The Annual Business Climate Assessment in Ukraine 2015 (based on the SMEs survey results)

Unstable political situation, low demand, taxburden, inflation,and complicated tax administration are main barriers for small and medium businesses development in Ukraine

The USAID LEV Program experts made the above conclusions based on the analysis of the Annual Business Climate Assessment survey (ABCA). According to the survey, corruption still remains a significant constraint (ranked No.7) for the business climate in Ukraine, however the state’s reduction of administrative burden will contribute to spurring the development and activation of SMEs in Ukraine in the upcoming years.

The central ABCA survey index, the "Index of business climate" in Ukraine, is slightly higher at around “0”on a scale from -1 to +1. The main index components are the expectations and assessment of the current situation. Generally, small and medium enterprises (SMEs) in Ukraine spent a total of UAH 29 760.00 annually and 15% of their time on regulatory compliance. At that, the smaller an enterprise is, the heavier its regulatory burden. “As caIculated per one employee, the total annual cost for medium-sized businessesmakeUAH 268, small businesses – UAH 1 145.00, micro-enterprises –UAH5 952," Oksana Kuziakiv, Analytical Component Coordinator of the USAID LEV Programs and Executive Director of the Institute for Economic Research and Policy Consulting explains.

The changes in the regulatory environment in recent years were positively evaluated by the businesses. In comparison with 2012, in 2015 the entrepreneurs more often reportabout the lack of impediments related to business registration and mention a better situation with the permanent checks.

It is quite paradoxically, but according to the survey, the majority of Ukrainian SMEs (86%) perceive the state as a "barrier" or "enemy" in doing business and almost the same number of businesses (89%) expect direct or indirect support from the state. At the same time, entrepreneurs trust local authorities significantly more (62%) than the state authorities (the Government - 30%, President - 25%, Parliament - 22%). This proves high expectations forthe decentralization reform.

The ABCA survey allowed not only evaluating the changes in business climate, but also presented a fully-fledged picture of small and medium-sizedbusinesses in Ukraine, with the average age of an entrepreneur being 45 y.o., and equalrepresentation in the survey samplingby businesswomen and businessmen. Most SMEs are operating in the field of services and trade. Almost half of the companies work on the local markets and most SMEs do not plan to enter new markets. “During the last two years, over 50% of the surveyed companies introduced some innovations: 29% reported the launch of new products or new services, 19% introduce new management techniques, 18% launched new promotion and marketing techniques. It inspires, witha touch of cautious optimism,” the USAID LEV Artur Kovalchuk said.

One out of ten SMEs in Ukraine is engaged in foreign economic activity, i.e.exportor import. At that, an average SME exporter supplies products in two countries. “Customsclearance takes on average two days and UAH 1727.00, with 6.8% of exporters additionally payingbribesto streamline the process. Overall, SMEs did not face significant difficulties in running their exports and imports. Exportersdo not consider corruption in customs as a problem, which allows us to suspect that it serves as a means of facilitating administrative procedures,”Andrey Butin, USAID LEVProgram expertreported.

1 827 SMEsectorrepresentatives participated in the survey and assessed the current business climate in Ukraine as well as the reforms expected from the state. The USAID LEV Program will conduct the ABCA on an annual basis and aims to track the dynamics of changes.

View and download the survey

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