Over 4.5 thousand new entrepreneurs. Which businesses emerge in the Lviv region despite the invasion

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It’s clear that the transportation of goods, in particular, across the border, is now a very attractive business, and «wholesale» was a popular activity due to tax and customs benefits for individual entrepreneurs-importers who operated until July 1.
Photo by diggity marketing on unsplash

Photo by diggity marketing on unsplash

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Since February 24, more than 4,600 new business initiatives have been opened in the Lviv region. More than 93% of them were registered as private enterprises, or individual entrepreneurs (FOPs). The trend shows that the highest demand was shown by services in the IT sphere, wholesale and retail trade, transportation and food industry. We found out from entrepreneurs and experts how complicated is the task of starting a business during the war and whether positive developments are possible in the next few months.

How businesses are being opened in wartime

«We’ve opened in order to provide people with jobs. In particular, many displaced persons have moved here, and they need to earn a living and feel like normal members of society. We also employ local residents. In total, about 60 jobs.

In the beginning, we worked in very difficult conditions, when the curfew lasted until 7:00 a.m. We transported equipment from Chernivtsi when there was no fuel, resettled displaced people with children,»- says Volodymyr Fedoseev, co-founder of the «Valentyna» sewing factory in the Chervonohrad district of the Lviv region.

Its production process was launched during the war, although in general, this is not the first enterprise that was opened. The entrepreneur notes that now, the work has become more difficult exclusively for those who don’t want to work. The factory sews bulletproof vests, unloading vests, as well as uniforms. 

Salaries and utilities are paid from the money earned. Part of the profit is given to help the Armed Forces.

Danylo Petrenko moved to Lviv from Kherson. Here, the man and his friend started a business for the production of military tactical equipment – «BGN Armo» LLC. Previously, he was engaged in the restaurant business, but the creation of a new restaurant requires considerable capital investment, so the entrepreneurs decided to invest in what Ukrainians need to no less extent.

«The business of manufacturing tactical military equipment was started because there is a direct need. In Lviv, friends actually do this, and we sell their goods under our own brand. We also deliver our goods to volunteers who transfer them to the front. Currently, we’re balancing between the demand for purchase and charity. In May-June, we felt a slight reduction in taxes, it was possible to work under the simplified system of 2%. But from July 1, they were returned again,» – the entrepreneur explains.

Read also: Will Lviv businesses benefit from the abolition of customs duties? 

Due to difficulties with the payment of taxes, enterprises engaged in freight transportation faced difficulties. In particular, it regards the issue of cooperation with counterparties, says Nataliya Sirko, who keeps accounting records at the individual enterprise (FOP) of «Sirko Taras Romanovych». According to her, they provide services for the transportation of crushed stone, gravel, screening, and also offer excavators for rent. Since tax invoices began to be blocked, and counterparties did not receive funds from the income tax, a new enterprise had to be opened – «Spetstrans Sirko» LLC.

«We do not have the opportunity to issue tax invoices for contractors, so we had to open an additional organization, because contractors do not receive their income tax in another way. We have done this before. But now, there is even greater control from the side of the tax office. We indicate our type of activity, but they still block it. Due to this, counterparties lost about UAH 500,000 of our income tax. One gets the impression that we’ve opened transportation to sell flour. During the war, it was difficult to work, we couldn’t get gas, and here we got a shot in the head from the tax office,» – the accountant complains.

He says that the manager and drivers communicate with other businesses that provide similar services. Not all of them confirm difficulties in work. If someone has their own equipment, it makes things a little easier, but they don’t work at full capacity.

Among the enterprises in the Lviv region, which were opened already during the martial law period, there are also farms. In general, this type of activity is quite popular, someone started a business because they had been thinking about it for a long time, someone was already engaged in it, but now officially started it.

Read also: «Ukraine must feed the world again.» What may change for the country in June

Myroslav Semenyuk from the Chervonohrad district grows grain crops, last year he sowed wild soybeans, this year he also started growing spring wheat. The man has been doing this for the third year, partially inheriting the work on the land from his father.

«Part of the plots remained, I took another part, and decided to create a farm. I wanted to open it even before the war, because I couldn’t work, I had to be a farmer to make contracts with people. Construction was my another activity, but the village council did not want to allocate new plots for an ordinary enterprise,» – the man says.

