Ukraine is experiencing an extraordinary political crisis, but it is also facing serious economic problems. The current account deficit is at 8.9% of GDP, foreign exchange reserves stand at a critically low level, the economy is heading toward recession after posting 0% growth in 2013, and the currency has already depreciated by close to 10% since November. These are signs of a full-blown economic crisis waiting to happen.
For MNC executives, the current level of uncertainty in Ukraine creates significant challenges in forecasting and planning. In response, many companies are adopting a wait-and-see approach in anticipation of a stabilization. What they are missing is the fact that the political crisis is unlikely to be resolved for at least several more months, even if violence ends, and that the economic problems are likely to become much more acute before the end of the year.
Instead of waiting for the dust to settle, executive teams should be proactively building contingency plans to prepare for the operational risks their business in Ukraine faces in the coming months. Plans should include steps such as:
- Assessing the financial stability of distributors and local suppliers and providing proactive support when necessary
- Planning how to adjust salary levels in the case of deeper currency devaluation which could affect local staff salaries
- Increasing compliance monitoring of local partners because corruption risk may rise as demand falls and partners risk missing targets
In our report “Ukraine on the Brink: Contingency Planning for Multinationals” we provide a detailed analysis of key operational risks in Ukraine by business function and suggest actions companies can take to mitigate them. FSG clients can access the full report here.