As you might know, B2BeeMatch has taken an active interest in directing support toward small and medium businesses in Ukraine. Recently, we asked Valeriya Zabashta, Regional Coordinator for the International Chamber of Commerce’s Centre of Entrepreneurship Ukraine, to give us an update on the current situation in the country and how it’s affecting businesses.
Whether you’re considering doing business with a Ukrainian company, or just curious to learn more about how the business landscape is evolving in the country, read on to learn more.
B2BeeMatch: What’s the current situation in Ukraine and how is it affecting businesses?
Valeriya: Ukraine’s GDP declined by around 35% during 2022, which is the largest drop in one year since the country regained independence in 1991. The International Labor Organization (ILO) has estimated that 4.8 million people lost their jobs in the same time period, while UNDP officials have predicted that if the conflict continues, up to 90% of the Ukrainian population could face poverty.
The small and medium business (SMB) sector has been particularly hard hit. Wartime disruption and Russian attacks on critical infrastructure have caused a dramatic deterioration in the business environment. This is making it more and more difficult for Ukraine’s entrepreneurs to survive.
SMB activity in Ukraine had worsened considerably as a result of the Russian airstrike campaign against civilian infrastructure. In general, the war has led to higher costs throughout value chains while the volume of bank loans has decreased. This means SMEs are often not able to secure alternative financial resources. As a result, many have been forced to shut down.
Other consequences of the conflict such as the closure of ports, the disruption of trade routes, power shortages, and widespread material damage have added to the challenges facing Ukrainian business owners.
However, about 1,000 businesses have been relocated from dangerous regions of Ukraine and continued their activities. Moreover, 137 foreign companies have resumed their activities on the territory of Ukraine, including McDonalds, KFC, JYSK, Adidas, Calvin Klein, Credit Agricole, Nestle, Novus, Auchan and many more.
B2BeeMatch: What are some of the strengths of Ukrainian businesses? Tell us about business resilience.
For SME owners, getting through this crisis period requires resolve and creativity. Unfortunately, the losses of entrepreneurs as a result of the war are growing every day. However, businesses are trying to adapt to new realities, or are looking for new directions and opportunities to work.
Many Ukrainian SMEs are successfully navigating the new practicalities of doing business during wartime. For some, this means reacting directly to emerging military or humanitarian needs and incorporating them into their business model. A stark illustration of this trend is Yuriy Zakharchuk, who was recently featured in the New York Times when he transitioned from manufacturing theatrical costumes to military apparel. Similarly, after closing their shop for a few months, employees of a ceramic studio in Mykolaiv decided to arrange workshops for children in exchange for donations.
For other SME owners, surviving has meant relocating to safer regions in western Ukraine or across the border in the European Union. Just a small example from regular Ukrainian citizens, dentists Oleksiy Vlasov and Olena Shestakova moved from Kramatorsk in eastern Ukraine to Chernivtsi close to the Romanian border, where they offer free treatment to internally displaced people. This was made possible thanks to a state-guaranteed loan which allowed them to move and helped cover initial rental payments.
There are thousands of similar cases across Ukraine. More help is urgently needed in order to support the SME sector. This in turn will allow SMEs to make a meaningful contribution to the revival of the Ukrainian economy.
The government, in cooperation with international partners, has offered small and medium-sized businesses a number of support programs to help restore losses caused by the war. In particular, they are providing preferential lending—any Ukrainian business that needs support can get a loan of up to 60 million Ukrainian hryvnia (about USD 1.63 million) at 0% during martial law. Extremely popular among entrepreneurs are grant programs under the government eRobota project for the establishment and expansion of businesses, which have already provided grants of almost half a billion hryvnias, as well as mini-grants from international organizations, in particular for relocated enterprises.
In addition, the government’s decisions have improved the regulatory environment. The declarative principle of business operation has been introduced, the vast majority of permit and licensing requirements for entrepreneurs have been abolished, and a moratorium on business inspections has been introduced. All this reduces the burden on entrepreneurs and ensures their stable operation under martial law.
One great example of resilience in the Ukrainian business landscape, in terms of larger businesses, is that of Swiss food manufacturer Nestlé.
In essence, Ukraine has been in conflict with Russia since Moscow’s illegal annexation of Crimea in 2014. Even then, companies such as Nestlé developed action plans in the event of an aggravation of the military-political situation.
The shock of the invasion forced Nestlé to make the difficult decision to close all three of its factories in Ukraine. However, two factories in the west of the country resumed work just a few days after the start of the aggression. And just recently, the Nestlé concern announced that it would build a new factory in western Ukraine worth 43 million US dollars. Among the non-standard solutions is the construction of bomb shelters on the territory of the company’s plants in Ukraine. The goal is to replenish the capacity lost in the east of the country and return production to pre-war levels by 2024.
