Business warns that the new reservation rules could damage the defense industry, energy sector, economy, and food security
Kyiv • UNN
The government plans to review the limits on reserving employees of critical enterprises. Businesses forecast losses of personnel, production, and budget revenues.
The changes proposed by the government to the rules for reserving conscripts and determining critically important enterprises may lead to the loss of qualified employees, a reduction in production, disruptions to defense contracts, and decreased tax revenues to the state budget. Business representatives warn that another tightening of restrictions does not guarantee a significant increase in the mobilization pool, but instead creates additional risks for the economy and defense financing, UNN writes.
The government is preparing new restrictions for critically important enterprises
On October 13, the Cabinet of Ministers of Ukraine considered amendments to Resolution No. 76, which regulates the procedure for reserving conscripted employees. According to Forbes Ukraine, during the meeting the government did not make a final decision on reducing the reservation quotas for critically important enterprises.
The draft resolution proposed reducing the percentage quotas for reservations for enterprises in the defense-industrial complex and energy sector—from 100% to 85%, and for the utilities sector—from 75% to 60%. The relevant amendments are planned to be finalized within five days.
The provision excluding employees who have a deferment (students, parents of many children, and others) from the calculation was removed from the document.
The government decided to establish a Coordination Center involving the Security Service of Ukraine, the Main Directorate of Intelligence, the Foreign Intelligence Service, and the National Police, with the relevant decision to be further finalized.
At the same time, business representatives pointed out that the proposed changes had not been discussed with them and that businesses had not received official explanations regarding the decisions adopted.
Although the final changes have not yet been approved, the prospect of another review of the rules has itself caused concern among entrepreneurs. The issue concerns not only the number of employees companies will be able to reserve, but also the ability of enterprises to fulfill contracts, maintain production processes, and ensure the uninterrupted operation of critical infrastructure.
The issue is particularly acute for the defense industry and related sectors, the energy sector, and enterprises that ensure the population's basic needs.
Business warns of the risks of production cuts and employee losses
The Union of Ukrainian Entrepreneurs (SUP) opposed tightening the restrictions without a preliminary assessment of the economic consequences of the proposed changes and comprehensive discussions with business representatives.
The Union of Ukrainian Entrepreneurs opposes another tightening of restrictions on reservations without assessing the consequences and discussing them with business. We call on the Government not to introduce decisions that could weaken enterprises' ability to fulfill defense contracts, ensure the operation of critical infrastructure, and support the economy
The SUP emphasizes that enterprises have only recently completed procedures to confirm their critical status and re-reserve their employees. Another review of the rules complicates the planning of operations, contracts, and investments, while the repeated submission of documents creates an additional burden on businesses and government agencies.
Qualified specialists are difficult to replace quickly. This is particularly important for the energy and utilities sectors on the eve of the heating season and amid attacks on infrastructure. For the defense-industrial complex, the loss of employees could disrupt production cycles and contract fulfillment, while replacing them requires checks and access to sensitive information
The proposal for the defense-industrial complex to fix the number of employees as of the date on which an enterprise's critical status is determined is a separate cause for concern. Such an approach could create obstacles to expanding production and recruiting new specialists, even if an enterprise receives additional defense contracts.
Among other things, the SUP calls on the government to preserve the possibility of reserving up to 100% of conscripted personnel at defense, energy, and other critically important enterprises when there is a substantiated production need, and to hold relevant consultations with business.
A strong army needs a strong economy. The task of the state and business is to combine mobilization needs with preserving the ability of enterprises to manufacture products, restore infrastructure, and ensure Ukraine’s economic resilience
Restrictions on deferments from mobilization may pose a threat to food security
The All-Ukrainian Bakers’ Association (ABA), in a comment to UNN, warns of threats to food security related to restrictions on deferments from mobilization.
For the baking industry, the loss of key employees creates risks for uninterrupted production and the daily supply of bread to the population. Recognizing the priority of the needs of the defense forces, the ABA emphasizes the need to preserve the capacity of enterprises that ensure the state’s food security
The All-Ukrainian Bakers’ Association, like the Union of Ukrainian Entrepreneurs, calls on the government to hold discussions before adopting changes to the procedure for granting deferments from mobilization and to take into account the possible consequences for uninterrupted bread production and ensuring Ukraine’s food security.
Instead of strengthening mobilization, weakening the economy
Andriy Dlihach, founder of the Advanter Group of companies and the Board community, and co-founder of the Center for Economic Recovery, believes that the proposed changes do not address the systemic problems of mobilization. Instead, they could cause significant harm to businesses.
We view the proposed changes to the deferment rules negatively. First, this is not a solution that would significantly improve the state’s mobilization potential. These changes would affect tens of thousands of people, whereas, according to available estimates, around 1.5 million people are wanted. In other words, the scale of these phenomena is incomparable
According to him, the problem also lies in the constant changes to the rules under which enterprises operate. Companies plan production, enter into long-term contracts, invest in development, and hire employees based on the rules in force. And when the state changes them, enterprises lose the ability to forecast their activities.
The state is effectively changing the rules of the game retroactively once again. Businesses, particularly those in the defense and energy sectors, which are currently at the center of ensuring the state’s resilience, need predictable operating conditions. It is already extremely difficult to find qualified specialists. And this approach signals to businesses that conditions may only get worse
In his view, this approach creates a risk that Ukrainian companies will move their production facilities and engineering teams abroad. For the state, this would mean more than just the loss of jobs. Along with relocation outside Ukraine, tax revenues to the budget, investment, and added value could decline.
"We have already seen similar processes due to bans on weapons exports and other state decisions," Dlihach recalled.
At present, companies in Ukraine are operating amid constant Russian shelling, a shortage of personnel, high production costs, limited access to financing, and the additional uncertainty surrounding deferments from mobilization will have a negative impact on the economy.
We have repeatedly modeled the consequences of worsening the conditions for deferments from mobilization. This does not necessarily lead to increased mobilization; instead, it may result in staff reductions, lower economic activity, and reduced revenues to the state budget
Thus, the state may lose part of the funds that are currently directed toward supporting the Armed Forces and the functioning of the economy, which is particularly dangerous amid a budget deficit.
In Andriy Dlihach’s view, the state should focus not on yet another reduction in quotas, but on creating a system that would make it possible to support mobilization while simultaneously ensuring economic resilience. He names the introduction of a model of economic deferments from mobilization for critically important employees as one possible solution.
As early as 2024, it could have provided additional resources to finance defense by bringing wages out of the shadow economy. According to our estimates, potential revenues could have amounted to approximately UAH 250 billion per year. However, in our view, the refusal to introduce such a system contributed to the preservation of large-scale corruption risks in the reservation system
Dlіhach also proposes reviewing approaches to the use of human resources in government bodies, including assessing the possibility of reallocating them in favor of the Armed Forces.
According to him, business representatives plan to communicate with the Minister of Economy and the Prime Minister, and are also preparing a joint statement by think tanks and the business community with alternative proposals for the relevant order.