SMEs in Ukraine Choose Fair Conditions Over Special Treatment
When Ukrainian SMEs are given a choice between two options – to obtain certain benefits for their sector from the government or to make sure that the government creates equal conditions for all enterprises – they choose the latter.
This tendency manifested itself in the results of the second national “Annual Business Climate Assessment” survey in Ukraine. 74% of the surveyed Ukrainian SMEs believe that the government should create equal conditions for all entities doing business. The share of the SMEs that in the answer to the same question said that they would like the government to provide support for the companies in their specific sector is much smaller: 45%.
In other words, fair conditions for doing business are more important for Ukrainian SMEs than certain assistance from the state that would potentially help their branch compared to others.
The survey was conducted by the Institute for Economic Research and Policy Consulting as a part of the USAID “Leadership in Economic Governance” (LEV) Program. The field stage of the survey took place in late 2016 and early 2017. We surveyed over 1,800 SMEs in 25 regions of Ukraine (with the exception of Crimea and non-controlled areas in the East).
The overall aim of the survey was to quantify business climate and cost of regulations for SMEs in Ukraine, to learn what barriers inhibit business growth, and to identify priority reforms that businesses expect from the government.
When discussing expected reforms, SMEs expressed precedence of equal conditions for all businesses over special benefits from the state for some chosen sectors of enterprises. The ability to work in the environment of honest competition and equal chances is a priority for Ukrainian entrepreneurs who are often treated with selectivity by government bodies.
Unclear legislation that allows more than a few interpretations contributes to this selectivity, as do unjustified restrictions or preferences for certain categories of businesses and complicated regulations that are applied disproportionately to put pressure on businesses.
Ukrainian business community often hears promises of aid and support from the government. However, when political decisions are made, the needs of businesses are repeatedly ignored. For example, in late 2016, Ukrainian Parliament raised the minimal salary rate to UAH 3,200. This decision was announced and voted for over a very short period of time. Therefore, SMEs had too little time to adapt to the new conditions. And together with the significantly increased fines for the failure to comply with labor laws, this expanded the possibilities for abuse by state oversight agencies.
Another example is the recent sanctions that Ukraine adopted against a number of Russian web and software companies. Suddenly, many SMEs found themselves in an urgent need to replace these platforms which they had used for sales, accounting, marketing etc.
The non-transparent and rushed manner of making the decisions that impact businesses in Ukraine as well as insufficient communication between the state and the business community – all that deteriorates conditions for doing business in the country and creates new hazards of corruption and double standards.
The fact that the government should not treat businesses with selectivity does not mean that it should not provide any assistance to them. There are successful cases of government bodies in different countries helping entrepreneurs launch startups, reimbursing interest on loans or creating business incubators.
The decentralization reform that is currently implemented in Ukraine opens opportunities for boosting business development at the local level. Authorities in a city or an oblast can consult businesses about investing or exports, develop entrepreneurship training programs jointly with local colleges, and host business forums. They can engage entrepreneurs, including business associations, to the public discussion of issues that will impact SMEs in the region.
The basis for the implementation of these policies should be transparency and strategic planning, so that the business sector and local communities could see how and why public support is provided to enterprises.
And finally, what kinds of policy steps do Ukrainian SMEs expect from the government? Answering the same question, they named specific actions of the government that will help businesses in the country. Deregulation tops the list of these actions with 82% of surveyed SMEs looking forward to the reform which will reduce paperwork for businesses and cut down the time and money spent on compliance with regulations.
80%of SMEs want the government to simplify administration of taxes, and 67% expect the government to carry out a reform of tax agencies that would make them service-oriented.
78% of SMEs feel the need of a comprehensive online information resource where they would be able to follow the legislative changes and learn about other issues related to doing business.
These are the actions most expected from the government that would significantly improve the environment for SMEs in Ukraine.
In the same survey, we noticed the improvement of short-term business expectations. This means that businesses in Ukraine are ready to grow in the upcoming months. And the task of the government is to provide favorable and fair conditions for them.