ACS4778 Rev
Ukraine
Opportunities and Challenges
for Private Sector Development
Disclaimer:
This volume is a product of the staff of the International Bank for Reconstruction
and Development/The World Bank. The findings, interpretations, and conclusions
expressed in this paper do not necessarily reflect the views of the Executive
Directors of The World Bank or the governments they represent. The World Bank
does not guarantee the accuracy of the data included in this work. The boundaries,
colors, denominations, and other information shown on any map in this work do
not imply any judgment on the part of The World Bank concerning the legal
status of any territory or the endorsement or acceptance of such boundaries.
Copyright Statement:
The material in this publication is copyrighted. Copying and/or transmitting
portions or all of this work without permission may be a violation of applicable
law. The International Bank for Reconstruction and Development/The World
Bank encourages dissemination of its work and will normally grant permission
to reproduce portions of the work promptly.
For permission to photocopy or reprint any part of this work, please send a
request with complete information to the Copyright Clearance Center, Inc.,
222 Rosewood Drive, Danvers, MA 01923, USA, telephone 978-750-8400,
fax 978-750-4470, http://www.copyright.com/.
All other queries on rights and licenses, including subsidiary rights, should be
addressed to the Office of the Publisher, The World Bank, 1818 H Street NW,
Washington, DC 20433, USA, fax 202-522-2422, e-mail pubrights@worldbank.org.
2
Contents
List of Tables:����������������������������������������������������������������������������������������������������������������������������������������������4
List of Figures:��������������������������������������������������������������������������������������������������������������������������������������������5
List of Acronyms�����������������������������������������������������������������������������������������������������������������������������������������8
Acknowledgments���������������������������������������������������������������������������������������������������������������������������������������9
Executive Summary����������������������������������������������������������������������������������������������������������������������������������10
Chapter I: The Private Sector Growth Problem������������������������������������������������������������������������������������17
Chapter II: The Regulatory Environment����������������������������������������������������������������������������������������������32
Chapter III: Access to Finance����������������������������������������������������������������������������������������������������������������48
Chapter IV: Competition��������������������������������������������������������������������������������������������������������������������������68
Concluding Remarks��������������������������������������������������������������������������������������������������������������������������������83
Annex 1������������������������������������������������������������������������������������������������������������������������������������������������������85
Annex 2������������������������������������������������������������������������������������������������������������������������������������������������������94
Annex 3������������������������������������������������������������������������������������������������������������������������������������������������������96
Annex 4������������������������������������������������������������������������������������������������������������������������������������������������������98
References������������������������������������������������������������������������������������������������������������������������������������������������102
3
List of Tables:
Table 1: Key Policy Recommendations: Regulation, Access to Finance and Competition�������������14
Table 2: Twenty Five Largest Companies in Ukraine, by Revenue, 2012���������������������������������������28
Table 3: Penalties Imposed and Collected Under the Competition Law
and Unfair Competition Law���������������������������������������������������������������������������������������������80
4
List of Figures:
Figure 1: GDP Growth in Ukraine and ECA, 1990-2013, 1990=100�����������������������������������������������18
Figure 2: GDP per Capita in PPP, Constant 2005 International $�����������������������������������������������������18
Figure 3: Real GDP Growth Rate, 2008-2013�����������������������������������������������������������������������������������19
Figure 4: Labor Productivity Growth in Ukraine and Selected Countries, 1996-2011���������������������20
Figure 5: GDP per Person Employed, US=100, 2012�����������������������������������������������������������������������20
