State support for business entities in Ukraine during martial law

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Lviv Polytechnic National University

State support for business entities in Ukraine during martial law

Pikhotska O.M.

Introduction

The development of entrepreneurial activity plays a significant role in the economic development of any country. Functioning of business entities contributes a significant amount of tax payments to the budgets of all levels, creates jobs and forms a significant share of Ukraine's gross domestic product. The full-scale war in Ukraine has had a negative impact on the country's economy as a whole, including on the activities of business entities.

Under martial law, business entities face numerous difficulties and challenges, thus state support for business entities becomes especially important to ensure rapid adaptation to new realities, survival and further development, and stability of business operations.

Presenting main material

business economic capacity

Creating favorable conditions for organizing and conducting business, ensuring the economic capacity of our country in conditions of martial law is one of the key tasks of the Government of our country. Even in difficult conditions, the state implements affordable measures to support enterprises in difficulty.

The necessity and directions of state support for small business are studied in the works of Ukrainian scholars Amosha A., Diachun O., Nahorniak I., Strilets V., Prokopets L., Melnyk T. In particular, Strilets V. distinguishes two areas of state support for entrepreneurship development:

direct support for development through government programs and financial support for infrastructure facilities;

indirect - by weakening tax and other levers of influence on the economy of Ukraine [1].

Researchers Diachun O. and Nahorniak I. interpret state support as "state regulation of the small business sector, which involves, first of all, the conscious formation by state structures of the appropriate conditions for the formation and development of small businesses, the creation of incentives, the use of material and financial resources attracted for its subjects" [2, p. 87]. Prokopets L. considers state support for small business as any state measures for financial assistance in the interests of business entities, which create direct or hidden advantages for these entities and have a monetary value [3, p.73]. Melnyk T. claims that state support should be understood as state regulation of entrepreneurial activity, which involves the conscious formation by state structures of relevant direct and indirect business support tools, in particular, the creation of incentives, the use of material, financial and other resources that are attracted for its subjects [4, p. 4].

The analysis of the publications makes it possible to claim that scientists have characterized the general issues of the functioning of small business during the crisis and highlighted the need for state support of this industry. However, under current conditions, the problem of supporting small businesses is complicated by martial law, and this issue has not received sufficient attention. Understanding theoretical approaches to business support during martial law is important. In times of war, strengthening business support becomes critical for several reasons:

Ensuring economic stability is an important task. Martial law can create significant difficulties and uncertainty in the business environment. Increased business support helps to ensure economic stability and reduce the negative impact of the war on the business sector.

Supporting businesses during martial law contributes to preserving jobs and preventing mass layoffs. This helps to maintain economic activity and provide income for employees, which is important for their social and economic well-being.

Business support stimulates entrepreneurship and innovation. Martial law can create new challenges and opportunities for business. Increased support helps to stimulate entrepreneurial activity and innovation, which helps businesses to adapt to changes in the socio-economic environment.

Supporting critical industries is important. Certain sectors, such as healthcare, nutrition, energy sector and transportation, are vital to the functioning of society during martial law. Increased support for these sectors helps to ensure security, supply, and viability of critically essential services.

Business support promotes social cohesion. Martial law can lead to social tension. Increased business support helps to reduce social tension and supports social and economic stability in society. In this regard, the government of Ukraine introduced a number of changes and additions to legislative acts in order to support the economy and the ability to fill budgets with taxes and fees in wartime conditions.

Government authorities play a special role in supporting enterprises. Thus, the Cabinet of Ministers has approved financial support programs for businesses, including "yeRobota", "Lending at 0% under the 5-7-9 program" and "Financial Support for Veteran Businesses" [5].

YeRobota is a government program that provides grants to Ukrainians for starting a business, developing entrepreneurship and training. It is aimed at boosting entrepreneurial activity and stimulating job creation.

To implement this program the Government allocates funds as follows:

up to UAH 250,000 - to create and develop their own business;

up to UAH 8.0 million - to create or develop a processing enterprise. The first thousand of applicant enterprises will receive 70% of the project cost, all the rest - 50% of the project cost;

up to UAH 400.0 thousand - per 1 hectare for the development of horticulture and viticulture.

up to UAH 7.0 million - per 2 hectares for the development of greenhouse farms. For the first thousand of applications, the state compensates 70% of the project cost, for all subsequent applications - 50%.

