This chapter provides a brief overview of Ukraine’s economic context and SME sector. It takes stock of the country’s efforts and achievements in accelerating the digital transformation in recent years, while highlighting that smaller firms have not yet fully reaped the benefits of digitalisation. Digitalisation could be further leveraged to enhance resilience and recovery.
Enhancing Resilience by Boosting Digital Business Transformation in Ukraine
Abstract
Even in the context of Russia’s full-scale invasion, Ukraine’s government remains committed to helping small and medium-sized enterprises (SMEs) operate in wartime conditions and further enhancing their digital transformation. In line with the OECD Declaration on Enhancing SMEs and Entrepreneurship Policies for Greater Resilience and Successful and Green Digital Transitions, this paper aims to support these efforts and to help SMEs’ tap into the full potential of digitalisation for economic growth and recovery. To this end, it analyses the current state of play of SME digitalisation in Ukraine, identifies remaining gaps and suggests policy options, building on Ukraine’s existing efforts, to help SMEs leverage digitalisation for productivity, resilience and recovery. It also aims at helping Ukraine come closer to EU and OECD standards and to integrate into the EU’s Digital Market.
Specifically, this paper outlines ways to accelerate Ukraine’s digital business transformation by i) building an effective ecosystem for SME digitalisation at the national and sub-national level, to ensure a national coverage of support services, ii) strengthening the support services for SME digitalisation, including developing a self-assessment tool for businesses, and iii) developing specific measures to help firms tap into the potential of digital tools to tackle war-related challenges, increase their resilience, and recovery from recent economic shocks. This first chapter discusses the overall context in which SME policy is now delivered, while the subsequent three chapters look at each of these priorities in turn.
Ukraine’s economy has faced successive shocks over recent years
Russia’s full-scale invasion of Ukraine has inflicted severe damage to the Ukrainian economy and caused a humanitarian catastrophe. Nonetheless, Ukraine has withstood unrelenting aggression and continues to manage a struggling war economy by building on achievements and lessons of previous years.
In 2013-2014, Ukraine’s state and society were transformed by the Revolution of Dignity. Thereafter, Ukraine committed to an ambitious reform agenda closely monitored by international institutions and a vibrant and perseverant civil society. This, however, was not without setbacks, e.g., through challenges to democratic and governance reform or persistent corruption and shadow economies (Ash et al., 2017[1]). Simultaneously, the economy experienced a severe recession. Following Russia’s illegal annexation of Crimea and its fomenting of armed conflict in Eastern Ukraine, Ukraine was on the brink of economic collapse. GDP contracted by 6.8% in 2014 and 9.9% in 2015. The hryvnia lost approximately 70% of its value. Industrial production plunged by 70%. With the war in Eastern Ukraine and disruptions of trade with Ukraine’s former largest trading partner, Russia, the country faced a grim reality. To meet these challenges, IMF, World Bank, and EBRD support provided Ukraine with loans and aid packages that were contingent on reforms. This significantly encouraged progress and promoted the implementation of far-reaching structural reforms including, inter alia, decentralisation, anti-corruption, banking, energy, and public procurement. Still, progress was persistently threatened by the war in Donbas, by domestic resistance from powerful interest groups, and by a deep-rooted shadow economy.
Nevertheless, the various reforms implemented between 2015 and 2020 bore fruit, as reflected in macro-economic indicators and international rankings. For instance, Ukraine’s performance on the Worldwide Governance Indicators improved, particularly in terms of political stability and regulatory quality (OECD, 2022[2]). Between 2015 and 2019, the share of the population living below the nationally defined subsistence income level fell by over half, from 52% to 23% (OECD, 2022[2]). This progress was sustained by Ukraine in the following years and enabled the country to emerge from the COVID-19 crisis in better shape than projected.
However, Russia’s full-scale invasion of Ukraine in February 2022 ended the rebound. Real GDP shrank by 29.1% in 2022, while inflation reached 20.2%. The country and its business sector experienced calamitous destruction of infrastructure and property, significant losses of human capital through internal and external migration1, disruption of supply chains, difficulties with logistics, cuts in export earnings and compression of fiscal revenues. Aside from severe psychological trauma and both emotional and physical losses, the population experienced soaring unemployment rate. It has been estimated to have risen to 18.4% in 2022, with a forecast of 18.9% in 2023, affected by the loss of jobs due to further destruction of production facilities (Government of Ukraine, 2024[3]).
