To say that 2022 was a hard year is to say nothing. But we managed. And Ukraine has shown the whole world its resilience, bravery, creativity and unity in the fight for freedom and democracy.
This has been especially true in the business community. And with a membership of more than 1,000 companies, the European Business Association (EBA) is the largest such community in Ukraine. Established in 1999, it provides a forum in which members can discuss and find solutions to common problems.
Kyiv Post spoke to Anna Derevyanko, EBA’s executive director and the co-founder of Global Business for Ukraine.
How have businesses fared this year?
In the 300-plus days since Russia launched its full-scale invasion, the businesses community has continued to work and adapt. Yes, it’s not been easy. It’s been challenging due to a lack of capital, disruption of logistics chains, physical destruction of property and restrictions in the markets. But, in general, businesses continue to hold the economic front and remain committed to the country. That’s important for the EBA as one of the biggest business communities in Ukraine.
Companies continue to support people. Around 80 percent continue to pay salaries to employees in full, and some even do so with advance or additional support payments. Of course, the situation for small and micro businesses is harder as they have fewer financial resources. Still, most businesses have managed to adapt in some way.
Almost half of medium and large companies have lost property or assets directly due to the on-going hostilities. Nevertheless, , so, we are seeing strong solidarity inside the country.
What are the current big business challenges?
First, and the most serious for all sectors, has been the power blackouts and the complications accessing electricity, water, communication, etc. This makes it impossible to plan effectively.
According to the EBA’s latest research, the instability of electricity supply over the past two months has forced two thirds of companies to change their work schedule, 40 percent to reduce production or services, and 12 percent to close some offices, branches or outlets. Another nine percent have suspended work altogether. Only one percent have completely stopped work and 18% of our companies reported not being affected by the power outages.
To minimize the impact of these outages, 86 percent of businesses have installed generators, 65 percent now use alternative forms communication; a quarter (25 percent) have transferred data to the cloud, and just over a fifth (22 percent) have implemented additional cybersecurity measures.
The blackouts have imposed significant additional costs on businesses too. Some 40 percent of EBA members reported that their expenses for ensuring autonomy have already amounted to $50,000, another 22 percent reported expenses in the range of $50-100,000, 24 percent between $100-200,000, and 14 percent even greater than that.
Still, 72 percent of businesses claim that a prolonged blackout would not force them to leave the Ukrainian market.
The next challenge is logistics. The ports are blocked for exports other than grain shipments, so businesses have to use railway or road transportation, which is more expensive.
Another difficulty is male citizens being able to leave Ukraine even for short-term business trips. The logistics take around a day and the procedures are super complicated.
Last but not least, to hold the economic front the business community needs new investments from the private sector. And a risk insurance mechanism is needed to help make this possible. While Ukraine is at war, investment guarantees are a must.
There are a number of other challenges I could add to this list, and there are also opportunities, which I’ll come on to later.
What can be done to limit the negative impact of these challenges?
Constant dialogue is needed between businesses and the authorities. Indeed, communication is key to resolving all questions and concerns. I must thank the Ukrainian authorities in 2022 for the dialogue that has already taken place and that the business voice could be heard. Our association has helped to resolve 84 percent of cases brought to us. There are of course no limits to perfection, so some areas could still be improved.
In relation to electricity, water, etc., we all understand that to stop the blackouts we need to win in the face of aggression from our neighbor. And win we will! But, right now, everyone needs to adapt. And by adapting together and sharing resources we can become much stronger.
International partners sometimes ask us to share the general list of needs from Ukraine for generators, cables, etc. So, it would be good to have such a list. It would also be good for businesses to have access to what support has been received from partners and to have an opportunity to apply for and obtain additional support. This is especially important for the energy industry that works 24/7 for the whole country, yet with very limited technical resources.
On the logistics front, the business community strongly supports the decision of the Joint Coordination Center in Istanbul to extend the grain agreement and leave the shipment corridor operating on a permanent basis from November 2022. At the same time, entrepreneurs expect the opportunity to export not only grain but also other goods, such as metal. This would immediately reduce the load on the railways and simplify and reduce the cost of logistics. Moreover, it would be good to do everything possible to extend the Grain Initiative, including consideration of the Mykolaiv seaport hub, as well as increase the number of inspections of vessels with Ukrainian agricultural products per day.
