Small and Medium Businesses: Overcoming the Challenges of Wartime, Uncertainty Fatigue and the Window of Opportunity
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Andrii Dligach, chairman of Advanter Group, chairman of the Council of the Coalition of Business Communities for the Modernization of Ukraine, doctor of economics, professor at Taras Shevchenko KNU
Tetyana Voronina, media expert of the project “Ukrainians about the EU”
Since the beginning of the full-scale Russian war, Ukrainian business has faced unprecedented challenges – the destruction of production and warehouse facilities, the loss of equipment, broken logistics, lost markets and partnerships, the outflow of personnel, lack of funds. As we remember, the state quickly adopted a number of political decisions to support entrepreneurs. But if the entire business took advantage of the tax incentives, cancellation of inspections, exemption from payment of the EUS, then, for example, the relocation support program was aimed primarily at large strategic enterprises, while MSMEs (micro, small and medium-sized entrepreneurs) had to cope, mostly on their own .
Why does the EU support small and medium-sized enterprises in particular?
Since the beginning of the Russian war, the EU and other donors have focused on supporting MSMEs – they found themselves in a more difficult situation compared to big business: fewer opportunities, a weaker financial cushion, limited resources, for many – the need for relocation, for all – the unpredictability of the situation.
Few people were ready for this.
Iryna Hubarets, coordinator of projects in the sector of competition and economic cooperation of the Representation of the European Union in Ukraine, admitted that the war became a challenge for everyone. But the EU managed to react quickly, because they knew the needs and found additional opportunities.
Iryna Hubarets:
“MSMEs have traditionally been a priority of EU cooperation programs, because in pre-war Ukraine they accounted for more than 99% of enterprises and acted as a catalyst for economic development, job creation, and attraction of innovations. This is our middle class and an important factor in the protection of democracy and social progress. In the conditions of a full-scale war about 68% of MSMEs survived and continue to work. At the same time, they have an important additional function – humanitarian, military and volunteer aid. Many companies reoriented and quickly began to produce products important for the front. And this is not only a factor in strengthening the country’s defense capabilities, but and satisfaction of local demand, creation and preservation of jobs, payment of local taxes and fees, economic strengthening of communities. This is especially important in the context of the recovery and development of communities in the liberated territories.”
Therefore, from February 2022, the European Union formed a portfolio of emergency assistance for MSMEs of Ukraine and reoriented the directions of work of current projects accordingly. The budget for non-refundable grant assistance for quick business support amounted to 7 million euros – of which more than 4 million euros have already been provided to more than 1,000 Ukrainian enterprises in the form of micro-grants. Another million euros for 2024 is a window of opportunity for entrepreneurs. So, at the beginning of the new year, it is expected to open competitions for three programs with grants of 10, 15 and 40 thousand euros.
Iryna Hubarets:
“Before the war, we mainly developed lending instruments, but the situation has changed, the ability and willingness of small businesses to take loans has significantly decreased, instead, there was a need for quick non-refundable aid – for survival and ensuring liquidity in real conditions.
The first wave of micro-grants in the amount of more than a million euros went out in the summer of 2022, we issued the rest in certain lots that had different criteria, different maximum amounts, and different target groups of entrepreneurs.
We directed financial resources to quickly ensure business recovery of economic activity, as well as adaptation and integration of relocated businesses into new communities. The local economic development component of our flagship program EU4Businesswhich is performed GIZ made it possible to renew or extend those agreements that existed with partner cities.
We strengthened the support of clusters – their role increased with the beginning of the war, through them we optimized the support of local businesses. This was a certain scaling, because through the help of the cluster we reach more businesses, providing them with constant and specific support.
Since the beginning of the Great War, the EU initiative “Paths of Solidarity” has helped to establish new supply chains and routes, partly – logistics. This platform ensured the sale of Ukrainian products, in particular, agricultural products, and still plays an important role in finding logistics partners, solving the problem of storage and transportation of our products to EU countries and beyond.
In order to quickly and accurately respond to the needs of small and medium-sized businesses, it is important to have operational information about their needs. That is why the EU is funding a study of the state and needs of SMEs in the conditions of a full-scale Russian war. This is what the survey data showed 08.11 – 22.11.2023 (interviewed 562 owner and general director of MSME enterprises).
The only way to survive is to develop and become stronger.
According to the current results of work in 2023 9.6% enterprises remain stopped or almost do not work. In August, this indicator was 12.8%.
