In order to improve its European integration perspectives experts stress that Ukraine needs to pay extra attention to arranging better conditions for small and medium enterprises.
Improving environment for small and medium enterprises (SMEs) through adaptation of European standards should be one of priorities for Ukraine. It will bring advantages both to businesses and the economy in general, said European and Ukrainian experts at a discussion at Ukraine Crisis Media Center. “The situation with SMEs in Ukraine is more dramatic, than anywhere else in the EU or in accession countries, and it’s really not acceptable. We have to improve it in every aspect: from SME access to land, to finances, to market […] We have to work together to improve it,” stated Günter Fehlinger, President of Europeans for Tax Reform (ETR). “Business should be leading these reforms and creating future. I like the idea of working with SMEs as a significant instrument in developing business in the country […] It’s a very active part of a market economy,” added Gary Reusche, professor of Business School of the International Institute of Management.
Valentyna Legka, executive director of the Ukrainian Federation of Professional Accountants and Auditors of Ukraine, noted that in Europe 75 percent of businesses are represented by microbusinesses and 22 percent by small and medium businesses.
Package of reforms for the sector
As of today, the worst problems are access to land, high level of informality in the labor market, limited mobility as a consequence of insufficient infrastructure, administrative pressure and widespread corrupt practices. According to Günter Fehlinger, moratorium on sale of land should be cancelled and a transparent cadaster should be created. In addition, Ukraine needs competition law and put an end to state subsidies for private sector and cross-subsidizing. “The only effort which can be done as support from the State is SMEs at the regional level – this is what should be supported,” he stressed. It is necessary to reform taxation for SMEs, to reduce informality in the labor market, to reduce use of cash as an anti-corruption measure, to introduce corporate governance. Decentralization and regional development would also contribute to SMEs development.
Günter Fehlinger also noted that Ukraine’s perspectives of European integration really depend on its success or failure to align the national legislation to European standards. He stressed that during the last EU-Ukraine summit the European partners have emphasized on the importance to contribute to SMEs development in Ukraine. To make the process more successful, Ukraine should cooperate with EU candidate countries.
New taxation system for SME
Another important step is tax reform for small and medium enterprises, noted Oleksandr Shemiatkin, expert on taxation, КМ Partners. According to him, tax on profit should be replaced by exit capital tax, so that businesses would not have to pay taxes on capital that remains inside the country. “Every year, 11 billion dollars exit from Ukraine. It could be the main source to fill the state budget and it would allow lowering pressure on the SMEs and let them grow,” he noted. In addition, the Fiscal Service would have to check only those operations that export costs from the business. As a result, there would be less work for the Fiscal Service and smaller budget expenditures on it, the number of legal disputes between businesses and the Fiscal Service would also drop.
New standards for financial statements
One of the necessary steps is to adopt EU standards for accounting and financial reporting of the SMEs. For instance, this is Directive 2013/34/EU that decreases administrative pressure on businesses, increases transparency and introduces equal requirements to accountancy documents, said Valentyna Legka. It prescribes what documents are required from every type of enterprises, and it is not allowed to introduce additional requirements. “We really hope that we will finally undertake practical actions and that our legislative authorities will implement it in Ukraine. At present there is already an implementation project, such as amendments to the law on financial accountancy and audit and a new draft law on audit,” she noted.
Wider practice of public-private partnership (PPP) would significantly contribute to SME’s development. PPP would be an advantage for such sectors as heating & water supply, waste management, energy and infrastructure, healthcare and management of cultural heritage buildings, said Yulia Gureieva, PPP expert. The state will benefit from creation of new jobs and a more efficient management by better professionals from the private sector. Efficiency would allow to make economy and to use the saved money for other projects. Businesses will benefit from receiving access to a new field of activity and getting profit. In addition, PPP provides opportunity to participate in the international funding programs. “For example, private partner would invest only 30 percent, the rest would be paid by a financial institution,” she noted. Ms Gureieva added that the Ministry of Infrastructure has already initiated PPP projects on construction of roads under concession agreements and modernization of sea ports.
PPP is possible even in the defense sector, noted Volodymyr Nikitchenko, head of Project department at “Ukroboronprom”. According to him, there were 40 thousands items that “Ukroboronprom” had been procuring in Russia before 2014 and then had to look for alternatives. As a result, 38 thousands have been found in Ukraine. “Most of these enterprises are the SME,” he emphasized.
Support programs for SME and academic programs
Gary Reusche noted that it is necessary to launch SME support programs that would reduce risks for emerging businesses and would increase their chances to survive and find their place in the market. It is also important to start academic programs for future entrepreneurs. MBA program for SME will be launched in the International Management Institute next year. “In Ukraine the linkage between business and academic community is not as good as we would like it to be, and this is a way to improve that linkage”, he said. It is also important to encourage entrepreneurs to learn English, as this will offer wider opportunities for cooperation with partners from abroad.
Access to high quality services of management consultants and auditors
Accessibility of high quality services of management consultants, accountants and auditors will also be an important catalyst for SME development, noted Valentyna Legka and Olena Yuzkova, vice-president of the Institute of Management Consultants of Ukraine (IMC-Ukraine), president of Ukrainian Association of Management Consultants. For this, Ukraine needs to introduce international certification standards. At present, there is a number of Ukrainian professional unions that have joined global professional associations and implement various projects on professional training and promoting standards of professional ethic. Natalia Bazilevska, head of Grawe Ukraine insurance company, added that requirements to the insurance companies should be reformed as well to make their services more available and advantageous for SME.