Nadiya Bedrychuk, Ukrainian Direct Selling Association Executive Director and Ukrainian Business Council board member discusses her vision for Ukraine’s future and policy changes necessary to strengthen Ukraine’s business climate and drive growth.
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MOVA: The Business Language for the New Ukraine is a new podcast series hosted by Andrew Wilson, CIPE’s executive director. The series is a part of CIPE’s Democracy that Delivers podcast.
Transcripts are available in English below
Andrew Wilson:
Despite air raid, sirens going off daily and labor shortages squeezing Ukrainian small and mid-size businesses, Ukrainian entrepreneurs are finding ways to navigate through the chaos.
Nadiya Bedrychuk:
We calculated that last year people spent about 40% of their working time hiding in shelters. With all this going on, planning ahead is really hard for businesses.
Andrew Wilson:
We’ll learn more about what businesses are doing to meet the moment and what can be done to improve the Ukrainian business environment in the future. Just ahead.
Andrew Wilson:
I am Andrew Wilson, executive director of the Center for International Private Enterprise. Welcome to MOVA, the Business Language for the New Ukraine, A podcast from CIPE where we’ll take a deep look into Ukraine’s economy policies and business outlook. This season on MOVA, we’ll be asking the important question, “What role can the small and mid-sized businesses, civil society, and foreign governments play in helping to rebuild the Ukrainian economy?”
Our guest is Nadiya Bedrychuk, a member of the board of Directors for the Ukrainian Business Council. The business Council represents a coalition of 108 industrial and business associations in Ukraine, focused on promoting economic reforms for small and medium-sized businesses. Nadiya is joining us today to provide her insights into improving the environment for enterprises across the country. Welcome, Nadiya.
Nadiya Bedrychuk:
Hello to everyone and hello dear Andrew. Hello dear podcast listeners. It’s an honor to talk to all of you who stand by Ukraine and care about our Ukrainian future. Your support means a lot to us, and we are committed to maintaining your trust. Thank you for inviting me.
Andrew Wilson:
A lot of the things we talk about at CIPE really do focus on the important role of the small and medium enterprise sector. Obviously in Ukraine right now, there are a number of challenges that small and medium-sized businesses are facing. What are you seeing from your perspective as being those key challenges and obstacles that the SMEs are headed up against and how is it affecting their ability to operate and their overall viability?
Nadiya Bedrychuk:
Thank you for your question. Of course, when you start your own business, you usually get ready for potential problems and work out how to handle them. You think about what you will do if there aren’t enough clients or you don’t have enough money, but you don’t usually think about something like a war. That’s not something people expect to happen in the 21st century, so it’s no secret that the Russian military aggression against Ukraine was a shocking blow to entrepreneurs.
To put it in numbers, Ukrainian businesses lost about a third of their turn-over last year. Things looked bad at the beginning of spring last year, but by the end of the year, some companies had returned to their pre-war sales figures, which is a great result. But the biggest challenge is still the unpredictable, uncertain situation. In Ukraine, bombs are destroying our city’s; power plants, warehouses, seaports, and factories. Every day the air raid alarms goes off multiple times in every part of Ukraine. And we calculated that last year people spent about 40 percent of their working time hiding in shelters.
With all this going on, planning ahead is hard for businesses. It’s like planting seeds and not knowing if you are going to get crops in six months, and even if you yield harvest, there is no guarantee you’ll find a way to process or export it. This is why everyone in the business world wants the war to stop as soon as possible.
According to our survey, 89 percent of local businesses are trying to help Ukraine win. Out of those, 63 percent are giving money directly to the army while the others are doing things like helping families of soldiers, volunteering, and trying to rebuild cities that got destroyed.
The first big challenge is how unstable everything is. The second is that not many people are buying things anymore. In Ukraine, a lot of small businesses are in the business of selling products and services. They are B to C businesses, but because of the war, about 20 percent of Ukraine is occupied and around 8 million Ukrainians became refugees. That means there are fewer people buying products and those who remain in Ukraine have less spending power. On top of that, there aren’t as many people working anymore. Young women with kids have gone to other countries and many men have joined the army, so now there aren’t enough people to do the work that needs to be done.
I’m part of the small business world and small businesses create most of the jobs everywhere. They are places that give people work, but right now Ukraine doesn’t have enough labor resources and that’s a problem for business owners. Labor costs have increased, squeezing business profits and entrepreneurs find themselves struggling to maintain operations due to insufficient investment, and their government has no financial resources to stimulate growth. Consequently, businesses are being forced to shut down. Those are our challenges and I hope we will discuss solutions because no matter what, businesses will keep trying to survive, to continue on, to help their families and their country.
Andrew Wilson:
You’re painting a picture that, on the one hand, is very inspiring, which is the role that the private sector is playing in supporting Ukraine’s war effort, but also, one of great difficulty and challenge for these small businesses, in particular. The business council advocates for better business policies, and you alluded to that a little bit in your answer. How can the government help? What specific reforms do you believe would have the greatest impact on empowering these SMEs to drive the growth that everybody wants them to provide?
