REVIEW #10: Economics Conjuncture and Regulatory Climate in Ukraine: Business Attitudes and Expectations

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2019 in Ukraine is the year of two elections: presidential (in March) and of deputies to the Verkhovna Rada of Ukraine (in October). This is exactly why analyzing the economic expectations of Ukrainian business is especially important – not only from an economic, but also from a political point of view.


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09_OKSANA KUZIAKIV_ECONOMICS CONJUNCTURE AND REGULATORY CLIMATE IN UKRAINE


International studies demonstrate that the more procedures a business needs to go through and the longer these procedures take, the more likely it is that the level of corruption in the country is high1. Ukraine is perceived to be a country with excessive regulation and a high level of corruption. According to the USAID-funded Annual Assessment of the Business Climate of 2015 conducted by the Institute for Economic Research and Policy Consulting (IER), in 2015, from 5% to 21% of business expenses comply with regulatory procedures were bribes2.

Creating a business-friendly environment through the introduction of deregulation measures (in particular, eliminating excessive administrative burdens on business and reducing excessive state control by simplifying procedures) is one of the key areas of the state’s economic policy in accordance with the presidential 2020 Strategy3.

Significant efforts to simplify the conditions for doing business have been made in the period of 2014-2018. The main achievements of deregulation in 2014-2017 were the reduction of the number of regulations and regulatory requirements, dropping the numbers, and increasing the availability of administrative services for both the general public and businesses.

In 2018, more attention was paid to the practical implementation of the previously adopted measures that dealt with the changes in approaches to state supervision and control. Inspections have traditionally been a problem for the Ukrainian business, because they required time and resources. According to the Monitoring the Progress of Reforms in 20164, reducing the number and duration of inspections will save Ukrainian businesses UAH 0.5 billion a year, without taking into account fines and bribes.

It should be noted that in a complicated regulatory environment and with business aspirations to optimize tax burden, it was easy for the inspectors and businesses to come to an agreement. This “corrupt” tax created a significant burden on business and distorted competition. From 2015 to 2018, a moratorium on inspections of small and medium businesses was in place.

At the end of 2016, the legislative basis for the reform of state supervision was laid down. The changes to the regulations that took place in 2017-2018 were intended to prepare the business for work in a “no moratorium” environment – the key result was the introduction of a public database of complex inspections that allows businesses to track information about planned state inspections at the enterprise5. At the end of 2018, the reform of the state fiscal service and customs – both of which are equally important for business –has begun.

But what was the actual impact of the changes on businesses? Here, Business Tendency Survey (BTS) is a helpful tool.


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1World Bank (2009) Investment Climate Research Study. Available [online]: http://blogs.worldbank.org/psd/restrictive-regulation-is-positively-correlated-to-corruption

2Kuziakiv O., V. Bespalko, and I. Fedets (2016) Annual Business Climate Assessment 2015. Available [onine]: http://www.ier.com.ua/files//publications/USAID%20LEV/LEV_ABCA_report_Cost_of_doing_business.pdf [in Ukrainian]

3President of Ukraine Decree “About the Strategy of Sustainable Development “Ukraine 2020″ 5/15, 12.01.2015. Available [online]: https://zakon.rada.gov.ua/laws/show/5/2015

4National Council for Reforms (2016) Monitoring of Reforms Progress. http://reforms.in.ua/sites/default/files/upload/full_ukr_20_02_2017.pdf [in Ukrainian]

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