The battle to sustain Ukraine’s economy is being fought on multiple fronts. With the introduction of martial law, the National Bank of Ukraine introduced a fixed exchange rate and capital controls, which proved essential to preserving macroeconomic and financial stability (German Economic Team, 2023[4]). Ukraine’s economic situation has improved since July 2022. The contraction that year was shallower than initially expected (a 40 to 50% downfall was initially projected)2. After inflation peaked at 26.6% in December 2022, it dropped to 4.5% year-on-year in January-February 2024 (Ministry of Finance of Ukraine, National Bank of Ukraine, National Securities and Stock Market Commission, Deposit Guarantee Fund, n.d.[5]). Moreover, real GDP growth for 2023 has been estimated at 5.0%, far higher than expected at the start of the year, as households and businesses have adjusted to the challenging circumstances (IMF, 2023[6]; Betily et al., 2023[7]; IMF, 2024[8]). Although the economy somewhat recovered in 2023 due to stronger fiscal stimulus, slowing inflation and international aid, real GDP is expected to recover to its 2021 level by 2027-2031 (EIU, 2024[9]).
This heightened growth bolstered external trade, as evidenced by the latest figures from the last quarter of 2023 showing a decrease in imports from EUR 7.9 billion to EUR 5.5 billion compared to the same quarter in 2022, while exports surged from EUR 8.8 billion to EUR 10 billion. This increase was notably driven by sunflower oil imports from the EU, which rose by 8 percentage points above the level recorded in December 2021 (Eurostat, 2024[10]). Furthermore, the current account deficit is expected to narrow down, from 5.5% of GDP in 2023 to 4.7% in 2024, before averaging 5% between 2025 and 2028 (EIU, 2024[9]).
Prior to the invasion, Ukraine held the position as the world’s foremost exporter of sunflower oil, the third-largest maize and rapeseed exporter, the fourth-largest barley exporter, and the fifth-largest exporter of wheat (Kyiv School of Economics, 2022[11]). Current forecasts show that a portion of the agricultural losses experienced in 2022 is expected to be recuperated between 2024 and 2028, with the aim of reaching pre-war levels by 2028. This forthcoming growth is facilitated by initiatives geared towards enhancing trade, particularly through the seaports that were closed due to Russia’s war. The “Black Sea Grain Initiative” unblocked key seaports and the EU mobilised EUR 1 billion for the “Solidarity Lanes” initiatives to increase global food security and support for Ukraine’s economy between mid-2022 and mid-2023 (EU NeighboursEast, 2022[12]). Russia’s failure to renew the gain deal in July 2023 led to further trade disruptions but by end-2023 volumes exported via the western Black Sea were overtaking pre-war levels. International aid has become more regular and more predictable in response to Russia’s aggression (German Economic Team, 2023[4]). Foreign budget support commitments reached around EUR 39 billion in November 2023 (Government of Ukraine, 2023[13]). Ukraine’s budget deficit has widened, with estimates for 2023 ranging between 19% and 26%, requiring substantial international financial support (German Economic Team, 2023[14]; IfW, 2023[15]; IMF, 2023[16]).
Financial support from international financial institutions and foreign partners has provided a lifeline for the government, assisting in managing the budget deficit and supporting the external position. Overall, the IMF and Ukrainian authorities estimate that Ukraine will require financial assistance ranging from USD 31.9 to USD 37.3 billion in 2024 (approx. EUR 29 to EUR 34 billion) to ensure macroeconomic stability, maintain key public services and restore critical infrastructure (Government of Ukraine, 2023[13]; IMF, 2023[17]).
Looking ahead, the government remains committed to further reforms (German Economic Team, 2023[4]; Government of Ukraine, n.d.[18]). An initial Draft Recovery Plan was prepared in 2022. More recently, the Cabinet of Ministers of Ukraine granted approval for the Ukraine Plan in mid-March 2024, serving as the foundational framework for the utilization of financial assistance provided by the EU to Ukraine from 2024 to 2027. This plan delineates a strategy for implementing structural reforms within the public sector aimed at fostering a conducive business climate and promoting entrepreneurship. It outlines measures to prioritize sectors poised for rapid economic growth, with a comprehensive set of 150 indicators across 69 reform areas slated for implementation by 2027 – with a view to advancing Ukraine’s European integration efforts (Government of Ukraine, 2024[19]).
