18:13 07.07.2020

Author ARTEM KOKHANEVICH

What is dead may never die

4 min read
What is dead may never die

Artem Kokhanevich, CEO at GigaCloud

 

 

Almost four months after Ukraine has implemented the measures to counteract COVID-19, it’s now time to sum up intermediate results. I would say right away how I’m pleased that Ukraine suffered noticeably less during the current crisis than many developed EU countries or the US. Let's see why, and how long we are going to be so “lucky”.

For almost half a year, business around the world has been living in the situation when global economic forecasts change almost daily. However, despite everything that happened, Ukraine managed to prevent the collapse of the national currency, to keep the economy and the banking system in a very efficient state. Yes, we see a fall in GDP of 1.5% - or even 1.3%, due to the updated NBU report. But at the same time, in economically more prosperous countries, such as France or Spain, GDP against the backdrop of COVID-19 declined much more - by 5.8% and 4.1%, respectively. And US GDP in the first quarter fell by 5% for the first time since 2008.

Such a difference in the economic indicators of Ukraine and the world may be explained by the fact that quarantine measures affect, first of all, the service sector. And if in most developed countries the share of medium and small businesses in the structure of the economy can occupy up to 95%, in Ukraine it cannot reach 30%. According to statistics from the European Business Association (EBA), more than 50% of the working-age population are occupied in the field of small business in the EU countries, while in Ukraine this index barely reached 10%.  

Even the Ministry of Economy recognizes that micro and small enterprises bring Ukraine only 16% of GDP. For comparison, in Europe - at least two, and in some countries, three times as much. Naturally, many small business representatives in Ukraine work “in shadow”. But even assuming that only a third of SMEs in Ukraine are transparent and reflected in official reporting, we are still far from developed EU countries.

Ironically, these particular differences gave the Ukrainian economy a chance to survive in the era of the coronavirus. Indeed, all quarantine measures firstly hit not SMGs or international players, but SMEs in the service, trade, transport and tourism sectors

Of course, COVID-19 significantly thinned out the ranks of micro and small Ukrainian businesses. For a while, this market may significantly lose not only in quantity but also in the quality of services, because the more players there are in the market, the healthier the competition. Besides, large enterprises cannot stop rising unemployment - SMEs are much more active in creating new jobs in stable times.

It is worth paying attention to another interesting index - consumer spending. In Ukraine, with the beginning of quarantine, it decreased significantly, however, remaining in the growth tendency (+ 8.1% in the first quarter). In the US, this figure has fallen by 7.6%, and this is the worst decline since 1980. In Europe, consumer spending also declined amid a pandemic, and only in May began to gradually return to pre-crisis volumes.

At the same time, the general consumption trends in Ukraine and in the world coincide - people began to spend less on goods and services that are not included in the “basic necessities” category, buy more on the Internet, and more often use delivery services. Meanwhile, on the background of general stagnation, the IT business showed very steady growth rates - due to the large number of companies switching to remote work, an increase in demand for the Internet access services, and due to the growth of cloud infrastructure.

In Ukraine, the IT market is now in a twice-winning position. Firstly, our economy remains quite stable, despite the challenges of the “corona crisis”. Secondly, our specialists are still “cheaper” than European and American colleagues. So, taking into account the focus of business during any economic crisis, first of all to optimize the costs, Ukrainian specialists will become even more sought-after worldwide.

But still just the IT sector cannot feed all the budget. It is very important that the country's economy develops in a balanced manner and that people who have lost business and work do not have to wait for years for a suitable environment and for the restoration of market growth. The main role of the state is high-quality “investment” of money earned within the country. And the best our government can do now is to invest all available funds in entrepreneurs and SME, creating conditions for the rapid growth of this market segment. Indeed, as the experience of developed countries shows, this segment may well be a powerful locomotive of the economy.

 

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