Results of the 2nd Annual Business Climate Assessment (ABCA)
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ABCA was conducted in the late 2016 – early 2017. A total of 1,851 representatives of SME sector were surveyed who assessed the current business environment in Ukraine, identified key business issues and reforms which entrepreneurs expect from the government.
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Results of the 2nd Annual Business Climate Assessment (ABCA)
- 1. Business climate from the SMEs point of view: results of the «2nd Annual Business Climate Assessment» Oksana Kuziakiv, Executive Director of the Institute for Economic Research and Policy Consulting, Head of the IER-CCSS Kyiv, December 13, 2017
- 2. 2 • ABCA is a tool for: (1) Monitoring and evaluation of business climate (2) Identifying barriers to SME development (3) Formulating the list of key economic and regulatory policy measure to improve business climate in Ukraine • Outputs: (1) Annual analytical reports (2) Databases (raw data series and aggregates data series) that can be used by policy advisers, researchers, scholars for different purposes (3) National Index of Business Climate, Regional Index of Business Climate, Ranking of regions (4) Cost of complying with regulations • Methods of the gathering of information: (1) The enterprise survey (2) Focus group discussions (3) In-depth interviews with representatives of regional authorities and civil society Annual Business Climate Assessment — ABCA
- 4. Index of Business Climate: 2016/2017 vs 2015/2016 The business climate has slightly improved. Index of Business Climate (IBC)* for 2016/2017 has reached to 0.06 comparing to 0.01 for 2015/2016. *-1 : the worst possible business climate +1 the best possible business climate The IBC is an aggregated index that consists of four sub-indexes.
- 5. The Regional Index of Business Climate 2016/2017 0.25 0.18 0.18 0.17 0.14 0.13 0.12 0.12 0.12 0.11 0.11 0.11 0.11 0.08 0.08 0.07 0.07 0.06 0.06 0.05 0.04 0.04 0.01 0 0 -0.4 -0.3 -0.2 -0.1 0 0.1 0.2 0.3 0.4 0.5 0.6 Vinnytska Lvivska Rivnenska Ternopilska Zakarpatska Khmelnytska Volynska Ivano-Frankivska Kyivska Mykolaivska Poltavska Sumska Chernihivska Dnipropetrovska Zhytomyrska Odeska Kyiv Zaporizka Cherkaska Khersonska Mykolaivska Chernivetska Donetska Luganska Kharkivska Regional Index of Business Expectations Index of Business Environment of SMEs (short-term) Index of Business Activity of SMEs (short-term) Index of Business Activity of SMEs (long-term) Index of "3 procedures" -1bad+1good Ukraine 0.09
- 6. Impediments to SMEs development Low demand War in eastern Ukraine Lack of qualified workforce Unstable political situation High tax rate Inflation 20% 20% 23% 23% 26% 26% 27% 35% 44% 59% 13% 29% 22% 21% 26% 27% 29% 34% 51% 39% 0% 10% 20% 30% 40% 50% 60% 70% 10. Lack of qualified workforce 9. War in eastern Ukraine 8. Corruption 7. High regulatory pressure 6. Frequent changes of economic legislation 5. Inflation 4. Burdensome administration of taxes and accounting 3. High tax rates 2. Unstable political situation 1. Low demand 2015 2016
- 7. Top-10 impediments for SMEs, regions
- 8. Problems with tax administration -100% -80% -60% -40% -20% 0% 20% 40% 60% 80% 100% Need to pay bribes Necessity to negotiate/ maintain informal relations with the SFS` staff Too much time is spent on communication with regulatory authorities Excessive inspections regarding accuracy of charges, completeness and timeliness… Dependence on the goodwill of tax inspectors, lack of respect to taxpayers Failure and / or unwillingness of the SFS` staff to provide advice Complicated tax reporting (declarations and calculations) Difficulty in determining the amount of taxes and fees to be paid in the future Large number of accounting documents Frequent changes in tax reporting forms High rates of taxes and fees High penalties for errors Complexity of the tax legislation Instability of tax legislation There were no difficulties at all Huge difficulties
- 9. Regulatory Areas: Where Problems Exists 1 1.5 2 2.5 3 3.5 4 4.5 5 0% 20% 40% 60% 80% 100% Currencyregulation Landuseregulation Priceregulation Customsclearance Electricityaccessregulation Licensing Labourregulation Certification(technicalregulation) Administrationoftaxes Connectiontotheseweranddrainage Firesafetyregulation Sanitaryregulation Commissioningofpremisesregulation Outdooradvertisingregulation Registration Procedure is applicable to the SMEs, % Does not cause any problems, % Minor problems, % Significant problems, % Average assessment of the regulatory procedures