SMEs bear a disproportionate impact of Russia’s invasion
In 2022, SMEs made up 99.9% of all enterprises in Ukraine’s business sector, 96.5% of them being micro enterprises. They accounted for 81.7% of the total business employment and generated 67.5% of turnover in the business sector in 2022. These values exceed the contribution of the SME sector to total employment and value added in other Eastern Partner (EaP) countries and are also above EU levels (Figure 1.1). Ukrainian SMEs, however, remain concentrated in low-value-added sectors. Most still operate in wholesale and retail trade (38.2%), despite a decrease in recent years. Conversely, they play an increasing role in the ICT sector, which accounted for 17.1% of SMEs in 2022, a 7.6 percentage-point increase on 2018 (Figure 1.2).
Note: The data presented for small enterprises in Georgia also encompasses information pertaining to microenterprises. Figures labelled as value added for Moldova and Ukraine represent turnover. Data attributed to employment denote the number of employees except for Georgia and Ukraine, which display the number of persons employed.
Source: National statistical offices for EaP countries, (Di Bella, Katsinis and Lagüera-González, 2023[20]).
Breakdown of SMEs by type of economic activity
Note: Panel a: The wholesale and retail trade sector also includes the repair of motor vehicles and motorcycles. The sector categorised as other service activities corresponds to the S section within the list of NACE codes. Other sectors include administrative and support service, construction, human health and social work, education, arts, entertainment, and recreation, financial and insurance, water supply, sewerage, waste management and remediation, electricity, gas, steam and air conditioning supply, mining, and quarrying activities. Panel b: Other sectors include the “other” sectors cited in the left chart and other service activities for Azerbaijan, Czechia, and Poland, as well as agriculture, forestry, and fisheries for Armenia and V4 countries, as the breakdown for these categories are not available.
Source: (State Statistics Sevice of Ukraine, n.d.[21]), OECD calculation based on data from National Bureau of Statistics of Eastern Partner Countries; Eurostat for V4 countries.
The growth of the SME sector has been supported by various policy interventions, including the dedicated SME Strategy 2018-2020 and related Action Plan, built around six strategic objectives: i) creating a favourable environment for SMEs, ii) improving access to finance for SMEs, iii) simplifying SME tax administration, iv) promoting entrepreneurship culture and developing entrepreneurial skills, v) promoting SME export/ internationalisation, and vi) improving competitiveness and developing innovation potential of SMEs. A dedicated SME agency was created, since transformed into the Entrepreneurship and Export Promotion Agency (EEPO). The support provided was considerably enhanced by the launch of Diia.Business3 one-stop-shop, encompassing a myriad of resources for entrepreneurs, and Diia.Business support centres established in several regions across the territory. These achievements are reflected in the latest version of the OECD SME Policy Index, published end 2023 – with Ukraine increasing its scores on the 12 dimensions of the assessment since 2019/2020, albeit to varying degrees. Progress was made especially with regards to entrepreneurial learning, women’s entrepreneurship, SME skills, and SME internationalisation (Box 1.1). Public and private training initiatives for different target groups were enhanced, while SMEs’ access to finance has been facilitated through the government’s “5-7-9%” loans programme.
The Small Business Act for Europe and the SME Policy Index
The SME Policy Index is a unique benchmarking tool to assess and monitor progress in the design and implementation of SME policies against EU and international best practices. It embraces the priorities laid out in the EU’s SME Strategy for a sustainable and digital Europe and in the OECD Recommendation on SME and Entrepreneurship Policy. It is structured around the ten principles of the Small Business Act for Europe.
First created in 2012, it is conducted in the EaP countries every four years. The 2024 edition tracks the progress made since 2020 and offers the latest key findings on SME development and related policies in the EaP, identifying emerging challenges and providing recommendations to address them. The updated methodology includes a new pillar offering a deeper analysis of SME digitalisation policies.
2024 findings for Ukraine
Despite successive shocks, Ukraine has achieved considerable improvements with regards to the business environment for SMEs. Scores have improved in all twelve dimensions, with particular strides in Pillar B, Entrepreneurial Human Capital, on the operational environment and SME internationalisation. Despite progress, Ukraine’s performance is lower on bankruptcy and second chance, innovation, and green policies, where more efforts should be made moving forward.
Country scores by dimension, 2024 and 2020 vs. 2024 comparable methodology
Note: CM stands for comparable methodology.
Source: (OECD/EBRD, 2023[22]).
