Entrepreneurs talk about the socioeconomic impact of COVID-19 on Ukrainian business and households

Lockdown has paralyzed businesses the world over, and for Ukrainian entrepreneurs, this is just the latest trial added to an already difficult economic situation. A socio-economic assessment of COVID impact on businesses and households, led by UNDP in collaboration with UN Women and UN Food and Agriculture Organization, found that 84 percent of households have lost income, and 43 percent have at least one family member who has lost a job.

The UNDP Accelerator Lab in Ukraine talked to some Ukrainian entrepreneurs to learn how the pandemic has affected Ukrainian business.

Lockdown challenges

According to the Ukrainian mobile operators, in June 2020 visits to the resort cities of Odesa, Mykolayiv and Kherson increased by 30 percent compared to last year. However, many tourism businesses have been significantly affected by lockdown restrictions and visitors’ worries about the pandemic.

"Our take was that because the borders were closed due to the lockdown, domestic tourism would thrive,” says Maria Shurdenko, the owner of the California family guest house in Berdiansk, Zaporizhzhia Oblast.

“But it didn’t turn out like that. This summer the vacation season was destined to fail.”

Customers who usually spend their holidays here are the owners of small- and medium-sized businesses. According to Maria, this business segment was affected the most during the pandemic.

“Some of them lost their businesses completely, others don’t know if they can afford to spend money in such unstable times. And many are simply no longer able to afford to take vacations.”

The pandemic has been especially hard on new businesses: The team of Yuliya Lysyuk, the owner of the Pastourelle gastro-manufactory, spent six months preparing to enter the HoReCa market (hotels, restaurants, catering). Cheese tastings, presentations, the creation of new recipes brought the expected results – the signing of cooperation agreements. However, the plans have not moved beyond that, and it is unknown whether they will move: "Most of our customers in this market either did not open at all, or had to reconsider their business strategies,” says Lysyuk. “They had to reduce their menus to make things simpler. So all our cooperation agreements, which we’ve been preparing for so long, are now on pause."

On top of reduced demand, as lockdown started entrepreneurs also faced other issues. For example, arranging to get staff to work following the shutdown of public transport was an unexpected and critical challenge. We have heard stories of people from Zhytomyr Oblast having to walk more than 10 kilometres to get to work in their local district centre. Or another story about a service station in Kyiv Oblast where workers had to pay hundreds of hryvnias to get there by taxi.

The availability of state aid for enterprises was another critical topic. None of our respondents approached the authorities to apply for such support, for a range of reasons: either because of hearing about the bad experiences of other people they knew, who had to bring a pile of documents and listen to the complaints of officials, or because of the inability to provide a full package of documents, as this requirescompletely transparent bookkeeping – while it’s a widespread and almost invariable practice in the country that at least part of the business activities is done “by the back door.” It has also become obvious to us that entrepreneurs do not see the state as their partner, ready to support them in difficult times. "They would only fine us," was the answer we would often hear.

Still another issue is anxiety and uncertainty. The lack of clarity and understanding of what to expect and how events may develop is a constant concern. This was often heard in the voices of entrepreneurs during our survey. Even if the companies remained afloat, they did not know whether they would be able to operate in the same mode in the future. They say they may have to reduce the number of employees or close down altogether. Speaking about the future of their business after Covid-19, entrepreneurs say cautiously: “We are still working. So far.”

If there is no certainty about the future, then making predictions is also difficult. "Despite this uncertainty, we need to plan,” says Lysyuk. “Whatever the current situation, there are long-term contracts and ongoing marketing activities. That's why we do have some predictions, but the chances of hitting targets are quite slim."

Force majeure chatbot to help entrepreneurs

The pandemic has shaken and affected almost all enterprises in Ukraine. It has showed how vulnerable both business owners and their staff actually can be. Does lockdown as force majeure exempt businesses from their contractual obligations? Can an employee protect themselves if they are fired or forced to take unpaid leave for indefinite period? During the Covid-19 outbreak, these issues have become extremely relevant, since it is unclear when businesses will be able to return to normal work, and whether they will even be able to do that at all.

The Chamber of Commerce and Industry of Ukraine (CCI) is the only organization that can issue force majeure certificates. This does not mean that businesses are automatically released from their obligations. However, the implementation time of these commitments could be extended.

When we started interviewing small businesses, we realized that uncertainty about rent payments also causes significant stress, and the number of requests for a certificate will only increase. Therefore, having a long experience of cooperation with the CCI, we approached them directly, asking whether the number of such requests is growing. They confirmed this, but also noted that the certificate is not a universal remedy in times of crisis: a large number of entrepreneurs do not understand that their own obligations can only be postponed, but not cancelled.

To respond to the wave of inquiries from businesses, the UNDP Accelerator Lab, together with the UN Recovery and Peacebuilding Program, has developed an online force majeure assistant, the Force Majeure chatbot. It answers questions about the certificate in messenger, and explains who exactly needs it and how to apply. Thus, entrepreneurs receive the information they need in a matter of minutes, without even having to contact CCI staff. In fact, the Force Majeure chatbot helped both relieve the CCI’s workload and to make the information about the certificate more accessible and useful to entrepreneurs.

Digital solutions for SMEs: to be continued

The experience of launching the chatbot has shown that rapid anonymous surveys among Ukrainian business community can be an effective way to understand immediate and strategic needs and help develop practical tools to support businesses. This experience has shown the high demand from SMEs for digital solutions that make business services more accessible. Based on it, the UNDP project "Strengthening Business Associations of Small and Medium Enterprises" is to cooperate with the CCI network and other business associations and launch a business development services e-system, E-BO.

According to a survey conducted by the UNDP Accelerator Lab in Ukraine, access to funding remains one of the most acute issues for entrepreneurs. At the same time, the Covid-19 pandemic has raised the question of the sustainability of their business models. In response to this, UNDP, together with the Ministry of Digital Transformation of Ukraine, will launch an impact investment platform on the Diya.Biznes portal, a market place for investment projects that apply business models based on the Sustainable Development Goals.

Background

After the Covid outbreak, the United Nations System conducted more than 50 studies to assess the full scope of the impact on businesses and households. The research, which covered more than 2,000 households and enterprises across the country, confirmed that the current crisis has caused a significant reduction in output, household spending and trade. The assessment also revealed that the crisis has impacted people differently in terms of gender, economic status and location.

The results of this assessment will inform policies and programmes designed to improve lives and livelihoods in the wake of the crisis. You can see its key findings and recommendations here.

Translation: Tetyana Kononenko; Editing: Euan Macdonald