Ukrainian businesses grapple with economic fallout of Russian aggression, only 6% remain unaffected

23 May, 07:14 PM
The war is hitting small and medium-sized businesses in Ukraine more and more painfully (Photo:Depositphotos_monkeybusiness)

The war is hitting small and medium-sized businesses in Ukraine more and more painfully (Photo:Depositphotos_monkeybusiness)

In the wake of Russian aggression, small- and medium-sized businesses (SMEs) are increasingly bearing the brunt of the economic consequences, with losses from the ongoing war showing a significant up tick over the past six months.

According to the European Business Association's latest quarterly survey, only 6% of entrepreneurs have reported no damage so far, compared to the 10% who remained unscathed back in October 2022. These findings are based on responses from SME representatives participating in the Unlimit Ukraine project.

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The survey reveals that the share of SMEs reporting business losses of at least $10,000 decreased to 24% in May 2023, from 33% in October 2022.

Among the respondents, 26% reported losses ranging from $10,000 to $50,000, while 20% cited losses between $50,000 and $100,000. Moreover, a significant 18%of entrepreneurs suffered losses exceeding $100,000.

Of the surveyed business owners, 24% have directly incurred losses due to hostilities, and 7% have assets located in the occupied territories.

The most pressing issues faced by 57% of the surveyed business owners include a decrease in consumers' purchasing power. In addition, 31% are grappling with funding shortages and limited access to loans. Furthermore, 29% of entrepreneurs are burdened by high tax pressure. Complaints about the scarcity of skilled professionals and difficulties in recruiting employees and facilitating overseas assignments were voiced by 28% of those surveyed.

Despite these challenges, 41% of entrepreneurs continue to operate at full capacity, while 49% face certain restrictions, and 10% are currently not working. This represents a change from the situation observed six months ago.

The top three measures adopted by companies in response to the crisis remain unchanged: 34% have scaled down their geographical scope of operations, 18% have switched over to remote work, and 15% have shut down some of their branches.

The financial stability of small businesses is being significantly impacted as the percentage of them with insufficient financial reserves continues to rise. The number of SMEs without any reserves grew to 32% in May against 25% in October. Concurrently, the proportion of companies with financial reserves lasting a year or more declined to 12% from 14%. Currently, 4% of entrepreneurs estimate their financial stability to last for only one month, while 31% project stability for several months, and 18% for six months.

Amid these challenging circumstances, 62% of business owners are still able to pay wages to their employees in full. The share of companies reducing wages has slightly decreased to 16% from 18%. However, the number of businesses placing employees on unpaid leave has increased to 12% from 9%. At present, 7% of SMEs are not able to pay wages, and 16% have resorted to employee lay-offs.

In addition to navigating financial pressures, companies are actively supporting the armed forces and providing humanitarian aid. Among the respondents, 47% offer financial assistance, 23% provide free services, 21% contribute products, and 9% supply defense/security equipment.

Nearly half of the surveyed SMEs have mobilized employees serving in the Armed Forces of Ukraine, with 22% of them serving as critical specialists for their operations. Specifically, 29% have up to 10% of their conscriptable employees mobilized, 14% have between 10% and 30%, and 5% have over 30%. Over one-third of these companies offer support to their employees who are currently defending the country.

Despite the ongoing challenges, Ukrainian entrepreneurs predominantly continue to work from home (with only 4% having relocated abroad) while actively exploring opportunities to expand the geographical scope of their businesses.

Currently, 19% of the surveyed SMEs are successfully exporting their products abroad, while an additional 14% are actively engaged in establishing contacts, negotiations, or acquiring necessary permits. However, one-third of the respondents reported difficulties in accessing the international market.

The survey was conducted from April 24 to May 11 among individual entrepreneurs participating in the Unlimit Ukraine project, a support program for small- and medium-sized businesses led by the European Business Association (EBA). A total of 90 entrepreneurs took part in the survey.

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