Gennadiy Chizhikov is a man used to crises.
When the Donetsk-born businessman was first elected president of the Ukrainian Chamber of Commerce and Industry (UCCI) in 2013, the outlook for Ukraine was bleak.
Former President Viktor Yanukovych held the country in his corrupt grip, while he and others plundered its wealth. Ukraine occupied the unenviable position of 112th out of 190 countries in the World Bank’s ease of doing business index.
When the EuroMaidan Revolution ousted Yanukovych in February 2014, the country entered a different crisis. Annual foreign direct investment plummeted to about $400 million — roughly 10% of what it had been before. Gross domestic product fell by more than a third.
As Russia invaded Ukraine’s eastern Donbas, Chizhikov faced a personal crisis: He was forced to evacuate family members in the region to the safety of Kyiv.
Now, Ukraine finds itself staring down the barrel of perhaps the biggest crisis yet: the global COVID-19 pandemic. Under Chizhikov’s leadership, the UCCI — which has 73 offices and more than 8,000 member businesses — is trying to help the Ukrainian business community chart a course forward.
“This crisis has been unprecedented, in that it has affected business in all countries,” Chizhikov told the Kyiv Post in an interview. “We all had to answer this challenge together.”
Progress interrupted by crisis
In 2019, Ukraine continued its slow but steady ascent up the World Bank’s business ranking. It hopped five places from 71st to 64th place globally.
That wasn’t the only progress: Foreign direct investment to Ukraine increased by about a third in 2019 compared to the previous year, reaching $3.1 billion, according to UN figures.
Trade turnover reached an all-time high of $45.7 billion with the European Union. Ukraine’s national debt as a percentage of GDP also continued to decrease and the poverty level was slowly being brought under control.
But the COVID-19 pandemic has derailed much of that progress, sidelining the country’s drive for reform.
Chizhikov says that UCCI’s priority is protecting people and jobs. During the pandemic, it has continued working with government businesses to prevent high levels of bankruptcy and unemployment.
Restaurant employees prepare the interior and outdoor terrace of their restaurant for reopening after the coronavirus quarantine
restrictions are lifted in Kyiv on June 4, 2020. (Kostyantyn Chernichkin)
Saving a person’s job is five times cheaper than creating a new one, he argues: “During the quarantine, there are up to 700,000 newly unemployed workers in Ukraine… taking into account the shadow sector of the economy, the total number of forcibly unemployed could have reached four million.”
About 90% of UCCI members are small and medium-sized enterprises, which have been hit particularly hard by quarantine measures that closed down most commercial activity in Ukraine since from March through mid-June.
“The quarantine led to significant losses” for many companies and entrepreneurs, Chizhikov said, with the trade and service sectors being most heavily affected. The UCCI points to hair and beauty salons in Ukraine as just one example.
“They have been losing a total of more than 1 billion hryvnia ($37.4 million) each month… and they employ 60– 70 000 people across the country.”
Surveys suggest that about a third of all retail outlets in Ukraine may close for good, while the UCCI says that some 30–40% of restaurants cannot reopen.
One UCCI survey indicates that those businesses that survive will still have a hard time: 20% of Ukrainian businesses won’t be back to normal until six months have passed after lockdown is lifted. Some 17% of firms say they will need up to two years, while 7% expect they will need even longer to recover.
“Quarantine measures are difficult for the economy, especially for small and medium-sized firms that are not financially strong enough,” said Chizhikov.
These entrepreneurs need more easily available loans. “The lack of working capital will be a real challenge for small and medium-sized businesses after quarantine,” he added.
Boost exports to help recovery
By the third week of June 2020, Ukraine was still knee deep in its COVID-19 pandemic, with health officials reporting record numbers of daily confirmed cases. By June 25, at least 1,067 people had died of the respiratory disease.
Public debt is expected to increase in 2020 and the Ukrainian economy will contract by 3–9% because of the lockdown, according to various estimates. Poverty levels will revert back three or four years, UNICEF predicts.
