For more than a year now, Ukrainian entrepreneurs have been suffering huge losses and facing new challenges on a daily basis. Find out more about how businesses in Ukraine are adapting to the military situation

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For more than a year now, Ukrainian entrepreneurs have been suffering huge losses and facing new challenges on a daily basis. Find out more about how businesses in Ukraine are adapting to the war realities

Since the beginning of the full-scale invasion, the Ukrainian economy and business have suffered a devastating blow. 30.4% is an unprecedented decline in Ukraine's national economy in 2022. In addition, according to the Ministry of Social Policy, last year the number of Ukrainians living below the poverty line increased to almost 30%, which in turn had a significant impact on the solvency of citizens, with consumer inflation reaching 26.6%. 

Along with the decline in the solvency of Ukrainians and the rise in prices, which was also significantly affected by the devaluation of the national currency - from UAH 29 to UAH 40 per dollar. With the beginning of the war, entrepreneurs almost lost the opportunity to conduct any foreign economic activity due to the limited capacity of the country's western borders, almost completely paralyzed seaports, and closed borders with Russia and Belarus for reasons that are clear to all.

Thus, according to the Kyiv School of Economics, direct losses incurred by private companies and state-owned enterprises reach $13 billion, while experts estimate indirect (total) losses at $33 billion.

Key issues and challenges for Ukrainian business

The main challenge for business has been the constant attacks on Ukraine's energy system by the Russians, which have led to frequent and prolonged power outages. According to the EBA statistics, 89% of private companies and state-owned enterprises felt the effects of Russia's strikes on the energy sector. 

Businesses have been forced to look for alternative sources of electricity and increase their spending on transport and consumables. In addition, the reduction in productive hours and the constant interruption of work processes have had a significant impact on companies' revenues.

Among other challenges, entrepreneurs identify:

• destroyed logistics routes, a shortage of vehicles and a significant increase in fuel prices;
• the need to revise sales and marketing strategies;
• shortage of human resources due to mobilization measures and Ukrainians leaving the country;
• loss of companies and partner countries;
• limited external and internal investment and blocking of credit facilities by national banks;
• a significant increase in prices for energy, raw materials and supplies.

Another challenge was the occupation of some territories, which temporarily deprived companies of access to their production facilities and warehouses.

Recovery and adaptation of Ukrainian business in the context of war

In order to stay afloat, entrepreneurs were forced to reconfigure internal business processes and resort to crisis micro and macro management. According to the EBA:

1. About a third of businesses, namely 37% of respondents, were forced to reduce staff and increase the amount of work for the remaining employees by changing their functional responsibilities;
2. 44% of companies have adapted their range of goods and services to meet market needs;
3. Most companies have switched to short-term strategic planning:
   - micro-companies - 60% of respondents plan for 1 month, 16% - no changes;
   - small companies - 56% of respondents plan for 1 month, 18% - for a quarter;
   - medium-sized companies - 41% of respondents plan for 1 month, 21% - no changes;
   - large companies - 38% of respondents plan without changes, 26% - for 1 month.

In addition, Ukrainian entrepreneurs have identified a number of top priority tasks they are working on. Among the most popular answers:

• Expanding the client base and target audience - 63%;
• Adapting the strategy and focus of the business to meet current market needs - 25%;
• Search for new logistics routes and suppliers - 23%;
• Search for financing/investments or new partners - 22%;
• Entering the international market - 21%.

The above statistics make it clear that consumer needs and behavior have changed dramatically, and this directly affects what businesses need to resume their operations. Therefore, most of the surveyed companies consider the search for new customers to be the most urgent task. 

Business prospects in Ukraine

Despite the extremely difficult conditions and unstable situation, according to the EBA, more than half of the respondents, namely 76% of entrepreneurs, plan to expand their business, of which:

• 28% aim to expand their geographical presence;
• 26% plan to open new business areas;
• 25% want to change their strategy to the foreign market;
• 21% - will increase the number of employees.

It is also worth noting that entrepreneurs plan to use their own funds to expand their business, with only 33% of respondents relying on loans and grants.

Of course, under martial law, there is no reason to expect a significant economic recovery. But Ukraine's business community relies on decisive action by the government to stabilize the economy and support businesses. 

The EBA believes that the state should significantly reduce its role in business and review the existing instruments used for regulation and control for relevance and effectiveness. As of today, Ukraine has just under 1,000 instruments of state regulation of business, which tie the hands of entrepreneurs who are trying to survive and maintain their own business on a daily basis.

Just a reminder. The full-scale invasion of Russia did not stop Ukrainian business, but rather pushed it to develop and expand to an international scale. You can find out which Ukrainian companies have gained popularity abroad in our article here.

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