In addition, the creation or development of start-ups is of great importance. The program for the implementation of a startup, including in the IT sector, enables developers of technological products to open and develop a high-tech business. It is important to note that the program provides funding for the implementation of IT startups from an idea to a finished viable product. Therefore, both developers of finished technological products and specialists who have a project idea can receive funds for the implementation of startups. Depending on the stage of project implementation, an entrepreneur can attract from UAH 750.0 thousand to UAH 3.5 million in non-refundable grants from the Innovation Development Fund or from UAH 3.5 million to UAH 8.0 million in refundable financial support from the National Investment Fund of Ukraine.

Within the framework of the yeRobota program, the Government allocates funds to pay the cost of education for citizens who have lost their jobs, are on unpaid leave, internally displaced persons and citizens who wish to acquire a new profession in the IT field.

The program "Lending at 0% under the 5-7-9 program" offers preferential lending to entrepreneurs, in particular, during wartime and a month after the end of the war, they can take out loans of up to UAH 60.0 million at 0 to 5%. The loan is granted for 5 years for the implementation of an investment project and debt refinancing, and for working capital financing - for 3 years. Any Ukrainian company (where the ultimate beneficiaries with a share of more than 50% are Ukrainians) can receive a loan.

Financial Support for Veteran Businesses is a project launched by the Ukrainian Veterans Fund for Business Microfinance. Veterans and their family members who became internally displaced persons after 24.02.2022 and have confirmation of such status will be able to receive a financial reimbursement of up to UAH 20,000 to purchase goods necessary for running their own business.

Successful business support in wartime also requires active communication and information. The authorities should provide clear and accessible information about available programs and support measures, procedures for obtaining financial assistance, rights and obligations of businesses. This will help increase the awareness of entrepreneurs and ensure their participation in support programs.

Despite the war, more new businesses are opening in Ukraine than closing. As of early autumn, 2 052 326 individual entrepreneurs are officially operating in Ukraine, while 290 910 have ceased operations. Since the beginning of the full-scale invasion, about 25 thousand new businesses have been registered in Ukraine on average per month, while about 17 thousand have ceased operations. According to the opendatabot, the highest number of registered sole proprietorships over the past three years was recorded in June 2023 - 31,477 new businesses [6].

Regionally, since the beginning of the full-scale war, most businesses have been closed in Donetsk region (8.2 thousand), Kharkiv region (7.1 thousand), Kherson region (4.5 thousand), Luhansk region (3.7 thousand), and Zaporizhzhia region (over 2 thousand). Instead, the largest increase in new entrepreneurs is observed in Kyiv (+12.9 thousand), Lviv region (+12.3 thousand) and Dnipropetrovsk region (+8.6 thousand) [6].

Thus, maintaining the operation of Ukrainian businesses is an important task for ensuring the country's economic viability during martial law. The state should take affordable steps to support businesses that find themselves in difficult circumstances.

Lviv region is one of the key regions in Ukraine with developed entrepreneurial activity and significant potential for economic development. The study of state business support in the region during martial law is relevant, as the results of the study can be applied in other regions of Ukraine.

Lviv region became the first region in Ukraine to develop a program to support businesses during wartime. On the basis of the Law of Ukraine "On the Legal Regime of Martial Law"[7], the Resolution of the Cabinet of Ministers of Ukraine No. 590 of 09.06.2021 "On Approval of the Procedure for Exercising Powers by the State Treasury Service in a Special Regime under Martial Law"[8], the Program of Business Support in Lviv Region for the Period of Martial Law for 2023 No. 659/0/5-22VA of 01.12.2022 (hereinafter - the Program) was approved [9]. The responsible executor of the Program is the Department of Economic Policy of the Lviv Regional Military Administration.

The program defines the tasks of supporting micro, small and medium-sized businesses, innovative development, preservation of strategically important industries and workplaces, relocation of enterprises from the territories of Ukraine where active hostilities are taking place [10]. The program provides for start-up financing in the amount of UAH 50.0 million. It should be noted that an enterprise can receive non-refundable financial assistance only once.

Within the framework of this Program, three areas of business support are defined:

Provision of non-repayable financial assistance to enterprises that have relocated and registered in Lviv region. The non-refundable financial assistance to manufacturing companies that have relocated their production facilities and registered in the Lviv region is UAH 100.0 thousand. The company will also receive an additional UAH 100.0 thousand if it creates at least 20 new jobs during martial law at the time of application.

The tasks and purpose of providing such support are:

supporting economic development: increasing the number of jobs, increasing production activity and attracting new investments;

reduction of inequalities between regions: improvement of the economic development of less developed regions, provision of new opportunities for the local population and reduction of migration flows to large cities;

job creation: incentives for enterprises to increase production capacity and create new jobs for the local population;

control over the use of funds: ensuring transparency and compliance of the use of financial resources with the declared goals. Control helps to avoid possible abuses and ensures credibility of the financial support program.

attraction of investments: provision of irrevocable financial assistance can be a tool for attracting additional investments to the region.

