Relations between small business and local authorities cry out for regularization
A series of bazaar rebellions have swept across the Crimea. Not so long ago, pickets blocked the Simferopol-Yalta highway at Alushta, paralyzing holiday traffic for almost three hours. Similar actions took place at Sudak, Simferopol, and other populated areas. The street market business is a source of mounting social tension, a fact acknowledged by both local authorities and businesspeople. The street market is now a venue of numerous problems and controversies. The Day asked Volodymyr RIABOSHAPKO, chairman of the standing Crimean parliamentary Committee for Foreign Economic Contacts, Trade, and Entrepreneurship, to comment on what is happening there.
Mr. Riaboshapko, under the Soviets the street market was considered something of minor importance in the common rather than scientific sense. What is it like today?
It turns out that what they used to call derogatorily a bazaar turned into an important socioeconomic phenomenon after the planned economy began falling apart. To begin with, 50-70%, sometimes 90-100% of industrial goods and foods are bought on street markets, meaning that it became a powerful social stabilizer, through which most of people’s needs were supplied; on the other hand, it provided employment for those who lost their jobs and had no other way to make a living because of the economic collapse. Third, the street market was a teacher of economics for the former trade sphere and for production, offering goods with quality and in an assortment that Soviet trade and industries could only dream of. Also, most of our medium and small businesses got a foothold there. So we must approach the street market from a totally different angle today; we must study its trends and organize its work scientifically. Unfortunately, numerous current administrators do not seem to have grasped this.
Is our street market as unmanageable as before or could there are any indications that it can be brought under control? On the other hand, is this unmanageability good or bad?
I believe there are certain things in the market sphere that should be controlled, but there are other that should never be. For example, there in no way to control the price-formation policy or restrict free enterprise. But market organization, location, sanitary condition, and so on, must be supervised. Now that the street market has become a significant component of the economy, the authorities must help develop this sphere to become civilized. Formally, the government is doing its best. There are regular meetings of [retail] trade and consumer protection committees and every effort is being made to monitor the implementation of the law of Ukraine On the Protection of Consumer Rights, and Street Market Trade Procedures as well as the presidential order On Measures to Improve the Operation of Markets Selling Industrial Goods and Nonfood Commodities. The Council of Ministers and Supreme Council of the Crimea pass resolutions; we have Measures to Regularize and Upgrade the [Street] Markets in the Autonomous Republic of the Crimea and even a Concept to Improve the Operation of the Markets Selling Foods and Nonfood Goods in the Autonomous Republic of the Crimea was adopted in March 2002. On the strength of these documents street market development programs have been adopted in all cities and administrative districts of the republic and interministerial commissions set up under local executive committees. However, what happened at Alushta and other cities recently is becoming common practice, with medium and small businesspeople becoming the most active pickets... Things like that happen because various government agencies often reduce their efforts to pestering uncivilized inspections – and this at a time when the market needs support and protection. As it is, the street market and small business, being a spontaneous popular initiative, have to evolve on their own, while the authorities meant to assist them and direct their development are simply acting like parasites on that popular initiative, trying to profit from it on a scale threatening the very existence of that business. On the other hand, local authorities sometimes prefer to take only measures of interdiction, without ever getting down to specifics. In Alushta, they banned sales on the beaches, never bothering to analyze the scale of the phenomenon and their own enforcement capacities. People came to the city council to discuss the problem, only to be told that the officials concerned were not available. This made the situation worse, there were pickets blocking highways and in the end the city hall had to call an extraordinary meeting to cancel its ill- advised decision. Naturally, they should have known better.
What is the scale of street market business in the Crimea?
Statistics of city council executive committees and district state administrations show that there are a total of 243 such markets in the autonomous republic, accommodating 43,200 sellers, compared to 267 last year. Actually, this is positive statistics, meaning that unauthorized makeshift markets have been closed down and replaced with larger modern planned and equipped facilities. As a result the number of sellers has not decreased but increased by 1,500. There are 47 food and 29 nonfood markets (including seven automotive, nine flower, as well as construction materials, radio, and book markets), also 156 mixed markets. 158 such markets are in cities, accommodating 35,800 sellers. This represents 65% of all Crimean markets and 83% of all sellers and vendors. Privately run markets constitute 26.3% (64); 28.8% are collectively owned (70); 17.7% by consumer cooperative societies (43), and 27.2% are under municipal ownership.
As a rule, street markets are built and renovated at the owner’s expense, which is anything but easy. Some 15 million hryvnias worth of private money was spent on such projects in Simferopol in 2001 alone. There is an investor in Yalta who is prepared to invest about 200,000 hryvnias in the repair of the city’s central market. Another 160,000 will be spent on the repair of the arcade’s interior where meat and poultry are sold to vacationers. This is good news.
