Two new reports reveal war’s impact on small businesses in Ukraine and present a number of recommendations to safeguard the sector

October 20, 2022

Kyiv, 20 October 2022 – As Ukraine prepares for recovery, it should focus more on the specific needs of micro-, small and medium-sized enterprises (MSMEs), according to two new reports issued today by the UN Development Programme and PricewaterhouseCoopers Advisory (PwC) with the financial support from Switzerland. 

While one of the reports presents the results of a Rapid Assessment of the War’s Impact on the MSME Sector, the other is an Outlook Study on the Development of MSME Business Membership Organizations (BMOs) and their Business Development Services in Ukraine.

Rapid Assessment of the War's Impact on the MSME Sector involved a thorough assessment of secondary data (desk research) to identify areas where immediate interventions to support business recovery could stimulate and support sustainable post-war growth. The research takes into account the current state of business activity of MSMEs in different regions and sectors, key challenges caused by the war, and the support available to MSMEs from various stakeholders such as the government, local authorities, donor organizations and the private sector.

The results of the Rapid Assessment suggest that the war has exacerbated pre-existing challenges faced by MSMEs while creating new ones. In particular, the population's forced internal and external migration has created a labour shortage in many areas. The disruption of supply chains and the reduction in domestic demand for goods and services have forced MSMEs to look even more actively for new partners and customers. The reduction of bank lending has significantly reduced MSMEs' access to financial resources for working capital and capital investments. The risks and consequences of hostilities, such as loss or damage of assets, threats to personnel and information security, and destroyed infrastructure, have added to the new challenges. Exporters are forced to overcome additional logistical difficulties in accessing international markets due to the limited capacity of roads and railways.

The good news is that after an initial suspension of operations, MSMEs are gradually resuming their activities. Some of them have had to relocate to safer areas while others have had to reorganize their businesses and transform.  However, the MSME sector is unlikely to fully recover to the previous year’s capacity by the end of this year. To support recovery, the sector needs support for business renewal, rebuilding supply chains, creating new connections and business partnerships, optimizing costs and getting financial support.

The Outlook Study was conducted in several stages during 2021 and 2022, covering five macro-regions and 1,000 Ukrainian MSMEs, focus group discussions with business representatives of different sizes and interviews with key sector experts, as well as analysis of international best practices in the development of business associations and business development services. It presents suggestions for reorienting their role and service provisions in Ukraine, taking into account best international practices, the specific local context, the impact of the war, and the acute and anticipated needs of local MSMEs. The Study was conducted within the framework of the Swiss-Ukrainian Project "Strengthening MSME Business Membership Organizations in Ukraine" implemented by UNDP in Ukraine in cooperation with the Ministry of Economy of Ukraine and with the support of Switzerland.

The results of the comprehensive Outlook Study show that the level of BMOs’ membership among MSMEs remains low: only 22 percent of respondents are current members of BMOs. Yet, the number has increased by 2.5 times over the last five years, from just 9 percent in 2017. The share of current BMO members is higher among companies with women among the owners and top managers (24 percent against 19 percent). In terms of industry representation, the largest number of BMO members (44 percent) are operating in the agriculture and food industry, with manufacturing and construction (26 percent) second and the service industry (22 percent) sector is third.

Massimo Bloch, Programme Manager, Private Sector Development, State Secretariat for Economic Affairs of Switzerland (SECO), said MSMEs provide a lifeline for people across Ukraine. “These businesses provide the products and services people need to survive— especially in wartime,” he said. “The businesses from different sectors united by UNDP’s partner BMOs are crucially important for Ukraine’s economic recovery. This is why supporting the BMOs, which demonstrate commendable resilience and continue to provide services to MSMEs despite challenging circumstances, is a priority for Switzerland. We hope these two reports will help Ukraine and the international community to develop appropriate interventions to support this sector.”

Manal Fouani, UNDP interim Resident Representative in Ukraine, said that MSMEs play a significant role in Ukraine's economy, employing more than seven million people and generating about 70 percent of value-added. “UNDP, through its strategic partnership with Switzerland and others, will continue supporting the recovery of this sector so as to keep the economy running and to secure livelihoods – especially during wartime,” she said.

The studies present a comprehensive assessment of the challenges and needs of Ukrainian businesses and of the organizations that support them. They also formulate a set of recommendations to strengthen the BMO’s operations and service offerings, suggesting direction and a plan of action on how we can intervene and collaborate to ensure a full recovery of the sector.

Anna Onyshchenko, Advisory Director at PwC Ukraine, said the effective interaction between MSMEs and BMOs has had a synergistic effect. “Effective communication and constant feedback from their members is helping business associations to understand the needs and demand for specific business development services, which in turn is increasing the loyalty and stability of the membership base,” she said. “Financially and organizationally strong business associations that are motivated to provide quality and demanded services to their members can contribute to the further development of MSMEs, and thus the recovery of Ukraine.”

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