Done
on a massive scale and in conjunction with specialized foreign
institutions, deregulation can bring amazing economic growth worth
billions of hryvnias in income, not to mention cutting down the
number of headaches for business owners and managers.
Deregulation
is known as the process of eliminating excessive regulations for
businesses, be it by slashing unnecessary permits and licenses,
simplifying customs procedures and administration of taxes,
decreasing the frequency of inspections, or even cutting down the
number of state control bodies. In broader terms, deregulation is not
so much about limiting state intervention in business activity though
organizational, legal, administrative, or economic measures, but more
of a paradigm shift in relations between the state and business.
The
paradigm, which existed up until now and, in fact, still exists, is
that of the state as a burden for business. The system was created
over a period of many years, and its roots go far beyond Ukrainian
independence in 1991. In fact, the Soviet regulatory system motto
“regulate everything and keep a tight rein” became the model for
independent Ukraine, leaving fruitful grounds for corruption.
Supported by Ukrainian bureaucrats and complemented by “necessary”
regulations, it has become a machine for terrorizing the Ukrainian
business, sucking dry entrepreneurs’ funds and time, all of which
could have been used to make businesses more competitive in local and
global markets.
Understanding
the necessity of breaking the chains of regulatory burden binding the
hands and feet of Ukrainian business,
а
team of advisors to the Minister of Economic Development and Trade
was established to start the process of collecting, filtering,
prioritizing, and implementing deregulation initiatives by working
with representatives from business, professional business
associations, industry experts, universities, and international
organizations, among other groups.
It
is worth mentioning that the past experience in deregulation was
focused mainly on regulatory areas (i.e. permits, licensing,
taxation, inspections, etc.) and improving Ukraine’s standing in
the Doing Business ranking. In our view, such an approach has
significant drawbacks for two key reasons: when looking at
deregulation only through the prism of regulatory areas, many
initiatives are ignored (e.g. moratorium on the sale of agricultural
land, initiating tender on the sale of 3G licenses). The second
problem is that although a country’s position in the Doing Business
ranking is a litmus test for potential investors, it is relatively
easy to manipulate the rankings without making real structural
changes in a country’s business climate and therefore it should not
be considered an ultimate goal of deregulation.
Given
these drawbacks, the team of advisors employed an approach where
regulatory areas were analyzed within the economy-wide deregulation
initiatives, as well as within six key Ukrainian industries: food,
agriculture, construction, electricity, oil and gas, and IT.
Initiatives within these industries were then further broken down by
respective value chains.
After
initial assessments of past experiences in deregulation, conducted by
various organizations, including, but not limited to Coordination
Center of Reforms, Foundation for Effective Governance, International
Finance Corporation, European Business Association, and the American
Chamber of Commerce, about 1,000 deregulation initiatives, both
economy-wide and industrial, have been collected. Further analysis
narrowed down the total number of initiatives to 800. As a result of
the prioritization based on experts’ assessment, 200 deregulation
initiatives of a first priority were identified.
Another
challenge was the way to quantify the economic effects of the
implementation of deregulation. In this undertaking, the team of
advisors closely cooperated with the IFC. Based on the methodology
developed, the economic effect was split into three categories:
industry growth, elimination of corruption, and the reduction of
government spending. The total effect from the realization of 800
deregulation initiatives was calculated at impressive Hr 170 billion economic growth by 2020, Hr 125 billion of reduced corruption per year, and
a yearly cut in government spending by Hr 40 billion.
As
of now, the team has moved on to the implementation stage, which is
the toughest area of focus since the realization of each deregulation
initiative is politically challenging as they harm powerful
interests. We expect significant resistance from government
officials, who benefit from corruption, bureaucrats, whose powers
will be reduced,
and oligarchs, who are likely to lose market monopolies. For each
initiative, we will identify our
allies
and opponents. As the implementation stage moves forward this
information will be published on our website, www.easybusiness.in.ua.
Nick
Gaidai is Advisor on deregulation to the Minister of Economic
Development and Trade and a former Consultant with Roland Berger
Strategy Consultants. He is a graduate of University of South
Carolina and a board member at Professional Government initiative,
association which unites Ukrainian graduates of western universities
aiming at supplying highly-qualified candidates for positions in the
government sector.
