USAID will work with the U.S. Congress to invest an additional $230 million of new resources in Ukrainian businesses, particularly to help businesses comply with European Union regulations and export more goods and services to Europe, USAID Chief Samantha Power said.
“USAID will work with the U.S. Congress to invest $230 million of new resources in Ukrainian businesses. This will include everything from technical assistance to businesses that want to scale and expand, technical assistance to help them comply with EU regulations so they can export more of their products and services to Europe and create more jobs for more Ukrainians,” she said at a briefing in Kyiv on Wednesday.
At the same time, she emphasized that businesses cannot grow unless they are provided with affordable capital. Power noted that many financial institutions consider investments in Ukrainian businesses too risky.
“So we are going to expand the use of instruments such as low-interest loans or grants for businesses, first-loss guarantees that will reduce the risk of investing in Ukraine. And we’re going to work together to attract more investment and more private sector participation here in Ukraine, which again is an investment in the resilience of today and also in the economy of tomorrow,” she said.
As Power noted, this new commitment is “just one of many that the United States has made to the Ukrainian people this week.”
Businesses expect business activity to grow in the next 12 months for the first time since the start of the full-scale war: the business expectations index (BII) rose to 104.5% in the second quarter from 91.2% in the first quarter, the National Bank of Ukraine (NBU) said.
“Against the backdrop of the restoration of the energy system, gradual revival of domestic demand and strengthening of the hryvnia, respondents expect growth in the production of goods and services, and are positive about the development of their own enterprises. At the same time, inflation and exchange rate expectations have improved,” the NBU said in a press release on Monday.
It specified that the improvement of assessments occurred at enterprises of all types of economic activities (VED), as well as for all components of the index.
In particular, business forecasts a rapid growth in the production of goods and services in Ukraine in the coming year: the balance of responses amounted to 17.3% against “minus” 16.7% in the first quarter. Growth is expected by enterprises of all areas and types of economic activity, sizes by number of employees and most areas.
Inflation expectations continued to improve: in the second quarter of 2023, expected annual inflation amounted to 15.7%, compared to 20.7% in the previous quarter. According to the survey, 46.6% of businesses surveyed believe that inflation, which fell to 12.8% at the end of June, will not exceed 15.3% in the next 12 months. According to 88.4% of respondents, military actions remain the most significant pro-inflationary factor.
In addition, the National Bank pointed out that the influence of the “exchange rate factor” and “production costs” has somewhat weakened. The new average value of the exchange rate, which respondents expect in 12 months, is UAH 40.43/$1 against UAH 42.18/$1 a quarter earlier. Moreover, the share of respondents expecting the hryvnia exchange rate to remain at UAH 40.00/$1 in the next year increased from 19.7% to 44.3%.
At the same time, the respondents’ assessment of their own current financial and economic situation, although improved, remains negative: the balance of answers amounted to “minus” 11.1% compared to “minus” 16.9% in the first quarter. The situation worsened at construction enterprises, no improvement was reported by energy and water supply enterprises, and a slight improvement was reported by the extractive industry.
However, for the first time in five quarters, the expectations of enterprises regarding the dynamics of their financial and economic condition became positive: the balance of responses became positive – 9.6% against “minus” 2.5% in the first quarter. Improvement is expected by enterprises of all areas of activity and size in terms of the number of employees, most areas and types of activities, the NBU said.
It added that the survey participants have significantly strengthened expectations of increased sales of products, including in the foreign market: the respective balances of responses rose to 14.5% and 10.9% from 2.8% and 2.0% in the first quarter.
Respondents of all types of economic activities expect growth in total sales volumes, but most of all – in construction, processing industry and trade (balance of answers 30.0%, 21.6% and 21.0%, respectively), the National Bank said.
The enterprises of Sumy, Kirovograd and Odessa regions expect a decrease in production, while in Rivne, Ternopil and Khmelnitsky regions the estimates remained the same.
According to its data, against the background of weakening expectations of enterprises regarding the need for borrowed funds in the near future, the share of respondents planning to take bank loans decreased to 30.0% from 35.4% in the first. As before, enterprises that plan to take loans prefer loans in the national currency – 79.2% against 79.7% a quarter earlier.
High interest rates remain a significant obstacle to attracting new loans – 49.7% of responses. At the same time, the influence of the factor “availability of other sources of financing” increased by 5.5 percentage points to 42.0%. The share of companies planning to raise funds abroad remained almost unchanged at 7.3% compared to 7.4% in the previous quarter.
