Leading sectors of the Ukrainian economy, 100 days of war

Nieuwsbericht | 13-06-2022 | 10:05

It is not possible to calculate the losses the Ukrainian economy has suffered and what other losses Ukraine has to include in the overall account.  The war goes on, the enemy continues to destroy businesses, infrastructure and block ports. The government and experts estimate losses for Ukraine of 35-50% of GDP. According to the Kyiv School of Economics, the total loss of the economy is 564-600 billion dollars. However, there are no official estimates of the impact of hostilities on industry, agriculture, the IT industry, retail and other sectors of the economy.

Recently, “Economichna Pravda” and the Center for Applied Research surveyed large Ukrainian companies and industry associations of the largest sectors about the losses and problems they are facing.

The full article in Ukrainian describes latest developments in the Ukrainian agriculture, metallurgy, IT, chemical, pharmaceutical, retail, oil and gas sector.

We would like to share with you the parts describing the situation to the agricultural and retail sector.

Agriculture, Ukrainian major export sector

Major share of agricultural exports is formed by grain and oilseeds. In the recent years, Ukrainian agricultural producers increased yields, this increased export earnings from the sale of agricultural products abroad. Currently, up to 25 million tons of wheat and corn remain in storage. By May 9, 2022, companies in Ukraine had sown 8.6 million hectares of land, which is 24% less than in 2021.

Grain and other agricultural products are confiscated from farmers by the enemy on the occupied territories. According to the Ministry of Agrarian Policy of Ukraine, about 500,000 tons of grain were stolen. Some of the grain was taken by the occupiers to the other countries.

Problems

1. Export is blocked because of closed Ukrainian ports. Land and river exports to the EU countries account for less than 20% of the capacity of Ukrainian ports and less than 35% of the minimum required rate of monthly exports, according to the estimations made by the Ukrainian Club of Agrarian Business.

The largest seaports of Ukraine are "Pivdenny", "Odesky", "Mykolaivsky" and "Chornomorsky". They account for about 80% of total capacity. The key advantage of these ports is the availability of deep-sea approaches, which allows to service large-capacity ships.

2. Most transport companies have orders and occupancy for several months ahead. Demand is very high. Businesses spend a lot of time looking for new logistics opportunities.

3. Diesel fuel shortage and its price. Agricultural enterprises planted their crops using stocks and partial supplies from the EU. Now even less fuel is available, its price has increased more than 1.5 times.

4. The financial situation of enterprises. According the Ukrainian Club of Agrarian Business,  since the beginning of the war, farmers received UAH 20 billion in loans from banks. Without exports, the problem of financing will become even bigger: new harvest will start in July.

5. In the occupied territories and areas of active hostilities, the occupiers are massively destroying assets and agricultural machinery. Significant areas of agricultural land were mined.

Effects

The farmers on the occupied territories were hit the hardest. They could not plant, their grain and property were looted or they were forced to cooperate with the occupiers.

"On the liberated territories of Chernihiv, Sumy and Kyiv regions, 90% of farmers have returned to their work. They leave a certain strip on the border with Russia, but sow even in the bordering areas.

In Kharkiv, Mykolayiv, and the unoccupied part of the Zaporizhia region near the line of hostilities, the situation is worse and is aggravating, but more than 50% of enterprises continue their operations here as well. In the rest of the free territory of Ukraine, more than 95% of agricultural companies continue their work, " says Roman Slastyon, Director General of the UCAB.

According to UCAB, shortages are expected on the territory of up to 4 million hectares, mainly in the temporarily occupied territories of the Eastern and South-Eastern regions. "Yields on the free areas can be 10-15% lower due to reduced application of fertilizers, seeds, plant protection products, fuel and additional technological operations. Reduction in gross harvest can be 25-35%," adds Slastyon.

Production volume is reduced

One of the largest manufacturers - MHP - works at 80-85% of its capacity. The company was forced to suspend the operation of the “Ukrainian Bacon” enterprise located in the Donetsk region.

In the early March, the occupiers destroyed the MHP warehouse in the Kyiv region. There the company's frozen products for more than UAH 230 million were stored. It was the largest warehouse in Ukraine for frozen products, which was used mainly by large retail chains.

According to MHP, the company's sales of chicken meat in Ukraine in the first quarter of 2022 decreased by 6% year on year. Major reason are logistical problems and declining demand due to the war.

Chicken exports increased by 9% year on year, largely due to high deliveries in January and February, although the company expected growth of 15%. Before the war, the company exported 30% of its products to the EU and 70% to the Middle East and North Africa. All this was exported through the seaports.

