2014年-世界发展银行全球_Ukraine___Opportunities_and_Challenges_for_Private_Sector_Development_105页_6mb

Summary of "Opportunities and Challenges for Private Sector Development in Ukraine"

Core Content

This document outlines the challenges and opportunities for private sector development in Ukraine, focusing on three main areas: the regulatory environment, access to finance, and competition. It also emphasizes the importance of combating state capture and corruption to unlock the country's growth potential.

Main Points

1. Ukraine's Growth Potential

• Ukraine has significant untapped growth potential due to:

  • Fertile agricultural land
  • Geographical proximity to the European Union (EU), the world's largest market
  • A large domestic market of approximately 46 million consumers
  • Abundant natural resources
  • Relatively well-developed infrastructure
  • High-quality human capital
  • A significant industrial base

• Despite these advantages, Ukraine's GDP per capita remains below 1989 levels and only 10% of the EU average, even after 20 years of transition.

• Ukraine has underperformed relative to regional peers such as Poland, Romania, Russia, and Belarus, especially during the global financial crisis.

• The income gap with its peers is unlikely to close in the short term.

2. Stunted Private Sector Growth

• The private sector's weak growth is a major contributor to Ukraine's poor economic performance.

• Key indicators of stunted growth include:

  • Stagnant industrial and export structure dominated by old industries like steel, machine-building, and chemicals
  • Low levels of industrial productivity compared to peers
  • Limited inflow of high-value-added Foreign Direct Investment (FDI)
  • Limited role of Small and Medium Enterprises (SMEs) in economic development

• These issues suggest that the market-driven process of entrepreneurship, innovation, and productivity is not functioning effectively.

3. Regulatory Environment

• Weaknesses in the regulatory environment include:

  • Excessive red tape
  • Poor implementation of business regulations
  • Weak public sector governance

• The note recommends the following reforms:

  • Full implementation of measures to improve the business climate as outlined in the "2013 National Action Plan"
  • Wholesale reduction of permits and licenses through a regulatory guillotine approach
  • Strengthening Regulatory Impact Assessments (RIAs)
  • Implementing a risk-based system of inspections
  • Eliminating outdated standards and technical regulations
  • Adopting EU regulations, especially in food safety and technical areas
  • Effective implementation of the new insolvency law
  • Broad introduction of e-government and ICT solutions to increase transparency and reduce corruption

• Emphasis is placed on efficient implementation of regulations, as the government often lags behind in this area.

4. Access to Finance

• Access to finance remains limited, particularly for SMEs.

• Key challenges include:

  • Prohibitively high interest rates due to the central bank's de facto pegged exchange rate policy and government borrowing needs
  • Weak supervision of related-party lending, which allows a few business groups to dominate credit distribution
  • Ongoing withdrawal of foreign banks and increased post-crisis risk aversion
  • High levels of non-performing loans (NPLs)
  • Limited access to long-term funding
  • Weak enforcement environment and inadequate judicial practices
  • Fragmented credit information infrastructure

• Recommendations for improving access to finance:

  • Transition to a flexible exchange rate
  • Support the growth of long-term deposits
  • Enforce legislation on the disclosure of ultimate beneficiaries of banks
  • Identify and limit related-party lending
  • Remove tax disincentives for NPL transfers and write-offs
  • Consolidate credit history information
  • Enhance market transparency, disclosure requirements, and reporting standards

5. Competition

• Low levels of competition in domestic markets are restricting economic growth and potential.

• Key issues include:

  • High firm concentration and low entry and exit rates
  • Weak effectiveness of competition policy
  • Excessive red tape and weaknesses in the national competition policy framework
  • Ineffective application of competition laws

• The Anti-Monopoly Committee (AMC) has a relatively strong legal framework, but faces challenges such as:

  • Lack of investigative power
  • Low payment rates for fines
  • Difficulty in merger and cartel control due to lack of information on company ownership

• Recommendations:

  • Fully harmonize Ukrainian legislation with EU standards
  • Implement the National Competition Program 2014-2020
  • Boost the AMC's investigative power and provide adequate resources
  • Train judges to handle competition cases more effectively
  • Ensure truly competitive public procurement and nondistortionary state aid
  • Increase civil society awareness and involvement
  • Ensure the AMC's independence and clear mandate

6. State Capture and Corruption

• State capture and corruption are major obstacles to private sector development and economic growth.

• These issues affect the business environment across the board and are rooted in:

  • A political culture of fused political and economic power
  • Non-transparent and non-competitive privatization
  • Murky public procurement and state aid
  • A weak and partial judiciary that allows vested interests to influence legislation

• Recommendations:

  • Ensure full transparency in the legislative process
  • Strengthen RIAs
  • Increase civil society involvement in the reform process
  • Implement a fully transparent public procurement and state aid system
  • Provide public access to performance statistics
  • Promote competitive appointments in public administration and state-owned enterprises
  • Encourage competition from foreign companies to reduce rents and special interests

7. Political Commitment

• Political leadership is crucial for reform success.

• The government must signal that poor implementation of the law, administrative neglect, and corruption will no longer be tolerated.

• A cross-party consensus on signing the Association Agreement (AA) with the EU is a strong political momentum for reform.

• A national round table involving all political parties, the business community, and civil society could strengthen reform consensus.

• A comprehensive information campaign to raise public awareness of the importance of reforms is also recommended.

8. Civil Society Role

• A stronger civil society is essential for reform progress.

• SMEs, in particular, have a long-term interest in improving the regulatory environment but lack resources to influence policy.

• SME associations should be involved in working groups and national round tables to enhance their contribution to the reform process.

9. Role of the Association Agreement (AA) with the EU

• The AA with the EU could serve as an important anchor for reform.

• It would create legally binding obligations for harmonizing Ukraine's laws with the EU's regulatory framework.

• Implementation of the AA and the Deep and Comprehensive Free Trade Area (DCFTA) could significantly benefit Ukraine by:

  • Increasing exports
  • Attracting FDI
  • Enhancing competition
  • Minimizing the negative influence of vested interests
  • Boosting income convergence

10. Conclusion

• Ukraine needs a decisive breakthrough in improving the business climate to realize its growth potential.

• The country is trapped in a self-perpetuating low equilibrium characterized by:

  • High barriers to market entry
  • Low competition
  • Limited incentives for technology absorption
  • Low export diversification and sophistication
  • High vulnerability to commodity prices

• This vicious cycle, sustained by poor contract enforcement, weak property rights, and weak governance, must be broken for Ukraine to achieve its growth potential.

Key Policy Recommendations (Table 1)

Conclusion

• Robust implementation of the private sector development agenda is essential for Ukraine to break out of its current low equilibrium and achieve sustainable growth.

• The World Bank Group is ready to support Ukraine's reform efforts through policy dialogue and technical assistance, building on existing cooperation with the IFC and ongoing policy discussions.