‘Open for Business’: Surveying the State and Prospects of Ukrainian Business

Over two and a half years since the start of Russia’s large-scale invasion of Ukraine, it is clear that Ukrainian business has resisted the onslaught. On the second day after the attacks began, ‘Open for business’ signs appeared on the boarded-up windows of many premises. During blackouts, a small coffee shop on the ground floor of my multi-storey building turns on a generator and serves coffee for those in a hurry to get to work.

This resilience of Ukrainian business is strategically important for several reasons. First, when I see my neighbours queuing for coffee on their way to work, it shows they have jobs, which means they are contributing to Ukraine’s GDP, filling the country’s coffers, and supporting demand. Second, the possibility of decent employment in Ukraine is a crucial factor in the return of refugees from abroad, as confirmed by studies such as those by the Centre for Economic Strategy. Third, business is already playing a key role in Ukraine’s reconstruction efforts, even before the hostilities have ended.

Monitoring the health of Ukrainian business is therefore essential, in particular to identify problems in time and provide appropriate support. Several data providers regularly take the temperature of Ukrainian business: the National Bank of Ukraine (NBU), the Institute for Economic Research and Policy Consulting (IER), and the Advanter Group, which works in cooperation with the Center for Innovations Development, the Entrepreneurship and Export Promotion Office, and the national project Diia.Business. Each of these organisations surveys several hundred companies on a regular basis.

However, when it comes to getting a general view of the state and prospects of Ukrainian business, there are significant differences between the data from these sources. For example, the replies to questions about companies’ current circumstances reveal differing outlooks. In the NBU’s Q2 2024 survey, 18.3 per cent of firms described their situation as ‘poor’. In contrast, the IER’s August 2024 survey had a lower number of 16.1 per cent, while Advanter poll of the same month had a higher figure of 22.5 per cent. As for the net assessment of companies’ circumstances – calculated as the difference between those who answered ‘good’ and those who answered ‘poor’ – the disparity was even starker: in the NBU and Advanter surveys, views were on balance negative, while in the IER poll they were positive.

In terms of firms’ expectations for their future, the difference was more striking still. In the NBU survey, the shares of those who believed their prospects would deteriorate and those who thought they would improve were almost equal, at about 14 per cent. In the Advanter survey, meanwhile, 41.2 per cent of respondents predicted an improvement and 28.3 per cent a deterioration. The IER showed an even more optimistic picture: 37.2 per cent said things would get better, while only 9.7 per cent said they would get worse. Why are the findings of such respected organisations so poorly aligned?

Size matters

One possible explanation is that there is a significant difference in the sample structures used by these organisations in their surveys. Even though all of the polls survey business managers, the businesses in the samples vary in size. For example, the NBU constructs its sample to represent small, medium-sized, and large companies equally. This approach makes it possible to assess the state of each group separately, but the overall findings do not reflect the state of Ukrainian business as a whole.

That is because according to the State Statistics Service of Ukraine, out of all Ukrainian companies, 94 per cent are small, 6 per cent are medium-sized, and only 0.2 per cent are large. At the same time, small businesses generate only 19 per cent of all turnover and employ 27 per cent of the workforce. Large companies, despite their small number, produce 36 per cent of the turnover and represent 25 per cent of employees.

The Advanter sample is closer in structure to the general population. In this survey, 89 per cent of firms are small, 8.9 per cent are medium-sized, and 2 per cent are large. The IER’s sample structure is closer to the NBU’s, with a similar bias towards large and medium-sized businesses. However, the IER survey focuses on industry and hardly covers such important sectors of the economy as trade and services.

According to the State Statistics Service of Ukraine, small businesses have suffered the most since the start of the invasion. From 2021 to 2022, the number of large companies decreased by 19 per cent, medium-sized ones by 16 per cent, and small firms by 30 per cent.

Thus, when analysing data from different providers, it is worth comparing the Advanter data, where small companies predominate in the sample structure, with the NBU’s subsample of small businesses. However, certain biases remain even after the samples have been disaggregated in this way. For example, the NBU respondents are more pessimistic than those surveyed by other providers.

Despite the differences, there are also many similarities in the data. For instance, the NBU and IER surveys clearly show that respondents in large businesses feel much better than those in small and medium-sized ones. Not only that, but those in small companies are also more likely to expect their situation to get worse.

A plan for victory: strategy and dialogue

There are also many commonalities in the problems faced by business. The NBU lists the top three challenges as a lack of skilled workers, insufficient demand, and high prices for raw materials and energy. Large companies suffer significantly more from staff shortages than small and medium-sized ones, while other problems are faced equally by firms of all sizes. A lack of labour is also among the top three problems cited by Advanter and the IER.

That said, it is not easy to build a consistent picture of the challenges facing business because of inconsistencies in the lists of possible problems from which survey respondents were asked to choose. For example, the NBU and the IER focus more on purely economic issues, such as the cost of raw materials and reduced demand. Meanwhile, Advanter includes problems such as, first, unpredictable developments in Ukraine and foreign markets because of the war and, second, unpredictable actions by the state. According to Advanter, these two issues and the lack of staff have consistently made up companies’ top three problems since November 2023.

These data are indirectly confirmed by the IER study, which asks firms for their views on the government’s policies to support business. Respondents’ net assessment of these policies – the difference between positive and negative responses – turned negative in July 2023 and has deteriorated since then, with a sharp drop in August 2024.

These risks can be significantly mitigated if the government publishes a clear strategy and establishes a dialogue with business. On 16 October, President Volodymyr Zelenskyi presented a victory plan for the war. Ukraine’s economy also needs a victory plan: a clear indication of the government’s intentions would reduce uncertainty and improve the mood among business leaders. A year ago, a coalition of Ukrainian businesses issued a memorandum calling the lack of such a strategy a red line for Ukraine’s economy. Involving Ukrainian business in the formulation of economic policies is also critical for entrepreneurs. Ukraine’s companies are ready to engage in the development of the country’s future strategies and policies.

Anastasiya Shurenkova is a researcher with extensive experience of designing and conducting sociological surveys and data analysis. Until September 2024, she was a fellow in the Ukraine Research Network@ZOiS, funded by the German Federal Ministry of Education and Research.