In parallel, with the restoration of shipping in Ukraine, it is time to think about how to build long-term cooperation between Europe and Ukraine in the field of logistics and supply chain development; facilitate the normal functioning of infrastructure and speed up the processing of goods from Ukraine. This could be done by expanding railway tracks, building 80 kilometers of narrow-gauge railways with terminals at Ukrainian stations, and deploying at all EU-Ukraine border crossings the points of switching the rolling stock from wide to narrow gauge, etc.
In relation to short term business trips and booking employees, it’s crucial to launch a new procedure as soon as possible. For this, the government needs to finalize the draft of a new reservation procedure and approve it by a separate Resolution. As a business community, we have asked them to do it this year. This new procedure should be clearer and booked people should be able to leave the country for short-term trips where they have the proper documents. Clarity and openness are pivotal in this process.
Additionally, putting in place business or investment risk insurance most probably needs a request to authorities in different countries and international financial institutions to develop such a mechanism. Germany has been one of the first countries to have a procedure of insurance for German businesses. In January, it is likely that we are going to have a discussion on this with key stakeholders. Still, I hope that other countries will be able to implement it as well.
Going back to communication, this will be crucial to staying together. In the EBA, we work 24/7 to assist businesses in communicating with the government, local authorities and one another, to voice key problems, set a dialogue, try to find ways to solve challenges and speak about opportunities. Moreover, this year we launched a Global Business for Ukraine initiative – not just to support businesses with global networking and global expansion, but to unite global businesses around Ukraine and demonstrate how many opportunities the country has.
What are the business opportunities looking forward?
The top 10 most attractive industries in Ukraine are defense, agro, IT, logistics, natural resources, power, pharma, furniture and woodworking, industrial manufacturing, metallurgy, and metalworking. The investment potential stands at around $460 billion.
Ukraine can easily become an IT and agro hub – a shield for the democratic world (and, actually, we already are). The country has brave and highly educated people (70 percent have a higher education qualification), a rich and diverse subsoil (top in Europe in terms of arable land), an IT-sector that grows 20-25 percent annually, technologies and creativity, diverse logistics (sea and river, railway, auto), etc.
Also, the future of Ukraine will – for sure – be in the EU. Moreover, Ukraine has a very favorable geographical position and close proximity to the EU. Therefore, it’s worth it right now to sow seeds, build business and other connections in and with Ukraine. What’s more, after our country’s victory in the war, working in and with Ukraine will become even more trendy!
What are your members’ business plans for 2023?
Despite the war, 99 percent of EBA companies plan to continue operating in the Ukrainian market in 2023. And almost two thirds (63 percent) are committed to investing in Ukraine even in wartime.
CEOs are talking about investment plans for 2023 to support their own business – in terms of salaries, taxes, sustainable development, digital, internal processes, energy efficiency and logistics. The most popular sectors for investment remain agriculture, IT, pharma, transport and fast-moving consumer goods (FMCG). There are already entrepreneurs who have plans to invest in the military/defense sector.
Russia’s full-scale military aggression against Ukraine continues to top the list of factors negatively affecting the investment climate, followed by attacks on Ukraine’s energy system and the issue of corruption. Therefore, as a country, we need to think very seriously about transparency and honesty, as these factors will help us to strengthen trust or destroy it (the latter of which cannot be allowed in any way).
In summary, this year has definitely made all of us stronger and more adaptable. Business activity is currently quite restrained, and members believe that next year will be hard, but they also believe positive developments will happen.
The EBA in Ukraine is ready to support business as much as possible during this challenging time. And I call upon global businesses to investigate the opportunities that Ukraine can offer, join the Global Business for Ukraine initiative, and continue to support Ukraine. It’s also important that the Ukrainian authorities keep up with dialogue.
Yes, we are much stronger together. Glory to Ukraine!
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