Business in a year of the war
Russia's full-scale invasion of Ukraine caused irreparable losses. Nevertheless, the aggressor failed to break us. The country is holding its line, including the economic front. The Ukrainian business environment has survived and even expanded with new players. YouControl Market has investigated which areas of business activity and regions were chosen by new businesses in Ukraine during the war year. R&D centre analysts also studied the dynamics of the number of newly formed individual entrepreneurs and companies over the past decade.
How the study was conducted
A sample of companies and individual entrepreneurs whose registration date falls between February 24, 2022, and February 12, 2023, was used to calculate new business sectoral and regional distribution during the war. Companies are all legal entities with the so-called "commercial LFO" – the Legal Form of Organisation according to the YouControl methodology – which clears the sample of non-profit organisations and institutions. The sectoral affiliation of newly created businesses is determined by the main class of classification of economic activities (NACE) and the regional – by the place of the company's official registration specified in the Unified State Register of Legal Entities, Individual Entrepreneurs and Public Organisations (USR) at the time of establishment.
To compare the results with the trends and indicators of previous years, the dataset from 2010 to 2023 from YC.Market was used. This data calculates the dynamics of the number of registered companies and individual entrepreneurs for each full year.
Registration of newly established businesses after February 24, 2022
In total, 17.1 thousand new companies and 178.5 thousand individual entrepreneurs were registered in Ukraine during wartime (February 24, 2022 – February 12, 2023).
The positive thing is that the lowest number of business registrations in the wartime year was in March 2022, with only 14 new companies and 2,050 new individual entrepreneurs. After that, the pace of starting a new business or re-registering an old one to a new legal entity began to recover rapidly. The acceleration in the rate of business start-ups peaked in September with 2,082 companies and 2,298 new individual entrepreneurs.
According to Roman Kornyliuk, Doctor of Economic Sciences and financial analyst at YouControl, the fundamental prerequisites for the start of economic recovery were liberation from the occupation of the northern regions in the spring in the first months of the aggression, as well as business adaptation in the context of military and financial support from the allies. Namely, the establishment of logistics routes and the restart of Black Sea exports through the "grain corridor". The business was also encouraged by the significant success of the Armed Forces of Ukraine in the de-occupation of the Kharkiv region in early autumn.
A wave of large-scale missile attacks on critical infrastructure, the humanitarian terror of peaceful cities by kamikaze drones and, as a result, regular power outages provoked a temporary downward trend in business activity in Q4 last year. As a result, fewer companies (1,869) and individual entrepreneurs (12,056) were established in December. And while in January 2023, even fewer companies were incorporated – 1,505, the number of newly created individual entrepreneurs increased sharply to 17,061.
Top areas of new businesses in 2022
The most common sectors of new individual entrepreneurs during wartime were:
- Computer programming (20.9 thousand). That is, almost 12% of all new individual entrepreneurs registered in this category
- Retail sale in non-specialised stores (6.2%)
- Freight transport by road (5%).
The individual entrepreneurs' activity types ranked fourth and fifth are related to providing services to the population in retail trade. Individual entrepreneurs chose such NACE codes as "Retail sail via Internet (e-commerce)" and "Restaurants and mobile food service activities".
Enterprises created during the 12-month military period most often chose to operate in Non-specialised wholesale trade – 7.7% of all newly established companies. Also popular among newcomers were Growing cereals, leguminous crops and oil seeds (5.4%) and Rental and operating of leased real estate (4.1%).
Two factors primarily influenced the popularity of industries for starting new businesses. First, the expectation of receiving foreign currency earnings (IT, agriculture, timber exports). Second, consumer demand for basic necessities at the macro level was supported by the stability of budgetary payments, which had a mixed emission-grant origin (retail, transport, construction, restaurants, hairdressers, etc.).
The most popular regions for the establishment
The most significant number of newly created businesses since the introduction of martial law until 12.02.2023 was registered in Kyiv: 36% of newly established companies and 15% of individual entrepreneurs),
Lviv, a key centre for IDPs and relocated companies, is expected to be in second place: 9.2% of new companies and 8.6% of new individual entrepreneurs.
The third place goes to Dnipro, an industrial centre and a city with a million-plus population, closest to the southeastern front in Ukraine. The city welcomed many displaced people and provided opportunities to re-register businesses from the newly temporarily occupied territories: 7.6% of companies and 8% of individual entrepreneurs.
Dynamics of registrations over the past 13 years
According to the calendar year of 2022, the number of newly created companies has halved from 42.1 to 20.8 thousand (-50.7%). The number of individual entrepreneurs decreased from 296.4 to 201.3 thousand, meaning they were registered by a third less (-32.1%) compared to the more favourable year of 2021. Although this is the most significant decline in the number of individual entrepreneur registrations in relative terms, in absolute terms, annual registrations were still higher than in 2011-2016. The situation with companies is much worse: the past war year has set an anti-record for the number of establishments for at least the last 13 years.
So, a year after the start of the full-scale invasion, Ukraine is holding its line, including the economic front, despite regular air raids, rocket attacks, and power outages. We can safely say that the Ukrainian business environment has survived and even added new players. Ukrainians are actively supporting the country's economy to meet the victory with dignity and restore Ukraine's prosperity.
Nadiia Chalenko, Head of the Legal Department at YouControl, notes that transparency and accessibility of data are critical factors for enhancing the competitiveness of business in Ukraine: "Opening of public registers, including the USR, will allow for high-quality and timely analysis of data on the status of Ukrainian enterprises and the business environment in the country. It will provide the government and the business community with convenient access to the necessary information that can be used to make decisions on supporting enterprises and improving legislation, policies and strategies for business development in Ukraine. Moreover, openness and accessibility of data are important elements of the fight against corruption. In addition, the closure of several public registries on February 24, 2022, jeopardised transparent and accountable recovery. After all, closure and corruption, which grows without control, reduces the trust of international partners assisting."