IT is Dangerous to Work! Business is Frozen in Anticipation of Better Times

The Institute for Economic Research and Policy Consulting (IERPC) shared the results of recent surveys of entrepreneurs. Despite the threatening challenges, business expectations generally remain optimistic, but there are also alarming changes that deserve special attention from the authorities.

For the first time in two years, the percentage of Ukrainian businesses that consider danger the biggest obstacle to business activity has reached a record level of 55. Since May 2022, the share of enterprises that reported in the survey that it is dangerous to work has increased from 46 to 55%. This is the highest figure for the entire study period. And this is quite understandable.

But what’s surprising is that, in parallel with this, positive business expectations are growing in the next six months regarding both the financial and economic situation at the enterprise and the economic environment in the country as a whole. Expectations for these two parameters have been positive for the second month in a row.

According to Executive Director of the Institute for Economic Research and Policy Consulting (IERPC) Oksana Kuziakiv, the researchers encountered unprecedented optimism in how respondents saw the financial and economic situation at the enterprise and in the country as a whole in the six-month period.

She also noted the stability of the trend to strengthen the sense of certainty regarding the operation of the enterprise in a two-year period. However, it is important to note here that respondents are already concerned about the situation with the search for workers. A trend towards increasing difficulties of this kind has been observed since September 2023: the share of enterprises that found it more difficult to find qualified workers increased from 38.9% in March to 43% in April. The same figure for unskilled labor increased from 31.7% in March to 36.6% in April.

In general, the rating of obstacles to business has not undergone significant changes, but their ranking has changed. According to expert of the Institute for Economic Research and Policy Consulting (IERPC) Evgenii Anhel, the three main obstacles to doing business remained the same as last month, but in April the security problem became the leader – 55% of respondents. In second place is the increase in prices for raw materials, supplies, goods (51%), in third place is the shortage of labor (43%).

It is worth noting that the importance of danger as an obstacle to work has increased significantly for large and medium-sized businesses.

As for the obstacles to business growth, according to Evhenii Anhel, in April of this year, war and an unfavorable security situation were also most often cited. It was followed, respectively, by low demand, an unfavorable political situation and a shortage of qualified workers.

And if the increased optimism of respondents regarding the immediate and future prospects surprised the researchers, then other data from the April survey conducted by the Institute for Economic Research and Policy Consulting (IERPC) are quite understandable.

Thus, in April 2024, compared to March, the Business Recovery Index (BRI) decreased from 0.37 to 0.33 (on a scale from -1 to +1). The lowest value of this indicator (and with a minus sign) is for micro-enterprises, although the decline is obvious for everyone else, even for large manufacturers, it’s just that micro-businesses have generally “slipped” into negative values.

The percentage of businesses reporting that their business activity had improved compared to the previous year also began to decline, but not significantly, from 47.4% in March to 45.3% in April. But if such a trend takes hold, it will indicate a general deterioration in the economy. Quite expectedly, the percentage of enterprises that reported that their business activity was worse than in the previous year also increased – from 10.6 to 12.0%. The share of those for whom nothing has changed is 42.7% (in March it was 42.0%).

Other indicators have remained almost unchanged compared to March, although they also show a slight downward trend. In particular, the aggregate indicator of industrial prospects (AIIP) remained unchanged at 0.15, the same as in March. But production expectations decreased slightly – from 0.53 to 0.51. The component of the aggregate indicator “finished goods inventories” also decreased slightly: from 0.02 in March to 0.01 (with a minus sign) in April. The aggregate indicator of industrial prospects (AIIP) component “volume of new orders” (VNO) decreased from minus 0.05 to minus 0.07.

At the same time, production as a whole is still showing an increase from 0.16 to 0.26, and the share of entrepreneurs who increased production volumes increased from 24.8 to 32.6%. That is, until recently everything was quite good, but future expectations are alarming, and the real sector does not believe that it is capable of growing further, at least in the current conditions.

But there is also good news. Exporters, who had previously experienced difficult times, slightly improved their performance, since they were able to grow out of a deep minus in 2022, when sea trade routes were completely blocked by the aggressor. The same can be said about sales, in which obvious optimism is noticeable.

The only problem is that any sales, both internally and externally, are impossible if domestic production stagnates. That is, the optimism of sellers against the background of very restrained sentiments of manufacturers may well turn out to be an unjustified expectation.

Considering that there are few economic factors that complicate the operation of a business. In addition, it is worth noting that the average financial condition is satisfactory, the problem with personnel is not yet catastrophic, and there is demand both in the domestic and foreign markets. It is now necessary and important to pay attention to eliminating the main risk factor.

Of course, it is not easy to ensure security in the midst of a war, but when was the last time you heard from the government about the relocation or, for example, the protection of any industrial facilities other than energy ones? Over the past year, many people have relaxed, and not only those who work on Hrushevsky Street. We got used to it, adapted, reconfigured processes, but the war has not gone away. The front line is moving, threats are constantly changing, new challenges arise, to which it is important and necessary to respond as quickly as possible, because the survival of the warring Ukraine almost depends on maintaining a functioning economy. So, it’s time for the government to blow off the dust from relocation programs, again remember the promised insurance systems for entrepreneurs and seriously think about protecting not only the energy sector, but also other industries. Otherwise, all our expectations of Gross Domestic Product (GDP) growth by the end of the year will turn out to be just dreams.

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More than 500 Ukrainian industrial enterprises located in 21 of 27 regions of Ukraine take part in the monthly survey of the Institute for Economic Research and Policy Consulting.

The survey in this format has been conducted since May 2022. The field phase of the study lasted from April 15 to April 30, 2024.

Read this article in Ukrainian and russian.