Ukrainian businesses have suffered significant losses during the full-scale war: one in five entrepreneurs reckons they’ve lost over $100,000 because of the rise in hostilities.
But even in such challenging times, Ukrainian entrepreneurs are proving resilient. They are quickly developing new strategies for business survival and are paying more and more attention to increasing their presence in foreign markets.
This trend is confirmed by a foresight on the recovery and development of Ukrainian exports, which was developed with the support of the United Nations Development Programme (UNDP) and the federal company GIZ, the results of which were recently presented at the Western Ukrainian Export Forum (the full report can be accessed here).
According to the foresight, total of 96 % of entrepreneurs expressed their intention to expand their export direction. Large and medium enterprises are setting ambitious targets, aiming to increase the export share of their sales by an average of 35 % by 2025. Meanwhile, micro- and small businesses are setting even higher goals, seeking to up their exports by as much as two-and-a-half times their present level.
Still, for many, these intentions aren’t being translated into real action plans. To find out why, UNDP experts quizzed entrepreneurs, and identified a range of roadblocks obstructing the path to export development. A lack of financial resources turned out to be the most significant obstacle facing businesses of every size. Entrepreneurs from micro and small businesses estimate the range of financing they need for export development to be around $250,000, while large enterprises say they need up to $2.5 million.
Getting hold of that kind of financing is an extremely difficult task, especially in wartime, especially when a significant number of entrepreneurs are struggling even to make a profit. Unable to raise funds themselves, entrepreneurs need to find ways to attract outside financing if they are to achieve their plans to increase exports.
But when it comes to attracting external financing, Ukrainian entrepreneurs are cautious and conservative: According to the study "Access of SMEs to Financing," which was conducted by the Invest Office within the framework of the Swiss-government-funded UNDP project, almost half of Ukrainian companies have never used external capital financing. And of those who did seek external financing, most preferred traditional instruments such as long-term and short-term loans and subsidies, avoiding more complex financial mechanisms.
Interestingly, less than 10 percent of surveyed enterprises opt for grants or other financial support programmes when looking for financial assistance, although the number of grants to Ukrainian businesses has been growing exponentially.
Undiscovered opportunity – involvement of innovative investment, which gives Ukrainian SMEs the potential to open new sources of capital, contributes to the innovative and economic development of the country, and at the same time solves urgent social and environmental challenges. Mixed investments and investments in social changes represent a huge, but little-known source of funding for domestic SMEs.
Mixed investment allows simultaneously attract different investments from private and charitable sources, with the aim of creating such a balance of risks and profitability that meets the expectations of all interested parties. This approach allows SMEs to access the capital they need, while diversifying their financial risks.
Another approach, investing in social change, saw more than $1 trillion invested globally in 2021, of which only 6 percent went to the Eastern Europe and Central Asia region. This approach aims to provide both financial benefits while also achieving positive socially or environmentally oriented goals. By aligning their business aims with sustainability goals, businesses can attract socially conscious investors, who value both profitability and making a positive impact on society.
While financial constraints are a significant challenge, they are not the only obstacles businesses face in expanding their exports. A lack of market knowledge, language barriers, complex bureaucratic procedures and limited international connections can also impede progress. Overcoming these barriers requires a comprehensive approach that combines financial assistance with targeted training programmes, mentoring initiatives, and platforms to facilitate a public-private dialogue. It is of primary importance not only for the survival of Ukrainian business, but also for the economic growth and development of the country in general.
As Ukraine seeks to further integrate with the world market and strengthen its position there, it is important to support entrepreneurs by giving them the opportunity to expand their export potential. The Ukrainian government, international organizations such as UNDP Ukraine, and the business community can work together to create a dynamic and sustainable export sector by creating financing opportunities, facilitating knowledge sharing and simplifying bureaucratic procedures.