An important aspect of this task is also increasing the competitiveness of the Lviv region as an investment and business center.

Voucher business support. Voucher support is provided to support micro, small and medium-sized enterprises and clusters:

up to UAH 60,000 for marketing vouchers;

up to UAH 100,000 for product certification vouchers;

up to UAH 100,000 for vouchers for participation in foreign exhibitions and fairs;

up to UAH 30,000 for the retraining of employees and assignment/confirmation of professional qualifications.

It is worth noting that the share of business entities' own costs for obtaining services within the scope of Voucher business support must be at least 30% of the total cost of services.

The main areas for voucher business support:

stimulation of micro- and small entrepreneurship: creation of favorable conditions for the development of small businesses, which often have limited financial resources to expand and improve their activities;

supporting various industries: improving product quality, attracting new customers and increasing sales;

increasing competitiveness: improving the quality of products, expanding the geography of its sales and strengthening the market position;

evaluation of effectiveness: allows to evaluate the impact of voucher support on the financial and economic activity of enterprises and to find out how effectively it contributed to their growth and development;

co-financing requirements: to ensure responsible use of financial resources and active participation of entrepreneurs in the process of developing their business.

The provision of non-repayable financial assistance for the purchase of equipment to enterprises of the nutrition, light, machine-building, and woodworking industries (up to UAH 500 thousand) is aimed at supporting the organization of financial and economic activities of business entities (except for wages and capital expenditures) that have relocated production facilities to the territory of Lviv region from other regions of Ukraine in compliance with the following conditions:

the enterprise must be registered in the Lviv region;

the company must create at least 5 jobs and employ at least 10 people;

the average salary for the previous 6 months must be at least 1.5 times the minimum wage in Ukraine;

the company has been operating for at least 24 months and has no wage arrears or budgetary debts.

The share of business entities' own expenses for the purchase of equipment must be at least 30% of the total cost of the equipment.

The implementation of the Business Support Program in Lviv region for the period of martial law in 2023, subject to uninterrupted and full funding of the main activities, should ensure the following results:

creation of appropriate conditions for the transfer and registration of enterprises from the regions of Ukraine, where active hostilities and temporarily occupied territories are being conducted, to the territory of Lviv region;

preservation and creation of new jobs;

payment of taxes by relocated enterprises, primarily personal income tax and single tax;

preservation and restoration of export operations;

preserving and increasing the volume of production of industrial and agricultural products;

unification of financial resources of the region, local self-government bodies and other sources for business support of Lviv region.

The implementation of the Program has had positive results. For example, Lviv region is a leader in the relocation of businesses and cooperation with businesses. Since the beginning of the full-scale invasion, businesses from different regions have begun to relocate to Lviv region. As of December 1, 2023, more than 230 companies from different regions operate in Lviv region, and 5,000 jobs have been saved. Only 199 companies remained, which is almost a quarter of all companies that have been forced to relocate since the beginning of the full-scale invasion. Overall, since the beginning of the full-scale war, more than 800 companies have been relocated to Lviv region, but most of them have returned to their home settlements, as the active phase of hostilities has ended there, and more than 30% of relocated companies are ready to stay in Lviv region [10].

The Lviv Regional Military Administration provides businesses with information and financial support (Fig. 1).

Fig. 1. Types of business support

Financial support is provided through loans, vouchers, funds and grants.

An important component of financial support is the loan program, which helps businesses access financing for investments under the Deep and Comprehensive Free Trade Area (DCFTA) through local partner financial institutions. The program promotes the development of small and medium-sized enterprises (SMEs) and improves their capacity by launching investments supported by EU grant funding, investment incentives and technical assistance. SMEs are financed through loans from the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB), and KfW (Kreditanstalt fur Wiederaufbau, German State Development Bank). In addition to loans, EU grants are available to support lending to SMEs in the Eastern Partnership countries. Financing is provided through regional financial intermediaries, which increases the opportunities for long-term financing of SMEs.

The grant program in the form of non-refundable financial assistance allows SMEs to attract highly qualified consultants who are able to qualitatively reform business activities. Funding is provided by the EU and donor countries.

Business Information Support Center in Lviv, based on the PPV Knowledge Networks economic development agency is considered as business development environment for small and medium-sized enterprises that has access to a wide range of support services for both start-ups and medium-sized business owners. The Economic Policy Department of Regional Military Administration with the participation and support of domestic and foreign partners, conducts trainings and seminars for Lviv region enterprises, provides legal advice to relocated enterprises, and implements charitable projects.

