On March 13, 2023, the Institute for Economic Research and Policy Consulting ” (IER), within the project “Support of the Public Initiative “For Fair and Transparent Customs,” held an online event “Economic trends from the business point of view (February 2023)”.
The results of the Tenth monthly survey of enterprise managers, “Ukrainian business in wartime,” conducted in February 2023, were presented at the event.
The project aims to quickly collect information on the current economic state at the enterprise level.
The survey was conducted from February 13 to 28, 2023, among 524 enterprises of all industries (including the agricultural sector and retail) in 22 out of 27 regions of Ukraine. The report covered such issues as:
- main obstacles to doing business (trends of the last three months);
- key economic changes during the year;
- estimates and expectations from the future (capacity of enterprises).
Despite the high level of long-term uncertainty, business expectations have significantly improved in the last three months, and this trend has been ongoing for six months. Logically, assessments of the government’s economic policy by industry have improved, although export activity has not undergone significant changes, says the executive director of the Institute for Economic Research and Policy Consulting (IER), Oksana Kuziakiv.
1. The rating of the main obstacles to doing business operations contains the same challenges, but they acquire a new shade.
Among the TOP obstacles the business named:
- the impact of power, water, or heat supply outages. The percentage of respondents who reported power outages as an obstacle to doing business fell significantly, from 79% in January to 68% in February 2023. In January, 73% of enterprises temporarily suspended work due to power outages. A month earlier, 89% of respondents indicated this problem, so there is a certain situation improvement.
Due to power outages, businesses lost 15% of total working hours in January (23% in December 2022). Khmelnytskyy (52% of respondents in January and 46% in December), Sumy (31% and 19%, respectively), and Kharkiv (30% and 49%, respectively) regions were the most affected by power outages.
– the rise in prices for raw materials, supplies, and, accordingly, finished goods;
–logistics problems – difficulties transporting raw materials throughout Ukraine increased significantly from 39% to 51%. It is one of the signals of economic recovery and a discrepancy between the activity of some market players and the procrastination of others;
– the percentage of respondents who believe it is unsafe to work remained at the level of January 2023 – 40%. Respondents consider Dnipropetrovsk (100% in February and 60% in January), Mykolayiv (100% and 100%, respectively), Kharkiv (100% and 83%, respectively), Poltava (94% and 83%, respectively) regions, and Kyiv to be the most dangerous for doing business (86% and 76%, respectively);
– the value labor shortage continues to increase gradually. The share of those who indicate this obstacle was 26% in February; it is 4% higher than a month earlier. Although such growth is not significant, it is still worth paying attention to the trend of staff shortages, which is intensifying. It also indicates the revitalization of the business, which is becoming more active and plans to develop in further.
Respondents did not emphasize corruption and its obstacles in work. Only 5% of respondents say that this is a problem. In January, 3% of respondents mentioned invoice blocking as an obstacle to normal work. In February, this factor was mentioned by 4% of respondents. Thus, there is a problem, but for a narrow circle of entrepreneurs.
2. Key economic changes during the year. The business activity at the enterprise compared to “what was a year ago” is deeply negative. Big businesses are doing better than others. Medium enterprises were in the worst situation.
Over the past year, businesses have made significant investments in their work continuity (generators, communications) and security (expenditures for employee relocation or security). Their balance indicators are positive, reflecting the increase in these investments. Instead, the balance indicators of all other changes are negative (a decrease is more common). It is, in particular, a reduction in production volumes, orders, the number of employees, and investments in development. It complicates the business’s financial situation, as costs increase while profits decrease.
Speaking about the main changes over the last year (from February 2022 to February 2023), respondents noted:
– changes in approaches to work organization,
– reduction of production volumes or provision of services,
– 2/3 of enterprises have changed the number of employees,
– exporters note a change in foreign markets (47%),
– almost half of the enterprises have changed customers and/or suppliers.
3. Business assessments and expectations. The production capacity remains almost at the same level for four months:
– 4% of surveyed enterprises are not working (3% in January),
– 4% of enterprises operate at less than 25% (5% in January).
The number of enterprises operating at full capacity (100% or more) increased by 2% – 6% in February against 4% in January and 3% in December. The share of enterprises working almost at full capacity (75%-99%) remained at the previous level (44% in February versus 43% in January).
Respondents are cautious about long-term planning, in particular, for the next two years, as they take into account the factor of high uncertainty in the economy. At the same time, entrepreneurs have quite optimistic expectations for the next three months.
It is due to the improvement in the situation with production and export during the last quarter. Thus, in February 2023, compared to January, the share of enterprises that planned production growth in the next 3-4 months increased from 39% to 49.1%. The share of enterprises that planned to reduce production decreased from 8.9% in January to 5.0% in February. The share of companies that plan to maintain production volumes in the coming months at the previous level decreased from 51.7% to 45.9%.
During the year, enterprises were provided with orders for an average of three months. It is the same as in January, but more than in November-December 2022, when the average term was two months. The share of enterprises provided with orders for up to one month decreased from 16% in December 2022 to 8% in February 2023.
Expectations regarding the employment of personnel at enterprises have not changed. The percentage of companies planning to increase employment increased slightly – from 5.7% to 6.4%. The number of enterprises going to reduce the number of workers increased slightly, from 3.3% in January 2023 to 4.2% in February. The percentage of enterprises where no changes in employment are expected decreased – from 91.0% to 89.4% respectively. The number of enterprises that will increase the number of workers on forced leave is 2.9% (it was 2.3%).
Підприємств, які збираються скоротити працівників у вимушених відпустках, стало менше – 26,4% у лютому проти 28,3% січня. Відсоток підприємств, де ситуація щодо персоналу без змін, дещо зріс – із 69,4% у січні до 70,7% у лютому.
The labor market has revived because, according to IER analysts, it has begun to signal certain difficulties associated with the intensification of the search for both skilled and unskilled workers. The number of respondents who find it more difficult to find skilled workers increased from 20.9% in January to 27.0% in February. The percentage of those who find it easier to find skilled workers does not change – 2.2% in February against 2% in January. The percentage of enterprises that find it difficult to find unskilled workers also increased from 11.2% in January to 18.8% in February, and those that find it easier to find unskilled workers increased from 5.9% in January to 6.8% in February.
The export activity recovery slowed down. 60% of respondents were exporters as of the beginning of 2022. The percentage of enterprises that stopped exporting after February 24, 2022, and could not resume it increased to 14%. Microbusiness still faces more challenges – 39% of enterprises have not yet resumed exports. Small business also signals the deterioration of the situation with export activities. Only 2% of respondents in February 2023 said about the successful start of exports, while this indicator was 1-2% in previous months.
Assessments of the government’s economic policy by the business have improved. In February 2023, positive evaluations of the government business support policy increased, while negative evaluations decreased. The positive assessments increased from 21% in January to 24% in February 2023, and the negative assessments decreased from 15% to 11%. As before, business mostly neutrally evaluates the government policy on business support: 56% of respondents gave such evaluations.
About 150 officials and civil society representatives took part in the event, convinced of the revival of the economy, despite the uncertainty of the situation in the country in wartime.
More details in the presentation