Nevertheless, SMEs have been severely affected by successive crises over the years – particularly the Russian invasion. Approximately 64% temporarily halted or ceased their business activities following the onset of the invasion. Constant attacks on critical infrastructure, power shortages, and blackouts, continue to hinder SMEs’ economic recovery, and businesses are faced with, inter alia, a decrease in business activity, income, and the number of orders due to population movements, lower spending capacity; cost-cutting, labour outflows due to mobilisation and migration, damage to energy infrastructure and partial loss of equipment (Dolmatova, 2023[23]). In most cases, reported financial losses amount to up to USD 100,000, with disparities across sectors and regions – in Eastern and Southern regions of Ukraine, SMEs have experienced losses 1.5 times greater than those in the Western part of the country. Over 13% of firms have fully or partially relocated since February 2022 (Center for Economic Recovery, Advanter Group, 2024[24]).
However, SMEs have demonstrated resilience, with 84% of temporarily suspended businesses having successfully reinstated their operations within six months, and only 9.6% of suspended businesses are facing the risk of closure as of October 2023. SMEs’ gradual recovery has notably been fostered by improvements in energy supply, external financial assistance, growth in construction, trade, agriculture, and the processing industry. Additionally, positive future growth forecasts are underpinned by strategic initiatives such as the opening of alternative trade corridors, leveraging international financial support, and a concerted effort toward economic revitalization and sustainable growth (Center for Economic Recovery, Advanter Group, 2024[24]).
Moreover, the authorities have quickly reacted to support SMEs, adopting specific policy measures to help them in these dire circumstances. Box 1.2 provides some selected examples.
Despite active hostilities, including ongoing Russian missile and drone attacks on infrastructure and other buildings and the occupation of around 16% of the country’s territory, businesses continue to contribute positively to Ukraine’s overall economic performance. Enterprises in the field of electronic communications, notably, continue to provide services to the population and have retained most of their jobs. The growing importance of Ukraine’s Information and Communication Technology (ICT) sector is further outlined in the following section.
In response to the crises of recent years, various policy measures were introduced to support SMEs.
Financial support
In May 2020, the government revised the Economic Stimulation Program to provide anti-crisis measures to facilitate access to finance for SMEs. Financial assistance has been provided via the Business Development Fund (BDF). Other initiatives have included:
The “5-7-9” State Programme, with credit guarantees and partial compensation of interest on the loan being the main instruments. In 2020, the programme granted UAH 16.5 billion (approx. EUR 397 million) in credit and loans to 6,957 SMEs. The government provided grants via the Diia portal based on the number of employees hired: UAH 150 thousand (if +1 worker will be hired) or UAH 250 thousand (if +2 employees) (approx. EUR 3,600 or EUR 6,000, respectively). In 2022, there were 12 waves of micro-grant applications, each lasting 2 weeks. Over UAH 542 million of micro-grants were issued (approx. EUR 12.9 million).
The special state support programme eAid launched in December 2021 with the two central purposes of promoting the anti-COVID vaccination campaign and to support businesses that were most impacted by quarantine measures. The government provided citizens with UAH 1,000 (~EUR 25) that they could spend only on businesses that were hit especially hard by the pandemic. New cashback and credit cards functioned in a similar way. With the beginning of Russia’s invasion, eAid rewards can be spent on anything. In March 2022, an additional UAH 6,500 were added through the eAid system to every employee and entrepreneur in the most war-torn areas. This service has been used by over 9 million Ukrainian citizens. Today, eAid is also being used to foster the rebuilding process (Knight, 2022[25]).
Regulatory flexibility
The government introduced credit holidays, a special grace period for servicing loans during the period of the quarantine for the population and businesses; and tax reductions, exempting businesses from paying certain types of taxes during the quarantine period.
Workforce support
Support to SME employers and employees was provided through partial unemployment assistance. Quarantine-related changes were introduced to the Labour Code to regulate the new reality of remote work, flexible schedule, and salaries.
Market support and measures to improve access to digital infrastructures
The Diia.Business project was introduced at the beginning of 2020, right before the pandemic, providing online services and information on support programmes for SMEs. The project is further outlined below and provided over 5,650 free consultations to entrepreneurs by the end of 2021. These covered legal, tax, business planning and modelling, as well as business digitalisation issues.
