Author Archives: Frank Brown

Russian Businesses Learn Benefits of WTO Membership

russia-webcast

The World Trade Organization (WTO) welcomed Russia in August of last year as its 156th member — the last of the world’s large economies to join. The process, taking nearly two decades, had been steeped in anxiety and high expectations within Russia.

Now that Russian firms and their foreign counterparts can better grasp the practical consequences of WTO membership, corporate executives, entrepreneurs, and regional development officials are turning to the nuts and bolts of membership. Moscow-based CIPE partner the International Institute of Management for Business Associations (IIMBA) is at the forefront of these efforts, holding a raft of classes and webinars designed to help Russian businesses understand the promises and pitfalls of WTO membership. IIMBA is helping shape the discussion on the issue, taking a no-nonsense approach free of the sparring which grabs headlines having to do with U.S. agricultural imports and Russian rules benefitting the automobile industry.

betsy-headshotOn March 5, CIPE helped introduce a highly-informed U.S. point of view into IIMBA’s ongoing WTO series with a presentation by Elizabeth Hafner, Deputy Assistant U.S. Trade Representative for Russia and Eurasia at the Office of the U.S. Trade Representative. Hafner, based in Washington DC, first gave a presentation on  the benefits of WTO membership for Russian businesses via webcast from CIPE’s Washington office. She then took live questions from some of the 182 participants connected to the webinar from Kazakhstan, Uzbekistan, and a host of Russian cities including St. Petersburg, Volgograd, Moscow, and Ufa. Watch a webcast of the presentation.

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Fighting for Small Business in Ukraine

(Photo: Associated Press)

(Photo: Associated Press)

Veteran Ukrainian legislator Ksenia Lyapina is optimistic about the makeup of the newly elected parliament, the Verhovna Rada. Not only is she being joined in the 450-member body by six new deputies with an explicitly pro-entrepreneur agenda, but her party has some muscular new allies on key votes: both figuratively and literally. In the first two days of the new Rada’s proceedings in mid-December, pushing matches, brawls, and fistfights broke out on the floor. Lyapina liked what she saw among the 37 deputies in the Svoboda (“Freedom”) party.

“Now, we’ve got Svoboda with us. They’ve got some young men in good physical shape,” she said at a restaurant near the Rada on December 13, shortly after the closing of the second day of the proceedings. “Before, we were being beaten all the time,” added Lyapina, a refined woman who is one of Ukraine’s leading experts on issues of importance to small and medium-sized enterprises (SMEs).

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Holding Candidates Accountable in Ukraine

A candidate for a seat in parliament representing Lviv region speaks at a meeting with private-sector representatives.

In a cavernous, ornate hall inside the Palace of Railroad Workers in the western Ukrainian city of Lviv, 10 parliamentary candidates faced off in late September opposite an equal number of local business owners and leaders of business associations. Over the course of three hours, the group grappled with issues of importance to the local business community, ranging from tax rates to economic development initiatives. What emerged was a deep skepticism among businessmen, especially on the parliament’s ability to tackle corruption issues, and a written pledge by most of the candidates to adhere to a set of five legislative priorities established by the local business community with CIPE support.

This was a scene repeated across Ukraine in the run-up to October 28 parliamentary elections. In 10 regions, including Lviv, CIPE supported the process as part of a year-long effort to raise the profile of business concerns in the 450-seat parliament.

According to CIPE Ukraine director Nataliya Balandina, an added dividend of the project has been a boost in the standing of the local CIPE partner organizations that organize the candidate forums and pledges. “It is not just the candidates and politicians are learning that small and medium businesses are capable of taking action and spreading information quickly, but it also ordinary citizens who learn about these [business] organizations for the first time and see what they do,” says Balandina.

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Lviv: Between East and West

Lviv's old town.

One of the nominees for best foreign-language film at this year’s Academy Awards was the movie “In Darkness” set in the western Ukrainian city of Lviv during World War II. The film is a fictionalized account of how a group of Jews survived in the sewers of Lviv during the Nazi’s World War II occupation.

Lviv is a remarkable city, both for its Hapsburg Empire-era architecture and for its location on the fault line between East and West. In the 20th Century alone, the city found itself located in the Austro-Hungarian Empire, interwar Poland, a Nazi-occupation zone, the Soviet Union, and finally, independent Ukraine. In his book The Clash of the Civilizations, historian Samuel Huntington divides the world into vast geographic spheres based on culture, history and religion.

Lviv is precisely the kind of city where such tensions have played out over the centuries, between languages, faiths and mindsets. In Lviv, identity is paramount. To this day, within Ukraine, Lviv prides itself as a bastion of all things Ukrainian in the face of threats – actual or imagined – from the country’s substantial Russian-speaking population.

Given its history and place in the Ukrainian imagination, Lviv was a strong candidate to host a four-day CIPE seminar last month for business association leaders. The city’s entrepreneurs have a reputation for cultivating business ties with counterparts in the European Union, whose border lies 70 kilometers from Lviv. The city’s elected officials understand the need for government to nurture rather than prey upon entrepreneurs. CIPE hoped that the 32 seminar participants, all but a handful from other regions, would imbibe some of Lviv’s best practices.

