Safety margin: How business managed to withstand the war year

Safety margin: How business managed to withstand the war year

The State Statistics Service say, 2021 was one of the most financially fruitful years for most industries

Safety margin: How business managed to withstand the war year
Image: depositphotos.com

The State Statistics Service published summary data on the financial performance of enterprises last year. According to them, the vast majority of the domestic economy sectors showed a confident plus, and for some of them the last year was the best in recent history.

At year-end 2021, the total financial result of Ukrainian enterprises in all industries amounted to UAH 1.119 trillion. 73.3% – or three quarters of the players – were profitable, earning UAH 1.352 trillion. In the red remained 26.7% of entrepreneurs, whose total losses amounted to UAH 232.83 billion.

Most players' operation was profitable in all industries: the lowest figure, 56%, of profitable enterprises was recorded in the entertainment, sports and arts sector – a traditional outsider of the profitability rating.

Sector  % of profitable enterprises in the total number Total financial result of the sector (before taxation), UAH mill
agriculture, forestry and fishery 88.3 239982.5
manufacturing industry  71.3 449515.3
construction 71 8370.6
wholesale and retail trade; motor vehicles and motorcycles service 77.1 145861.9
transport, storage, postal and courier activities 72.3 31246.8
temporary accommodation and catering 63.7 5347.2
information and telecommunications 69.9 34002.5
financial and insurance activities 68.6 128070.5
real estate operations 61.2 16729.4
professional, scientific and technical activities 68.5 44370.1
activities in the field of administrative and auxiliary services 70 9477.1
education  66.1 126.7
health and social care 70.9 8466.7
art, sports, entertainment and recreation 56.1 -2608.4
other types of services 68.7 302.8

Data: State Statistics Service

What were the results in the agricultural sector? Last year was phenomenally successful for Ukraine's agriculture. The combination of a record harvest and ultra-high world grain prices led to record-breaking profitability in the industry.

At year-end 2021, the net profit of agricultural, forestry and fisheries enterprises amounted to UAH 239 billion, 2.9 times higher than in 2020 with a UAH 81.1 billion figure.

According to Yuriy Lupenko, Director of the Institute of Agrarian Economics National Scientific Centre and academician of the National Academy of Agrarian Sciences, this was the highest figure in the history of the sector since Ukraine's independence, being 2.4 times higher than the previous record of 102.8 billion UAH that was reached in 2015.

Last year, the percentage of profitable enterprises was also the highest – 88.3% against 82.6% in 2020 and 88% in 2015.

In his words, the largest net income was brought to the industry by producers of cereals, pulse crops, and oilseeds – UAH 224.9 billion (94.2%), while the income of cattle breeding was only UAH 9.5 billion (4%). Of this amount, UAH 6.7 billion is accounted for by the breeding of dairy cattle. Poultry breeding activities in 2021 earned a net income of UAH 799.2 million.

How did it help to survive at the beginning of the war? This pre-formed safety net allowed the sector to function during the war. Most of the means of production had been purchased before February 24, and then, with ports blocked and exports sharply reduced, farmers used their accumulated reserves to ensure the current production cycle – sowing, harvesting and finally the autumn campaign for the 2023 harvest.

Even if the reserves have not been completely exhausted, they are unlikely to be able to go through another season. "Great positive expectations are practically nullified by the full-scale invasion of russian troops in Ukraine and now the revival of domestic agriculture is in question again," Lupenko says.

What about other industries? The second largest number of profitable enterprises (77%) is in retail trade and car service sectors. The total result of their activities reached UAH 145861.9 million.

The third are transport enterprises, warehouse and postal operators (72.3% profitable) with a UAH 31.247 billion outcome. This is also a representative result because this sector is a service one for entrepreneurship and its prosperity indicates active and successful work of business.

That is, the Ukrainian economy entered the war, being at one of the best levels for itself and with formed reserves. However, in eight months they are almost exhausted.

What should be expected in the future in all industries? The State Statistics Service did not publish data on the financial results of enterprises either for the quarter or for the first half of 2022. There is no doubt that they will be disastrous. Obviously, development programmes will be irrelevant at least until the end of the year, and now the question is only the economic survival of businesses.

The Investment Attractiveness Index of Ukraine integral indicator that was calculated by the European Business Association in the first half of 2022 fell to 2.17 points out of five possible. This value is the lowest since 2013.

A survey of EBA members on the 200th day of the war (September 11) showed that all respondents resumed their work. Of these, 49% returned to their operations completely and another 51% – partially. But it should be kept in mind that, as a rule, there are large sustainable businesses among the EBA members that often rely on the support of parent companies.

As for small and medium-sized businesses, they were driven to resume their work by the exhaustion of reserves, which they felt as early as before May. Therefore, while 42% of polled enterprises – participants of the Unlimit Ukraine project did not work in March, 26% in April, 17% of SMEs remained idle in May.

Even if companies did not suffer direct losses, they all suffered from indirect ones due to broken supply chains and logistics, a drop in purchasing power, and migration of the population.

When it comes to the possible investment, forecasts, and quite restrained ones, are only made by representatives of certain industries. These include agriculture, energy and IT.

Among the factors in 2022 which can be referred to as positive for supporting entrepreneurship are obtaining the status of candidate for EU membership, and transport visa-free regime. Before the October shelling of its energy infrastructure, Ukraine also had the advantage of being included in the unified energy system of Europe, which allowed it to begin exporting electricity to the EU. Estimates suggest that this could bring in over UAH 70 billion per year.

However, the opening of the grain corridor was the most decisive for the economy, unblocking the possibility of exporting Ukraine's agricultural products through the Black Sea. In October,  amounts of exported wheat increased (+9.7%) – 1.96 million tonnes, corn – 2.2 million tonnes (+2.7%). Rapeseed exports fell due to harvesting – 669 thousand tonnes, which is 23% less than in September.

According to Taras Kachka, Trade Representative of Ukraine, India bought 21.7% of the total volume of sunflower oil in October. "And this is an example of how important the grain corridor is for India," he wrote.

To recap, the agro-industrial complex used to generate up to 40% of the country's foreign exchange earnings before the war.

This project uses cookies from Mind to deliver its services and to analyze traffic.Learn moreOK, Got it