Digital technologies not only offer a vast potential to enhance firm productivity, but they can also help enhance resilience and support economic recovery in times of war (OECD, 2021[26]). Digital tools provide better and quicker access to information and facilitate communication between staff, suppliers, and networks, hence reducing transaction costs. They can also support SMEs in integrating into global markets through facilitating transport and border operations and enhancing the overall scope of trade services. Moreover, they can facilitate access to resources, including finance (e.g., through peer-to-peer lending, training, and recruitment channels), foster innovation assets, and enable firms’ potential to analyse their own functioning to drive improved performance, e.g., through data collection (OECD, 2021[26]).
Beyond this, digitalisation can be a tool to promote good governance and to overcome corrupt practices. Specifically, it can improve the work of public governance institutions and can bring governments closer to citizens and business by improving public sector efficiency as well as the effectiveness of policies (OECD, 2014[27]). This is especially important for Ukraine’s post-war recovery, as well as for the country’s path towards EU accession (European Parliament, 2023[28]; European Parliament, 2023[29]).
Policy measures encouraged the growth of the ICT sector already before the war
In recent years, the digital transformation has become a priority for the government. Already before the war, the MDTU was committed to, inter alia, developing e-government, increasing connectivity, and promoting digital skills. Ukraine has digitalised several of its public services, particularly following the launch of the “State-in-a-smartphone” initiative in 2019 (Bandura and Staguhn, 2023[30]; Aleksenko, 2022[31]). The new Ministry of Digital Transformation was also created in this regard (Bandura and Staguhn, 2023[30]). Considerable progress was made to advance digital literacy, with the goal of reaching 6 million Ukrainians with digital development programmes being achieved end 2023 (Siutkin, 2024[32]). Table 1.1 maps some of the concrete measures implemented to accelerate the digital transformation, broken down by the policy areas structuring the OECD Going Digital Framework.
Source: (ITU, 2022[33]; The World Bank, 2020[34]; OECD, 2022[35]; European Commission, n.d.[36]; CSIS, 2023[37]; Zini, 2023[38]; Bandura and Staguhn, 2023[30]; OECD, 2022[39]; Freedom House, 2022[40]; American Chamber of Commerce, Ukraine, 2023[41]) (UNDP, 2023[42]; Udovyk, Moskalenko and Kylmynyk, 2020[43]; WTO, 2024[44]; ITU, 2021[45])
Diia is one of the main internationally recognised achievements of recent digitalisation efforts in Ukraine. As such, Ukraine is sharing its experience with Diia, for instance, with Estonia, which is currently developing its own version, “mRiik” (Ingram and Vora, 2024[46]). It was already developed before the Russian invasion to ensure service provision, and quickly expanded as illustrated in Box 1.3.
The Diia ecosystem offers e-government and online services via i) the Diia web portal; ii) the Diia mobile app; iii) Diia.Digital Education; iv) Diia.Business; v) Diia.Engine; vi) the Diia Open Data Portal; vii) offline Diia.Business Centres; and viii) the Diia.City preferential tax regime. The Diia application is part of the “state in a smartphone”-initiative and was launched in 2020. It builds on the interoperable, decentralised data exchange system, “Trembita”4. In 2022, more than 75% of SMEs and citizens used the Diia app and only 2% of businesses were unaware of it. As of September 2023, 19.5 million citizens use the app. It offers around 100 public services online, allows to access 14 types of digital documents (including digital ID, driving license, tax documents and tax number, and student IDs) as well as 30 public service. Table 1.2 provides an overview of some of Diia’s components.
Source: (Vovk, 2023[47]; Diia.Business, EEPO, 2022[48]; Aleksenko, 2022[31]; UNDP, 2023[49]; Ingram and Vora, 2024[46]), fact-finding exercises conducted in H1 2023.
Overall, these efforts have borne fruit, as reflected in international rankings, e.g., in the Network Readiness Index 2023, where Ukraine continues to lead its income group, appearing in the top 50 – with strong performance on digital literacy (Figure 1.4). It shows high tech-adoption rates among individuals and high adult literacy (which stands at 100), good integration of ICT skills into the education system and good internet access in schools. While these parameters enable Ukraine to demonstrate comparable results to OECD/EU levels on the people-related pillar, the country’s scores remain lower than those of EU and OECD member states across most indicators of the index.
