EBRD, Switzerland and EU assess effects of the war on SMEs in Ukraine

• EBRD-commissioned research highlights the needs of and challenges facing Ukrainian businesses in wartime
• Survey contains data from a representative group of small and medium-sized Ukrainian businesses in the production and service sectors
• April 2024 research results show that active SMEs are adapting to wartime conditions

After two years of full-scale war, a majority of Ukrainian small and medium-sized enterprises (SMEs) surveyed for a study published by the European Bank for Reconstruction and Development (EBRD) have managed to stabilise their operations, demonstrating remarkable adaptivity to wartime conditions.

The survey indicates that 85 per cent of active enterprises are now fully operational and 14 per cent are partially operational, up from 57 per cent and 37 per cent, respectively, in the first year of the war.

Conducted in two stages, the research involved a qualitative survey (16 expert interviews) and quantitative representative research (150 telephone interviews) of SMEs in the production and service sectors across Ukraine, excluding the temporarily occupied regions. The results as at the end of April 2024 identify both positive and negative trends, key challenges and business needs. The research report is available here.

Donor funding for the survey was provided by Switzerland through the EBRD Small Business Impact Fund* and the European Union (EU) via the Women in Business programme.

Despite ongoing challenges, the share of SMEs reporting reduced profitability has halved, while the share expecting business to continue has increased. At the same time, one in five (19 per cent) SMEs reports higher profits on the year. Notably, the workforce reduction rate has decreased significantly, from 55 per cent to 34 per cent.

The survey also highlights that if the conflict persisted for another year or more, 64 per cent of SMEs would maintain current activity levels, while the proportion planning to diversify or expand has tripled to 12 per cent. Major issues identified include reduced demand, uncertainty in forecasting, increased costs and worker shortages.

The outlook if the war continues is quite diverse: 49 per cent of respondents believe that their business will remain unchanged in the near term, while 24 per cent expect a decline, 17 per cent expect growth and 2 per cent believe they will have to close. Nine per cent of company directors say they are unable to predict what will happen in future. Compared with last year, the share of positive forecasts has increased (up 11 per cent), while the share of those unable to make any forecasts has decreased (down 12 per cent).

Some of the war-caused negative trends include sales that are slow to rebound, a lack of workers due to conscription and migration, a lack of investment and increased competition from donor-funded non-governmental organisations.

The EBRD continues to support Ukrainian SMEs with development and financial assistance, through grants, relocation assistance, participation in international exhibitions, crisis-management advice, direct and indirect financing, and more. At the beginning of 2024, EBRD direct financing for SMEs and loans guaranteed through partner banks totalled about €450 million.

The Bank has made more than €4.5 billion available to Ukraine since the start of the war. EBRD shareholders recently agreed to a €4 billion paid-in capital increase to enable the Bank to continue investing at current levels in wartime, with the potential for more investments when reconstruction starts. Supporting the private sector is one of the EBRD's strategic priorities in the country, along with maintaining energy security, vital infrastructure, food security and trade.

Donors that provided funding for the research in previous years include: the EU, the United States of America through the EBRD Small Business Impact Fund* and Sweden through the Women in Business programme.

*Donors to the EBRD Small Business Impact Fund include Italy, Ireland, South Korea, Luxembourg, Norway, the United States of America, Switzerland, Sweden, Japan and the TaiwanBusiness-EBRD Technical Cooperation Fund.