The National Bank noted that for the first time in five quarters, companies provided positive estimates of changes in the level of investment expenditures on machinery, equipment and inventory: the balance of responses improved to 4.5% from “minus” 10.3% in the first quarter. At the same time, pessimistic assessments regarding investment expenditures on construction works significantly weakened: the balance of responses rose to “minus” 2.3% from “minus” 17.8% in the first quarter.
It is indicated that the expectations of enterprises attracting foreign investments with regard to their increase in the nearest year continued to improve: the balance of answers reached 15.3% from 11.0% in the first quarter. The highest expectations are among enterprises of transportation and communications, as well as construction. The share of respondents who plan to attract foreign investment in the next 12 months now stands at 23.1%, up from 21.3% a quarter earlier.
Respondents significantly weakened their forecasts for the reduction of the number of employees at their enterprises in the coming year: the balance of responses improved to “minus” 3.8% from “minus” 16.4% in the first quarter. Respondents of construction and trade enterprises now expect an increase in the number of employees, while negative assessments still prevail in the sphere of transportation and communications, processing industry.
As noted by the National Bank, the survey participants expect an increase in future labor costs per employee: the balance of responses rose to 44.6% from 35.3% in the first quarter.
It is specified that the quarterly survey was conducted in May this year, it was attended by 660 enterprises from 21 regions of the country. Among the respondents 20.9% – wholesale and retail trade companies, 18.2% – processing industry, 13.9% – agriculture, 13?8% – transportation and communications, 7?3% – mining, 5.2% – energy and water supply, 3.0% – construction, 17.7% – others; 32.4% of respondents – large enterprises, 37.4% – medium, 30.2% – small.
IDO – aggregate indicator of expected development of enterprises in the next 12 months. It is calculated based on the results of surveys of enterprises as the arithmetic mean of balances of answers regarding financial and economic condition of enterprises, total sales of own production, investment expenditures on construction works, investment expenditures on machinery, equipment and inventory, number of employees. The index value over 100 means the advantage of positive economic sentiments in the society, below 100 – negative economic sentiments.
President of Ukraine Vladimir Zelensky held a meeting with representatives of business, during which they discussed the topic of state reconstruction, the tax sphere, as well as the creation of a coordination tool.
“The meeting with representatives of business. A lot of pressing topics. Opportunities for the state to stimulate economic activity. The program “єOsel” and business participation. Recovery topics. Tax sphere and opportunities to reform it. Inspections. Law enforcement. Coordination and communication for the sake of problem solving. Useful business proposal to create a coordination tool,” Zelensky wrote in his Telegram channel on Thursday.
The president said that the main priority at the moment is the victory of Ukraine in the war.
“The main priority is always the strength of Ukraine. Thanks to everyone and everyone who adds strength to Ukraine, who keeps and creates new jobs, who strengthens our economy and helps develop our institutions,” Zelensky said.
According to the press service of the Ukrainian head of state, during the meeting Zelensky said that the priority in the reconstruction of Ukraine will be the participation of Ukrainian and foreign business, which worked and continues to work, especially during the war.
“But the doors will be open to many companies. We need hundreds and thousands of companies to come to us,” Zelensky said.
Also during the meeting, the parties agreed on joint efforts to reduce business problems from law enforcement agencies, as well as the prospect of forming a tax sphere and strengthening the effectiveness of bodies that should stimulate economic development and provide support for investments.
In turn, business representatives proposed the establishment of a coordination platform for communication on the protection of business rights and consideration of other issues. Zelensky supported this initiative and also offered to jointly decide on the format of the work.
“It is very important to create a platform on which we would constantly talk. Because we cannot accumulate problems for years: we simply will not be able to overcome them later,” the president stressed.
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The Business Activity Expectations Index (BAEI), calculated by the National Bank of Ukraine (NBU), rose to 45 in February from 37.5 in January (index values from 0 to 100) and continued to remain below the neutral level (50), according to a survey of enterprises published by the NBU on Wednesday.
“In February 2023, the BAEI was 45.0, up from 37.5 in January 2023. In February, companies significantly softened their negative expectations for their economic performance. Economic activity is gradually reviving across all sectors, apart from the construction sector,” the central bank said, commenting on the results of the index.
As the National Bank said, the revival of companies is being held back the most by power shortages, higher production costs because of purchases of uninterruptible power supplies and fuel, and depressed consumer demand.