Nadiya Bedrychuk:
I think the ways to help Ukrainian businesses aren’t anything special. Currently, problems exist because not as many people are buying things. Businesses in Ukraine are trying to sell more, but it’s tough because there aren’t as many consumers. We need support to export local products and services to other countries, like in the EU or the USA. It’s a request for our government, and it’s our request to other countries. Also, the Ukrainian government should help restore transportation, logistics roots, and simplify customs procedures.
By the way, I forgot to mention corruption. I know it’s a topic often associated with Ukraine. We are making progress in the right direction – corruption has decreased. Doing business in Ukraine without encountering corruption is possible, but it still exists. It happens when some people in the market get special treatment, special conditions, and it creates unfair competition. Everyone is supposed to pay taxes, but some people don’t because of corrupt connections. That’s why private businesses in Ukraine, including my organization, Ukrainian Business Council, are firmly committed to zero tolerance for corruption. We are the ones who tell the government about shady schemes, questionable practices, and advocate for fair rules that apply to everyone.
Returning to the issue of economic growth, I would say that smaller businesses, especially those run by women, need help with digitalization. Digitalization would open new online markets for them and allow them to adopt a hybrid approach, allowing them to retain employees based in different cities, or even different countries.
Another crucial reform involves bringing Ukrainians back home. Every year, women who have left temporarily adapt to their new life. The worst-case scenario for Ukraine is that after the war, their husbands might also leave Ukraine and joining their families abroad. This is why we urgently need to rebuild Ukraine, to help occupied cities rebuild infrastructure right now instead of waiting for the end of the war or for victory. This way, businesses can offer jobs to those coming back to Ukraine.
Next, businesses need insurance that covers war related risks for their property. Currently, this type of insurance is only available to select foreign businesses. Meanwhile, local, small and medium-sized businesses are left to navigate wartime conditions at their own risk, while developing projects or production facilities. There is no insurance option for them. The Ukrainian government compensates individuals if their homes are destroyed, but businesses aren’t granted the same right. This hampers entrepreneurs during wartime, so we need insurance that covers war related risks.
Lastly, let’s talk about deregulation. We need to minimize the power that officials have over businesses, which will help minimize corruption. It’s equally important for us to lower taxes and enhance how we manage administrative taxes, including VAT. By decreasing labor-related taxes, businesses can better stabilize their expenses costs, especially when facing storage of labor resources.
Andrew Wilson:
Nadiya, you’ve talked about the need to get reconstruction underway right away, that we can’t wait for the end of hostilities to fire the starting gun for the race to reconstruction. We need to be doing this as it happens. Public procurement becomes a big part of that, and Ukraine does have a new system ProZorro, which is a digital e-procurement system. But often the problems that people have in an old paper system, if it’s not done well, are the same problems they’re going to have with the digital system. What can we do? What can you do to help bridge that gap that’ll allow the small and medium-sized businesses to actually compete in the public procurement process, which is going to drive so much of the reconstruction funding?
Nadiya Bedrychuk:
That’s a very important question for us. Ukrainian companies are certainly going to play a major role in carrying out big projects to rebuild Ukraine, but it’s also important for us that the local businesses do not play a secondary role in this process. Typically, local businesses reinvest their profits in Ukraine rather than sending them abroad. And we are keen on making sure that the funds for constructing Ukraine stay within the country. This is what the United Business and the Ukrainian Business Council are proposing as well. International companies involved in reconstructing Ukrainian cities should set up branches in Ukraine and pay their income taxes here. It would be good for Ukraine, for the process, and for the future, and the whole world. Regarding the ability of Ukrainian business to participate in the construction project. We cannot compare American German business with Ukrainian ones. In Ukraine we’ve only had a private sector and a market economy for 30 years. So of course, we have much less experience and fewer investments, and we need to boost the training of local businesses to prepare them to participate in international tenders, help them overcome hesitations, guide them through audits, and prove their capabilities in fair competitions.
Ukrainian private companies are quite competitive on the global stage. For example, since the war, many Ukrainian businesses expanded overseas and achieved impressive results. Just in Poland last year, Ukrainian entrepreneurs opened 12,000 businesses and paid three billion Euros in taxes. It’s a huge amount. But the question these entrepreneurs are asking themselves now is, ‘why didn’t I do this sooner?’ It’s something they’re reflecting on. I suppose we need to help them understand the rules of international tenders, as well as the rules of international competition. So, educating entrepreneurs and helping them understand what is necessary for internationalization is incredibly important right now.
