The year 2020 has brought its fair share of challenges to all entrepreneurs. Although businesses in Ukraine are used to working in a fast-changing landscape, they still faced an incredible pressure caused by the Covid-19 pandemic.
Since the outbreak, the sentiment of CEOs has gradually leveled off after the stressful start of the year. According to the recent EBA survey, only 4% of respondents consider the business climate favourable in Ukraine. Prior to the pandemic, this number amounted to 17%. The majority, namely 62%, consider the current business environment unfavorable, and another 34% – neutral.
Before the crisis, CEOs were predicting better performance for their businesses and investment climate. At the end of 2019, 41% of directors expected that the investment climate will slightly improve over the next year. The most cited reasons for optimism were gradual stabilization of the political situation, the start of the reform of the land market, stable national currency, reform of the Tax and Customs services, decrease in inflation, increase in consumer buying power. However, 2020 has drastically changed all the positive expectations.
It won’t come as a surprise that the effects of the pandemic and related restrictive measures have had a negative impact on the entrepreneurs’ sense of optimism. However, Covid-19 outbreak is hardly the only reason for business moderate opinions. The negative impact of the forced quarantine measures was amplified by the Government rotations and slow pace of reforms. Moreover, we see that dissatisfaction with the current state of the court system in Ukraine has grown this year and business leaders consider it even a bigger problem than corruption for the first time in five years.
According to the recent report, presented by the EBA, Dragon Capital, and CES, the foreign investors consider debt default the top threat to the investment climate, followed by a shift away from democratic values and change of the foreign policy vector from west to east. Strategic investors also view loose economic policies as the main negative factor, while portfolio investors would negatively react to the failure to reach the agreement with the IMF on the next loan tranche.
An effective fight against corruption is viewed by business leaders as the top priority for improving the investment climate, just like the relaunch of the judiciary and appointment of credible reformers to top positions. The above-mentioned steps will help rebuild trust and give more confidence to both foreign and domestic investors in Ukraine.
In today’s uncertain climate, CEOs are being very careful with their predictions, still we see the prevailing optimism in the directors’ prognoses for their businesses. The majority of EBA member companies, particularly 60%, expect positive growth dynamics for their company in 2021. Meanwhile, 26% of CEOs expect to maintain business performance at the level of 2020, and another 14% say that their business situation will deteriorate. Also, one third of entrepreneurs plans to implement large-scale investment projects in Ukraine next year.
As discovered by our survey ‘Business Forecast 2021’ about a third of entrepreneurs expect an increase in income up to 10% in UAH due in the next year. More than half of the CEOs, namely 54%, plan to increase the salaries of employees by 5-10%. Another 21% will increase salaries by up to 5%, and 9% – up to 10-20%. Only 15% of companies will not increase staff salaries and no company plans to reduce it. This gives us a strong belief that caring about the wellbeing of employees remains one of the core business priorities.
Most companies will pursue a restrained HR policy next year. Thus, 60% plan to keep the company’s staff unchanged. Only 28% of companies plan to recruit staff. Another 12% of businesses will have to resort to layoffs.
Looking ahead, 60% of the companies will need up to one year to recover from the lockdown as our surveys report. Obviously, over the next one or two years, we will have to deal with the consequences of the lockdown, therefore we have some catching up to do. Assuming that the epidemiological situation is favourable and businesses are able to enter the recovery phase, we hope that by the end of 2021 most large and medium companies will reach the pre-lockdown level of business development.
The pandemic not only brought obstacles and challenges, but it also compelled companies to innovate and adapt nearly all processes to the new reality. It would be unfair to claim that the lockdown had solely negative impacts on the business. The unprecedented circumstances forced companies to re-examine their costs and operations, interaction with customers, as well as proved digitalization to be a vital part of modern company’s transformation.
Bottom line, there is still a huge amount of uncertainty regarding the recovery process of Ukrainian business. Nevertheless, entrepreneurs remain optimistic about their business despite both the unpredictable dynamics of Covid-19 spread and turbulent political and economical situation. Well, after all, optimists win in the long-run.
Being the largest and one of the most influential business communities in Ukraine, the European Business Association will continue to help our companies thrive. We are dedicated and proud to contribute to improving the investment climate in Ukraine to benefit the business industries, society, and the country as a whole.
European Business Association