What trends could you single out in the development of street markets and small business?
There is a constant increment in commodity turnover. Some 34,000 tons of meat and vegetable products have been sold to the Crimean populace and vacationers in 2002, which is 3.7% more than last year. Sales of fish, meat, and poultry have risen three times, honey 1.4 times, eggs, cereals, sugar, vegetable oil 1.2 times, flour and milk 1.1 times... Street market sale budget returns amounted to UAH 18.2 million in five months of this year, including UAH 4.3 million worth of market tax. Compared to the same period of last year, the market tax yield has increased by 17.5%.
Since most small businesses started by residents are in some or other way involved with the street market, the relevant small business statistics are rather interesting, the more so that they are also set up and developed under businessmen’s patronage, as nobody relies on any help from the state. The Crimean statistics department has it that in 2001 smalltime wholesalers and retailers sold 77.1% of all grain crops, 54.9% fuel and lubricants, and 55% alcoholic beverages supplied to the peninsula. Small business accounted for 16-17% in the sales of confections, pastries, and soft drinks on the Crimean wholesale market, 45.5% of medicines, and 0.4% tobacco products. Smalltime wholesalers and retailers sold UAH 1.4 million worth of goods in 2001, or 52.7% of the Crimean wholesale turnover.
The statistics department also says there were almost 11,000 small businesses operating in the autonomous republic in 2001, and over the past several years the average increment has been 22.2%. In other words, there are 53 small businesses per 10,000 residents, with 82% located in the urban areas and 73% operating in the service industry because investment there pays off quicker and without additional heavy spending. Small businesses embrace 75,600 individuals, or 13.2% of those engaged in all business. Their share in commodity supply, work done, and other services was 12.6% in the Crimea, compared to 2000, and totaled UAH 948.5 million.
Which of the problems hampers the development of street markets and related small business most?
I suppose there is nothing one could call of minor importance here, but the market plot allocation red tape is perhaps the worst hindrance. In most cases everything is handled the wrong way around. First a street market appears out of nowhere, then they try to legalize it by hook or by crook, and the plot allocation problem comes first. A plot can be denied or given for a short period, say, a year. Thus, only one out of twelve such markets in Dzhankoi district has the required papers; two of fourteen markets in Saky district are officially registered. According to the environmental protection department of the Crimean prosecutor’s office, only 11 of 40 street markets in Simferopol operate in keeping with the legally established land allocation procedures...
Naturally, no one is going to invest in markets without legally allocated plots. They just put up stands and start selling things. Such markets cannot be expected to make a decent profit or provide quality goods. We believe that local authorities must allocate plots for a term of at least ten years. In that case their owners will be interested in developing infrastructures, turning such street markets into modern shopping centers.
What is being done to upgrade street market management in the Crimea?
For the first time the Crimean parliament has formed a standing commission to handle foreign economic relations, trade, and entrepreneurship. However, I believe that this mechanism is not enough to keep the street market manageable. It takes a special authority, a state structure that could protect it and know how to handle it, rather than pester it with inspections and interdictions. For example, most problems arising from the street market and faced by businesspeople there are caused by the inadequate market trade procedures adopted by the cabinet without coordinating them with business structures. An important step forward was taken by recognizing the street market as a business entity, yet the trade procedures unlawfully determine the parameters of a stall: a counter one meter long and the entire site not more than two square meters, thus turning it into a gravy train for all kinds of inspectors. First, a stall this size is not enough for normal business (often it’s not large enough even to display your merchandise). Second, these restrictions automatically boost unauthorized sales. I think that the president and parliament will support the proposal of the State Tax Administration and Regulatory Policy Committee to entrust local authorities with working out street market trade procedures and that we will have then a really useful document.
Also, we badly need a generalized document, regulations, or even a law on the street market regulating all relationships between small business and the local authorities. Without doubt, such an important and sizable sector of the economy rates a separate law.
Under the existing norms, a street market is not officially inspected unless it is duly registered, so it often happens that official reports might say there were twelve such markets in a given city last year but only one this year. This doesn’t mean, of course, that there has been a sharp decline in trade. On the contrary, and it’s just that eleven such markets have become illegal. As a result, the city has lost in terms of quality market service and the budget has lost substantial money in terms of tax revenues. In fact, the tax authorities report local budget losses owing to the existence of such illegal markets, specifically UAH 7,500 in Feodosiya, 10,600 in Dzhankoi and Dzhankoi district, 96,000 in Bakhchisarai district, totaling millions of hryvnias throughout the Crimea.
Running a street market is much harder than a factory. At present, it is the most complex and hazardous field of endeavor. Ukraine has not learned to handle it in its eleven years of independence. The longer we remain unable to cope with it, the more bazaar revolts we will have to suffer.