(Photo: Kyiv Post)
When protesters first took to the streets in Ukraine’s largest cities in 2013, economic concerns were at the top of the agenda. As the geopolitical situation in eastern Ukraine has heated up, economic prospects in the contested regions of the country have only gotten worse. Yet average Ukrainians are still working for a more prosperous and democratic future.
Since the Maidan protests, the business climate in the Donbass, the easternmost, coal-mining region of the country, has taken a turn for the worse. Amid the turmoil, local businesses – in particular small and medium-sized firms – have suffered. Many have been shaken down for so-called “donations,” and in some cases have been looted and ransacked.
A recent article in the local press has documented fines, bribery, and other abuses committed against local businesses by police departments and government officials. Many people have even left the region, heading either for Western Ukraine or even Russia. The owners of small businesses have left their homes and their enterprises behind. They are unsure when they can return, or whether they will find their businesses in the same condition.
As one CIPE partner in the Donbass noted, “Public sector bribes have grown by several times what they were prior to the strife, and not one Grivna [the Ukrainian currency] is going to the budget.” He confirmed that many business owners and heads of banks in the region are being forced to leave their businesses. “Because of roadblocks and military activities, there are just no opportunities to run a business,” he laments.
The pro-European, Kiev-based protests that led to the ouster of former President Viktor Yanukovich made Ukraine a hot topic in international news. Yet in many ways, the situation that set international media ablaze in early February is really a much older story.
When the public and private sectors work together to implement necessary economic reforms, entrepreneurs, businesses and citizens benefit from a more prosperous and vibrant democracy. Businesses possess the know-how and detailed knowledge of economic conditions, obstacles, and opportunities for growth, while governments have the means to pass business-friendly legislation. Public-private dialogue helps these two groups work together to arrive at effective policy solution.
Moldova’s National Business Agenda Network (NBA), comprised of more than 30 business associations and chambers of commerce from across the country, positioned itself as a key stakeholder in policymaking. With CIPE’s support, the Institute for Development and Social Initiatives (IDSI) institutionalized a culture of public-private dialogue where it did not exist before and encouraged greater transparency and inclusiveness in setting reform priorities in the areas of tax and customs law.
Find out how the Moldovan business community successfully built an advocacy coalition to work with the government on reform priorities in the recently-released case study “Public-Private Dialogue in Moldova”, part of a forthcoming case collection Strategies for Policy Reform.
Teodora Mihaylova is a Research Assistant at CIPE.
When Maxim Tsoi, a journalist for the Kyrgyzstan newspaper Vecherny Bishkek, made the four-hour drive last spring to the town of Talas on the border with Kazakhstan, he was expecting to gather some local color to illustrate provincial life for readers in the capital city. What Tsoi came away with was a little different. After interviewing local bean farmers, customs officials, and border guards, he had material for a story on the pros and cons of Kyrgyzstan joining the Eurasian Economic Union.
The issue of whether Kyrgyzstan should join the Russian-led Eurasian Economic Union, which so far includes Kazakhstan and Belarus, is a source of frequent debate in Bishkek. Membership in the Union has significant implications for the country’s political and economic elites. In the border town, Tsoi found farmers in favor of joining the Union and getting privileged access to new markets. Local resellers of Chinese imports, however, were opposed since they would be facing new tariffs.
“Most of media outlets here in the capital only write about what happens in the capital. So, the material from these trips is quite interesting to everyone, to the journalists and to the readers,” said Tsoi in an interview from Bishkek.
McDonalds, along with some other international firms, closed its stores in Crimea shortly after the Russian annexation. (Photo: Newsweek)
By Iryna Fedets
Recent events have brought uncertainty to the business community of Crimea, particularly with the approach of summer for a region where the economy depends heavily on Black Sea tourism.
A year ago, businesses in Crimea were active, and optimistic. A report on the investment climate in the regions of Ukraine published by the Institute for Economic Research and Policy Consulting in April 2013 placed Crimea in 4th place among the 27 regions of the country according to their attractiveness for investors.
While corruption and extensive business regulations have been the problems for the whole country, Crimea showed better results than most regions of Ukraine in many aspects. In the sub-category “Absence of corruption,” Crimea held the 4th place nationally, and the 3rd place in the “Administrative procedures” sub-rating. Moreover, business there proved to be the most optimistic in Ukraine as Crimea took the 1st position in the “Business optimism” sub-category.
Now, Crimean businesses are looking to the future with anxiety, not optimism. Some international companies like McDonalds are closing their venues in the region, and local entrepreneurs are left with the limited options of either continuing in uncertainty or selling their business.
Minister of Economic Development Pavlo Sheremeta (left) with CIPE Deputy Director Andrew Wilson (center) and László Kállay, SME expert and Professor at Corvinus University of Budapest (right).
In the weeks following the so-called “EuroMaidan” protests in Kyiv that led to the installation of an interim government and the scheduling of early presidential elections, attention in Ukraine began to turn to the need for urgent measures to jump-start the economy, as well as for a comprehensive set of policy reforms in the medium- to longer-term to get the country on track.
With stagnant growth, large fiscal deficits, and the likelihood that international assistance from the IMF will be predicated on a set of austerity measures, many analysts believe that the only way to stimulate Ukraine’s economy is to support the growth of the small and medium-sized enterprise (SME) sector, which represents just a small fraction of the country’s economy in comparison to the countries of Europe which Ukraine aspires to join.
To help articulate just what changes are needed, and to ensure that that the SME sector has a voice in the policy reform discussion, a group of Ukrainian business associations representing SMEs and leading think tanks organized a national forum to discuss a coordinated strategy for reform on April 8-9 with support from CIPE.
Without a strong compliance program, many smaller Russian firms could be locked out of lucrative contracts with big multinationals.
By Henry Nelson
In countries with weak rule of law, anti-corruption efforts suffer from a collective action problem: because bribery and corruption are endemic and occur frequently, individual small business owners hesitate to reform because they fear that doing so will reduce their competitiveness.
If a small or medium-sized enterpise (SME) begins to eschew bribery, it might be incapable of securing contracts that require paying a bribe, for example. The threat of short-term loss of business is serious for SMEs and can deter companies from pursuing anti-corruption compliance.
Furthermore, the collective action problem effects the general business environment. Without a strong, coordinated voice on the importance of compliance, corruption continues to be seen as “business as usual” and the consensus continues to be that bribery is a necessary component of conducting business.
This collective action problem is pervasive and continues to pose issues for CIPE and its many global partners. It is difficult to implement reforms when SMEs fear that the reforms will hurt their business.
Earlier this month, CIPE’s Washington office hosted a delegation of CIPE Russia officers and regional CIPE partners for a discussion on value-chain anti-corruption efforts in Russia. The discussion yielded plenty of interesting information on CIPE Russia’s plan to work with regional Russian chambers of commerce in order to educate local SMEs about international anti-corruption laws like the U.S. Foreign Corrupt Practices Act (FCPA) and UK Bribery Act.
By Iryna Fedets
In Kyiv and in other cities across Ukraine, small and medium-sized businesses were a driving force in the recent protests that resulted in the ouster of former President Viktor Yanukovich and the formation of a new Cabinet of Ministers. Entrepreneurs personally participated in the pro-European Union movement, both on the streets and in financing the demonstrations and providing food and medical supplies.
According to a poll conducted in early February 2014, business owners made up about 17 percent of the protesters, although business owners only make up 4 percent of Ukraine’s overall population. Following the 2008 recession, the former government imposed changes in the regulatory and tax structure that increased corruption and raised the burdens on small business, which helped draw them to the streets.