Amid full-scale Russian military aggression, Ukrainian businesses have showcased remarkable resilience, buoyed by enduring optimism even as uncertainty clouds the horizon.
This sentiment emerges from the monthly surveys conducted by the Institute of Economic Research and Political Consultations (IER), providing valuable insights into the ever-changing landscape of business activity in times of war. With interviews conducted among managers of over 500 industrial enterprises in 21 regions, including those bordering the battlefield, this article delves into businesses’ shifting priorities and challenges in wartime.
The landscape of impediments faced by businesses during wartime exhibits a notable transformation, with a discernible shift from institutional concerns to more immediate threats to business viability. While regulatory issues once dominated the discourse, attention has now pivoted towards tangible challenges such as physical disruptions and security risks. Notably, the onset of Russian military aggression intensified apprehensions surrounding the safety of business operations, underscoring the critical importance of addressing security concerns. Another obstacle that increased during the war was the lack of personnel.
Figure 1. List of impediments to doing business, % of respondents
Security – Important Factor in Business Environment in Ukraine
The issue of business security deserves special attention, emerging as one of the top obstacles faced by enterprises in 2023. Initially ranking third on the list of impediments, security concerns surged to prominence following Russian missile strikes on civilian infrastructure. Despite significant fluctuations over the months, security-related challenges consistently occupied a prominent position in the hierarchy of business impediments, culminating in December when they assumed the top spot for the first time.
In the first months of 2024, security issues remained among the leading ones, giving way to the more usual (“normal”) impediment. However, the share of respondents choosing this obstacle remains high, which testifies to the weight of this problem on the one hand and to adaptation to life in the turbulent conditions of war on the other (the Russian army’s missile terror of Ukrainian cities continued in 2024).
Figure 2. “It is dangerous to work”, % of respondents (left scale) and rank in a rating of impediments (right scale)
Labor Shortages As More Significant Factor in Ukraine’s Economic Environment
The issue of labor shortage is growing, reflected in the ranking of impediments to business. This trend started in early 2023 and peaked in the summer of 2023. In the fall, after a slight decrease, it continued.
According to the results of December 2023, “the labor shortage” moved from fourth to second in the ranking of impediments due to an increase in the share of respondents who chose it from 35% to 46%. Problems with the search for personnel are also evidenced by other indicators, particularly the share of enterprise managers who report difficulties finding qualified employees, which increased from 25.4% to 27.5%.
The reason for the increase in both trends together
(1) a decrease in the amount of available labor on the market due to the migration abroad of persons from the cohort of those who are potential participants in the labor market or mobilization of such types of persons to the defense forces of Ukraine
(2) an increase in demand for labor from enterprises. The latter logically complements the thesis of the revival of business activity, which was discussed in the previous sections of this article.
Figure 3. “Lack of labor force,” % of respondents (left scale) and rank in a rating of impediments (right scale)
A simple correlation analysis between the time series from October 2022 to December 2023 of the “share of respondents who chose labor shortage as an impediment to growth” indicator, on the one hand, and the balance indicator of production past change (month to the previous month), the balance indicator of expected changes in production in the next three months, and the balance indicator of expected changes in business activity of enterprises in two years, on the other hand, shows the existence of a relation between the indicators. Pearson’s correlation coefficient in the first case is 0.83, indicating a strong relation between the growth of production and the overgrowth of the share of respondents who feel a shortage of personnel is an obstacle to their activities.
The correlation between the shortage of skilled workers and long-term expectations is negative at -0.60. This may indicate that the acceleration of recovery itself is one of the factors in the growing need for personnel experienced by enterprises. On the other hand, the lack of personnel can harm the business’s long-term development. Of course, these two theses are the author’s speculation, which cannot result from a simple correlation analysis and requires more precise methods for empirical analysis for evaluation.
Figure 4. Lack of labor vs, 2 years expectations, % of respondents (left scale), and index of change (right scale)
Conclusion
As Ukrainian businesses operate in times of conflict, they encounter various obstacles. These include concerns about safety and a shortage of workers, which can make running a business more difficult. However, by adapting their strategies to address these challenges and focusing on urgent priorities, businesses can strengthen their foundations and grow sustainably. Through ongoing analysis and proactive measures, Ukrainian enterprises can overcome the hurdles of wartime commerce and emerge resilient.
