Almost 60% of small and medium-size business see the state as a constraint and a barrier

Almost 60% of small and medium-size business see the state as a constraint and a barrier

The European Bank for Reconstruction and Development forecasts 2% growth of the Ukrainian economy in 2017. During the previous 3 years, the Ukrainian government has introduced various reforms to facilitate business: deregulation, reduction of inspections, simplification of company registration before reporting. But is business really feeling these changes and are they stimulating its development?

UCMC publishes an abridged version of article by Yuliya Samayeva for ZN.UA.

The state creates barriers to business

More than half (58%) of representatives of small and medium-sized businesses (SMEs) in Ukraine consider the state an obstacle and a restriction for their activities, while another 28% think of it as of an enemy. Only 14% see it as a partner. Most entrepreneurs (89%) expect direct or indirect support from the state. The corresponding data are provided in the new analytical report by USAID “Annual Business Climate Assessment”.

At the same time, entrepreneurs trust significantly more local self-government bodies (62%) than central government bodies (Government – 30%, President – 25%, Parliament – 22%). This shows the high expectations from the decentralization reform.

Problems for business: insufficient demand, taxation, regulatory environment

The main problem for business in 2016 was insufficient demand from end-users and business partners. “The lack of demand is much more problematic for SMEs than tax rates, administrative complexities and political instability. Along with low purchasing power of the population these are the main reasons why half of the SMEs surveyed do not plan to expand their business in the next two years,” Samayeva points out.

The next most important are the problems of taxation. High tax rates hinder the growth of 35% of respondents, which is 4% higher than in 2015.

The following most common obstacle to development in 2016 was the regulatory environment. These include frequent changes in economic legislation and regulatory pressure. Approximately every fourth of the surveyed enterprises are facing these problems (30% of legal entities, 20% of individuals). The negative impact of both obstacles increases with the size of enterprises.

Compared to 2015, in 2016, the share of SMEs that were checked by at least one controlling body increased from 51% to 68%. Also, the number of enterprises and entrepreneurs whose checks resulted in the payment of fines also increased to 60.7% from 34.7%. Given the frequency, the most burdensome for entrepreneurs remain the inspection of the tax documentation.

In general, the report unequivocally speaks about the fatigue of the business from constant changes. On the one hand, every fourth entrepreneur called frequent changes in legislation a barrier to development, on the other – more than half of respondents among the expected reforms want to see a three-year moratorium on changing laws related to economic activity.

Over 70% of small and medium-sized enterprises’ managers did not feel any influence of the deregulation measures carried out in 2016. Moreover, another 17% of respondents reported a deterioration in business conditions.

Depending on the field of activity, from 40% to 77.2% of the interviewed entrepreneurs report that the passage of regulatory procedures creates certain problems for their activities and business growth. However, the outlook on the prospects varies depending on the size of the business itself.

Assessment of the financial and economic situation in the country

Individual entrepreneurs assess the financial and economic situation worse than enterprises that are legal entities. And the bigger the enterprises-legal entities, the better their assessment of the current financial and economic situation and the more optimistic they assess the current business environment.

The most ambitious plans to expand operations are for small and medium-sized companies. Thus, 59% of small and 50% of medium-sized enterprises expressed their intention to expand their activities within the next two years.

Inexhaustible optimism

Ukrainian businessmen, despite all the obstacles, look into the future with optimism: over the past year, the indicators of all components of the Business Climate Index have improved, except for long-term planning.

According to the results of the research, the SME sector will grow provided that the reforms aimed at business development are constant and effective.