Deregulation in Ukraine was quite efficient at the end of 90th – at that time deregulation triggered fast increase of small and medium enterprises (SME) at the country. At the same time, seemingly similar economic policy declared in 2010 by President Viktor Yanukovicth (and presented at the Reform program) had quite opposite effect: number of SME halved from 2010 till 2011, more than 2 mln jobs have been destroyed. In our research we showed that this time deregulation did not work primarily due to half-baked and inconsistent policy measures of the government, which appeared to be at odds with the initial declarations.
Given the prominent role of SMEs in economic development, state policy is needed to increase SMEs access to financing. In 2012 eight out of 27 regions did not provide any financial support. The largest amounts of financial support between UAH 1 mln and UAH 2 mln were granted in Kyiv, Odesa region, Lugansk region and Ivano-Frankivk region to only 10-13 small enterprises. The small number of supported enterprises along with small amount of support makeі this instrument negligible in raising SMEs access to financing. Under the current budget constrains the regional policy should primarily focus not on direct financial support, but, instead, on more efficient instruments, especially efficient business environment deregulation for local SMEs.
The financial crisis of 2008-2009 in Ukraine caused an abrupt fall in small and medium sized enterprises’ (SMEs) access to bank loans because of economic recession, financial difficulties for SMEs and accumulation of bad loans by banks. Now banks slowly increase SMEs financing, but credit conditions are much tighter. Banks increase their requirements towards SMEs financial statements and collateral, they more often refuse SMEs application for loans and investment loans to SMEs considerable declined. SME lending is a perspective business for banks, and they are ready to increase amount of loans to SMEs in 2013-2014 even under the current moderately pessimistic economic expectations. However, impediments to recovery of SMEs access to bank financing are serious: slow economic growth, still high amount of bad loans, slow progress in strengthening creditors’ rights, weak and non-transparent business of SMEs. SMEs name such impediments as high interest rates and collateral requirements. Given the prominent role of SMEs in economic development, state policy is needed to increase SMEs access to financing. However, direct state financing of SMEs are very small and is not able to affect SMEs access to financing. At the same time, state initiatives to strengthen legal and business environment to stimulate bank lending to SMEs have had little progress for the moment.
Already two years have passed since the day Viktor Yanukovich announced new reformation course and presented Economic reform program 2010-2014 «Prosperous society, competitive economy, effective state». The ambitious plan outlined considerable changes in economic system and even in case the plan was partially implemented, Ukraine could reach another level of development. A Coordinative Center for Economic Reforms had been created at the President Office and active work had started. However, after two years of active changes and contradictory results a question arose – what, out of all implemented measures, was indeed for good and deserves to be called «reforms».
Business environment is the backbone for prosperity of every society. People that are able to run and develop their own businesses is the very capital, the very ‘engine’ which allows for modern countries moving forward and competing on international markets. That is why fostering of “entrepreneurial capital” should be an axiom for a wise statesman. Unfortunately, in Ukraine the authorities treat entrepreneurs as ‘grabbers’ and ‘bloodsuckers’ and that is why it is so difficult to create favorable business-climate at the country.
Business environment in Ukraine is very poor and tends to worsen further on. Improved business climate might change the country into new story of success. However, the reformators keep ignoring the fact that nominal upgrades without reforming the core of the “limited access order” only aggravate the situation. To make things worse, the bureaucracy once again was delegated to reform itself. As a result, the essence of reforms has been once again diluted.
It is normal for all plans to be revised and improved. However, the recently approved “National action plan 2012” looks like a step back. It dilutes or postpones for the future crucial reforms, aimed at strengthening of competitive environment and property rights. Among diluted reforms appeared to be the issue of inspections, housing reform and the problem of agro-land market. Technical reforms have been distorted not that dramatically, however, still are delayed.
A year and a half have already passed since the start of Viktor Yanukovich reform. The ambitious transformation plan has showed noticeable progress on many directions. However, so far none, including the authorities’ representatives, can call the reformation efforts successful. Properly outlined priorities and action plan stumbled on financial and political interests of various influential groups, what, naturally, stipulated for a large-scale ‘correction’ of the reform plan. Apparently every plan needs to be updated with time. However, comparative analysis of the new reform action plan showed that ‘reformators’ have already skipped many initially positive initiatives.
Over the last two years Ukraine has implemented many policy changes outlined at the President Reform Program for 2010-2014. Despite the large number of bills and laws approved through 2010-2011, the program lags behind the outlined schedule and none of the reforming priorities has reached the declared goals. Some of the adopted regulations are quite positive; however, still the initiatives have quite limited effect due to existent practices for administrative pressure, corruption and poor confidence on judicial power. Large number of approved laws and regulations are simply technical, which means that the essence of the problems they addressed remains unchanged. Positive steps were observed in reformation of healthcare, education, and pension system, however, so far no fundamental changes happened at the areas. Some of the reform priorities remained untouched. For instance, in electricity sector and oil and gas sector, where business and political interests are closely interlinked, powerful business-groups simply blocked any reforms. In general, the reformation process is poorly transparent. Moreover, for many important directions the authorities ignore public opinion consulting with civil society players only formally.
Ukraine is balancing at the edge between limited and open access order. Although the country lacks rule of law and business is closely interlinked with politics, political competition is still present, civil society has been developing and some markets are competitive. The transition stance of Ukraine is unstable, burdensome and dangerous. Only implementation of real deep structural reforms can make the transformation to open system easier and quicker. However, Ukrainian authorities do not conduct such reforms, often substituting them with technical policy changes (improving only some mechanisms), or introducing only temporal economic policy measures (like ‘belt tightening’).