Small and medium-sized enterprises (SMEs) are the backbone of Ukraine’s economy, making up 99.9% of all enterprises, accounting for 81.6% of total business employment and generating 70.2% of value added – exceeding Eastern Partnership (EaP) and EU levels. However, they remain concentrated in low-value-added sectors, with about 40% of them operating in wholesale and retail trade, despite a decrease in recent years.
Russia’s full-scale invasion has inflicted severe damage to Ukraine’s economy and society. Economic challenges include the destruction of infrastructure and property, losses of human capital through internal and external migration, disruption of supply chains, difficulties with logistics, cuts in export earnings and compression of fiscal revenues. With regards to the business environment, 64% of SMEs have temporarily suspended or closed their activities since the start of the war. While 84% of suspended companies managed to resume working within six months, constant attacks on critical infrastructure, power shortages, and blackouts, still hinder SMEs’ economic recovery. Firms continue to face various challenges including, inter alia, a decrease in demand and labour productivity, cost increases, supply chains disruptions, as well as from forced relocation to more secure regions.
Against this backdrop, Ukraine’s information and communication technology (ICT) sector has been flourishing, fostering economic growth, and providing avenues for increased resilience and recovery, thanks to dedicated policy measures taken by the government. Digitalisation and a well-developed ICT sector can contribute to economic development and growth. Digital technologies not only offer a vast potential to enhance firm productivity but can also help enhance resilience and recovery in times of crisis. Well aware of the potential benefits, the Ukrainian authorities have increased their digitalisation efforts and made great advancements since February 2022, ranging from providing new administrative services online, e.g., through the expansion of the Diia ecosystem, to facilitating reconstruction with the e-Construction initiative. Beyond short-term policy responses, digitalisation also bears the potential of enhancing Ukraine’s overall recovery and long-term modernisation.
The digital transformation can particularly benefit SMEs’ resilience, as their limited financial and human capacities make them highly vulnerable to shocks. However, Ukrainian SMEs are yet to tap into the full potential of digitalisation. They show limited uptake of digital tools, lagging larger firms. For instance, close to 70% of Ukraine’s large firms have a website, as compared to only around half of medium-sized (47%) and less than a third of small businesses (30%). Tech adoption levels remain below OECD levels.
Looking ahead, the Ukrainian government is committed to further improve the SME sector and to enhance SME digitalisation, including through the upcoming SME Strategy 2024-27. The OECD supported the country in designing policies to help SMEs tap into the full potential of digitalisation for economic growth and recovery, providing policy analysis and recommendations to feed into policy documents and initiatives. This report summarises the findings, organised around three main components:
Building an effective ecosystem for SME digitalisation at the national and sub-national level: Digital transformation is a policy priority for the government, which has adopted several national documents and strategies addressing the topic (e.g., National Economic Strategy 2030, Global Innovation Vision 2030). SME-related digitalisation provisions, however, are scarce. Moving forward, Ukraine should streamline measures for SME digitalisation into one policy document, such as the upcoming SME Strategy or a dedicated National Digital Strategy, associated with clear measures, targets, and dedicated budget reflective of Ukraine’s long-term budgetary capacity and recovery needs. Ukraine has made significant efforts to build a strong institutional framework for SME digitalisation at national and subnational levels, especially by establishing the Ministry of Digital Transformation (MDTU) in 2019, as well as through the development of Diia.Business (including offline Diia.Business support Centres across Ukraine and in Warsaw). Policy co-ordination was enhanced, notably through Chief Digital Transformation Officers (CDTOs) tasked with implementing digitalisation policy and acting as focal points across layers of government; yet more could be done at the local level, better defining CDTOs’ role in SME digitalisation and ensuring regular public-private exchanges. Moreover, awareness-raising of the benefits of digitalisation and support services in smaller cities and villages, as well as peer learning between SME managers, would help strengthen the approach and bridge territorial gaps.
Developing comprehensive support services for SME digitalisation: While the government is already taking several measures to enhance SME digitalisation, small firms are still facing a variety of challenges: they are often unaware which digital tools exist, how these can benefit them, which digital skills their workforce needs, or which support services are available. SMEs often lack the financial means to invest into digital technologies. To help them overcome these challenges, the Entrepreneurship and Export Promotion Office (EEPO) provides several online support services through Diia. Still, SMEs lag behind regarding the uptake of digital tools and lack programmes tailored to their specific needs. To support SMEs with different levels of digital maturity and in different sectors, the Ukrainian government could hence consider developing a comprehensive support programme, including an online digital maturity self-assessment tool for SMEs, sector-specific digitalisation support, and connecting SMEs with independent, private consulting service providers for in-depth consultations. Regarding financial support for digitalisation, while the government’s budget goes towards defence and current circumstances do not allow to dedicate extensive funding to SMEs’ digital transformation, certain co-financing mechanisms might still be viable, especially looking towards Ukraine’s recovery and reconstruction. The government could further consider introducing post-war incentives for SMEs to invest into their digital transformation in the long-term, e.g., through vouchers, loans and (co-financed) grants.
Leveraging digitalisation to tackle war-related challenges and plan for the recovery: Focusing on some of the war-related challenges, this section delves deeper into e-commerce as a way to alleviate the impact of trade disruptions, and digital security for SMEs to better manage risks and foster overall cyber resilience. On the one hand, Ukraine’s e-commerce market has been growing, fostered by policy measures and increasing alignment with EU standards; but data reveal that SMEs’ use of e-commerce remains limited, with only 4.2% of small ones making online sales, vs. 10.5% of large companies. Targeted support, notably to help them reduce shipping costs and time, raising awareness of market opportunities and keeping track of changing laws and regulations would be beneficial. On the other hand, while Ukraine has shown cyber resilience, limited strategy implementation and stakeholder co-operation has impeded the effectiveness of digital security policies. SMEs remain particularly exposed to digital security risks, and their overreliance on Russian software such as 1C increases their vulnerability, in a context where the country has been facing increasing Russian and suspected Belarusian cyberattacks. Ukraine could therefore consider measures to help small firms better manage digital security risks, while increasing stakeholder co-operation and strengthening the policy framework in the longer term.