- 10. Regulatory Areas: Where Problems Exists by regions (Top-5) Lvivska • Currency regulation (3.0) • Price regulation (2.9) • Land use regulation (2.6) • Administration of taxes (2.6) • Labor regulation (2.5) Кyivska • Currency regulation (3.1) • Customs clearance (2.7) • Price regulation (2.6) • Land use regulation (2.6) • Administration of taxes (2.5) Lyhanska • Currency regulation (3.2) • Price regulation (3.2) • Licensing (2.6) • Electricity access regulation (2.6) • Administration of taxes (2.5) Khersonska • Currency regulation (2.5) • Price regulation (2.4) • Labor regulation (2.4) • Electricity access regulation (2.3) • Administration of taxes (2.3) Donetska • Currency regulation (3.2) • Land use regulation (2.8) • Electricity access regulation (2.7) • Price regulation (2.6) • Labor regulation (2.5) Ukraine • Currency regulation (3.2) • Land use regulation(2.7) • Price regulation (2.6) • Customs clearance (2.5) • Electricity access regulation (2.4)
- 11. The costs of complying with regulation Cost of complying per capita, USD $- $50 $100 $150 $200 $250 $300 micro small medium $273 $52 $12 $268 $45 $10 2015 2016
- 12. The costs of complying with regulation: “time tax” by regions 0% 5% 10% 15% 20% 25% Rivnenska Kirovohradska Luhanska Zhytomyrskа Kyivska Chernivetska Khersonska Khmelnytska Sumska Poltavska Mykolaivska Volynska Vinnytska Odeska Zakarpatska Zaporizka Dnipropetrovska Donetska Kyiv Cherkaska Lvivska Ivano-Frankivska Ternopilska Chernihivska Time tax Ukraine (14%) Time tax is the percentage of time that the management of the SME spends on communicating with civil servants, trying to meet the requirements of certain regulations.
- 13. SMEs vs authorities: the different point of view on the same issues? Business Climate Assessment, % of respondents Expected changes in business climate, % of respondents 38% 10% 46% 51% 16% 39% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% authorities SMEs Favorable Satifactory Unfavorable 46% 34% 44% 26% 10% 39% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% authorities SMEs Improve Unchange Worsen
- 14. Business`s attitude to the government: trust vs informal relation
- 15. -30% -25% -20% -15% -10% -5% 0% Poltavska Rivnenska Kyiv Kirovograska Donetska Zaporizka Ivano-Frankivska Dnipropetrovska Lvivska Kharkivska Volynska Odeska Chernivetska Luganska Kyivska Sumska Cherkaska Khersonska Zakarpatska Chernihivska Ternopilska Zhytomyrska Mykolaivska Khmelnitska Vinnytska Balance Partner-Enemy, % Business attitude to the government: regions 15 The government - an enemy for businesses The government – partner for businesses Ukraine
- 16. Importance of informal relations “old” vs. “new” sectors/generations, % of respondents Sectors Age of respondents 51% 50% 49% 45% 41% 22% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Important Not important Agriculture Construction Other services Trade and repair Industry ІТ
- 19. Membership in business associations
- 20. Impediments to enter international markets 17% 17% 18% 19% 21% 21% 22% 25% 26% 26% 0% 5% 10% 15% 20% 25% 30% 10. Difficult / expensive to adapt products 9. Too many permits for export 8. Taught competition 7. Corruption 6. The complexity of the legislation 5. There is no demand for our products abroad 4. Complicated / lengthy customs clearance procedures 3. Unpredictability of Ukraine's trade policy 2. No partners abroad 1. No funding
- 21. Index of Business Climate (IBC) /Regional Index of Business Climate (RBCI) Business environment SMEs’ Assessments SMEs’ 6 months expectations Business activity SMEs’ Assessments SMEs’ 6 months expectations Business activity (long-term) SMEs` perceptions about change in their performance during last two years SMEs’ two years expectations Practice of regulatory procedures` implementation during last two years SMEs’ perceptions about change in 8 regulatory procedures/For RBCI 3 procedures
- 22. “Cost" of regulatory compliance (CR) The direct cost (DC) of the procedure - it costs in cash, which SMEs incur. Official payments (OP) include: formal charges and fees, notary fees, fines, etc. Informal payments (IP) - costs aimed at accelerating the procedure / alleviate the effects of the procedure for SMEs, consisting of a "charitable contributions" and "bribes" Indirect costs (IC) - the cost of working time (WT) that employees of SMEs spent on operations related to the procedure. Cost of complying with regulations
- 23. National and regional authorities use the ABCA results
- 24. The Institute for Economic Research and Policy Consulting is looking for support to keep conducting Annual Business Climate Assessment 2017/2018
- 25. Thank you for your attention! Our contacts: Institute for Economic Research and Policy Consulting www.ier.com.ua institute@ier.kiev.ua Reytarska Street 8/5-A, Kiev 01030, Ukraine Tel. +38-044-278-6360 Fax +38-044-278-6336