The 17th wave of the survey of the state and needs of micro, small and medium-sized businesses (MSMEs) in the context of the full-scale invasion of Ukraine by the Russian Federation has been completed. The study was conducted by the Innovation Development Centre, the Entrepreneurship and Export Development Office, the national project Diia.Business, and AdvanterGroup in cooperation with the Ministry of Economy of Ukraine, the Ministry of Finance of Ukraine, the Ministry of Community Development, Territories and Infrastructure of Ukraine, the Ministry of Digital Transformation, the Ministry for Reintegration of the Temporarily Occupied Territories, the State Regulatory Service, and the Coalition of Business Communities for the Modernisation of Ukraine.
Survey period: 26.04.2024 – 19.05.2024 р.
A total of 502 respondents – owners and CEOs of MSMEs–were interviewed .
Key findings of the survey
1. State of the business environment
As of May 2024, the UBI (Ukrainian Business Index) stands at 43.7 (out of 100). The index has increased compared to the previous wave of the survey (38.1) and is forming a new local maximum (the previous maximum was recorded in August 2023 (38.2)), but remains in the zone of negative expectations.
For reference: UBI indicates business activity, its ability to increase turnover and create jobs. If the index is below 50, this indicates negative business expectations of further developments.
2. Business operations
The start of the full-scale invasion had a significant negative impact on business operations. While before the invasion, a fifth of businesses (22.3%) assessed their financial and economic condition as satisfactory or poor, as of May 2024, the number of such companies was 41.6%.
Companies are cautiously optimistic about the prospects for changes in the financial and economic state of the enterprise. 36.1% of respondents said that the company’s situation would improve or improve significantly. 32.3% believe that the situation will remain stable. The likelihood of deterioration or significant deterioration of the financial and economic situation was indicated by 31.6% of respondents.
3. MSME support for the Armed Forces of Ukraine and participation in humanitarian projects
MSMEs take an active public stance and participate in initiatives and programmes aimed at helping the Armed Forces of Ukraine, internally displaced persons, employees and family members of employees. Slightly less than half of the companies (45.8%) allocate up to 1% of their business turnover to the needs of the Armed Forces , while 29.7% allocate between 1 and 3%. Almost 8% of companies donate more than 10% of their turnover. On average, businesses spend 3% of their turnover to support the military .
70.3% of respondents said that their companies help the Armed Forces of Ukraine, 41.2% said they help employees and their families, and 23.1% of MSMEs employed internally displaced persons. It is important that businesses are actively involved in social projects and local initiatives. 19.5% of respondents indicated that their companies implemented humanitarian projects, and 11.4% participated in the restoration of damaged facilities within the region or community.
Only 9% of companies said they were unable to provide financial assistance.
4. Situation on the labour market
On the one hand, the situation with staff in companies remains stable. The share of staff currently working on salary cuts is 12.9%. This figure has not changed significantly over the past two quarters. Thus, in November 2023, the figure was 11.2%, and in December 2023 – 13.1%. The proportion of staff on leave as of 23 February 2022 remains unchanged at 7.5%.
On the other hand, there is an upward trend in the proportion of staff currently laid off. Currently, this figure is the highest on record during the period of Russia’s full-scale invasion of Ukraine and stands at 29.6%. The previous local maximum of this indicator was recorded in September 2022 (28%). However, it should be noted that the share of layoffs traditionally increases after the winter period, so the high value is not critical. In general, the share of redundancies has been between 20 and 30% over the past two years.
5. Foreign economic activity
62.5% of respondents indicated that their company is not engaged in foreign economic activity. 9.8% of companies carry out only export operations, 10.6% – only import operations . 9.6% stated that they carry out both export and import activities, and 7.6% plan to enter international markets in 2024.
6. Key challenges for MSMEs
The majority of respondents identified the top 5 key challenges that prevent companies from recovering and developing their economic activities. 43.2% of respondents pointed to the lack of a sufficient number of qualified employees, 47% to the lack of sufficient capital, 51.6% to the lack of a sufficient number of solvent clients, 55.8% to unpredictable government actions that could worsen the company’s situation, and 58.2% to the unpredictability of the situation in Ukraine and the domestic market.
Among the main problems in interacting with the authorities, business leaders and owners note the blocking of tax invoices (33.7%), refusal to book employees (31.5%), delays in logistics at the border (22.1%), and unfair decisions when participating in public procurement procedures (17.3%).
The factor of booking key specialists has the most negative dynamics. Thus, in November 2023 , 14.6% ofrespondentsreported problems with booking, in January 2024 – 19.8%, and in March 2024 – 25.4%. The situation with delays at the border has improved significantly (for comparison, 33.7% of companies reported delays at the border in March 2024 ).
In terms of available financial resources and prospects for raising them, businesses in Ukraine vary significantly. The easiest way to obtain additional financial resources is to use bank loans. Some companies have opportunities to attract investments, including foreign ones. Finally, in today’s environment, companies can count on grant support from the state or various organisations. The survey has shown that businesses have different attitudes to the possibilities of raising resources through the above channels.
Almost two-thirds of companies (64.7%) have no outstanding loan agreements. Only 35.3% of companies are involved in lending agreements. Of these companies, almost half (47.7%) have loans of up to USD 30 thousand, and 37.5% have loans of USD 30 to 100 thousand. Only about 15% of companies have larger loans , which, of course, reduces the investment opportunities of firms.
The main obstacles to obtaining credit financing are: too high interest rates (55%), fears of not fulfilling debt obligations on time (36.1%), insufficient collateral (28.9%), currency fluctuations (22.9%), and a complicated process of obtaining a loan (22.1%). Only 9.6% of companies believe that there are no barriers.
Companies most often turn to their own accumulated resources as a source of additional financing ( 49.8%). Over the past year , 30.3% of companies have used loans from Ukrainian banks .
The survey was conducted within the framework of the United Nations Development Programme (UNDP) Support to Ukraineproject by the Innovation Development Centre, the Entrepreneurship and Export Development Office, the national project Diia.Business, and Advanter Group in cooperation with the Ministry of Economy of Ukraine, the Ministry of Finance of Ukraine, the Ministry of Community Development, Territorial Development and Infrastructure of Ukraine, the Ministry of Digital Transformation, the Ministry for Reintegration of the Temporarily Occupied Territories, the State Regulatory Service, and the Coalition of Business Communities for the Modernisation of Ukraine.