The voice of business associations as representatives of Ukrainian entrepreneurs is growing stronger as they unite in coalitions to advocate for business friendly policies. However, the efficiency of their advocacy efforts is hindered by the limited capacity and expertize of these associations as well as by lower participation of the vast sector of Ukrainian small and medium enterprises in their work.
Meanwhile, businesses in Ukraine face hostile takeovers from corporate raiders and abuse of powers by the country’s justice and law enforcement system. In this situation, business associations provide protection for entrepreneurs in place of, and from, the government.
Business associations are growing more visible in Ukraine, serving as platforms that enable private entrepreneurs to speak out about their problems and to advocate for economic reforms and better business climate.
The well-established alliances of Ukrainian and international companies, such as the American Chamber of Commerce and the European Business Association, are joined by new grassroots initiatives that represent local small and medium enterprises.
Before the 2019 presidential and parliamentary elections in Ukraine, a coalition of business associations presented a common agenda of policy priorities – such as reducing payroll tax, decreasing excessive and inefficient government spending, and modernizing outdated labor laws – for the newly elected politicians.
In addition, Ukrainian business associations provide consulting and training services and networking opportunities for their members and as well as assist them with finding personnel or entering foreign markets.
However, business associations still do not meet the high demand of Ukrainian entrepreneurs for advocacy and protection of the rights of businesses. A recent survey found a gap between the percentage of businesses in Ukraine that would like to work with business associations in order to protect their rights, on the one hand, and the share of business associations that actually provide this opportunity, on the other hand.
In 2018, the Institute for Economic Research and Policy Consulting (IER), a think tank based in Kyiv, Ukraine, surveyed more than 1,000 Ukrainian exporting and importing firms on a variety of issues related to trade, customs clearance, and their dialogue with the government1.
30% of the surveyed firms, including those that belong to business associations and those that do not, said they would be willing to pay business associations for protecting their rights. This is the highest share of the respondents ready to pay for a service of business associations compared to other services, such as trainings and consulting.
By contrast, only 10% of the members of business associations who participated in the same survey said that their business associations provided advocacy opportunities, and only 17% said they offered legal assistance.
These two types of activities, which are important for businesses, are available for the members of business associations to a far lesser extent than information and consulting (reported as offered by business associations by 56% of the respondents) and trainings (40%).
One of the reasons why business associations are not as engaged in advocacy as Ukrainian businesses would like them to be could be their lack of organizational capacity.
A 2015 survey of business leaders, government officials, and NGO activists in Ukraine2 outlined several factors inhibiting the efficiency of business associations: lack of expertize, insufficient orientation on the needs of businesses, shortage of regular and systematized communication with the government. These weaknesses prevent Ukrainian business associations from advocating for better policies as successfully as Ukrainian entrepreneurs expect them to.
Another reason why business associations do not prioritize advocacy could be that smaller-sized businesses that would benefit from combined efforts in policy dialogue with the government participate in business associations much less than larger companies do.
The latter often have more resources to get involved in the work of business associations’ advocacy groups and committees and are better equipped to engage in dialogue with the state officials on their own using their government relations and legal departments.
Two different surveys conducted by the IER over the last three years show that as the size of Ukrainian firms increases, their membership in business associations grows, too.
In the IER’s 2018 survey of exporters and importers, 72% of large enterprises and 61% of medium-sized ones said they belonged to a business association. Yet, this share was only 36% for small enterprises and a mere 15% for micro-enterprises that employ up to 10 persons.
Similarly, the 2016 Annual Business Climate Assessment survey by the IER3 measured membership in business associations among small and medium enterprises (SMEs). SMEs comprise 99% of all enterprises in Ukraine.
Again, however, members of business associations accounted only for 10% of micro-enterprises in this survey, while this percentage was larger for small and medium-sized firms (21% and 31%, respectively).
The gap between the high demand for advocacy services and their insufficient supply by business associations could also stem from particularly high interest of Ukrainian businesses in protection of their right due to low rule of law and widespread corruption in Ukraine.
Hundreds of hostile takeovers of private property take place in Ukraine every year4. Raiders take advantage of flawed property registers, legislative loopholes and lack of opposition by the courts to illegally seize lands and companies5. This problem could decrease over time if the new legislation that strengthens control over changes to property registers is implemented.
In the meantime, Ukrainian businesses frequently need protection from the country’s law enforcement bodies themselves. The far-reaching powers of the Security Service of Ukraine allow its operatives to conduct masked and armed searches of Ukrainian businesses, which disrupts their work and causes financial losses6.
The Business Ombudsman Council, an advisory and investigative body in Ukraine, accumulated numerous complaints from local businesses that report groundless criminal cases being opened against them by law enforcement agencies7.
The rampant corporate raiding and abuse of powers by law enforcement agencies may explain why Ukrainian entrepreneurs turn to business associations to protect their rights.
This is why it is important for business associations in Ukraine to increase their organizational capacity and to seek out feedback from their members in order to increase the impact of their advocacy efforts.
They should also engage more SMEs in their work: they are more susceptible to bureaucratic barriers and corruption in Ukraine, and the country’s business climate would benefit from their participation in policy dialogue.
Finally, Ukrainian government needs to take steps to reduce the possibility of hostile takeovers of property and should ensure transparent and lawful conduct of the judicial system and law enforcement agencies. It should also engage Ukrainian business associations in policy making that impacts businesses in the country.
1 The Institute for Economic Research and Policy Consulting (2019) “Trade Facilitation in Ukraine: Business Assessment and Expectations. Executive Summary based on the IV Wave of the Annual Survey of Ukrainian Importers and Exporters” http://www.ier.com.ua/en/publications/reports?pid=6168
3 The Institute for Economic Research and Policy Consulting (2017) “Annual Business Climate Assessment 2016: National and Regional Dimensions” http://www.ier.com.ua/ua/sme_development/ABCA?pid=5789
5 Talant, B. (2018) “Businesses Report More Pressure as Raider Attacks Get More Complex” https://www.kyivpost.com/business/businesses-report-more-pressure-as-raider-attacks-get-more-complex.html
7 Business Ombudsman Council (2016) “Systemic Report “Abuse of Powers by the Law Enforcement Authorities in Their Relations with Business”” https://boi.org.ua/media/uploads/sysrep_criminal_eng_final.pdf