The Dividends of War: How Ukraine’s Entrepreneurs and Economists Are Fighting Back

“A lot of perceptions” changed for Maxim Shkolnick, a Ukrainian real estate entrepreneur and financier, on February 24, 2022. “I woke up in my house around five in the morning, and my wife was like, ‘we’re being bombed.’ Surreal concept, right? And then another missile hit.” He pauses. “When a ballistic missile hits the ground three clicks away, it feels like they are just bombing the yard.” His house, a sturdy building made of “hard bricks” was “trembling like it was in an earthquake.” Now safely in a neighboring country, Shkolnick says the hardest part of that moment was looking into the eyes of his wife and two children, seven and twelve, and seeing pure panic.

Since those first bombs fell, the world’s attention has been fixed on Ukraine as the Russian army has laid waste its cities and turned it into a nation of refugees. Yet Russian President Vladimir Putin’s bid to conquer and absorb Ukraine has run aground against determined resistance from the nation’s military and civilians and a flood of foreign aid and support. While the Ukrainian armed forces deserve credit for fending off the onslaught, the country’s private sector has also transformed it into a wartime economy virtually overnight. Ukraine’s economists, small business owners, entrepreneurs and diaspora business community have been instrumental in making the sustained defense of the country possible.

This is no small matter. Heroics are not limited to the battlefield, and there’s ample evidence that the agility and talents of the Ukrainian business community—enhanced by modern technology—had played a significant role in strengthening the nation’s defense. Even as Kyiv was being bombarded in the first days of the war, economists and analysts at the Kyiv School of Economics and the Ministry of Economics were already hard at work documenting the damage to the nation’s infrastructure and economy, and business owners were retooling their operations to support massive refugee flows and channel aid to where it is needed most. Their ongoing work—conducted under trying circumstances as families fled Kyiv, tanks rolled across the countryside and bombs fell—is of vital importance to the survival and reconstruction of Ukraine.

The Reparations Route

Robert Litan was shocked by the violence and destruction wrought in the first days of the war. Yet when Ukraine survived the first onslaught, Litan, a policy wonk, former vice president for research and policy at the Kauffman Foundation and non-resident senior fellow at the Brookings Institution, began looking for ways that Ukraine could pay for its reconstruction if it successfully repelled the invasion. War reparations immediately presented themselves as the ideal solution, yet he could see no way to force Russian President Vladimir Putin to ever pay up.

So, Litan began looking for another source of funds. The United States, Europe and other Western nations were by this time already pouring billings in military and humanitarian aid into Ukraine and had begun implementing an ever-stricter sanctions regime against Russia, Putin, and the wealthy oligarchs he relies on to maintain his power. The goal of these sanctions is to squeeze Russia’s economy, and a key element of that is cutting off their access to currency reserves held in foreign banks.

Writing in Bloomberg, Litan, the former director of research at Bloomberg Government and associate director of Office of Management and Budget, argued that “there is one positive step that the U.S. and like-minded countries should being developing immediately to ensure that Russia at least is held responsible for the cost of humanitarian assistance, reparations and eventual reconstruction: Tap Russian foreign exchange reserves that are held in central banks outside the country and that have been frozen by their governments.”

In essence, Litan wrote, Russia’s $585 billion in foreign currency reserves could provide the seed money for Ukrainian reconstruction. This simple idea traveled quickly and was soon taken up by Ukrainian President Volodymyr Zelensky as a potential policy solution. While the idea certainly had currency, for it—or any reparations scheme—to work, there had to be some record of what kind of damage had been done and how much it cost the Ukrainian people, both in terms of physical losses and opportunity costs. Litan soon connected Kyiv School of Economics Institute Chairman and Vice President for Policy Research, Nataliia Shapoval. Shapoval recognized that the KSE’s economists, as well as analysts at the Ministry of the Economy, were a vital resource for documenting the tolls of war and eventually making the case for reparations.

