SMALL BUSINESS GETS SMALLER

The poll showed that unreasonably high taxes
are the main obstacle to development.
95% of businessmen polled complained about this. 82% noted the large number of different fees
and taxes; 70% are not satisfied with frequent changes in tax reports.

Small business in Ukraine
is still developing too slowly despite
the government’s widely advertised
attempts
to change things. This
the conclusion you can
come to examining results
of the poll, conducted
by the International Financial Corporation.




Tetiana Cherniak

In the cities of Dnipropetrovsk, Kharkiv, Lviv and Vinnytsia, where IFC centers are operating, 200 businessmen were polled. They were asked to answer a number of questions on how to run a business in Ukraine. Manager of the IFC project in Ukraine Thomas Raider and project analyst Tetiana Cherniak comment on the survey results and explain the reasons for sluggish business development.

T. C. The poll showed that the situation with small business has worsened and there are no real changes for the better. All the problems we had year and a half ago still remain. Even official statistics do not claim an increase in the number of active private businesses. Today, there are 100,500 small businesses in Ukraine, a country of 50 million people. Last year there were 99,600. Poland with its 39 million people has over 2 million private businesses. Statistics show that the number of companies is declining: of 280,000 registered enterprises only 30% pay taxes. The poll showed that unreasonably high taxes are the main obstacle to development. 95% of businessmen polled complained about this. 82% noted the large number of different fees and taxes; 70% are not satisfied with frequent changes in tax reports. Entrepreneurs also mentioned low demand (47%) and debts (32%),as causing problems in trading their products. 18% are disturbed by the large number of activities requiring licensing. 16% have difficulty getting credit, and 9% feel pressure from the local authorities

Q: Entrepreneurs have been mentioning these problems as obstacles to business development for several years already. Nothing has changed so far except for a verbal campaign of support for small business. Does this mean that the present situation somehow in the authorities’ interests?

T. C. Hardly. It is merely that the present situation is so complex that it will take some time to solve all the problems. Of course there is too much talk. For example, with the new tax legislation, they talked and promised a great deal, but so far they have passed only two laws. However, Parliament has amended the law on business, simplifying the registration process. Now fewer documents are needed to register an enterprise. They also cut the number of activities requiring licensing from 112 to 41. But there is a paradox. On one hand, businessmen speak of complications and problems in their work because of current tax laws. On the other, they ask that it remain unchanged for a few years. What they really need is stability, because bookkeepers cannot work properly with constantly changing tax reports.

Q: And what about businessmen? What can the state do to bring Ukrainian small business up to European standards?

T. C. They need more freedom. For instance, there are 25 different organizations that may come to check on a business at any minute. The poll showed that every private enterprise gets checked approximately 78 times per year. Moreover, directors and managers have to answer in writing 68 different requests from oversight organs. This means that they spend two of every five working days on working with state bureaucrats. By comparison, in El Salvador they spend one-third as much time on this and in Lithuania half. As a result, Lithuanian businessmen work on their products while their Ukrainian counterparts are dealing with red tape. In other words, Ukrainian business needs deregulation or an optimal mechanism for state regulation and market cooperation. Small business does not need such strict control as we see currently.

Q: What do you, Mr. Raider, think as an American expert about this? How do you evaluate the current situation in Ukrainian business?

T. R. I think you made some progress when the President issued his decree on deregulation. Also, the Committee on Business Development has adequate authority. This is a good beginning. I hope that there will be more to come, because there are all preconditions for it. We used to have a problem back when we first launched our business centers because Ukrainian businessmen did not want from us anything but money or investors. Now they understand that they have to compete and thus hone their skills, change their management style, and so on. I think now Ukraine has a very promising combination: on the one hand, lawmakers want to change many things in order to create more profitable conditions for business development. On the other, entrepreneurs are ready to work more independently.

Q: What level must business reach in Ukraine for the IFC to consider its mission completed?

T. R. The thing is that there will always be demand for what our business centers produce. They conduct lectures and seminars, work out business plans, and do market research. Development is a continuous process. For this reason Ukrainian businessmen will always need staff training and market research. We help them get it through our chain of business centers.

Thomas Raider