The man started when having only 20-40 hectares of land in his ownership, now he owns the farm «Agro Eva 2022» and about 150 hectares. The farmer has his own machinery, and is now planning to buy a combine harvester. Still, he says, it’s too early to talk about big earnings, and if he didn’t have a parallel business, it would be difficult.

Maria Yatsyshyn, an entrepreneur from the Stryi district, also opened her farm «Mury» recently, but hasn’t started active work yet. Currently, the woman has a small plot of land and a pond. The territory is planned to be expanded to plant an orchard.

«My acquaintance grows currants and varietal bushes, so I have already ordered from her for autumn. After all, people are willing to sell their shares. I think it will be possible to do something. Yes, this autumn will be difficult, and people always want to eat,» – says the woman.

Maria Yatsyshyn also has her own geodesy firm. She knows from practice how difficult it is to buy land because cadastral maps are closed. Despite that, the woman notes that many people intend to privatize the plots. Those who had time to make a decision before the war, are formalizing the inheritance. Farmers want to plant and sow, the entrepreneur notes. An advantage is also the possibility of renting for a year under the simplified system.

The priority industries in the Lviv region

Since the beginning of the full-scale invasion, more than 4,600 new businesses have been opened in the Lviv region, most of them are private enterprises (4,282), as well as 336 legal entities.

According to the information of the Lviv Regional Military Administration, the largest number of individual entrepreneurs registered in the IT sphere (computer programming and web design) – 1413 individual entrepreneurs. In second place – wholesale and retail trade – are 1151 FOPs.

Read also: The shock has passed. How to rebuild Ukraine with common efforts after the victory

Third is the transport industry and services. This is followed by sectoral activities and food services, beauty and hairdressing services, food industry enterprises and the construction industry.

As for legal entities-entrepreneurs, the leader is retail and wholesale trade – 127 enterprises. In second place – food industry with 44 enterprises. The top three are closed by the construction industry, in which 35 enterprises were opened. It is followed by the IT industry with 30 enterprises and transport services with 17 enterprises.

«During the war, the purchasing power of the population falls, so entrepreneurs look for new sales markets, look at the EU market and move part of their products there. Now, it’s not easy with logistics, currency, etc. The goods of the most basic necessity, as well as military goods, are in the biggest demand – this is the tailoring of military clothing, the production of various safety components, some autonomous flashlights, generators, etc. That is, what will enable people to live in conditions of power or gas outages. These are also food products, services for the restaurant business, medical services, things that have a medical demand,» – says Orest Hryniv, deputy director of Lviv Regional Military Administration’s economic policy department, head of the industry, entrepreneurship and investment policy department.

According to him, compared to February-March, the amount of humanitarian aid is decreasing. At the same time, there is a great demand for food products, in particular, an increase in the production of the food industry is observed in the Lviv region. This is also connected with the stable demand in the regions of the country where the goods are taken.

What assistance might businesses expect?

Orest Hryniv notes that in fact, every crisis provides an opportunity for entrepreneurs to start their own business. Now, there are many programs from the state that enable supporting businesses. The Lviv region also offers its advantages and financial assistance to entrepreneurs.

«The state has grant support in the amount of UAH 150-250 thousand for micro and small businesses. Additionally, the opportunity to take a loan of up to UAH 2.5 million at 0% for equipment and other things. We also have a martial law business support program, which provides for business voucher support, marketing services, product classification, support for relocated enterprises, as well as support for manufacturing enterprises in the machine-building, light and food industries. We also provide up to UAH 500,000 in non-refundable financial aid on the condition that at least five jobs are created during martial law,» – the official of Lviv Regional Military Administration explains.

However, there may be some difficulties in starting one’s own enterprise, including for micro and small businesses. The most important thing is to take into account the needs of the target consumer of goods or services. Today, there is a demand for very cheap things, or for expensive ones, Orest Hryniv notes.

At the same time, the middle segment will lose the most.

It’s worth noting that since the beginning of the full-scale invasion, more than 170 manufacturers from other regions of Ukraine have moved to the Lviv region, but only 15% of them have re-registered or are in the process of re-registration. Orest Hryniv says the majority are in no hurry to do this, citing the need to pay taxes in the regions from which they relocated (Kharkiv, Donetsk, Chernihiv, Sumy, Kyiv), because after significant destruction, money is needed there to restore infrastructure.