Shapoval, who before the war had led the school’s charitable foundation raising money for scholarships, quickly assembled a team of academic economists—backed by a grant from Templeton World Charity Foundation’s Individual Freedom and Free Markets initiative—analysts at the Ministry, and attorneys to document and measure the damage the war was causing in Ukraine. Despite the stress of operating in a war zone, “for us, it’s a more like psychological relief,” Shapoval says, noting that even if economists “are not useful in military kinetic action, we can contribute something with what you do on laptops.” The economists look at not just the cost of lost infrastructure itself but also its impact on GDP, enterprises and future economic activity. To gather accurate information about destruction, the KSE scoures public sources such as social media and launched a website where ordinary Ukrainians can submit documentation.

“This is important, because we don’t want to delay this question about reparations and estimating damages,” Shapoval says. “It’s not the first incident in world history, and we know that if we wait to deal with this question until after the end, it will be very difficult to get anything.” By piecing together the economic toll of the war—between $500 billion and $700 billion as of March 27—Shapoval argues that it will enable to Ukraine to better tell the whole story of the conflict. “Russian media is trying to present what’s going on as a set of isolated, small events. Our idea was that economists could create some credible estimates with decent methodology that can be used by our government in communication with international partners about what size of support is needed.”

Wartime Entrepreneurs

While the KSE and Ministry of the Economy were busy documenting damage and trying to keep the lights on and the trains running (literally), ordinary Ukrainians quickly mobilized to carry out “purely military entrepreneurship,” Litan says. When faced with war, many people who had been baristas or artists the week before quickly shifted their labor into creating small scale war products such as camouflage netting or Molotov cocktails. As the initial Russian assault was repulsed and millions of refugees fled for neighboring countries, Ukraine’s entrepreneurs rushed to fill the gap, providing logistics, support, and supplies where the government and global NGOs were unable or too slow to mobilize.

After the bombing, Shkolnick’s first focus was on getting his family to safety in a neighboring country, where his real estate private equity fund owned a shopping center with an office space that they could live in. Once there, he started organizing housing for the wives and children of many of his employees who were joining the armed forces. “It took a while for the logical part of my brain to regain control, because you feel like you’re in a cartoon or a comic book. There’s a part of your brain that cannot accept the new reality.”

Even as Shkolnick was trying to come to grips with the situation, one of his businesses, a real estate classifieds website in Ukraine, had gone from generating $200,000 per month to zero. “It’s a liability, really, because I try to finance the salaries and the backbone of the operation,” Shklonick says, noting that “a lot of people are living on reserves they made prior to the war.” He believes most Ukrainians at the start of the war had enough funds to survive for at most one to two months.

Yet as refugees began arriving in greater and greater numbers in search of housing, clothes and food, Shkolnick quickly realized that the empty shopping center, which had been slated for redevelopment, could actually be a vital asset. “It was this vacant space, something like 10,000 square meters,” and “we thought, hey, we can use this for refugees.” He threw the doors open, turned on the electricity, and posted on Facebook that it was now “a refugee center.”

The post went viral, and people soon began arriving with donations and to volunteer. “The solidarity with Ukraine…people are opening up their homes to host people that they’ve never known before,” and locals had soon brought several tons of clothing, mattresses, food and cosmetics to the center. Each day, more than one hundred volunteers come the refugee center and work ten to twelve hour shifts serving roughly 300 refugees who pass through daily. (Shkolnick, who had COVID-19 when we spoke, was initially reluctant to share his name because “people right now are trying to make a selfie around what they are doing, and really, I’m not doing it for someone to recognize what I have done.”)

Much of the aid and logistics provided by Ukraine’s business community has been organized and channeled through ad hoc networks of business school alumni, former colleagues, pre-existing commercial relationships, and the Ukrainian diaspora community in the United States and Europe. Vol Berezhniy, a graduate of Harvard Business School, is one such entrepreneur. He was already planning to visit the United States in early 2022 to raise money for his latest venture, a blockchain startup, but when he heard the winds of war blowing, he decided to bring his wife and children with him and turn it into a college tour as well, just in case.