Agroholding reports significant decline in sales of sunflower oil: 59% quarter on quarter. Reason is closed ports, reduced production due to optimization, changes in recipes and costs.

“Astarta”, one of the largest agricultural holdings and sugar producers, resumed exports of sugar. In the last two years, sugar sales were mainly done on the domestic market.

Recently, the government of Ukraine allowed export of sugar due to declining demand in the country. The reason is the shutdown of enterprises that were the main consumers of sugar and reduction of population.

The anti-crisis measures taken by the companies:

• Change the structure of crops. Preference to the crops that are cheaper to sow: spring barley, spring wheat, oilseeds. Corn crops are declining. This partially solves the problems with logistics.
• Review technological processes to reduce costs.
• Relocate equipment and machinery away from hazardous regions to other facilities or warehouses.
• Suspend investment projects.
• Develop alternative routes and review markets.
• Look for alternatives to the imported materials.

Government support.

From March 1, 2022 and year after the end of martial law, the territories where hostilities where the most severe or which were temporarily occupied by Russia are exempt from paying land tax and rent for land. Mined areas and those lands where there are fortifications were constructed are not subject to taxation. According to the State Emergency Service, about 300,000 square kilometers were mined.

UCAB emphasizes that producers in the temporarily occupied and affected areas need help from the state and the international community. "At least help is needed to pay rent to those landowners whose lands have not been sown. This would support the rural population of these regions".

Retail

Until recently, Ukrainian retail provided a significant share of the economy. The industry generated about 8% of the country's GDP, and in 2021 the turnover in the sector's institutions reached UAH 430 billion. The largest enterprises in the sector: ATB, Fozzy Group, Epicenter, Metro Cash & Carry, Rozetka, Comfy, Foxtrot.

According to the Retailers' Association of Ukraine, 23% of retail outlets were closed in April, up from 30% in March. On May 20, 12.5 out of 15.3 million retail outlets were operating, with 18% closed.

Retail areas selling clothes and entertainment are the hardest to recover. The share of closed facilities is still large - 41%.  At least 2,910 outlets were affected, with a total loss of $ 1.4 billion. Losses of warehouses are estimated at UAH 2 billion, losses of goods in warehouses - UAH 3 billion.

Problems

1. Destruction of trade facilities as a result of shelling. Shops, pharmacies, gas stations, shopping malls, offices, warehouses, distribution centers, production shops.

Many networks have their facilities in the territories temporarily occupied by Russia after February 24. This resulted in losses due to destruction and looting.

2. Failure of logistics and fourfold increase of its value due to lack of transport, shortage of drivers and high cost of fuel, which led to an increase in the cost of delivery of products.

3. Some suppliers of goods switched to prepayment.

4. Shortage of some goods from manufacturers. The amount of imported goods, especially vegetables, has increased significantly on the shelves.

5. Complicated procedure for registration of imported products, limited list of critical import goods (goods that can be imported into the country and be paid for in foreign currency by the National Bank).

6. Shortage of staff due to forced migration and mobilization.

7. Significant reduction in working capital, due to which retailers are forced to attract loans.

Effects

The war forced retailers change their approach to work. The business was to provide the civilians and militaries with food, medicine, communications, and other important goods.

To adapt to the new reality, retail chains began to create base store maps that helped them more effectively trade leftovers from other locations and avoid shortages.

Businesses had to quickly rebuild their logistics chains, move warehouses from places of active hostilities, adapt to the NBU's currency bans and work with critical imports.

Not all networks have fully resumed work, and there are no expectations of returning to pre-war levels.

According to the Retailers’ Association, the business is focused on optimizing material resources, relocating enterprises both partially (creation of regional warehouses, double offices) and completely (relocation of all production and personnel).

Companies are also trying to preserve their personnel as much as possible. According to a survey conducted by the association among 320 companies, more than half of them do not change staff and do not plan to reduce.

Some companies were forced to reduce the number of employees or their working hours to save money. So, in early April, Rozetka announced the dismissal of the bigger part of their team.

The anti-crisis measures that companies take:

• Revise financial expenditures and investments. The latter are allowed only when absolutely necessary, for example, to restore damaged assets.
• The companies are not increasing their personnel and were forced to make partial cuts.
• About a quarter of workers in the sector receive 60-90% of pre-war wages, and 18% of companies are unable to pay wages.
• Only some companies (about 1%) were able to increase the salaries of all or key employees.
• Looking for new markets. The vast majority of companies are considering expanding markets and going abroad. Their priority direction is Poland.

Source: “Economichna Pravda”. Read the original article in Ukrainian.