Business in Darkness: New Reality

When the light goes off, what should do those who rely on it the most? Businesses are trying to adapt to a new reality when massive shelling disrupts the working schedule, disables the equipment, and causes customer churn. Ukrainian labour market is “under fire” as well.

Since October 10, Russia has been carrying out massive attacks on the Ukrainian energy infrastructure and damaging dozens of critical facilities every week. Long-term blackouts, both scheduled and emergency ones, are occurring all over Ukraine. This situation is observed in almost all regions, but mostly in central territories, front-line areas, and those near critical infrastructure facilities.

Effect on GDP

The Ukrainian economy has been already affected by the war; the occupation of certain territories of large enterprises, the destruction of infrastructure and the disruption of technological supply chains, the loss of labor and capital, etc. “If it is capped with destroyed energy networks, our GDP will fall even more,” noted the First Deputy Prime Minister – Minister of Economy of Ukraine Yulia Svyridenko.

According to the Ministry, before the October shelling), the drop in GDP was 30%. “According to our calculations, if the blackouts continue for the next few weeks, Ukraine’s GDP drop could be 39%,” added Svyridenko.

EBA loss

European Business Association (EBA), the largest business community in Ukraine, encompasses about a thousand Ukrainian, and international companies, such as Google, Bosch, and Glovo, reported on the loss due to October shelling: almost half of the EBA companies were affected. According to the EBA, the total loss as of 21 October was 437,5 mln euros. Only 5% of its members had no losses.

According to the Association, 44% of its members are now working in full, 53% – with limitations, and 3% are not working. In July the percentage of working fully was 49%, while no business stopped operating yet. And it shows a clear decrease in business activity and change of employment structure.

Yet, the business understands the coming winter challenges. Thus, companies are preparing for supply interruptions of water, gas, and electricity; for problems with communication and Internet connections. Overall, companies seek to adapt and find alternative ways to operate adequately – they pile up backup equipment, raw materials, and fuel, develop Security Programs and Business Continuity Plans, take cyber security measures, etc. The EBA businesses have significantly increased financial reserves since March, although the number of companies lacking them has increased up to 5% in October compared to 2% in July.

New challenges for all businesses

Generally, business income is highly dependent on air alarms, and electricity. Therefore, the scheme is simple: the further the business is located from the front line and critical infrastructure facilities, the better. That is why, for example, the revenue of Lviv or Dnipro cafes suffered less during the autumn shelling than those of Kyiv.

Lack of electricity became a real disaster for Ukrainian catering establishments, in particular those located in shopping malls due to their high vulnerability. According to the Ukrainian-based company Poster POS, on October 10, the first day of mass attacks on the infrastructure, the income of Ukrainian establishments fell by 22% (in Kyiv – by 27%) compared to the same day of the previous week. Meanwhile, at the beginning of November, the situation improved as the business started to adapt to these harsh conditions.

Public catering had to resort to some creative solutions, like the introduction of a special menu page in the event of blackouts (some dishes do not involve electricity, like salads, sets, some desserts). Thus, candlelight dinners became common not only for couples.

All entrepreneurs were forced to curtail “electrical marketing”:  no more bright attractive posters and beautiful lighting of facades. In fact, sparing electricity is a priority now as even streets are out of light where possible.

One of the key problems is that energy also affects working schedules. Employees are to work multiple shifts, including night ones and weekends, that is, whenever the light is on. Maria Shevelenko, a service worker from Kyiv, complained: “During the day the light is switched off two-three times for 4 hours, that is 2-4 working hours per day… As a result, the income is falling down, and salaries are barely reaching minimum wage.” Oleksandra, a free-lance teacher, complained: “When during a lesson the light switches off – the lesson is over, it is not paid, and time is wasted”. Regulated blackouts would simplify the situation, but, unfortunately, new barrages of Russian missile strikes lead to new emergency shutdowns.