Note: The NRI is a composite index building on three levels, with the primary level consisting of the four pillars (Technology, People, Governance, and Impact). Technology encompasses the sub-dimensions access, content, and future technologies; People measures the sub-dimensions for individuals, businesses, and governments and their use of and investment into ICT; Governance focuses on ICT outreach through covering the sub-dimensions of trust, regulation, and inclusion; Impact measures engagement with the network economy through the sub-dimensions of economy, quality of life, and SDG contribution. For each level of the NRI, the economy’s ranking (out of 134 economies) and individual score (on a 0-to-100 scale) is shown. Source: (Portulans Institute, 2023[50]).
Digitalisation not only acts as a driver for economic growth but can be a strong asset for resilience and recovery
Digitalisation harbours great potential to enhance resilience and recovery in times of crisis. SMEs can especially benefit from this, as their limited financial and human capacities make them particularly vulnerable to shocks (OECD, 2021[26]). For instance, COVID-19 highlighted the importance of SME digitalisation and accelerated trends in ICT growth. It demonstrated that digitalised SMEs are more able to adapt to disruptions and to continue their operations during hardship (Bianchini and Kwon, 2021[51]; OECD, 2022[39]). Digital tools can enhance overall flexibility and adaptability, and they can increase firms’ resilience:
Online payment and marketing systems can help reach new, global customer bases.
E-commerce allows SMEs to adopt to evolving customer behaviour and online channels can mitigate the loss of in-store shopping.
Digitalisation can help SMEs strengthen long-term business models, e.g., by providing real-time data about supply chains, ease credit conditions through better credit risk assessment and enabling improvements in energy efficiency.
Russia’s large-scale aggression has posed new challenges, generating damage to Internet infrastructure, disruptions in Internet access, impacting the quality of data transmissions and trade, posing increased cyber risks, and spreading disinformation about the war.
Consequently, Ukrainian authorities and businesses have increased their digitalisation efforts, contributing to the country’s resilience in wartime (OECD, 2022[39]). The invasion has created, among other things, the need to provide internet access despite regular blackouts, as well as to provide new administrative services. A new law was signed during the war to provide government entities with cloud-based IT infrastructure and services reducing corruption risks and budget expenses by streamlining processes (Bandura and Staguhn, 2023[30]). Selected examples of measures taken since the start of Russia’s full-scale invasion further include:
Efforts to ensure continued Internet access: several measures were implemented to provide Internet access during war and blackouts (e.g., launch of national roaming, i.e., the possibility to switch between mobile operators, to ensure citizens’ continued access to communications services). A joint statement was also signed between the EU and Ukraine mobile operators on accessible free roaming, enabling approx. 4.5 million Ukrainians roaming in the EU to call back home and use mobile internet at free or affordable rates.
The provision of (new) administrative services online. The pre-existing e-government platform, Diia, was adapted during wartime. As of December 2023, usage of Diia has increased to 27% (19.8 million users) (Ingram and Vora, 2024[46]). With the war, Diia made it easier and quicker for citizens to apply for state benefits and to receive the official status of internally displaced person (IDP) as well as to receive temporary documents in case of lost ID (eDocument) (Horbenko, 2022[52]). It further launched a new service of issuing statements about destroyed housing, making it possible to record damage and to apply for financial support from the government directly through the app (Horbenko, 2022[52]; Government of Ukraine, 2023[53]). The new Diia.Engine low-code platform helps speed up the creation of digital public services and the digitalisation of registries, as it facilitates data exchange through “Trembita” (Ingram and Vora, 2024[46]).
Helping businesses: Diia.Business considerably stepped up support, including by offering services (e.g., consulting) to help SMEs relocate to safer regions and to check businesses’ connections to Russia and Belarus. Free consultations for relocated businesses were offered from May 2022 to June 2023. In total 20,600 consultations were provided in this timeframe. The new “e-Declaration”-tool further replaces 374 different permits and licenses, facilitating the running of businesses in wartime. Financial opportunities were also enhanced, e.g., with the launch, in summer 2022, of the government’s business grant programme eRobota as well as a marketplace of financial opportunities - including information on available loans, factoring, government programmes, grant schemes, regional programmes, and international aid - for SMEs struggling financially due to the war (Diia.Business, n.d.[54]).