When the invasion actually happened, he had the good fortune to still be in the United States. Yet, rather than simply continuing with business as usual, Berezhniy quickly pivoted to using his Ukrainian business connections and Harvard Business School network to begin orchestrating logistics for getting urgently needed humanitarian supplies across the Polish border and into Ukraine. (He continues to run his company.)

“I organized a team of volunteers to help from here,” Berezhniy, who is living in a borrowed home in Dallas with his family, says. “We started to build logistics in the major cities around central Ukraine to help volunteers moving goods and supplies into Ukraine and distributing them.” While it may sound simple, it’s actually a major logistically challenge.

Supplies and aid have often become snarled up at the Polish border because of a lack of trucks, drivers or diesel. Even once they make it across the border, knowing where the supplies are most needed is a further challenge. While foreign governments and NGOs have excelled at mobilizing aid and getting it to the border, networks of volunteers such as Berezhniy’s have been key to getting them to their final destination. “The biggest problem is not money and not supply,” Berezhniy says. “The biggest problem is logistics first, then supplies then funding, because actually you need specific goods to reach exactly to the people that are in need right now.” Through his organization, R3UA, Berezhniy is often able to match up trucks, drivers, fuel, supplies and destinations across the region much faster and more flexibly than large institutions have been able to.

Creativity and grit are common traits among entrepreneurs, and Oleksiy Kolchanov, like Berezhniy and Shkolnick, is no exception. An attorney by training, Kolchanov had a varied career before the war, serving as corporate secretary to mining and steel concern Metinvest Group, founding a chocolate company and most recently an ed-tech company, StudyDive.com. When he left Metinvest in 2018 to become an entrepreneur, Kolchanov never imagined that the experience would be a great benefit to him in the future. After seeing the Russian invasion of Donetsk eight years ago, Kolchanov imagined that this time would “be the same slow attempts of Russia to invade and do something with Ukraine.” The speed and scale of the current war caught him by surprise. But, like Berezhniy and Shkolnick, his entrepreneurial drive kicked in, and he quickly began working to support the war effort.

Kolchanov began by setting up Telegram channels for his companies and others that he provided legal advice to in Ukraine, the United States and Europe. “A lot of information was flowing through that,” Kolchanov says. Initially the Telegram channels were used to help connect Ukrainians with transportation and shelter. Soon he began hearing there were key categories of equipment that newly enlisted members of the Ukrainian army desperately needed, particularly body armor. Through the ad hoc Telegram networks, Kolchanov was soon connected with a manufacturer who was retooling his factory to produce body armor but could not access a reliable supply of steel. Kolchanov’s connections at Metinvest helped them obtain the necessary steel. The next step was to source fabric from Ankara, Turkey, to manufacture the vests. “We tried all these horizontal connections with our partners, clients, friends,” to obtain the resources needed to manufacture body armor Kolchanov says, noting that the group quickly coalesced “into a team.”

Technology is a major element in Shapoval, Berezhniy, Kolchanov and Shkolnick’s success so far. Without reliable internet, provided by SpaceX’s Starlink terminals, communications and remote work tools such as Zoom, Slack and Telegram, and the ability to quickly send money abroad, all of their wartime entrepreneurship would have been far slower and perhaps even impossible. Indeed, the strength of a highly capable business community with access to the internet and key communications technologies may have been overlooked by Putin and his generals who expected to swiftly conquer Kyiv with little resistance. As Berezhniy puts it, Ukraine is “a whole nation of brave, entrepreneurial, spirited people who actually fight, which is different from an authoritarian system where you have one guy managing the whole period.” In other words, in Ukraine “you have many, many leaders who are working together and have the same goal.”