Some establishments were more ready for blackouts. Educational center “Akademika” bought lighters long before the October shelling, so the business was never knocked out of work. Yet, according to the center CEO, Valerii Bukhanko, a key problem for online activity is Internet access: “Lack of Internet does not allow children to study 100% effectively…we found not perfect but still a solution: teachers record the lessons and pupils listen to them later”.

Although providing high-quality service is harsh without regular energy timetables, Ukrainian schools and educational centers are adapting no matter what. Tetiana Mysiv, a director of foreign languages school, said: “We purchased ring light lamps that are used by bloggers: children like them very much and even do not want to switch them off when the light comes back”; a Halloween party with candles was a fancy solution as well.

In general, Ukrainian business has proven their ability to survive even in such extreme circumstances. According to Bukhanko, their “work team became even more united, so did Ukraine”.

In addition to unique measures taken by each business, there are also some common projects. For example, an interactive map was created showing establishments with autonomous energy sources (they are operating regardless of blackouts). Among these places are gas stations, post offices, supermarkets, medical centers, etc. Some business networks – for instance, “Silpo” (supermarket network) – have created their own interactive map that shows whether each specific store of this network is currently working.

Generator is a solution?

Not everyone can quickly switch to alternative energy sources. For example, such energy-intensive establishments as pizzerias are less flexible because the pizza oven itself consumes 16 kW at its peak so the total power in need is too high for a rapid transition. Likewise, the lack of possibility to turn to new sources is also faced by small businesses. Now they are deeply struggling on through their dark days as their budget often does not allow them to buy a generator. 

Ukrainian news outlet UNIAN cites an owner of Kyiv coffee shops: “The average cost of a powerful generator is up to 80,000 UAH (2,185 $). The generator must have an AVR function so that the devices do not burn out. The weight of such a generator is on average 70 kg (without fuel in it). You should have means of transportation… [and] a place to put the generator overnight is also needed as the generator is toxic…On average, to refuel the generator is 400-500 UAH per day”. Another option is a powerful battery which costs about 80,000 UAH an equally powerful uninterruptible power supply (40,000 UAH) is needed.

Likewise, taking a loan for the necessary equipment is a rather risky decision for two reasons: firstly, it will be quite difficult to pay the loan plus the interest rate under sales drop; secondly, if the blackouts are over, a business will have to pay off the loan for the already unnecessary equipment.

Shifts in labor market

Russian missile attacks also affected the domestic labor market, slowing down its growth. According to the Work.ua job search site, “In October, the maximum number of vacancies that were posted on Work.ua remained steady— 56,719 against 56,554 vacancies in September…The increase was 0.3 percent…In September the increase was 16 percent, and in August – 20 percent”, which nevertheless indicates an activity drop in the labor market.

Although on the one hand the demand for online employment slightly fell because many employees cannot work adequately due to the lack of electricity. On the other hand, blackouts would not make workers prefer offline mode over online, as the latter is still more mobile and safe. During a blackout, online workers can go to some cafes or co-working spaces, while offline ones are stuck in their workplaces.

According to OLX Robota (another Ukrainian job search site), the job offer for administrative personnel and IT has significantly decreased during this period. Meanwhile, the importance of providing food, production, and supply of raw materials and the restoration of destroyed infrastructure will make corresponding occupations even more relevant.

At the end of October, after a period of recovery from shelling, a surge of new registrations of individual entrepreneurs and legal entities was recorded in Ukraine. However, a decrease in the number of job offers is expected during November; their minimum is forecasted in December, which is a typical reaction of the labor market to the season, experts say.

Unfortunately, dark streets, empty cafes, and deserted restaurants became a new Ukrainian reality. Despite constant instability and blackouts, business is prompt to adjust to this new realm and its conditions by elaborating specific strategies, like purchasing autonomous energy sources, regulating working schedules, and inventing alternative ways to carry on efficient operation. The labor market structure was shifted as well and could be changing even more. Business in Ukraine is adapting and going on through the darkness, just to be ready for any other challenges thrown by the war. 

Alina Horbenko, TDC Junior Analyst