Ukraine: Closing transparency gaps in Eastern Europe
Over the past five years, Ukraine has experienced significant political, security, and economic challenges including the outbreak of conflict in eastern Ukraine that culminated in the overthrow of the Ukrainian Government in 2014. Despite these turbulent times, the Ukrainian economy is showing signs of improvement and in 2018 the country recorded a 3.2% GDP growth with increased exports of raw materials and intermediary goods such as metals, chemicals and transport equipment.
With a growing GDP and expanding markets, should you consider shifting your sourcing footprint to Ukraine? Before making the move, you have to consider the fact that Ukraine is still not a key country in the global manufacturing supply chain. This means that in spite of our best efforts, there is still limited social audit data available about supplier performance and sustainability compared to neighboring countries. Ukraine’s overall lack of maturity in the manufacturing sector and scarcity of data are additional factors affecting risk that needs to be considered and assessed further before entering its local markets.
According to the Ukraine Supply Chain Risk Profile, the Business Ethics risk score continues to be a high risk (3.84) with key concerns in business transparency, infringement of property rights and corruption. To support growth in Ukraine, our recommendation is for greater scrutiny, comprehensive assessments, and investment in supplier transparency.
Ukraine Supply Chain Risk Profile
Source: ELEVATE (2019). EiQ
Ukraine is a high-risk sourcing market presenting significantly more risk compared to the medium-risk Eastern European countries – Poland, Czech Republic and Romania.
Source: ELEVATE (2019). EiQ
Business Ethics is the main risk in Ukraine. Traditional audits fail to pick up sensitive violations among suppliers and we recommend that companies ensure transparency by leveraging mobile or other technologies that provide confidential data collection for workers to report violations, especially related to working hours, freedom of association, and health and safety hazards.
Environment is the second largest area of risk. Companies need to inform suppliers about their expectations on environmental performance and need to run periodic assessments of air emissions and waste management. We recommend that brands collect assessments previously run through standardized and reliable audits to assess trends in the environmental KPIs. Brands can leverage this data to recognize and reward top performing suppliers and to identify opportunities to partner with suppliers with lower performance to advance compliance practices.
The third largest area of risk is health and safety. We recommend that companies ensure that suppliers assign dedicated resources to raise awareness of health and safety standards, act to correct violations, and ensure the establishment of the health and safety committees in the factory and the workers’ participation.
Finally, given the ongoing conflict in the country, we recommend that companies regularly check the US OFAC, EU and UN company / individual sanction lists and run significant financial due diligence to verify that business partners are not on the lists.
Contact ELEVATE to purchase the full report and commission supply chain risk profiles for additional countries.
New ELEVATE risk data for 2020 is now available in EiQ.
These blogs are written by ELEVATE staff members or associates and the views and opinions expressed are not necessarily those of ELEVATE.
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