Smiling woman takes notes of orders from with laptop, Ukraine

ЧИТАТИ УКРАЇНСЬКОЮ

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  EBRD-commissioned research shows how Ukraine businesses are coping with war
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  Survey contains data of a representative group of small and medium-sized Ukrainian businesses in production and service sectors
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  By end 2022, activity of most small businesses surveyed had stabilised

Research commissioned by the European Bank for Reconstruction and Development (EBRD) shows that a majority of small and medium-sized businesses (SMEs) surveyed in Ukraine had stabilised their activity almost a year after the Russian invasion, demonstrating resilience despite the devastating impact on the economy.

The survey showed that 57 per cent of the 166 respondent SMEs had maintained their pre-war activity, 6 per cent had suspended their operations and 37 per cent were operating, but had reduced their output. 

The research provides an assessment of the business environment and has been conducted in two stages: qualitative survey (16 expert interviews) and quantitative representative research (150 telephone interviews) of SMEs in production and service sectors, covering all regions of Ukraine, except those temporarily occupied. The results were obtained as of the end of December 2022 and identified the negative and positive trends, key problems and needs of businesses. The research report is available here.

Comparisons with research findings from before the war were not possible, as the methodology used had changed since the pre-war survey. The current survey looks solely at the two sectors in which the EBRD is working most actively in wartime.

The research was carried out with donor funding from the United States of America, through the EBRD’s Small Business Impact Fund,* and Sweden, through the EBRD’s Women in Business programme.

Respondents reported a considerable negative impact on their businesses. On average, income decreased by 43 per cent and employment by 22 per cent. However, most of the SMEs interviewed continue to operate and make short-term forecasts and strategies, even if their planning horizon has shortened to a one-month period from several years. Strategies focus on finding new markets (including abroad), reshaping and diversifying business activities, developing unique products or services, and finding grants.

Among the negative trends brought about by the Russian aggression, SMEs cite a decrease in business activity, income and number of orders due to population movements and lower spending capacity. Other negative factors noted by respondents were severe cost-cutting, labour outflows due to mobilisation and migration, damage to energy infrastructure and partial loss of equipment.

However, for some SMEs, the war-induced crisis in the business sector has presented opportunities for growth. Businesses that adapt their business models, search for new markets and offer creative and unique solutions show more confidence than others.

According to the research, the top five problems small  businesses face are: a decrease in demand and loss of market outlets (77 per cent); cost increases (70 per cent); a decrease in labour productivity (68 per cent); an inability to forecast and build long-term strategies due to uncertainty (68 per cent); and an inability to increase salaries for employees (55 per cent). Production companies cited broken supply chains among their top five problems (67 per cent), compared with 52 per cent of SMEs more broadly.

Among their top five needs, businesses cited: help with business reconstruction (35 per cent); obtaining a grant for a variety of business purposes (32 per cent); getting advice from businesses that have faced the same problems in the same markets and successfully overcome them (25 per cent); learning from the experience of international companies (22 per cent); and facilitating international partnerships (21 per cent). Grants for business study trips and participation in international exhibitions (19 per cent) are also required.

The SMEs that have been hardest hit by the impact of Russia’s war on Ukraine are those located near the fighting in the country’s eastern, northern and southern regions. Businesses have been forced to relocate to the more secure western regions of Ukraine to protect employees, save equipment and restart operations.

Relocated businesses said their main problems were: partial loss of production capacity (equipment/personnel); difficulties in finding and paying rent on new premises, as well as their unsatisfactory condition; the assembly of equipment; official inspections; and management disorientation in a new location.

If the war lasts another six months, 79 per cent of SMEs believe they can maintain operations as they are now. However, only 62 per cent believe they can keep their business going in the same format if the war persists for a year or more.

The EBRD has been supporting SMEs in Ukraine since 1997. Since the start of the war, the Bank has provided support to companies in the SME sector for: grant funding to take shared stands at international exhibitions; relocation support to safer regions of Ukraine (more than 80 companies will benefit); support for businesses that have relocated outside Ukraine; express crisis-management advice to businesses via the MEREZHA platform and a quarterly newsletter on wartime regulatory changes; and advisory support from local and international consultants.

To date, the EBRD has invested almost €18 billion in Ukraine. In partnership with donors, it has committed €1.7 billion of funding to projects across the country since the Russian invasion in February 2022. The EBRD has undertaken to commit €3 billion of financing to Ukraine in 2022-23 in partnership with international donors. 

*The donors to the EBRD’s Small Business Impact Fund are: the United States of America, Italy, Ireland, South Korea, Luxembourg, Norway, Switzerland, Sweden, Japan and the TaiwanBusiness-EBRD Technical Cooperation Fund.