For this reason, Ukraine has followed the example of many other nations and begun lifting most lockdown measures in order to get the economy up and running again.
For Chizhikov and UCCI members — who account for 70% of all Ukraine’s exports — picking up the pieces must also involve giving businesses, and particularly exporters, a helpful push in the right direction.
One priority for the Chamber, he said, is to lend extra support to small and medium-sized Ukrainian exporters in order to help them get back on their feet and stay in business.
The COVID-19 pandemic has caused disruption to global supply chains and export-import arrangements. To this end, UCCI experts can be particularly useful, he says. They know where certain Ukrainian products are in demand, what standards must be met for export to a particular market and how to check up on the intended trade partner. They also know how to help UCCI members defend their rights in case of any problems or breaches of trust.
“It is necessary to support the small exporters,” he said. “There are about 12,000 of them, and they expect us to help them in foreign markets.
According to Chizhikov, UCCI has sales representatives in 55 countries, communication with chambers of commerce and industry in almost all countries and access to resources for supporting exports to the EU.
With Ukraine and the entire world facing a new economic reality, Ukraine’s exports will face a challenge, Chizhikov believes. And UCCI is concerned that the pandemic could lead to greater protectionism and closed economies.
But every crisis presents an opportunity.
“Economic crises always lead to a decline in production,” Chizhikov said. “But this opens up certain opportunities for Ukraine. Now businesses are at the point of choosing the model on which the future state of the country’s economy depends.”
“Promising areas are opening up,” he continued. “There will be a growing demand for food in the world, and we need to move from raw material exports to finished products… Demand for Ukrainian products is growing in the EU, we also see huge potential in Central Asia, Africa and other continents.”
Low-interest loans
For all his optimism about Ukraine’s future, Chizhikov is sober on the challenges of a country with low investment, weak rule of law and little access to fair arbitration.
“Investments in Ukraine will follow reforms,” Chizhikov said. “Foreign companies have been here for a long period of time and, when making decisions concerning investment, look at the transparency of legislation in the country, guarantees of business security, availability and cost of labor.”
The country needs better investment incentives and a fairer and more attractive tax environment. But Chizhikov also wants to do away with some of the obsession over attracting foreign direct investment and focus more on developing the national business environment, with healthy wealth creation and investment inside the country.
Better access to low-interest loans is essential, he says, so that the playing field in Ukraine is level and businesses can recover from the COVID-19 crisis.
Risks associated with doing business in Ukraine are currently locked into the interest rates on most bank loans, he says, if a company is eligible to get one in the first place. This results in loan repayment terms that are far higher than almost all other European countries. The repayment on some loans can reach 40–50%.
“This often may be higher than the potential economic return from a project,” Chizhikov said. “The only source of financing for small businesses in these conditions may be your own money, earned, for example, by going to work in Europe.”
Low wages in Ukraine drive many skilled workers to leave for Poland, the Czech Republic, Germany, the Baltic states and other countries.
“Not every business can solve this issue by raising the earnings of their employees,” he said.
Existing schemes to channel loans to small and medium-sized businesses don’t go far enough and the Ukrainian government and the country’s banks, which are more profitable than ever, need to do more to create a better lending environment for businesses here, Chizhikov said.
Doing business in Ukraine
Looking forward, Chizhikov wants business to be conducted in a fair, open and competitive manner. That requires functional courts and balanced, unbiased arbitration, an area where Ukraine has made little progress.
But his organization is helping with that. In both Ukraine and the countries where it has representation abroad, UCCI acts as a forum for independent arbitration in commercial disputes. Through its networks, it can also mediate disputes with foreign trade partners.
Chizhikov believes that by supporting Ukrainian firms both at home and abroad, UCCI can help push Ukrainian business forward.
“I am convinced that the better we understand business, the better we can protect it,” Chizhikov said. “The Chamber of Commerce and Industry of Ukraine is an organization of trust, and we are striving to become the voice of small and medium-sized businesses.”
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