Business in Ukraine is slowly recovering from the economic crisis that hit the country several years ago. Entrepreneurs have little trust to the government but plan to speed up their growth and want the authorities to provide fair and favorable conditions for businesses. Official statistics will not give us these facts about Ukrainian enterprises, but business surveys make it possible to find out what drives, constrains and concerns the business community.
Opinion surveys that study the behaviors and attitudes of businesses are a widely used research tool to collect the first-hand information from the enterprises. Business owners and managers can describe how much time they spend on compliance with regulations, what innovations they develop to stay on top of the competition, and what policy actions they expect the government to take in order to make the legal and administrative framework more conductive for doing business.
Various business opinion surveys have taken place in Ukraine, each focusing on businesses of specific type, sector or location. One of the most comprehensive business opinion surveys is the survey of more than 1,800 small and medium enterprises called “Annual Business Climate Assessment (ABCA)”.
It was conducted in late 2016 – early 2017 by the Institute for Economic Research and Policy Consulting as a part of the USAID “Leadership in Economic Governance” Program.
In Ukraine, SMEs make up more than 99 percent of all enterprises, which makes their opinions very valuable for studying business perceptions. Moreover, due to their smaller size SMEs are more flexible in adapting to the market trends and can predict changes in the economic environment. Therefore, SME surveys help to understand and anticipate economic developments.
Our 2016-2017 ABCA survey showed that Ukrainian SMEs view the current economic situation in the country as unfavorable, which is the result of the economic recession that began in 2014 amid Russian occupation and the war in the east of Ukraine. Low demand and lack of orders is the main barrier for business growth – more than half of the surveyed SMEs reported this problem.
Nevertheless, a considerable part of SMEs hoped to grow their businesses in the short-term and in the mid-term perspectives. 41 percent of managers of the surveyed firms expected the performance of their businesses to improve already in 2017, and 48 percent planned to increase output over the next two years. These percentages are higher than those of the SMEs that had pessimistic expectations about their short-term performance or intended to reduce output over the two-year period.
To grow, businesses need to put an effort into marketing and innovations. An opportunity to examine the internal processes of business entities that affect their success on the market is another advantage of business surveys. Our survey of Ukrainian SMEs shows that many of them (49 percent of the sample) either have a marketing department or employ a marketing specialist, even if it is a person whose job description includes additional tasks besides marketing.
56 percent of the surveyed SMEs report having introduced certain innovations into their goods, services or business processes. And 46 percent of Ukrainian SMEs in our survey said they plan to expand into new geographic markets ranging from the neighboring regions to foreign countries.
Businesses in Ukraine do not expect the government to help them grow. When asked what the state authorities should do for enterprises – provide direct assistance, create general favorable conditions or offer no assistance at all – most representatives of Ukrainian SME sector chose creating favorable conditions as the most desirable option. This means the government policy that is aimed at simplifying administrative procedures, liberalizing regulatory environment, and facilitating doing business rather than helping or subsidizing certain types of firms.
77 percent of Ukrainian SMEs chose this option, and our survey helps to understand why. 68 percent of SMEs in our sample were inspected by at least one state supervision body in 2016, and the total costs associated with registration, licensing, technical regulations, sanitary control, and inspections amounted to more than UAH 27,000 (EUR 900) per firm in 2016.
For this reason, deregulation is a number one expected reform according to Ukrainian business community. 80 percent of the surveyed SMEs said that they want the government to reduce the number of permits and documents needed to run a business, which will allow local firms to invest time and money in business development instead of spending them on regulatory procedures.
Business surveys provide valuable information not covered by official statistics that shows how businesses perceive the overall economic situation in the country and the role of the government, as well as their market behavior and expectations. In Ukraine, business surveys show the government what the reform priorities should be to unburden businesses and promote economic growth. They are a helpful benchmark for the country’s decision makers to make sure that their policies meet the needs of the businesses.