Andrew Wilson:
You spoke earlier about the need for reconstruction to start now, but so far, the reconstruction dialogue has just been between governments and about setting the priorities of governments. Occasionally, big businesses get a seat in the room, mainly just to listen to those who are discussing reconstruction priorities, but the private sector, particularly the SME sector, often goes unheard during these discussions. I’m curious to hear your views on this and how we might get the Ukrainian private sector, and the small and medium enterprise sector, into discussions on reconstruction priorities?
Nadiya Bedrychuk:
We speak with Ukrainian businesses owners. We often hear [from them] that we don’t need to focus on building cities. Their top priority is building infrastructure that encourages people to return home from abroad. So not just building office spaces and factories, but also prioritizing the restoration of homes, building schools, kindergartens, hospitals, and roads. You can’t build cities without inhabitants. We need our Ukrainians to return home.
Additionally, it’s vital to support families coming back to Ukraine. Offering financial aid and guidance for employment or job training can make a real difference. We think that we could help by assisting small businesses in reconstructed areas. We can help set up businesses, or incubators, and provide office spaces and administrative services for new businesses.
We suggest focusing assistance on small towns, rural communities, and areas that have been freed from occupation. Direct grant support is necessary for reviving businesses and saving jobs in these regions of Ukraine. Major cities with millions of residents have managed to adapt well. Most new businesses are registered in Kyiv, Lviv, and Dnipro now, despite the ongoing war. These cities continue to witness the opening of new enterprises, so we would like to help small business, small cities, and de-occupied territory.
Andrew Wilson:
I think that’s an important strategy moving forward, because the reconstruction effort really needs to lift everyone. The pictures we see from Ukraine are often small towns and villages and places that are destroyed as a result of battle in the countryside. And I think that’s where small business will be found. Therefore, it’s really important to encourage people to return and for entrepreneurs to take a chance.
I like your observation that there is a new generation of entrepreneurs in Ukraine that had been there before the conflict. We were starting to see very dynamic growth in the small business sector and with young entrants into the markets. What sort of messages do you have for these new entrepreneurs, this new generation that are coming up? How do you help them think about their role at this pivotal time in Ukraine’s story?
Nadiya Bedrychuk:
I would tell them that you are stronger than you realize. You won’t need crisis measures anymore. Your experience is like no other. You’ve shown us how to survive. By the way, this year, 76 percent of business owners plan to grow. Isn’t that amazing? The economy is recovering quickly. Even in challenging times, there is an opportunity for good, for a new generation of business, for all Ukrainian business. I would recommend that [this new generation] use this moment to find new markets. Don’t hesitate to look for possibilities abroad to build international businesses and find strong partners. I think [the new generation] has so much potential and their determination is truly impressive.
Andrew Wilson:
CIPE has worked in many different conflict environments, including post-conflict countries, and has seen the power and the help that business associations can offer to people struggling to restart their business and empower SMEs to succeed. What’s UBC doing in this regard? You’ve put out the inspirational message and you’re telling people to be courageous, but they still need help. So, what kind of help can you provide them moving forward?
Nadiya Bedrychuk:
CIPE is a has been a good partner to us here in Ukraine. As you know, small and medium-sized businesses in Ukraine are spread out and not always connected. Owners are typically busy with their everyday work. They are marketer, accountant, owner, driver, and shop assistant, all at the same time. And they might not realize they can ask for changes that would help with their business, and that’s where we come in. We’re a group platform that brings businesses together and helps them speak with one voice. I’m thankful to CIPE and our other partners for their support with government relations. A few times a year we have conferences where people from the government join us and make plans for change. We’re asking for things like simpler tax legislation, better business conditions, and business regulations. It’s like having an open conversation with the government.
We are starting to see things change. In the last three years, around 65 percent of the ideas we discussed were implemented. It’s a good result, but the best part is that more and more business owners are realizing that they can make a difference in the Ukraine. It’s inspiring. And thank you, CIPE, for your help, for your good ideas, and your team in Ukraine and other countries. I know that it’s very important not just for business associations, but for real business in Ukraine, for real owners, for Ukrainians. Thank you.
Andrew Wilson:
Thank you, Nadiya. It’s really the work that UBC does that’s important and is truly making the impact in Ukraine. I want to thank you for your time today and sharing with us the important role that the Ukrainian Business Council is playing in supporting SME development and also offering that perspective about the need to focus some of our efforts on smaller cities and larger towns in Ukraine where people often get overlooked when those reform priorities are being discussed. And certainly, moving forward, we’ll work with you and continue our efforts to make sure that those voices are heard in reconstruction and recovery debates in Ukraine. You have our best wishes for your organization’s continued success.
Nadiya Bedrychuk:
Thank you so much. Thank you for your support, for your interest, and thank you for thinking about us. It’s important to us. Thank you.
Andrew Wilson:
And thank you listeners for joining us on this episode of MOVA. For more information on the Center for International Private Enterprise and our work, please visit our website at www.cipe.org. If you found value in this episode, please show your support by liking and subscribing to MOVA. Sharing this podcast with others helps expand the conversation.
Published Date: November 01, 2023