UNDP Assessment: Ukrainian businesses prove to be resilient amid ongoing war
Ukrainian businesses proved to be resilient amid the ongoing war, with 84% of suspended companies managing to partly renew their business activities within a period of up to 6 months, according to the UNDP Assessment of the Impact of the War on Enterprises in Ukraine published on Feb. 20.
Micro, small, and medium-sized enterprises (MSMEs) are the backbone of Ukraine’s economy, comprising 99.98% of all business entities in Ukraine, providing 74% of all jobs, and adding 64% of value.
Since the start of the full-scale invasion, 64% of MSMEs have temporarily suspended or closed their business activities. However, a vast majority resumed their operations and, in October 2023, only 9.6% of companies that suspended are at risk of closing permanently.
According to the assessment, the war has had a profound impact on Ukraine's economy, with capacity utilization of MSMEs falling to 45.7% in 2023 from a pre-war level of 72.4%. This is expected to rise to 56% in 2024.
Financial losses from the war vary widely across sectors and regions. Only 9.5% of firms reported no financial losses, while another 10% reported moderate losses of up to $10,000.
On average, financial losses due to the war amounted to $227,000 per company.
The construction sector has suffered the most, while agriculture, telecommunications, marketing, consulting and design services have suffered the least.
In general, companies managed to recover only 27% of their pre-war profits by 2023.
The results of the UNDP assessment show that manufacturing, construction, catering, hotels and tourism were most negatively affected by the full-scale invasion, while IT and agriculture showed resilience.
Nearly two-thirds of companies in various industries will need up to $300,000 in additional financing over the next three years, and more than 10% of construction and industrial companies will need more than $10 million.
Despite this, 80% of companies surveyed have no structured investment plans and are not considering attracting foreign investment. The exception is the HORECA (hotels, restaurants, and catering) sector, where more than a quarter of companies are looking to attract foreign investors.
Although construction suffered the biggest losses, this sector is recovering at the fastest pace - by 20.9% in the first nine months of 2023 compared to the same period in 2022.
Trade is also recovering rapidly, with retail sales up 11.6%, followed by agriculture (grain harvest as of Jan. 11 was 15% higher than the same period in 2023, and profitability was 18.2% higher) and industrial production (up 2.4%, especially in manufacturing).
Earlier, the IT Ukraine Association reported that the export of IT services had demonstrated an unprecedented decline in both volume and share of total exports in 2023.
The IT industry generated $6.7 billion in revenue for the Ukrainian economy, which is 8.5% ($622 million) less than in 2022. While remaining the country's largest exporting industry, the IT sector reduced its share in total service exports to 42%, compared to 45.3% in 2022.
Ukrainians have adapted better than expected to the challenges posed by the full-scale Russian invasion, the CEO of the national payment service UAPAY, Yulia Fedosyuk, wrote in a column for NV Business on Jan. 30.
On Dec. 8, investment company Dragon Capital revised its economic growth projection for Ukraine in 2023 to 5.2%, up by 0.7 percentage points, despite external financing risks.
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