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Business killer—new lockdown: Will the economy withstand new restrictions

Photo: Dipesh Parmar/Pixabay

Photo: Dipesh Parmar/Pixabay

Experts predict a new lockdown in the fall. The Delta strain is already in Ukraine and it is not yet known what to expect from it. Will the Ukrainian economy withstand the next bans? The Page has found out what the impact on business could be and how entrepreneurs prepare for the new restrictions.


According to preliminary estimates of our government, even in the absence of new lockdowns and restrictions, Ukraine needs 2 years to revive the economy to the level of 2019. If there are partial restrictions, then the recovery will take 2.1 years, and if the full lockdown is repeated again, it will take 2.5 years.

This will lead to the following consequences:

  • lower GDP (-6.5% for partial restrictions and -6.7% for a full lockdown)
  • budget deficit (236 billion UAH for partial restrictions and 242 billion UAH for a complete shut-down)
  • rising unemployment (by 9.25 and 9.4%, respectively).

Lockdowns in the first half of 2021 led to a decrease in GDP by more than 2%. The new autumn lockdown will lead to a loss of GDP of about 100 billion UAH. Non-food trade, entertainment, transport, and tourism will suffer the most. However, most businesses have already adapted to lockdowns. They organized transportation of workers to their workplaces or introduced a remote work mode. Some non-food stores are mastering take-out work or organizing courier delivery. Some types of business under lockdowns, on the contrary, increase the volume of sales of goods and services. These are, in particular, Internet commerce, delivery services, pharmacies, etc.

Oleksandr Khmelevsky

Oleksandr Khmelevsky

Ph.D. in Economics, independent expert

Another significant result of the lockdown was the impossibility of acquiring a high-quality education. The educational sector was unable to fully adapt to the new realities. Consequently, the business has received a flow of personnel who do not have the proper education, but counting on a certain level of salaries.

And this aspect also hinders the development of the economy. At the same time, the unemployment rate at the beginning of 2021 was almost 10%, and every tenth employable Ukrainian was left without a job. Unfortunately, this figure is not constant and may increase.

The unemployment rate in the country before the pandemic was about 9%, and after the pandemic it increased by only 9.9%. However, these data may differ from reality, since there is a large percentage of people employed fictitiously. According to the estimates of the Ukrainian Chamber of Commerce and Industry, about 700,000 small businesses were closed due to the pandemic and from 3.5 to 4 million people lost their jobs. In the case of a new lockdown, this figure is unlikely to exceed 10.5%, since most Ukrainian companies have already gone fully or partially online.

Marharyta Ivliieva

Marharyta Ivliieva

Country manager / PR manager at the company Сozycozy

Although the authorities in Ukraine tried to support business in the case of a lockdown, in particular, they paid entrepreneurs and workers who lost their jobs 8,000 UAH each. A total of 8.3 billion UAH were paid, 355,000 citizens received assistance, however, this did not even minimally cover the loss of people.

During the upcoming lockdown, the state can exempt small local companies and small businesses from tax payments, and that can be significant support, but one should not count on more assistance. After all, the hryvnia in comparison with the dollar has depreciated by 20%, and the national debt has increased by 4 times over the past year.

Quote"Companies that cannot work online will be the hardest hit. Let’s say, everyone involved in the sector of hospitality will experience difficulties in paying rent and salaries to employees," Ivliieva believes.

And in this case, entrepreneurs will partially lay off staff or cut salaries.

Natalia Gaykalova
Natalia Gaykalova
Founder and CEO of the financial and legal company Finevolution

For business, new restrictive measures will be expressed in:

- restriction of movement. In big cities, we will again have a situation when the metro stops and public transport operates with passes—this will increase the financial and logistics costs of the business. After all, it will be necessary to reorganize logistics or transport employees to work, or pay them for a taxi.

- extension of terms for processing documents. It's worth bearing in mind that during previous lockdowns and in dangerous or unstable situations, civil services either stop working or shorten their working hours. Therefore, it becomes much more difficult to get a certificate, make a payment, renew a passport or driver's license. For business, this translates into new constraints and growth delays.

- limiting the number of people indoors. This will affect the ability of workers to move, in particular, travel by air. Offices will again have to spend funds or human resources on organizing work that has reduced human flow.

- restrictions on the sector of service delivery. Traditionally, businesses tied to offline processes will be affected—these are all kinds of industries that cannot be relocated to home, restaurants, entertainment, and the like.

How to protect business?

In Ternopil, Taras Kovalchuk, the owner of a restaurant and a hostel, decided in an original way to circumvent the government's decision regarding the previous weekend quarantine. He promptly applied for registration of his own religious organization, the Brotherhood of the Bald, so that his business could work during quarantine. According to the entrepreneur, on weekends the hostel functioned as a monastery, the restaurant as a refectory, and the club as a temple.

Ingenious entrepreneurs are already preparing for new lockdowns. But whether Ukrainian business will withstand these restrictions depends on many factors, the main of which are the adequacy and timeliness of government actions and the flexibility of the business itself.

The state should provide assistance to certain categories of business in the state budget—direct payments, assistance to temporarily unemployed workers, implementation of credit programs for business, tax deferrals, and the like. Also, the Verkhovna Rada and the government should continue to work towards the digitalization of various processes and adopt a number of modern laws, for example, the law on paperless, that will help business and the state to adapt to a remote work mode (at the time of publication of the article, the law had already been signed—ed. note).