The organizers of the seminar, CIPE’s Ukraine country director Nataliya Balandina and program officer Dmytro Naydin, were not disappointed. “We wanted to demonstrate how in Lviv, business really works with authorities, how they really have good discussions and have really good dialogue for developing strategy for the region,” said Balandina. “Lviv is the first region to create an active coalition of SMEs that works so closely with the regional government.”

CIPE’s experience in Lviv illustrates a broader point – the importance of taking into account and embracing regional differences when running national programs. Business association leaders from the bustling capital of Kyiv work in much different circumstances than their counterparts from eastern coal-mining districts or those in the Crimea, the country’s leading tourist destination. Of course, sometimes these differences are overstated. Recent polling of political preferences shows some erosion of regionally based parties influence. In parliamentary elections set for October, Ukrainian voters will provide a concrete indication of what sway regional differences continue to hold.

Many such differences are rooted in history. To learn more about that history, the Oscar-nominated “In Darkness” is a good place to start. The Washington Post reviewed it last month. A former colleague, David Lee Preston, wrote a compelling piece in The Los Angeles Times on the connection between his mother’s real life experience in Lviv’s sewers and the screen dramatization. For a broader, truer version of the region’s history than that found in the film, historian Timothy Snyder’s recent Bloodlands: Europe Between Hitler and Stalin offers a commanding account of how Ukraine bore the brunt of both Hitler and Stalin’s deadly policies that killed millions of civilians. “Bloodlands” offers the most compelling explanation I have found to explain Ukrainian entrepreneurs’ fatalism and passivity on the one hand and healthy skepticism of government and remarkable ingenuity in the face of adversity on the other.

Waiting for a Change in Ukraine

European Commission President Jose Manuel Barroso, right, with Ukrainian President Viktor Yanukovych at the Commission headquarters in Brussels, March 1, 2010. (AP Photo/Yves Logghe)

Aleksandr Sologub has been waiting for over a decade for concrete progress in Ukraine’s effort to win some sort of acceptance by the European Union. For Sologub, who heads the Center for Social Partnership NGO in the western Ukrainian city of Vinnytsia, such a move would mean potential access to markets and standardization of now-haphazard regulations that could greatly benefit the mainly agricultural region where he is active in promoting entrepreneurship.

So it was in a tone of great disappointment but little surprise that Sologub discussed the December decision by EU leaders to postpone an agreement leading to free trade and improved political ties with Ukraine. Speaking on the sidelines of a CIPE-organized training seminar for business association leaders in Kyiv, Sologub echoed the sentiments of many of the participants. “Whatever else Ukraine may be, it is part of Europe. That is where its economic future is,” he said.

In announcing the decision, EU leaders made clear that the “association agreement” – which had been successfully negotiated – would be put on hold until Ukraine’s government demonstrated a willingness to uphold the rule of law and halt politically motivated prosecutions. The EU’s move had been expected, especially after the October conviction of former prime minister Yulia Tymoshenko on charges that she abused the powers of her office.

Tymoshenko, the principal rival of Ukraine’s current president Viktor Yanukovych, argues that the charges are politically motivated. Her conviction was condemned as unfair or politically motivated by leaders from Moscow to Brussels to Washington. Observers, including Sologub, expect no change in the legal status of Tymoshenko or other convicted opposition figures until this autumn’s parliamentary elections. “We are waiting for a change,” said Sologub. “I think that is what the EU is waiting for, too.”

Economically, the EU decision comes at an especially precarious time for Ukraine, as detailed in a recent presentation at the Carnegie Endowment for International Peace. Politically, Ukrainians are fairly evenly divided on whether it is preferable to be aligned with the EU or a Russian-led Customs Union that includes Kazakhstan and Belarus, as shown in a recent public opinion survey in Ukraine by the International Republican Institute. Those divisions fall largely along geographic lines, with people in western Ukraine – like Sologub – favoring the EU, and those in eastern Ukraine feeling a greater affinity with the Customs Union.

The upcoming election cycle, which promises to be just as rough and tumble as earlier contests held over Ukraine’s two decades of independence, may provide a forum for discussing the EU decision. With 450 seats up for grabs and parties likely to spend hundreds of millions of dollars, hopefully there will plenty of opportunity for real discussion about Ukraine’s economic future amid the political attacks.

Entrepreneurial Development in Russia

 

Vladikavkaz Institute of Management students. (Photo: Staff)

In June of this year, a young Russian entrepreneur launched a new business venture in his hometown of Vladikavkaz: an educational center that prepares high school students for university entry exams. The business already has 18 employees. It is poised to expand soon into offering foreign language instruction, according to its founder, Azamat Gagloev, a student at the Vladikavkaz Institute of Management, a CIPE partner organization.

