The business climate for small and medium-sized businesses is slowly but surely improving in the Ukrainian regions. One of the engines of progress has been a large-scale survey entitled Regional Doing Business, carried out for the second year in a row by the Better Regulation Delivery Office (BRDO), funded by the European Union as part of the FORBIZ project.
In October last year, a festive event was held in the city hall of the central Ukrainian city of Vinnytsia to celebrate the region's top national ranking in ease of doing business, according to the Regional Doing Business study. The region was recognised as offering the best conditions in the country for small and medium-sized enterprises (SMEs). The ranking was carried out by the Better Regulation Delivery Office (BRDO) with support from the Union of Ukrainian Entrepreneurs (UUE). The BRDO, supported by the European Union as part of the FORBIZ project and the EU4Business initiative, has been tackling the problems faced by SMEs for over two years. This is the second Regional Doing Business ranking compiled by the BRDO.
Our main task is to improve the business climate in Ukraine, with a focus on the small and medium-sized business segment," explains Tetiana Kovryga, head of the BRDO communications sector, who is preparing the ranking. "Two years ago, we realised that we were lacking information on the problems and obstacles faced by small businesses in the regions." In addition, public discussion of the main problems should stimulate the local authorities into addressing them, the expert says. The decentralisation process that began in Ukraine several years ago also adds relevance to the ranking, as local authorities now have more power to influence the business climate in their regions. According to the results of each ranking, BRDO draws up recommendations for local authorities on how to improve the business climate in each of the regions.
Attitude change
For the Regional Doing Business study, the BRDO applied the methodology used by the World Bank for its similar global ranking. "However, it has been adapted to the needs of SMEs in Ukraine," says Vitaly Bezgin, an expert at the BRDO. Although the World Bank applies ten criteria for the ease of doing business, the BRDO has six – ‘setting up an enterprise’, ‘obtaining a building permit’, ‘registering a plot of land’, ‘connection to electric grids’, ‘payment of local taxes’ and ‘e-services’. These are all indicators that can now be influenced by local governments in Ukraine. For example, the first component, ‘setting up an enterprise’, assesses how easy it is to open a business in the regional capital. The complexity of this procedure is determined by three criteria: the amount of time needed to set up an enterprise, the number of visits it takes, as well as the amount of money required.
The Zhytomyr region took the lead in the ease of setting up an enterprise in Ukraine in 2018. Opening a business there takes seven days, with two procedures involved, at a cost of €8.50. Moreover, in the year that has passed since the publication of the first Regional Doing Business ranking, the region has further improved its conditions for business."We were able to change the attitude of the city authorities to the problems voiced," explains Tetiana Kovryga. She says that when the first ranking came out, the Zhytomyr authorities just listened to the proposals, but after the second they began to initiate communications with the BRDO. "They called businessmen and experts to a meeting," she says, "to hear the various points of view and to develop a roadmap that would suit all parties, including themselves, as city authorities."
From the worst to the best
However, the most striking example of changes for the better is the Chernihiv region. It is one of the poorest regions in Ukraine, ranking low in industrial development and with wages among the lowest in the country. In 2018, the region topped the ranking in a single criterion – obtaining a building permit. This category is important for business and includes an estimate of the amount of time and number of visits required to process such a document, as well as the formal and informal cost of the service.
According to Tetiana Kovryga, Chernihiv has improved its score in this area by 17 points through the year. It came about because a group of legislators in the city council studied the previous Regional Doing Business in 2017, where Chernihiv was ranked among the worst performers, and decided to change the situation. "Young, progressive legislators took an interest in our recommendations and followed them up, drafting some resolutions," says Tetiana Kovryga. "After that," she says, "they passed these drafts through the local council, eventually reducing the burden on business on some taxes by a factor of 100. The outcome was not just an improvement in the ranking position, but saw the opening of three new production facilities and the creation of new jobs," Kovryga adds."Indeed, the tax cuts meant that the local budget lost a bit in the short term, but in the long run, new production facilities and jobs are a greater advantage," she adds. Kovryga says the city authorities of Bila Tserkva are also interested in the BRDO recommendations on improving the business climate for SMEs. This city, located near Kyiv, is seeking to attract investors.
Best practices
This year's Regional Doing Business will introduce a new criterion. Experts will try to assess the regions in terms of their attractiveness to the tourism business. After all, this is an industry dominated by SMEs – travel agencies, cafés, restaurants and hotels. There is another new idea. Vitaly Bezgin, a BRDO expert, says that, in addition to proposed packages on how to improve the business climate, regional authorities will receive another document. This will be a collection of case studies of the most successful changes implemented by municipal authorities that have benefited SMEs and also brought positive developments to their cities. "So every representative of the local authorities will be able to see how one or another of his neighbours acted in a particular situation," says Vitaly Bezgin, "and to what effect – whether there was any growth or not." The next ranking of the regions should be released in October 2019.
The activities of the BRDO (Better Regulation Delivery Office) receive support from the European Union as part of the FORBIZ project and the EU4Business initiative. The mission of the BRDO is to streamline business processes and to promote efficient governance in the key economic sectors. The FORBIZ project serves to assist the programme of reforms in Ukraine and to promote economic growth through the systemic improvement of the business climate. Small and medium-sized enterprises (SMEs) are the focus of the project. The major task is to facilitate a shift in economic policy agenda to recognise the significance of SMEs their important role in the country’s economic recovery. At the same time, the project’s activities are also aimed at reducing the regulatory burden and risks for enterprises.
Author: Katerina Shapoval
The article was prepared for the EU4Business initiative.