The NBU said that companies markedly improved their views about their trade turnover, purchases of goods for sale, and inventories/stocks of goods for sale.
In addition, respondents remained downbeat about their total staff numbers, the DI being 43.2, down from 44.5 in January.
At the same time, expectations of both growth in purchase prices and the cost of contractors’ services, as well as prices/tariffs for own products/services, softened.
The National Bank said that the gradual revival of power supply and purchases of uninterruptible power supplies softened the pessimistic expectations of industrial companies in February, as the sector’s DI moved to 47.2, up from 40.6 in January 2023.
“Respondents declared intentions to step up production (for the first time since October 2022), while also expecting an increase in the number of new export orders for products (for the first time since February 2022), the DIs being 50.7 and 50.4 respectively, up from 34.0 and 39.6 in January. While remaining negative, respondents’ expectations for the number of new orders for products improved noticeably, the DI being 48.6, up from 38.0 in January,” the NBU said, describing the situation in the industry.
Respondents markedly improved their views about their trade turnover and the amount of goods purchased for sale, the DIs being 47.4 and 46.8 respectively, compared to 21.6 and 23.7 in January.
“Respondents expected a decrease in their inventories/stocks of goods for sale, the DI being 51.1, down from 61.9 in January. Companies reported weaker intentions to cut their trade margins, the DI being 46.3, up from 39.2 in January. Respondents slightly softened their expectations of a rise in purchase prices, the DI being 30.0, up from 24.7 in January. At the same time, companies expected the price of goods purchased for sale to rise at a faster pace, the DI being 61.1, up from 54.6 in January,” the NBU added.
Services companies continued to report a gloomy economic outlook, the DI being 43.2 in February, up from 37.2 in January. Respondents significantly softened their negative expectations for the amount of services provided, the number of new orders, and the amount of services that are being provided, the DIs being 43.8, 42.6 and 46.9 respectively, compared to 35.2, 34.4 and 38.8 in January.
“With less strong expectations of a rise in purchase prices, companies reported weaker intentions to raise their selling prices, the DIs being 23.8 and 58.6 respectively, compared to 18.4 and 60.4 in January,” the regulator said.
Construction companies reported the most guarded views about their economic performance on the back of seasonal factor, consumers’ weak purchasing power and power shortages, the DI being 33.5 in February, down from 34.5 in January. Companies worsened their negative expectations of the amount of construction work done, the DI being 28.6, down from 30.0 in January. At the same time, respondents expected a drop in the number of new orders and in purchases of raw materials and supplies, the DIs being 28.6 and 31.0 respectively, compared to 27.5 and 25.0 in January.
American business has every opportunity to take leading positions in restoring Ukraine’s economy and infrastructure right now, Ukrainian President Volodymyr Zelenskyy said in a video address to members of the National Association of US Manufacturers.
As the head of state noted, participation in the reconstruction of Ukraine after the hostilities will give an extraordinary moral advantage to all businesses. At the same time, according to him, businesses that help in one way or another the Russian tyranny, will not be able to avoid problems and reputational crisis.
“American business is well positioned to take the lead in both rebuilding the Ukrainian economy and infrastructure and in showing the world that it is human nature to serve precisely worthy ends, and that this gives and always will give the greatest result. Ukrainian life after this war will inevitably get a fresh start,” Zelensky said.
He stressed that Ukraine now needs to restore hundreds of industrial, infrastructure and social facilities, residential buildings.
“Entire cities, industries, productions. This is a colossal task. But realistic. Ukraine is interested in projects to create a full production cycle in titanium, lithium, aluminum production, ferrous metallurgy … We need to rebuild the economy and energy on new security principles. It is in Ukraine that we will combine green transformation with security transformation and set an example for the same transformation in other countries”, Zelensky said.
He also said that mechanical engineering, agro-processing, weapons production, including modern drones, IT, transportation and infrastructure, localization of business in Ukraine and convenient logistics to other markets from Ukraine, and human capital “are not just investment opportunities and growth, but a wide space for American victories.”
“I urge you to prepare for these victories now and come to Ukraine now so that when we return the world, your hard work will already be producing results,” the president concluded.
The National Association of Manufacturers is one of the largest associations of manufacturers in the American business world which represents large and small manufacturers from all branches of industry in all 50 states of the United States. The association now has about 14,000 members.