Natalia Gaykalova

Natalia Gaykalova

Founder and CEO of the financial and legal company Finevolution

For its part, businesses should be ready to react quickly to restrictions: to think in advance of all the possibilities of remote work or the logistics of transporting workers. If this is an international business or work involving frequent business trips in Ukraine, it is worth fixing several ways for organizing trips, so as not to depend on the airport, railway, or intercity routes.

In addition, it is necessary to transfer events, services, and operational activities online as much as possible even at the stage when there are no restrictions. In this case the lockdown will not catch the business by surprise. And online business (marketplaces, etc.) or the IT sphere can even register a business in other jurisdictions—this is how the risks associated with quarantine restrictions are diversified today.

Iryna Bilotserkivets
Iryna Bilotserkivets
Head of Business Development and Strategies at Senseit.Solutions

There are certain steps one can take to help protect their business during a pandemic and quarantine. But only if the business does not get a direct ban on activities. Remember how hairdressing salons stopped working in the first lockdown. And during the second lockdown, the ban on restaurants was extended.

Only the state can protect and support such a business. And government programs aimed at relieving the financial burden on entrepreneurs during the quarantine period should be quite effective.

Also, the safety of your business depends on how vulnerable your clients are to a lockdown. If the main share in your company's portfolio consists of businesses that close during lockdown, then you need to think about this in advance: diversify, identify the target audience and alternative segments.

In general, according to the estimates of the analytical center Slovo i Dilo (Word and Deed from Ukrainian), Ukraine ranks 4th among the countries with the longest duration of quarantine in 2020. But this did not stop the work of the business sector—many businesses risked starting their activities precisely in times of crisis.

For instance, according to You Control, almost 54,000 new legal entities were opened in Ukraine last year. This is 20% less than in the pre-crisis 2019, when more than 67,500 legal entities started to work. But sole proprietors closed by 16% more than in 2019—232,000 compared to 199,800.

So, unprecedented circumstances have already forced Ukrainian enterprises to rethink their costs and organizational processes, as well as interaction with clients. Companies are assessing their business processes to reduce time and resources, intensively introducing automation, and going online. In terms of lost income, business owners provide themselves with a financial reserve or guarantee sales for this period.

The first thing we do is purchasing the maximum volumes of foreign building materials we need. Because during a lockdown, supplies may decrease or stop at all. This, in turn, will affect the pace of construction, and we do not want that. Issues such as transferring employees,creating conditions for remote work and providing all the necessary means of Covid prevention have already been worked out and will not become a problem. In addition, we have vaccinated against coronavirus all willing workers.

Ramil Mehdiyev

Ramil Mehdiyev

CEO of the development company ENSO

Conclusions

Business Forecast polls in 2021 showed that about a third of entrepreneurs expect an increase in income of up to 10% in hryvnia this year. 54% of the tops plan to increase workers’ wages by 5-10%. Another 21% will increase salaries up to 5%, and 9% will do it within 10-20%. Approximately 15% of companies will not increase salaries for their staff, however, no company plans to reduce it.

In addition, most companies will pursue a more restrained personnel policy this year. For instance, 60% of enterprises plan to keep the company's personnel unchanged, 28% plan to hire new employees, 12% will have to resort to staff reductions.

It is necessary not to panic, but to continue looking for possible ideas for the successful functioning of the business. The restaurateur Dmytro Borisov, who had to cut his staff from 3,000 to 17 employees, can be an example. And under such conditions, he increased the number of orders to 1,000 per day. Sometimes great sacrifices have to be made, but they can be justified.

Roman Babitskyi

Roman Babitskyi

Head of the Council on Foreign Investment and Economic Development of Ukraine

Experts estimate that 60% of businesses will take up to one year to fully recover from quarantine. And new restrictions will lead to even greater losses, both financial and human. Although not so critical ones anymore.

A 4.2% drop in GDP in 2020 is not that much. In Europe and the United States it dropped more. And the most important thing in this story is that we have learned to live in lockdown. Of course, the first steps of the government were not always logical. Today we know what COVID-19 is. Both psychologically and physically, we have learned to work in extreme conditions.

Taras Kozak

Taras Kozak

President of the investment group Univer


Other countries’ experience

(according to Natalia Gaykalova)

Turkey

The entire package of discretionary fiscal support will amount to 638 billion Turkish lira (12.7% of GDP). Key fiscal measures include:

  • loan guarantees to firms (6.4% of GDP);
  • deferral of servicing loans by state-owned banks (2.6% of GDP)
  • tax deferrals for businesses (1.4% of GDP);
  • capital injection into state-owned banks (0.4% of GDP).

Germany

Business support activities include:

  • expenses for medical equipment, hospital facilities, and vaccines,
  • improved access to short-term work,
  • subsidy to preserve jobs and income of employees,
  • increased childcare assistance for low-income parents and easy access to basic income support for the self-employed,
  • the term of unemployment insurance and childcare benefits has been temporarily extended.

Poland

  • new loan guarantees and microcredits for entrepreneurs in the amount of 74 billion PLN (3.3% of GDP) were approved.
  • The Polish Development Fund financed a liquidity program for enterprises in the amount of 100 billion PLN (4.5% of GDP).
  • Simplification of the tax burden.

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