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.
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.
Following months of protest on Kyiv’s Maidan, many Ukrainians have begun to address one another these days not with hello or how are you? Instead, the exchange follows the old saying from the partisan army that fought for an independent Ukraine during World War II: Glory to Ukraine, with the response: Glory to the Heroes!
Yet over the course of the events on the Maidan, a new group of heroes has emerged – everyday people who work in and own kiosks, shops and cafes, who were fighting for right to live in a more open and prosperous country, free of the corruption that has made it so hard to do business in Ukraine.
Indeed, many businesses – often coordinated by business associations – from across Ukraine took part in the Maidan movement, both in Kyiv and in smaller regional demonstrations. CIPE has heard reports that small businesses contributed thousands of dollars in cash and in-kind donations to support people in Independence Square. Business associations provided legal aid to those who were detained or put on local wanted lists for their role in the Maidan.
Given that business associations did not exist during 70 years of Communist rule, and that they are sometimes considered the country’s weakest civil society institutions, they have shown themselves remarkably dedicated and vibrant organizations during these months, capable of uniting across regional divisions. Indeed, recently, 11 new cross-regional coalitions of associations have taken shape.
On Sunday morning, CIPE Program Manager Zoia Tsybrova braved the cool, rainy weather to observe the EuroMaidan protests forming in the center of Kyiv. The Shevchenko building, where the rally was intended to be held, could not hold all the participants, and it did not take long for people to start walking, meeting friends and family, filling the streets of Kyiv. The mood, says Tsybrova, was euphoric. Not only on Sunday but today as well. Three days later, the people are still there, with a mass of students demonstrating still; the good mood remains, with people handing out hot tea and sandwiches to those on the streets. People are still dressed up for the occasion, smiling, walking with Ukrainian and European symbols, with homemade cards, signs, banners, and flags.
What was the impetus of this? The protesters were pushed over the edge by the government’s decision to suspend the pursuit of an association agreement with the European Union (EU). The association agreement could have been signed in Vilnius, Lithuania at the EU Partnership Summit on November 28-29. It is a political and free trade deal that has been on the international community’s radar for a number of months as it offered the possibility to Ukraine to begin integration into the European Union.
The deal’s suspension caused a response that was both unexpected and a turnout that was noteworthy, to say the least. Early estimates have put the number of protesters rallying on Sunday at 100,000. Ukraine has not seen a protest this large since the Orange Revolution in the winter months of 2004 leading into 2005. Following the government’s decision to suspend the pursuit of this agreement with the European Union on November 21, the people have come together in mass rallies again on Kyiv’s Independence Square (Maidan Nezalezhnosti). Over the weekend, protests sprung in other cities around Ukraine, too, from east to west.
“But wise is the man who disdains no character, but with searching glance explores him to the root and cause of all.” — Nikolai Gogol, Dead Souls
Corruption in Ukraine cuts across regions, all sectors of the economy, and almost every institution. In some sense it’s become a rallying point: since everyone is harmed by corruption, CIPE’s private sector-led, collective action approach to anticorruption in Ukraine is based on bringing the business community together to work towards common solutions.
Given that Ukraine’s business associations are among the country’s weakest civil society institutions — such associations did not exist during 70 years of Communist rule — small and medium-sized enterprises (SMEs) are underrepresented nationally in civil society and political life. Despite this fact, Ukrainian public discourse on issues affecting the business community is vibrant and relatively open. This appears to be improving on the regional level, in part through CIPE support of business associations representing SMEs, a little more notably each year. Individual business associations, as well as eight new coalitions of associations, now work collectively at the regional level.
Recently I stumbled across Andrey Kurkov’s Death and the Penguin,
a deadpan satire of a single man and his pet penguin struggling to get by in Ukraine’s capital, Kyiv. The little novel points squarely at the sometimes absurd but functional atmosphere of Ukraine, where corruption runs rampant and entrepreneurs struggle to hold their own.
The novel follows Viktor, a middle-aged aspiring writer living with his pet penguin, Misha. True to real life, the zoo had been giving away hungry animals to anyone who could feed them. Viktor, abandoned by his girlfriend, took Misha in. For Viktor, too, times were hard, so when he is offered the questionable opportunity to write obituaries for VIPs who are still living, he is quick to accept. Unfortunately, these obits turn out to be a sort of hit list: following each obituary, the subject’s death ensues, which he discovers only later in the morning newspaper. He soon comes to realize that the last obituary he will write will be his own.
Andrey Kurkov poses with a penguin. (Photo: Random House UK)
Kurkov’s depiction of post-Soviet life is lined with deadpan satire that clings to the edges of the structures of corruption that have made the country hostile to its own people. One day a commercial comes on the television: penguins in Antarctica, splashing, at home. Misha begins to throw himself at the screen. Ukrainians researchers pop into the frame.
“I appeal to private entrepreneurs and others with funds – on you depends whether our scientists will be able to continue their work in the Antarctic. Have a pencil and paper ready for the account number to which sponsor donations can be made, and a telephone number on which you can hear details of what your money will be spent on,” says a woman. Viktor runs to jot down the information. Despite his friend’s skepticism, Viktor makes a donation, hoping to send Misha to Antarctica. But when that last obit is requested, it is Viktor who takes a place among the crew – it is these entrepreneurs who have saved him.
(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).