Conclusions

Martial law is a special period when the state decides to impose restrictions and provides support to businesses to ensure economic stability and social well-being. To this end, the government and regional programs to support small and mediumsized businesses during the war are being adopted to expand business financing opportunities in the form of loan and grant programs, assist in the relocation of enterprises, and solve logistics problems to overcome the crisis. Increasing the scope of government programs will help start a business, restore enterprises, save and create new jobs, and pay taxes. In addition, the government is constantly introducing deregulation measures aimed at optimizing and modernizing the permitting system and documentation.

By setting up local businesses, entrepreneurs stimulate employment, pay mostly local taxes and fees, and create resources for pensions provision. This is especially valuable in a war-induced environment.

References

1. Strilets, V. (2019). Zabezpechennia rozvytku malykh pidpryiemstv: teoriia, metodolohiia, praktyka. Monohrafiia [Ensuring the Development of Small Enterprises: Theory, Methodology, Practice. Monograph]. Poltava: PUET. 457 s. (in Ukrainian).

2. Diachun, O. and Nahorniak, I. (2021). Stymuljuvannja rozvytku pidpryjemnyctva v Ukrai'ni v konteksti jevropejs'kyh standartiv, Naroshhuvannja finansovo-ekonomichnogo potencialu sub'jektiv ekonomichnyh vidnosyn jak osnova postupal'nogo rozvytku terytorial'no-gospodars'kyh system. Monogafija. FOP Paljanycja V.A., T., s. 85-89. (in Ukrainian).

3. Prokopets, L., Hubchak, V. (2017). Osoblyvosti derzhavnoi pidtrymky maloho pidpryiemnytstva v Ukraini ta zarubizhnyi dosvid [Peculiarities of state support of small business in Ukraine and foreign experience]. Investytsii: praktyka ta dosvid. No. 24. S. 71-76. (in Ukrainian).

4. Melnyk, T. (2022). Derzhavna pidtrymka ta stymuliuvannia rozvytku biznesu v Ukraini pid chas dii voiennoho stanu [State support and stimulation of business development in Ukraine during martial law]. Ekonomika. № 2 (100). s. 3-11. (in Ukrainian).

5. Analiz aktualnoho stanu ta propozytsii shchodo pokrashchennia umov dlia pidpryiemnytstva v Ukraini [Analysis of the current situation and proposals for improving conditions for entrepreneurship in Ukraine]. URL: https://careerhub.in.ua/doslidzhennya-analiz-aktualnogo-stan/ (data zvernennia 20.11.2023.) (in Ukrainian).

6. Multymediina platforma inomovlennia Ukrainy Ukrinform [Ukrinform, Ukraine's multimedia platform for foreign broadcasting]. URL: https://www.ukrinform.ua/rubric-economy/3756793-v-ukraini-vidkrivaetsa-bilse-novih-biznesiv-niz-zakrivaetsa-opendatabot.html (data zvernennia 22.11.2023.) (in Ukrainian).

7. Zakon Ukrainy “Pro pravovyi rezhym voiennoho stanu” vid 12.05.2015. № 389-VIII [Law of Ukraine "On the Legal Regime of Martial Law" dated May 12, 2015. № 389-VIII]. URL: https://zakon.rada.gov.ua/laws/show/389-19#Text (data zvernennia 20. 11.2023.) (in Ukrainian).

8. Postanova Kabinetu Ministriv Ukrainy vid 09.06.2021r. №590 “Pro zatverdzhennia Poriadku vykonannia povnovazhen Derzhavnoiu kaznacheiskoiu sluzhboiu v osoblyvomu rezhymi v umovakh voiennoho stanu [Resolution of the Cabinet of Ministers of Ukraine dated June 9, 2021. No. 590 "On approval of the Procedure for the exercise of powers by the State Treasury Service in a special regime under martial law"]. URL: https://zakon.rada.gov.ua/laws/show/590-2021-%D0%BF#Text (data zvernennia 20.11.2023.) (in Ukrainian).

9. Prohrama pidtrymky biznesu u Lvivskii oblasti na period voiennoho stanu na 2023 rik [Business support program in the Lviv region for the period of martial law in 2023]. URL: https://loda.gov.ua/documents/56704 (data zvernennia 20.11.2023.) (in Ukrainian).

10. Ponad 30% relokovanykh pidpryiemstv hotovi zalyshytysia na Lvivshchyni [More than 30% of relocated enterprises are ready to stay in Lviv Region]. URL: https://tvoemisto.tv/news/ponad_30_relokovanyh_pidpryiemstv_gotovi_nadali_zalyshatysya_na_lvivshchyni_141071.html (data zvernennia 22.11.2023.) (in Ukrainian).

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