Eager to capitalize on the Euro 2012 soccer tournament by opening up a small motel? Well, then you better plan on providing guests with a water pitcher and installing state radio in each room, just two of many bureaucratic requirements inherited from archaic Soviet days.
Eager to capitalize on the Euro 2012 soccer tournament by opening up a small motel? Well, then you better plan on providing guests with a water pitcher and installing state radio in each room, just two of many bureaucratic requirements inherited from archaic Soviet days.
The entrepreneurial experience in Ukraine remains silly and painful.
At a July 3 forum in Kyiv between government and business, President Viktor Yushchenko called for urgent action.
But weary business owners, who in surveys cite excessive tax burdens as their top complaint, have heard this talk before from the nation’s leaders.
And nothing seems to change.
“Everything is just as it was,” said Ihor Malyi, head of an alloy plant in Severedonetsk. “Nothing has been done in recent years. I don’t know how they can talk about attracting foreign investors for the Euro 2012 championship projects if they can’t provide basic support for our own national businesses, or, beg my pardon, if not support, at least they should get out of the way.”
There are some 16,000 standard rules and guidelines that were adopted from Soviet days, from rules for buildings and food production to transportation and practically everything else.
Today these regulations are officially referred to as the Ukrainian State Standard. Heavily outdated and backwards, they have yet to be replaced with new business-friendly rules. Lawmakers, experts say, are simply too busy lobbying personal interests or are locked up in political bickering to get rid of these Soviet rules, responsible for slowing overall business growth.
These bureaucratic rules form the foundation for much of the red tape that hampers swift growth of small- and medium-sized enterprises that could shift Ukraine’s economy into higher gear and spread wealth through the creation of a larger middle class. Instead, many entrepreneurs are left paying bribes to get out of meeting the Soviet standards that continue to regulate the business climate, experts say.
Consequently, Ukraine’s economy is still overly dependent on big business, exports of raw materials and imports of finished goods. Small and mediumsized enterprises have been playing a relatively smaller role in Ukraine’s eightyear economic growth spurt, said Kostyantin Kuznietsov, an expert at the Razumkov Center, a Kyivbased think tank. Citing figures, he said businesses of moderate size accounted for less than 5 percent of budget revenues this year, down from more than 10 percent of budget revenues in 2000.
Deep problems
Some 70 percent of businesses named Ukraine’s tax system as their main woe in a survey sponsored by the International Finance Corporation, a Washington, D.C.-based organization that finances business development through loans.
The grueling process of attaining permits was a major problem for 67 percent of respondents. Regulators were cited by 65 percent, while the system of standards followed at 63 percent.
More often than not, businesses find it simpler, faster and less expensive to pay a bribe to inspectors than to engage in the struggle needed to meet all requirements.
Most disheartening is the feeling that there is no relief in sight, said Serhiy Davydov, head of a business advocacy group in the eastern city of Luhansk. “Government lives a life of its own. Business is by itself,” Davydov said.
“We are considered only when they (politicians) hold a celebration, speak about their achievements, or when high officials come to our region. After that, it is silence,” Davydov added.
Some businessmen, such as Malyi, complained that taxes are no less burdensome than in the past. Current rules envision that businesses should be warned about inspections by tax authorities, firemen, sanitation offices and other agencies, and that checks should last no more than two days.
“In reality, such visits are often a surprise and last, on average, two weeks or more,” Malyi said, referring to de facto shakedowns by inspectors eager to stuff their pockets with bribes.
While businesses have the legal right to refuse entry for inspectors, they often settle, fearing retaliation and a costly legal battle through Ukraine’s corrupt and unpredictable court system.
“Who will dare? It is easier to give a bribe now and work successfully for the rest of the few months, until the next inspection visit,” said a Vynnytsya produce entrepreneur.
For those eager to start a new business in Ukraine, they will often find out that it can be as tedious as years ago, despite symbolic one-stop business registration shops that have sprouted up throughout the country with the help of foreign donors, including the U.S. government.
On paper, such centers function in most major cities. The aim is to avoid the wild goose chase where entrepreneurs are sent to dozens of offices to attain and sign dozens of documents. The one-stop centers allow, in theory, entrepreneurs to find and sign all documents at one window. In reality, few of these centers function completely, experts said, adding that documents are simply missing or have run out.
Despite almost daily declarations of intent by politicians to cut red tape, experts predict little will change until the country’s political elite put their personal ambitions aside.
“Nobody is interested in improving the present state of things,” Kuznietsov said. They are only busy competing to land the highest government positions.”
Even Yushchenko, at the July 3 forum, admitted that even he lacked authority to make a direct impact.
Yushchenko said his administration has, since December 2007, drafted six laws aimed at cutting red tape for business, yet a parliament at loggerheads has failed to pass most of them.
Anna Poludenko can be reached at [email protected] or 4964563, ext. 1078.