The mobilisation of support for the Ukrainian military through online tools. Diia provides various support measures to the Ukrainian military, including the collection of donations for drones. As a result, tens of millions of UAH have been donated to the Ukrainian Armed Forces and territorial defence (Horbenko, 2022[52]). Moreover, the eEnemy chatbot plays an important role in gathering data on the location of Russian forces (Horbenko, 2022[52]). Beyond this, Diia.TV and Diia.Radio provide official and reliable information even in Ukraine’s temporarily occupied regions and the educational series “To Be There” provides mental health support to children suffering from PTSD (Horbenko, 2022[52]).
Access to humanitarian aid and individual support with the help of online platforms. The “eDopomoga” platform allows Ukrainians in need to connect to local aid organisations and access donations from people around the world (Leupe, 2022[55]; eDopomoga, 2024[56]). Ukrainians affected by the war can submit an application with a list of things they need, and benefactors can buy and provide these. Through the “Help Online” feature (launched in April 2022), users can also pay for a social certificate for the necessary goods so that the application can buy them for themselves. That way, people from abroad can now use the site and provide direct help to Ukrainians (Leupe, 2022[55]).
The connection of Ukrainian refugees abroad through a phone application. The “I am Ukrainian” mobile application was launched to unite Ukrainians who were forced to flee the country and offers information on different Ukrainian cultural events abroad as well as community gathering and meetups (Diia, n.d.[57]).
The register of damaged and destroyed property in a single database online (eRecovery) (Ingram and Vora, 2024[46]). This was created by the Ministry for Communities, Territories and Infrastructure Development of Ukraine (“Ministry of Infrastructure” hereinafter) and contains information on all residential, transport and social infrastructure that was damaged as a result of Russian attacks (Dnipropetrovsk Investment Agency, 2022[58]). At the end of 2023, over 37,000 households received compensation for destroyed housing through this initiative and more than 1900 people received digital vouchers to buy a new house (Ingram and Vora, 2024[46]).
Co-ordinating the reconstruction while enhancing transparency: a single web portal allows tracking of the use of public funds for reconstruction (Spending.gov.ua, 2024[59]). A new digital solution, DREAM (Digital Restoration Ecosystem for Accountable Management), was created as a collaborative endeavour of the Agency for reconstruction together with the Ministry of Infrastructure, the Open Contracting Partnership, Transparency International Ukraine, the Better Regulation Delivery Office, and pivotal NGOs within the RISE Ukraine coalition. DREAM’s role is to collect, organize and publish open data on all stages of restoration projects in real time. DREAM is to harmonise crucial statistical insights and project information from diverse digital repositories. By fostering efficiency, transparency, and accountability, DREAM aims to enhance trust among donors, citizens, financial institutions, and enterprises (German Economic Team, 2023[60]).
Supporting regional development through the Geoinformation System for Regional Development (GIS). Digital maps that display data on various indicators of regions and communities (population, infrastructure, access to education and healthcare services) will help identify reconstruction priorities (DREAM, 2024[61]).
Facilitating the rebuilding of buildings through an e-Cabinet (e-Construction) for Manufacturers of Construction Products as part of the Unified State Electronic System of Construction (USECS). This allows manufacturers to publicise the type of products they offer (e.g., windows, doors, fittings). It also allows the State Inspectorate for Architecture and Urban Planning to verify that manufacturers comply with legal requirements (Open4Business, 2023[62]).
These digital initiatives show that digital tools and Ukraine’s ICT sector are a strong force in the economy. The ICT industry remains the country’s only fully operational export sector and has shown steady growth in previous years. IT industry exports reached USD 3.7 billion (approx. EUR 3.4 billion) in the first six months of 2022, a 23% increase on the corresponding period in 2021 (Bandura and Staguhn, 2023[30]). This amounted to 47% of total service exports in 2022 (IT Ukraine Association, 2022[63]). Moreover, IT companies were able to maintain 95% of contracts and the amount of taxes and fees paid by the IT industry in the first half of the year amounted to UAH 32.6 billion (approx. EUR 7.7 billion) (Kontsevoi, 2022[64]). In 2022, export volume of the IT industry increased by USD 400 million (approx. EUR 365 million) compared to 2021 (Tech Ukraine, n.d.[65]). By March 2023, the IT export volume increased by 9.7% and brought USD 53 million (approx. EUR 48 million) more to the Ukrainian budget compared to February. This is 15% higher than in March 2022 (Lviv IT Cluster, 2023[66]). As of 1 January 2023, the amount of taxes and fees paid by the IT business to the consolidated budget of Ukraine was UAH 32.2 billion (approx. EUR 7.6 billion).
