To understand the implications on the latter one, the European Business Association Ukraine (EBA) established a monthly business survey of legal entities which are member companies and of individual entrepreneurs united by the EBA project ‘Unlimit Ukraine’. Before the invasion, only 40% of legal entities surveyed prepared contingency plans for Russia`s invasion as of late January 2022. However, the majority had to quickly react to the reality that 24 February brought to the country. In the first month of war, 29% of legal entities were not able to operate. Since then, business activities resumed slowly but surely. However, still more than half of surveyed businesses did not work in full and faced operational losses and financial reserves depletion in May.
EBA survey of enterprises
Russia’s full-scale invasion starting on 24 February 2022 has been causing immense human suffering every day. People lose their lives, have been forced to migrate and experience damage to their working environment. These tragedies strongly affect the operation of the business sector. To get an estimation of the extent businesses are affected, the EBA established a monthly survey of legal entities and individual entrepreneurs. In particular, in the first month since the invasion began, this survey has been widely quoted as a comprehensive estimation of the operational adjustments by enterprises in Ukraine.
Each month, the EBA has surveyed at least 100 CEOs of legal entities which are EBA members and additionally more than 150 individual entrepreneurs united by the EBA project ‘Unlimit Ukraine’. Questions relate to enterprises’ degree of operation, their financial situation as well as their expectations for the future development. The questions are comparable across months. Though the survey results cannot be considered as representative from a scientific point of view, they provide a well-focussed view on the business sector in Ukraine.
Business activities have resumed slowly
100 days after the invasion began, business activities resumed, slowly but surely. The number of legal entities working in full mode increased from 17% in March, 28% in April to 47% in May. Still more than half experienced restrictions on their operations. The number of non-operational companies also declined from 29% in March to 4% and 3% in April and May, respectively. However, individual entrepreneurs were both much worse affected and their pace of recovery was slower. In May, the survey revealed a share of 17% of them not able to resume their operation. Similarly, just a fifth was able to work in full which is just 8 pp more than in March.
Enterprises support employees but losses are high
Staying committed to their employees was a key priority for surveyed businesses as 63% of legal entities from EBA continue to pay full salaries to their teams in May (54% in April and 63% in March). Moreover, employees who joined the Armed Forces of Ukraine or the Territorial Defense Forces were supported in 47% of companies and 25% supported via additional or advance payments, relocation expenses coverage and other instruments. This share declined compared to March (45%) but as more companies have come closer to full operation mode, such instruments are regarded as less necessary. Finally, salaries were cut in 13% and less than 10% of legal entities had to announce unpaid leave periods and layoffs. The capabilities of individual entrepreneurs to support their employees deteriorated slightly. Salaries were paid in full by only 23% of companies (25% in April and 27% in March), and only 2% have retained additional or advance payments and 21% were not able to pay salaries at all. Thus, employment policy is even more difficult for individual entrepreneurs than for legal entities.
The environment of limited business activities and at the same time extraordinary support to employees resulted in growing losses for businesses. On top of this comes infrastructure damage and losses which, according to the KSE Institute, amount to USD 104 bn as of 8 June 2022, 11% of which are industrial and business objects. While 34% of legal entities reported losses above USD 1 m in March, appr. 50% did so in April and May. The share of entities stating losses less than USD 0.5 m reduced meanwhile. Overall, the distribution of losses shifted to higher numbers.
A similar development is observable for individual entrepreneurs. Therefore, companies are hit hard in their financial reserves.
But remaining financial reserves are higher for legal entities than for individual entrepreneurs. While just 5% of legal entities stated that no financial reserves are left in May, 29% of individual entrepreneurs mentioned that. Overall, 79% of legal entities did not have reserves for more than a year in May, compared to 87% of individual entrepreneurs.
Despite the hard hit to the business sector, ways to adjust their strategy models need to be found due to the continuation of the war. Current forecasts are subject to high degree of uncertainty, but 70% of CEOs expected a negative dynamic until the end of 2022 while 15% believe that their business situation will remain unchanged, indicating the necessity of a long breath. It is worth mentioning that last year 83% of the CEOs predicted growth for their business in 2022, and only 2% expected deterioration. Thus, the war made significant adjustments to the plans of a clear majority of enterprises.
Conclusion and outlook
There is no ‘business as usual’ in Ukraine anymore. The business sector does its best to adapt and re-build operational processes though it seems to be a daunting task due to broken production and logistics chains, damages to business assets, massive outflow of people and support to remaining employees.
Despite all the unbelievable difficulties that businesses in Ukraine are currently facing, they are at the same time trying to find a new balancing point to hold out till the end of the war. Along with keeping their business afloat, entrepreneurs in Ukraine already think about post-war reconstruction. According to the EBA, 67% of legal entities are ready to get involved in reconstructing after the war. For this purpose, a new Committee for the Reconstruction of Ukraine was established within the EBA. It will focus on the development of expert materials on the priority areas and ways of rebuilding Ukraine as well as a relevant regulatory framework. Taking into account, the difficulties the business sector had and is having now, the inclusion of reconstruction plans into the business model require a breath for a marathon.