The new financial barriers for Ukrainian businesses

Despite their resilience, high loans, payment guarantees, and product credits are holding back Ukrainian businesses
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· 4 min read

As the country enters its second year of war, business leaders in Ukraine told CFO Brew that despite their attempts to support the economy, a lack of access to financing is hindering their ability to make progress.

The country is in a state of business need—the World Bank found that its economy contracted 30% in 2022, due to productive capacity, reduced labor supply and agricultural damage. Overall, the country has seen poverty increase fivefold and 15 years of development gains reversed in one year. The need for operating businesses is glaring.

Natalya Hnatyuk, finance director of Dunapack Tavria LLC and Dunapack Ukraine, told CFO Brew via email that even with a war going on, the company was able to convince its customers and management that it would be able to continue manufacturing boxes.

The company’s plant in Oleshky, a town in the southern Kherson region, was hit by a missile in November, leaving three of its employees dead. Dunapack is unable to reopen its facilities there, because Oleshky remains on the front line of the war, Hnatyuk told CFO Brew.

Despite the physical devastation and danger, the biggest barrier to business hasn’t been trying to motivate their workers but rather getting loans and working with suppliers, Hnatyuk said, noting the high interest rates for loans in Ukrainian hryvnia, which sit around 20%. In foreign currencies, the interest rates for loans is between 8% and 9%, she added.

“Neither the bank nor the borrower can plan for the long term,” Hnatyuk told CFO Brew. “Banks are looking for alternative sources of credit risk coverage, such as guarantees for the international companies.”

As suppliers seek further assurances when working with Ukranian companies, they’re also seeking to mitigate risk. “Some suppliers are requesting some payment guarantees and unusual schedules to deliver in Ukraine,” Hnatyuk said, with fewer grace days being offered. Customers are asking for greater product credit, or guarantees that product can be delivered in the event of unforeseen delays.

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Concerns about the ability to keep business moving are valid, said Roman Kozyr, fractional CFO and manager of the advisory service department at Baker Tilly Ukraine and head of finance for United for Ukraine, a nonprofit organization helping distribute funds to Ukrainian businesses. He previously told CFO Brew that his business can only forecast for one day and one month was the full scale they could predict.

Along with the obstacles to doing business, there have been many sacrifices as well. Hnatyuk told CFO Brew that Dunapack Ukraine has decided to continue paying employee salaries (at least partially), “even if they could not work for a certain time,” issuing one-time payments.

“It is obvious that the recovery of business and business activity helps to keep the economic front. We are doing everything possible for this,” Hnatyuk said. “Before the war, I was focused on financial indicators…I also identified three areas as priorities for myself: management of costs, risks, and cash flows…Now I consider my work as a vocation.”

Hnatyuk told CFO Brew she also plays the role of motivator for her community more than she did before the war.

If there’s any silver lining for Ukraine businesses, it’s that prior to the invasion, the country had technologically advanced banking practices due to reforms done in 2014 and 2015, Hnatyuk said, which has helped Dunapack to still receive payments. Many Ukrainians have advanced IT skills, which prior to the war (and potentially still) enabled them to land software jobs at tech giants such as Google, Apple, and Microsoft, SHRM wrote.

And, it’s only growing; according to CNBC, Ukraine’s IT industry netted $2 billion of revenue in the first quarter of 2022, which was a 28% increase year over year. According to IT Ukraine Association, the sector is the largest specialized one in Ukraine, with 82,000 professionals at over 120 companies.

“We are united by a common goal: victory, both individuals and entire enterprises,” Hnatyuk told CFO Brew.—KT, DA

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The latest news and insights corporate finance professionals need to know to keep up with their constantly evolving industry.