After the Fall: 20 Years of Post-Soviet Reform

Thanks to this success, Gagloev won recognition in October as part of the Global Student Entrepreneur Award competition, held at a government-sponsored innovation center in Moscow. The program that helped Gagloev design his business plan receives support from both CIPE and the Russian government’s ministry of economic development. When Gagloev was born 21 years ago, such a scenario would have been scarcely imaginable.

When the Soviet Union broke up in 1991, operating a private business had only been legalized two years earlier. Even then, substantial limits were still in place on private sector activity. The general populace was skeptical of individuals trading goods and services, activities that since the 1920s had been forbidden by law. Nowadays, of course, the opposite is true. Where once the Soviet government rooted out and destroyed private businesses, now Russia and other Soviet successor states commit significant resources and rhetoric to nurturing and protecting those businesses. Substantial impediments to doing business still exist in the former Soviet Union, but problems are usually associated with government inaction rather than action. Prosecutors turn a blind eye to corruption. Leaders don’t encourage the creation of pro-entrepreneur political parties. State-controlled banks ignore the credit needs of small businesses. Still, on paper, private enterprises in the region often enjoy just as much legal protection and government support as those businesses in countries with centuries of unbroken capitalist tradition.

One useful way to view the state of private enterprise development in the region is the Doing Business indicator compiled by the World Bank. The annual survey ranks 183 countries by looking at factors that include the ease of starting a new business, paying taxes, and obtaining electricity. Excluding Latvia, Lithuania and Estonia, the three former Soviet republics now in the European Union, countries in the region are ranked from a high of 16 in the case of Georgia to a low of 166 for Uzbekistan. Among the region’s bigger economies, Kazakhstan ranks 47th, Russia comes in 120th and Ukraine places 152nd.

One element not captured by the World Bank’s study, however, is the level of democratic development and how it impacts doing business. This is the sphere where the pace of progress in the countries of the former Soviet Union has not kept up with private enterprise development. It’s also the area where most of CIPE’s resources in the region are devoted. Supporting Azamat Gagloev with the training to launch a business in Russia is just one small element of this broader program.

This post is part of a series on the fall of the Soviet Union, the 20 years of reforms that followed, and the challenges that lie ahead.

Read all of the blogs in this series:

20 Years of Corruption

Democracy in Ukraine: 20 Years Later

Helping Business Find its Voice in the Former Soviet Union

Entrepreneurial Development in Russia

Democracy and the role of the Private Sector

Twenty Years After the USSR, Still Waiting for Freedom

Democracy in Ukraine: 20 Years Later

Protesters in Ukraine

Entrepreneurs and small business owners protest a new tax law in Ukraine in 2010 (Radio Free Europe/Radio Liberty)

Just over a year ago, in December 2010, riot police in Kyiv brought to an end a series of street protests by entrepreneurs against a new tax code. The arrests could well have ended the months-long national movement to block a new tax system that entrepreneurs said would put them out of business.

Instead, many of the small-business activists organized themselves into new groups or joined existing business associations. They eventually formed a national coalition – with some organizational guidance from CIPE – that spent much of this year pushing for more SME-friendly tax legislation. Ukraine’s parliament recently passed that legislation, which is awaiting the president’s signature. The whole episode illustrates how – at its best – democracy can function in Ukraine.

After the Fall: 20 Years of Post-Soviet Reform

This obviously isn’t true everywhere in the former Soviet Union, judging by Freedom House’s annual assessment of the state of democracy in the region. In an insightful essay, Freedom House looked at some of the reasons for the poor track record on democracy of the Soviet successor states, alternately blaming entrenched leaders, the natural resource “curse” that afflicts some countries and the territorial disputes of other states.

For a variety of reasons, democracy in Ukraine has proven remarkably sturdy, despite dire predictions in 1991 that the country would split along east-west lines by language and religion. While in decline under the current government, Ukraine’s democratic freedoms still compare well to other countries in the region.

Ukraine’s political parties and leaders are quarrelsome and prone to intrigue. This can lead to ineffective government and citizens’ disenchantment with the political process, as borne out by a recent public opinion poll by the International Foundation for Electoral Systems (IFES). In one telling result, only 4 percent of 1,515 people surveyed believed that the country’s political parties actually served the interests of the Ukrainian people. The poll also shows decreasing levels of confidence in national leaders, whether they are in power or in opposition.

On the local level, though, respondents are expressing greater confidence in municipal elected leaders. This bears out the recent experience of CIPE in creating local coalitions of business association leaders to better represent entrepreneurs in democratic processes.

This post is part of a series on the fall of the Soviet Union, the 20 years of reforms that followed, and the challenges that lie ahead.

Read all of the blogs in this series:

20 Years of Corruption

Democracy in Ukraine: 20 Years Later

Helping Business Find its Voice in the Former Soviet Union

Entrepreneurial Development in Russia

Democracy and the role of the Private Sector

Twenty Years After the USSR, Still Waiting for Freedom