However, since the end of 2023 and throughout 2024, continuing wartime challenges (e.g., difficulties operating in the global market, military drafts, and consequent scarcity of qualified personnel) have taken their toll on IT exports, which have started declining (Visit Ukraine, 2023[67]; The New Voice of Ukraine, 2024[68]). While the IT sector remains Ukraine’s largest exporting industry (The New Voice of Ukraine, 2024[68]), much of its perseverance can be traced to many ICT companies delivering from abroad, with their staff having relocated and the company still being registered in Ukraine. As such, throughout 2023, around 25% of employees of Ukraine’s main IT companies worked from abroad (Interfax, 2023[69]).
Nonetheless, while the devastating consequences of Russia’s full-scale invasion reach all corners of society, the government still considers its end to be an opportunity for large-scale reforms and plans a variety of ambitious measures to leverage this and to speed up the post-war recovery through digital progress (Etulian, 2022[70]). Digitalisation therefore features prominently in official state strategies and documents, such as MDTU’s “Digital4Freedom”-initiative, the initial Draft Recovery Plan (DNRP) prepared in 2022, and the Ukraine Plan superseding the DNRP (Motkin, 2022[71]; Ukraine Facility, 2024[72]).
Digitalisation can support the development and recovery of SMEs, in particular. The COVID-19 pandemic has already induced a significant shift towards digitalising Ukrainian SMEs, and digital tools and services have been helping SMEs cope with the impact of the war, as seen above. Some 54% of Ukrainian companies reported that they have invested in digitalisation in 2020-2021, with the highest share being reported by medium-sized firms (Knuth, Saha and Poluschkin, 2021[73]).
While digitalisation has proven to be a useful tool that can help firms increase their resilience and weather shocks, its potential has not been fully tapped by SMEs (Bianchini and Kwon, 2021[51]; OECD, 2021[74]). Data reveal that, while Ukraine’s IT sector is advancing rapidly, SMEs in non-IT sectors show limited uptake of digital tools. Significant gaps persist between SMEs and larger firms. For instance, close to 70% of large firms in Ukraine have a website, as compared to only around half of medium-sized (48%) and less than a third of small businesses (30%). Similarly, 52% of large firms use social media, but only around 36% and 27% of medium and small enterprises (respectively) do so. Uptake of more advanced technologies, such as cloud computing, remains rather low among firms of all sizes. Ukrainian SMEs appear to lag OECD peers in technology adoption – apart from big data, where Ukraine and OECD peers show comparable adoption levels (Figure 1.5). Ukraine is the only EaP country offering that range of data insights on businesses’ uptake of digital tools, with a methodology comparable to that of the OECD – collecting data on Enterprise Resource Planning (ERP), Customer Relationship Management (CRM) and Artificial Intelligence (AI) use, for instance, could complement the current approach.
Percentage of enterprises using the technology, 2022 or latest year available
Note: Data not available for Ukraine on use of ERP and CRM systems, as well as AI and IoT. Data refer to enterprises with 10 persons employed or more. 2022 data for social media, cloud computing, and online sales for Ukraine; 2021 for websites and big data for Ukraine. 2021 data for OECD values. Adapted from OECD (2021), The Digital Transformation of SMEs.
Source: OECD ICT Access and Usage by Businesses Database, Ukrstat.
SMEs have not yet fully reaped the benefits offered by digital tools. Accelerating their digitalisation would help them become not only more productive but also more resilient, and it would further prepare them for post-war developments. SMEs have great potential to be drivers of innovation and are key for Ukraine to “build back better”. In this sense, fostering digitalisation bears the potential of achieving the short-term goal of post-war recovery as well as long-term business modernisation. Moreover, if left unaddressed, persisting digital divides between SMEs and larger firms risk further harming economic growth and widening inequalities.
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← 1. At the end of 2023, 14 million Ukrainians had fled their homes – 5.1 internally, and 6.2 million across Europe (Ingram and Vora, 2024[46]).
← 2. Information retrieved through fact-finding exercises conducted in H1 2023.
← 3. Diia comes from the Ukrainian “Derzhava i Ya”, which translates to “the State and Me”
← 4. “Trembita” is a single interoperable system of public registries. It was established by Cabinet Decree in 2018 and underpins seamless e-government services as well as prevents the duplication of registries.
← 5. The number is currently reduced to 12 following the temporary closure of the Kharkiv and Mykolaiv Centres due to the war.