Even if Russia’s onslaught against Ukraine ends soon, which sadly seems unlikely, the global economic reset created by the crisis is likely to have a lasting impact.
Just as the Covid-19 pandemic had a seismic effect, ushering in a new Zoom society of hybrid working, e-commerce, telemedicine, digital health, distance learning and online entertainment, Russia’s war on Ukraine looks set to trigger a similar acceleration of digital adoption in at least four sectors: food security, cybersecurity, energy and military defense.
Once again, digital innovation is addressing key challenges – this time exposed by the war in Ukraine. I see this technology being developed in startups across the OurCrowd portfolio.
Supply chains were upended by the pandemic, exposing the fragility of just-in-time distribution. Within months of the first cases of Covid-19, semiconductor and commodity shortages disrupted production across a wide range of goods from automobiles to smartphones, shutting down production lines and raising prices.
“There’s no time to waste when it comes to investing in domestic semiconductor manufacturing,” Intel CEO Pat Gelsinger tweeted this week. Intel is investing up to $100 billion in a huge chip-making complex in Ohio. He described an $80 billion project in Europe as “a holistic investment strategy that will help create a next-gen European chip ecosystem and address the need for a more balanced and resilient supply chain.”
Between them, Ukraine, Belarus and Russia produce about 25% of the world’s wheat supply, 20% of its corn and 75% of its sunflower seed oil. Fears that the world could suddenly be deprived of Ukrainian and Russian crops, driving up prices and stoking alarm over shortages, have triggered a similar fundamental rethink in food-supply strategy.
The European Bank for Reconstruction and Development reduced its growth forecast for Europe to 1.7% this year, noting that Russia and Ukraine also supply a disproportionately high share of other commodities, including fertilizer, titanium and nickel.
FoodTech and supply-chain companies that can speed up deliveries, cut waste and costs, and deliver alternative, home-grown proteins, will be tested to see if their technology can fill the food gaps. Trellis uses artificial intelligence to help food manufacturers optimize their supply chain by predicting market demand and the yield, quality, timing and cost of raw agricultural ingredients. Sufresca coats fresh produce with a natural, edible, odorless coating that extends shelf life and reduces waste. Companies like BlueNalu and Foresea are creating cell-based fish and seafood products in the lab that could eventually provide new sources of protein.
Fertilizer made from ammonium nitrate is a by-product of natural gas. Since sanctions on Russia were announced, fertilizer prices have increased by 30 percent. CropX helps farmers cut the use of fertilizer and water by combining digital data from ground sensors with weather and satellite information. Plenty has introduced vertical farming to the US at an industrial scale, delivering fresh produce to Walmart and other retail giants using a fraction of the water and zero pesticides in closed, digitized systems.
Freightos’s digital logistics platform streamlines the global cargo industry and has been adopted by Qatar Airways, American Airlines and other freight giants.
Technologies like these will extend the ability of countries to secure their food supplies. As technology becomes more central to food production, I expect wealthy countries with limited domestic production to invest heavily in these sectors, leapfrogging traditional agricultural economies and moving the digital food and supply sector into its next generation.
Cybersecurity has never been more important. A digital Cold War has been brewing for years, as we have seen from the Colonial Pipeline shutdown and countless cyberattacks on financial, energy, transport and even water and medical systems. Companies like Xage Security, IXDen, ThetaRay and BioCatch will be required to protect critical public and commercial systems, as well as to ensure that sanctions are not evaded. As cryptocurrencies and the blockchain become more central to our lives, companies like IronVest will be called upon to secure digital holdings and wallets.
The disruption to oil and gas supplies and resulting price increases will accelerate the development of green energy technology already under way to combat the climate crisis. Companies like Connected Energy, which uses expired car batteries to help solve the critical need for alternative power storage, will help provide solutions. The development of green energy sources by H2Pro and other companies working with hydrogen and other alternatives will be closely watched.
Finally, the accepted definition of ESG is undergoing a fundamental change. Investors are shifting toward the view that governance is useless without the basic security that your economy will not be destroyed by another country invading your territory or capturing your resources.
Germany’s decision to increase its defense budget to 2 percent of GDP will be worth $845 billion by 2031, Defense News reports – a clear sign that we have entered a new era. Even the Swedish financial group SEB says it will permit some of its funds to buy shares in defense companies. “Defense is likely to be increasingly seen as a necessity that facilitates ESG as an enterprise as well as maintaining peace and stability and other social goods,” say Citi analysts.
A little over a month into the Russian invasion of Ukraine, it is already clear that its impact on the market is going to be significant and long lasting, as we saw in the pandemic. Startups and their groundbreaking technologies will help us meet those challenges.