asking the government for help with spiralling costs. On March 8th it banned the export of salt, sugar, meat and wheat to help bolster local stores. Keeping Ukrainians fed is getting harder. The state has imposed controls on the prices of essential goods. It has also set up bodies to scrutinise price-gouging. A new Coordination Centre for Food, Medicine, Water and Fuel keeps tabs on the supplies of those essentials.
The state needs to make sure it keeps itself fed, too. It is marshalling funds, borrowing from the IMF, among others, and issuing war bonds. Its first post-invasion bond, issued on March 1st, offered a yield of 11%—an impressively low interest rate for a country at risk of imminent conquest. The government has posted online the numbers of its various cryptocurrency wallets, from Bitcoin to Dogecoin, to solicit anonymous donations. The sale of war-themed NFTs to bolster military coffers is also in the works.
In addition to paying for the war itself, the government faces other new expenses: a payment of 6,500 hryvnias ($215) to all workers who have lost their jobs due to the invasion, for instance. It is also trying to sustain the economy by loosening restrictions. Buying medication no longer requires a prescription in most cases. Under martial law customs duties have been deferred, allowing food and fuel to enter the country quickly and cheaply.
The war economy will roll on. It must. The provision of services avoids humanitarian catastrophe and allows citizens to stay put and defend their country. As the fighting expands, keeping the lights on will become ever trickier. But so far the state and business have co-operated remarkably smoothly, stitched together like the upper and sole of a boot.
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