The restoration of residential, industrial and critical infrastructure of Ukraine is also in full swing.
On January 13, 2023, Prime Minister Denys Shmyhal announced the creation of the State Agency for the Rehabilitation and Development of Infrastructure, which will optimize work processes during the restoration of housing. Already now there are 110 billion hryvnias to start restoration work.
The Cabinet of Ministers of Ukraine, at a meeting on January 27, simplified the regulatory framework for the restoration and protection of critical infrastructure: construction, repair and other engineering and technical measures to protect critical infrastructure facilities in the fuel and energy sector can now be started without a bunch of formalities.
Japan is also helping to rebuild Ukraine. It provided $95 million in January to restore critical infrastructure and an additional $170 million for an emergency restoration on February 1.
In particular, the European Bank for Reconstruction and Development (EBRD) directed 1.7 billion euros to support the real sector of the Ukrainian economy, including investments in critical infrastructure, energy and food security, trade and support for the private sector.
B2BeeMatch: Can you tell us about sectors where Ukraine has achieved wins even in wartime?
Two sectors really stand out at the moment: IT and agriculture.
The Ukrainian IT industry has made considerable efforts to ensure its resilience and to enter new formats of work in the current reality.
Each and every IT company has faced problems related to the war. More than 34.3% of companies have successfully adapted to the new realities, and 61.3%—the vast majority of IT companies—have not overcome all challenges, but work stably in general.
Among the biggest challenges for companies are:
-migration of employees and their families, relocation of companies
-prohibition of IT professionals traveling abroad
-military recruitment of IT professionals
-retention of clients and minimization of risks in working with clients
-currency regulation and restrictions introduced by the National Bank of Ukraine
Positive indicators in the industry became possible due to the large-scale and rapid reformatting of the industry after the war began. Most companies managed to effectively implement business continuity plans, switch to flexible work models, relocate teams and diversify offices in Ukraine and abroad. Companies continue to work and implement projects even during blackouts, pay taxes on time, attract new customers, and actively enter the global market.
The IT industry remains the only export branch of Ukraine that is fully operational during wartime and was even able to increase its export volumes compared to last year, while others suffered from significant losses.
The agricultural sector has shown enormous resilience, too.
The full-scale Russian invasion of Ukraine caused damages to the country’s agricultural sector—amounting to more than 40 billion US dollars. Damage to land, infrastructure and agricultural machinery directly affects the production of agricultural products in Ukraine.
In 2022, Ukraine exported at least $20 billion of agricultural products, about half as much as in 2021. Considering the Russian aggression and other difficulties Ukrainian farmers face, this is still a considerable amount of export.
The Black Sea Grain Initiative agreement signed in July in Istanbul by representatives of Ukraine, Russia, Turkey and the United Nations has become a lifeline for Ukrainian farmers, the essential step in saving our agriculture. Despite Russia’s obstruction, 614 vessels left the ports of Odesa region during the grain corridor’s operation, exporting more than 16 million tons of agricultural products to 40 countries.
Among other things, the efforts of businesses were remarkable; even without ports during the first few months of the war, they managed to achieve considerable success and increase the volume of exported agricultural products from 350 thousand tons in March to 2.7 million tons in July and to 7 million tons in December.
B2BeeMatch: Why might people hesitate to bring their business to Ukrainian companies right now? Why should they consider doing business with Ukrainian companies?
Even the war-ravaged Ukrainian market remains a very attractive investment in the long run. Bomb shelters, power outages, curfews, personnel at the front: these are the conditions currently facing local and foreign business companies in Ukraine.
Many companies may decide that now is not the best time to invest in Ukraine. But businesses need to start preparing now for potential future investments in Ukraine’s post-war reconstruction projects. Huge opportunities are opening up here in the field of capital construction, logistics, IT, energy and telecommunications. Let’s not forget about potential investment agreements with the country’s Armed Forces. Already now we can list a number of success stories of European companies that have opened businesses in Ukraine. But in the future, there will be even more business opportunities in this country.
The wartime outsourcing risks of working with Ukraine are offset by the country’s strong and developed tech sector, pre-established processes (including online collaboration tools and contingency plans), and effective team support (including moving people to safer regions and additional hiring).
If you support Ukraine, your business can benefit from keeping our country’s tech sector afloat. To do this, consider signing contracts with Ukraine, purchasing Ukrainian licenses, sharing recommendations, stopping propaganda, and cutting off financing to the aggressor.