«We encourage them to re-register with us. For this, we have a business support program, where we provide 100,000 UAH of financial assistance if the company is re-registered in the territory of the Lviv region, plus another 100,000 UAH from the «Prize of capital» fund, and also duplicates our support to companies. So, they have the opportunity to receive 200 thousand for re-registration. We fully support this business, we give them proposals on the location of production facilities, electricity connection, and various communications,» – explains the deputy director of the economic policy department of Lviv Regional Military Administration.

Read also: We need a strong leader. How can businesses overcome the challenges of the war

Note that if the company moved its production, for example, to the Lviv region, but remains registered in another region, it continues to pay personal income tax, personal tax, land tax, real estate tax and other expenditures there. The key advantages for the Lviv region in this case are the creation of new jobs by the relocated company and cooperation with local businesses.

Opening a business: how did the trend change before and after the invasion?

With the support of the YouControl analytical system, we checked how the dynamics of registration of new businesses – legal entities and individual entrepreneurs – changed in the Lviv region after the full-scale Russian invasion. These data, in our opinion, reflect the reactions and expectations of entrepreneurs regarding the demand for certain goods and services. Therefore, we also paid attention to the main types of activities of new businesses by classes and sections of the Classifier of Economic Activities (KVED).

First of all, we found out that in March-May this year, non-commercial legal entities (charity and public organizations) were registered more than commercial ones (limited liability companies, private enterprises, etc.). Registrations of new commercial legal entities in the Lviv region, after the failure in March, have been steadily increasing since April and reached the January level in June. We do not have the monthly number of registrations of new legal entities for Ukraine in general. On the other hand, according to Opendatabot, the number of registrations of new legal entities in the whole Ukraine during the first week of July was about 58% of the number in the first week of July last year.

 

 

 

Registrations of new FOPs in the Lviv region dropped significantly after the invasion: from February 24 to March 22, individual entrepreneurs were not registered at all, but in June, the monthly number of registrations reached the pre-invasion level of January and February (the schedule can be viewed here). However, this number was still lower than in the summer months of last year.

Read also: Ukrainian startups versus war: From eco-outfit to sleeping bags for the military

In Ukraine in general, according to Opendatabot, the number of registrations of new FOPs in the first week of July this year was only about 64% of the number in the first week of July last year.

Therefore, we saw that in the Lviv region, registrations of private enterprises with the activity class «Informatization consulting» dropped significantly. New FOPs with the activity class «Provision of services by hairdressing salons and beauty salons» and «Retail trade from trays and markets of other goods» began decreasing as well. On the other hand, registrations of new individual entrepreneurs with the classes of activity «Freight road transport» and «Non-specialized wholesale trade» increased significantly.

It is clear that the transportation of goods, in particular, across the border, is now a very attractive business, and «wholesale» was a popular activity due to tax and customs benefits for individual entrepreneurs-importers who operated until July 1.

Rankings and dynamics of registrations of new individual entrepreneurs by sections of KVED made it possible to see a broader picture. Thus in June, the first place in terms of registrations was taken by sole proprietorships with the main types of activity belonging to the section «Retail trade, except for trade in motor vehicles and motorcycles.» Private enterprises from the section «Computer programming, consulting and related activities» fell to second place in terms of registrations (previously they were registered most often). Registrations of new FOPs in the sections «Provision of other individual services» (we are talking about hairdressers, dry cleaners, beauty salons, saunas, etc.) and «Wholesale and retail trade of motor vehicles and motorcycles, their repair» also fell. On the other hand, new registrations of private enterprises increased in the sections «Wholesale trade, except trade in motor vehicles and motorcycles» (again – due to benefits for importers) and «Land and pipeline transport» (primarily due to registrations of new motor carriers).

According to Volodymyr Kordub, vice-president of the Lviv Chamber of Commerce and Industry, some enterprises are being launched, while others are closing. War is always a global risk. Regarding the development of entrepreneurship in the Lviv region, there are trends for improvement, compared to some of the front-line regions, where it’s almost impossible to conduct business nowadays.

«We do not make forecasts longer than three months. If everything is at least in this state, it will be a small development. Right, It wouldn’t be quite big, because winter will begin, the heating season, and it will be complicated. But I think, we will survive it. We have optimism, and it is based on trends. Again, if there are no military-political escalations,» – the expert analyzes.

Yulia Osym, Dmytro Borysov

Translated by Vitalii Holich

Infographics by Dmytro Borysov, Dmytro Taradayka

Full or partial republication of the text without the written consent of the editorial office is prohibited and is considered a copyright violation

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