By Samuel Greenfield
Time is running out for Ukrainian businessman Artem Tymoshenko. The violence and political unrest that has gripped Ukraine has had a crippling effect on his youth hostel business in the western Ukrainian city of Lviv .
Tens of thousands of Russian soldiers are massed on the eastern border of Ukraine and the fear of invasion hovers ominously. Images of gun-toting men in military fatigues are not the best tourism ads.
“It’s dead. It’s like a critical point. Totally. We’re trying to be positive, but to tell the truth, it’s going really bad,” says 27-year-old Tymoshenko who runs the business with two other partners.
It’s the first Friday of April and we’re drinking tea in the Soviet Home Hostel, one of four themed hostels the three entrepreneurs run in Lviv.
The sitting room is full of Soviet era paraphernalia: books, cameras and a couple of old couches. On the ceiling are flags from the old Soviet republics. And a huge banner on the wall features a cosmonaut and a proletariat-looking man with a rifle.
A patch of peeling paint on the wall is enclosed by an empty picture frame with a piece of paper below that reads: “Authentic Soviet Spot”.
“That was the cheapest solution.”, says Tymoshenko, laughing. But there is little humour for Tymoshenko’s business model.
If things don’t pick up soon, the situation is grim. “Everybody now is looking for some other job,” says Tymoshenko of his business partners.
“I think we will start to close [hostels] one by one, looking [to see] how it will go,” says Tymoshenko. “Foreigners, they’re afraid of going to Ukraine because there is, like, ‘war’, and it doesn’t matter that Crimea is 1000 kilometers from here.”
The historic centre of Lviv is as charming as old European cities come – church spires, cobbled streets and a breathtaking legacy of architecture, much of it dating from when the city was in the orbit of Poland and later Austria.
But the old city’s enchanting appearance belies the frustrating business climate entrepreneurs face in Ukraine. Businessmen have had to navigate an economy dominated by oligarchs and muddled by unclear laws and corruption. And now the political crisis which is severely jeopardizing the city’s tourism industry.
“You open your business and then you start to make documents,” says Tymoshenko. “So we just started it without any documents…everybody does [it] like this because if you start making documents it will take you forever and you won’t open your business.”
Before going into business, Tymoshenko had traveled a lot, living in Europe and staying in youth hostels. Lviv, he says, had no youth hostels at the time. Their first hostel, Old Ukrainian Home Hostel, was opened in 2009 while Tymoshenko was still a student.
“It was really problematic because it was a new thing and there was no definition for hostel in Ukrainian laws,” Tymoshenko explains. He says that starting a business in Ukraine is tricky and that the laws can be interpreted in different ways, leading to potential problems for entrepreneurs.
“…The laws are built not to make business,” says Tymoshenko. “I don’t know why because I think that the government would earn much more if everything was clear.”
And while their earnings were not huge, business was okay, says Tymoshenko, explaining that they would have losses in the winter but the summer would compensate.
Dmytro Symovonyk, director of Citadel Capital in Lviv, explains how not having solid rule of law is holding Ukraine back. Citadel Capital provides services for foreign investors and helps domestic firms find financial partners. Symovonyk claims the black market accounts for half of Ukraine’s economy.
“The system itself was made so that you can put in jail anybody, from the Soviet times, and therefore you are able to press the people,” says Symovonyk. “Because of these unclear rules it was always possible to find something which you did wrong. And even if you didn’t do anything wrong you had [a] judge who is afraid to lose his job.”
But even before the Yanukovych government was overthrown there were signs that things were improving. According to the World Bank’s Doing Business index, Ukraine jumped from place 140 on the “ease of doing” business ranking in 2013 to place 112 in 2014. Canada, by contrast, ranked 19 for 2014.
“We expect that we will see more reforms. We don’t want to see more bureaucracy happening…we want to have less people working directly in the government,” says Symovnyk who would like to have a more liberal laws than EU. And Tymoshenko believes that if Ukraine gets closer ties with the EU, business will improve.
The Ukrainian currency, the Hyrvnia, has shed more than 20 per cent of its value to the USD since the beginning of 2014. This makes it more inexpensive for western tourists… but it was already a cheap destination.
But while there may not be many western tourists in Lviv, there were still exceptions. Brendan Skov, an American tourist staying in Tymochenko’s Hostel Coffee Home came to Ukraine to visit Chernobyl.
“When I watch the news I only see the bad parts of Ukraine and there are so many good parts as well….being here I see hardly any of the bad things that are mentioned,” says Skov. It helps that Lviv is hundreds of kilometers away from the turbulent parts of eastern Ukraine.
But on the weekend it seems like business is picking up. On Saturday there are no more dorm rooms available in the Coffee Home hostel.
Three weeks later I spoke with Tymoshenko again. He’s still open for business – but the uncertainty about the future remains and they’ve had to borrow money from friends to keep afloat. They’re not paying rent for the buildings their hostels are in, but he says earnings are enough revenue to cover off half their expenses. A surge in visitors during Easter helped, but occupancy was still less than last Easter.
As Tymoshenko puts it, they’ve had a 100 per cent drop in foreign tourists and a 40 per cent drop in domestic visitors. “Look,” he says. “Now they have started already to close restaurants and cafes.” He says that on average one of his youth hostels has been closed for business.
Meanwhile, the situation in eastern in Ukraine has gotten worse since early April. Pro-Russian demonstrators and gunmen occupy government buildings, journalists have been abducted and the Ukrainian military has been deployed in an attempt to assert Kiev’s control over the region and several gunmen have already been killed.
As Tymoshenko said in early April: “I would like to, you know, believe that everything would be good but I’m not sure til the end, cuz if Russia comes, then that will be in the end.”