“They inspect everything that moves”

In 2010 Ukraine saw the signs of favorable conditions for business. This is the cautious conclusion the Word Bank’s International Financial Corporation (IFC) made in the course of the survey “Investment Climate in Ukraine: Laying the Groundwork for Further Development.” But Serhii Osavoliuk, manager of the IFC pro­ject Investment Climate in Ukraine, says Ukraine still ranks 152nd out of the 183 countries in the Doing Business 2012 report that shows the extent to which the investment climate in the world is favorable. Incidentally, Kazakh­stan, Belarus, Kyrgyzstan, Mol­do­va, and Russia rank 47th, 69th, 70th, 81st, and 120th, respectively, in this rating.

According to this survey, in 2012 it became somewhat easier in Ukraine to open and close a business, obtain permission for construction, and overcome insolvency than the year before. “Ukrai­ne has made certain pro­gress in improving the investment climate,” the survey authors note, but add, “But other countries have done more.” They note a downward trend in Ukrai­ne’s international trade, crediting, investor security, and property re­gistration.

To measure the real effectiveness of reforms in practice, the IFC has done one more survey, “Investment Climate in Ukraine as Seen by Private Business.” The poll involved 1,636 state-run company managers and 415 private entrepreneurs in all the regions of this country. The conclusions are, by and large, not so comfortable. In 2011 the private economic sector of Ukraine officially and unofficially spent 7.2 billion hryvnias (900 million dollars) on permits, inspections, and technical regulation. “How many jobs might have been created for this money!” Osa­vo­liuk exclaims. He says the supervising authorities of Ukraine are still “inspecting everything that moves.” The expert is convinced that “it is necessary to drastically cut down on permits and licenses. In our opinion, there is no other mechanism here than the ‘single window.’ The declarative principle should also be used more extensively. This principle is not applied to 90 out of more than 100 permits. This must be reduced to 10-15. And, finally, it is necessary to revise permit and license requirements.”

Martin Raiser, World Bank (WB) Country Director for Ukrai­ne, Belarus, and Moldova, is also convinced that “Ukraine will have no sufficient potential for signing a free trade area agreement with the EU unless it reforms the sy­stem of technical regulation.” Mo­re­over, according to Raiser, taxation reforms in Ukraine have had no positive effect on private business. “On coming to Ukraine, investors have to turn to embassies and other investors to learn the specifics of working in Ukraine,” Raiser says. “They can be stripped of their business very fast. It is dangerous enough here, which everybody admits. One should have a very clear idea of what caused this problem: the laws, the judicial system, or some other factors. One must focus on and comprehensively study this matter.” Nor does he believe that the taxation reform has been successful. “Analyzing the doing of business in Ukraine, one should note that the reforms carried out in the field of taxation have not had a positive effect on enterprises’ accounts,” the WB director notes.

Rainer had said some time before: “Ukraine needs deregulation. We have long seen that, in reality, there is less reform than it was expected.” Among the factors that have caused the reforms to fail, he pointed out their slow pace, unwillingness of the local authorities, and, what is more, lack of mutual trust between the government, the populace, and entrepreneurs. “It seems to me what Ukraine first of all needs now is a good and constructive dialogue,” the WB director emphasized.

The survey showed that inspections by the controlling bo­dies were becoming – very slow­ly – less frequent. It is the public hygiene office and the veterinary inspection that conducted most of the examinations in 2010. They are followed by the tax and fire inspections, which account for 46 and 39 percent, respectively, of all the examinations.

Corruption remains an integ­ral part of the Ukrainian business environment – it is on the rise rather than on the wane. The survey shows that, while 35 percent of businesses resorted to unofficial ways of settling disputes with governmental bodies in 2008, this figure rose to 46 percent in 2010. Accordingly, 20 and 25 percent would present some gifts to the civil servants whose decisions could affect the performance of a business. But it is the other two figures that really take the biscuit: while businesses used 6 percent of their revenues for corruption in 2008, they had to shell out 10 percent in 2010.

However, businesspeople are more and more successfully defending their rights. For example, entrepreneurs are increasingly applying the principle of tacit consent which was introduced in February 2010 to ensure the granting of a permit. IFC surveys show that in 2010 eight percent of enterprises faced the problem of red tape on the part of the license-granting bodies, including failure to meet the law-established deadlines. Tellingly, almost a half of them (47 percent) dared to defend their rights and applied this principle without waiting for bureaucrats to make a decision.