The purpose of the reform is to create a favourable environment for the development of and doing business in Ukraine, necessary for the country to achieve a higher level of economic growth and integration into the EU common market.
Clear and transparent marketplace rules, fair and predictable behaviour of regulatory bodies and absence of regulatory barriers are vital for the comprehensive development of entrepreneurship and attracting investments into the country. These are the conditions that must be ensured by the business climate initiatives.
The complexity of starting a business, the lack of a single source of entrepreneurship information, the burdensome tax administration system, misuse of power by regulators, corruption and confusing regulation — this is by no means an exhaustive list of external obstacles encountered by entrepreneurs in Ukraine. Add to this a number of internal challenges typical for each business such as the need to achieve a certain level of product sales to ensure profitability, accounting, human resource management, timely payment of wages and many other operational details. Entrepreneurship in Ukraine does not look simple anymore, does it?
In order to stimulate the emergence of new businesses in the Ukrainian market and to enable the existing businesses to focus on their development rather than on combating external factors falling within jurisdiction of the state, the Ministry of Economic Development and Trade has launched a series of reforms sharing the same key goal of making Ukraine a more attractive place for doing business.
1. Deregulation and simplification of doing business
The simpler the rules of the game are, the more players and supporters it has. And when it comes to simple rules for business: the more businesses (hence jobs) there are in the market, the more attractive it becomes for investors.
State deregulation policy is an effective tool for creating an open environment for business development in Ukraine through the introduction of proper regulation with transparent processes and the number of regulations meeting a certain benchmark.
Deregulation is important for the implementation of the European business model in Ukraine and includes a set of steps aimed at modernising the registration system, significant simplifying the authorisation and licensing systems, facilitating monitoring and audit activities, and combating corruption.
The interaction between governmental structures and the business community, the leading public associations, national and international organisations and scientists is also extremely important for achieving success of deregulation.
For this reason, the Government has introduced a rolling review of regulations (Rolling Review) in 5 sectors of the economy such as: agriculture and food safety; construction; energy, transport and infrastructure; information technology and telecommunications.
Rolling Review is a review of market regulation performed to enhance their efficiency, including:
“cleansing” the regulatory field from regulation inconsistent with the principles of regulatory policy (such as relevance, adequacy, efficiency, balance, legitimacy);
assessment of the market regulation quality and taking into account past decisions for designing new regulation;
preparation of recommendations for systemic improvement of regulation;
practical implementation of interaction between the state (regulators), business and society to increase business involvement in regulation of its activities.
The review has resulted in the Cabinet of Ministers of Ukraine holding 11 meetings (from 2016 up to present) dedicated to deregulation of business activities aimed to ban ineffective and unjustified regulations or to implement changes in accordance with global best practices.
The Government has also issued Order No. 1413 of 04 December 2019 approving the Action Plan for Deregulation of Business Activities and the Action Plan to Increase Ukraine’s Position in the Doing Business Ranking.
The Action Plan contains 128 items (143 measures) in 11 sectors of economy and is the responsibility of 11 ministries and 29 other central executive bodies. The purpose of these measures is to solve issues related to land relations, administrative services, state surveillance, telecommunications, IT, agriculture, food, construction, transport, customs, currency and tax regulation.
In particular, the plan requires that executive bodies ensure functioning of the service state — a state offering its citizens and businesses convenient and accessible electronic platforms for the provision of public services, including administrative ones.
Increasing Ukraine’s Position in the Doing Business Ranking
The World Bank experts have been preparing the Doing Business ranking for 17 consecutive years now to assess countries’ investment attractiveness. This ranking directly or indirectly influences the place each country takes in other economic rankings. Ukraine has been steadily increasing its Doing Business score over the past years. The country has moved 12 positions up from the 76th place in 2018 to 64th place in 2020.
This was facilitated by the adoption of five laws of Ukraine, the Presidential Decree and a number of governmental acts in 2018 and 2019.
2 laws, 4 governmental acts, 8 regulations of the authorities were adopted in the first half of 2020 pursuant to Order No. 1413 of the Cabinet of Ministers of Ukraine dated 04 December 2019. The provisions of these regulations allow making changes in the raking components such as Starting a Business, Dealing with Construction Permits, Getting Electricity, Registering Property, Paying Taxes, Trading Across Borders.
Surely, much more effort is needed and multiple regulatory barriers must be removed to make Ukraine one of TOP-30 countries in terms of ease of doing business. In this context, the respective authorities focus on the rapid development and making new decisions in the areas of concern. The Ministry of Economic Development, Trade and Agriculture continues work in this area actively engaging of multidisciplinary experts.
However, despite the Parliament’s and the Government’s efforts aimed at the adoption and implementation of required regulations, it is hard to speak about a significant increase in Ukraine’s position in this ranking due to COVID-19 pandemic and the expected economic crisis.
2. Transparent and Risk-oriented Business Audit
A transparent audit system is a key indicator of the country’s favourable business environment. On 01 January 2019, a new approach to business audit was implemented in Ukraine based on the analysis of business risks, and the outdated Soviet surveillance system fell into oblivion. What does it mean?
Clarity and Transparency. No more “surprises” for entrepreneurs since all audit-related data, including comprehensive and individual control measure plans and audit results, are now available online in the Integrated Automated System of State Surveillance (Control).
More than 200,000 business users have accessed it as at the end of July 2020.
Risk-orientation. The purpose of the new system is to introduce business risk management. By way of comparison, previously 99% of audits included thoughtless recording of violations. The new audit system will be based on risk criteria assigned to a business depending on its specialisation.
It should be noted that ensuring an integrated approach to audits is one of the new system priorities. Currently, if a business must be simultaneously audited by two or more controlling bodies, such audit will be carried out in one step: competent bodies will conduct single audit of the business simplifying the process and avoiding overlapping of auditing functions and, therefore, abuse of power.
Focus on Customer. Entrepreneurs will no longer need to study thousands of pages of laws and regulations preparing for audit. The use of checklists has been introduced instead, individual lists of specific requirements for each type of business. Firstly, by using this checklist an entrepreneur will be able to check their own business: proper organisation, any existing violations that could be corrected before the scheduled audit. Secondly, an entrepreneur will understand clearly the aspects to be audited — the checklist strictly limits the competence of each controlling body, which means that an auditor may not go beyond its powers defined in the checklist.
In addition to checklists, the reform allows for submitting online complaints, accessing open ratings of controlling bodies, audit calendar and history; these and other services of the new business audit system will be available and operate based on the Integrated Automated System of State Surveillance (Control).
The Ministry of Economy will continue the deregulation process in a number of areas, the top of which include: cargo transportation, natural resource use, construction, agriculture and food, fiscal policy, international trade, energy, information technology and telecommunications.
Systemic work to improve Ukraine’s position in the Doing Business raking is to continue. In particular, the Ministry of Economy will coordinate central executive bodies to speed up the fulfilment of the Action Plan. The 2020 goal for Ukraine is to move about five steps up in the ranking.
Entities involved in the reform implementation
The Cabinet of Ministers of Ukraine, the Ministry of Economic Development, Trade and Agriculture of Ukraine, the Ministry of Finance of Ukraine, the State Regulatory Service of Ukraine, the Reform Support Team of the Ministry of Economy, the Better Regulation Delivery Office, FORBIZ Project, etc.