13.8% enterprises indicated an increase in the volume of work compared to the plan.
25.5% enterprises operate within the planned indicators for 2023.
51.2% operate with financial indicators lower than expected.
Business turnover in 2023 compared to 2022 will increase by 6.3% .
What prevents business from recovering?
The unpredictability of the development of the situation in Ukraine and the behavior of consumers in the domestic market is the biggest obstacle to business recovery – this is what they think 53.6% respondents.
In November 2023, the most significant problem for business is the lack of a sufficient number of paying customers – 51.7% (47.6% in August). The TOP-3 includes the factor of unpredictability of the state’s actions, but this indicator decreased somewhat – 42.3% (47.7% in August).
44.2% enterprises faced the problem of blocking tax invoices – this is less than in August, but (49.9%), but the indicator just as significantly outweighs other problems.
The logistics problem is intensifying: it was flagged in November 23% respondents, while in August this figure was 17.5%.
At the same time, there have been some positive developments over the past three months: according to November data, 56.6% of SMEs faced obstacles from state authorities – against 67.3% in August, and the most problems arise with the tax and customs authorities.
Priority tasks for the government
A priority task for the authorities, as in the previous wave, 68.0% entrepreneurs consider overcoming corruption. 44.1% – the need to improve access to financing. Judicial matters are also considered urgent (41.4%) and tax (35.4%) reforms.
Blocking borders: the impact is significant, but Ukrainians are finding solutions
The UBI (Ukrainian Business Index) business activity index as of November 2023 is 36.3 (out of 100 possible) is a slight drop compared to August (38.2), but the indicator remains higher than the local minimum of September 2022 (33.9). The fall of the index shows that business is tired of the uncertainty and stagnation of the market situation, although the number of orders from customers remains unchanged, as do the volumes of production. We state: since August of this year, the business has stopped stockpiling goods.
For reference: UBI shows business activity, its ability to increase turnover, create jobs. If the indicator is below 50, it testifies about the negative expectations of business from the further development of events.
One of the reasons for the deterioration of the indicator of the level of business expectations is the blocking of road transport on the border with Poland and, potentially, other countries.
In addition, Advanter Group conducted an operational study on December 3-5, 2023, which showed that the situation has become critical for almost half of the companies engaged in foreign trade and international road transportation.
The average rate of delay of trucks at the border as of December 5 – 13.2 days
Weighted average indicator of irrecoverable financial losses – 2 million 226 thousand UAH per company.
At the same time, half of entrepreneurs have already found temporary or systemic solutions, but this worsens the financial condition of their business.
What do the survey data show?
It is obvious that the process of European integration must be accelerated and carried out qualitatively, without compromises and postponing “for later”. This is necessary, first of all, for Ukraine itself – for the sake of the well-being of its citizens, for the sake of strengthening the country and its ability to face challenges and win. In the conditions of war, this is not a slogan, but a concrete goal.
Aid programs from the EU are extremely important – both tactically and strategically. Tactically, because the support in response to the war allowed hundreds of Ukrainian small and medium-sized enterprises to survive and move on. Strategically, because all the comprehensive, systemic support of the European Union is aimed at adapting the Ukrainian economy and business to new realities – the green transition, the growth of global competition, the need to standardize the principles of activity, in particular, to certify products and production) in order to obtain prospects on the European and other markets.
Our key task is to rely on the support of European partners to carry out the necessary modernization before joining the EU in order to integrate not as a poor European country with a reputation as the most corrupt, but to become a truly new opportunity for the EU and European business in the cultural, value and economic sense.
The study of the state and needs of small and medium-sized businesses in the conditions of the full-scale invasion of the Russian Federation into Ukraine (14th wave) was conducted by the Advanter Group and the Center for the Development of Innovations in accordance with the project “Supporting Ukraine in Reconstruction and Reconstruction”, a component of which is implemented by the Kyiv School of Economics and financed by the European Union. The research was carried out in cooperation with the Ministry of Economy of Ukraine, the Ministry of Finance of Ukraine, the Ministry of Digital Transformation, the Ministry of Reconstruction of Ukraine, the State Regulatory Service, the Coalition of Business Communities for the Modernization of Ukraine.
Full research report
You can find out more about the European Union’s support for small and medium-sized businesses in Ukraine by following the link
The publication was prepared with the support of the European Union within the communication campaign “Together we stand. Together we are Europe”. Its content is the sole responsibility of the author and does not necessarily reflect the position of the European Union.
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