Figure 6: Total Factor Productivity Growth, 1996-2010�������������������������������������������������������������������21
Figure 7: Total Factor Productivity Levels Relative to the Global Production Frontier, 2010���������21
Figure 8: Ukraine’s Labor Productivity by Sector, 2002-2008���������������������������������������������������������22
Figure 9: Country Comparison of Labor Productivity by Sector������������������������������������������������������23
Figure 10: Industrial Production in Ukraine and Global Metal Prices������������������������������������������������24
Figure 11: Top 10 Items in Export Baskets in Ukraine and Poland, 1995 and 2010���������������������������24
Figure 12: Top 10 Destinations for Ukrainian and Polish Exports, 1995/2002 and 2010�������������������25
Figure 13: Ukraine’s Share of World Exports Relative to Peers, 1995-2011��������������������������������������26
Figure 14: Export Sophistication in Ukraine and Poland (EXPY Index)��������������������������������������������26
Figure 15: Revealed Comparative Advantages of Ukrainian Exports, by Leamer Category��������������27
Figure 16: SME Sector Contribution to Employment and GDP: Ukraine and Selected Countries��������28
Figure 17: Ukraine’s Energy Efficiency Relative to Peers������������������������������������������������������������������29
Figure 18: Cumulative FDI Inflows to Ukraine and Regional Peers, 1992-2011��������������������������������30
Figure 19: FDI Inflows to Ukraine, 1995-2012, in $ Million��������������������������������������������������������������30
Figure 20: Price Competitiveness Indicators in Ukraine, 2005-2011��������������������������������������������������31
5
Figure 21: Ukraine’s Performance in the Doing Business Ranking, 2005-2013���������������������������������34
Figure 22: Ukraine’s Position in the 2014 Doing Business Ranking��������������������������������������������������35
Figure 23: Most Problematic Business Regulations in Ukraine According
to the 2014 Doing Business Ranking (189 countries Worldwide)�������������������������������������35
Figure 24: Ukraine and Regional Peers in International Rankings�����������������������������������������������������36
Figure 25: Ukraine, the Most “Repressed Economy” in Europe
According to the 2013 Economic Freedom Index (EFI)����������������������������������������������������37
Figure 26: Direct Cost of Complying with Permits, Inspections, and Technical Regulations������������38
Figure 27: Governance Data for Ukraine and Regional Peers,
Based on the Kaufmann Index, 1996-2011������������������������������������������������������������������������40
Figure 28: Strength of Market Institutions and Production Efficiency������������������������������������������������41
Figure 29: Percentage of Enterprises Resorting to Unofficial Ways of
Solving Problems with State Authorities, 2008 and 2010��������������������������������������������������42
Figure 30: Index of the Share of Firms Affected by State Capture, 2000�������������������������������������������44
Figure 31: Strategies Addressing State Capture and Corruption���������������������������������������������������������45
Figure 32: Financial Sector Depth in Ukraine Relative to Peers, 2011�����������������������������������������������49
Figure 33: SME Lending in Ukraine Relative to Selected Peers, 2011�����������������������������������������������49
Figure 34: Main Challenges to Doing Business in Ukraine, GCR 2013-2014������������������������������������50
Figure 35: Percentage of Firms Identifying Access to Finance as a Major Constraint�����������������������50
Figure 36: National Bank of Ukraine 1Q2013 Enterprise Survey Results: Access to Finance�����������51
Figure 37: NBU Enterprise Survey Results, 1Q2009-1Q2013������������������������������������������������������������52
Figure 38: Banking Sector Coverage���������������������������������������������������������������������������������������������������53
Figure 39: Use of Banking Services by Companies����������������������������������������������������������������������������53
Figure 40: Banking Market Concentration in Selected Countries, 2010 (in Percent)�������������������������54
6
Figure 41: Peer Countries’ Banking Sector ROE and CAR, 2012 (in Percent)�����������������������������������54
Figure 42: Interest Rates and Inflation, 2007-2012�����������������������������������������������������������������������������56
Figure 43: Shares of Short-term Loans and Deposits in Total Loans and Deposits����������������������������57
Figure 44: Portfolio Composition by Bank Ownership, 2012YE��������������������������������������������������������58
Figure 45: Ownership Structure of the Banking Sector, 2003-2012, in Percent of Total Assets���������59
Figure 46: Credit Information: Ukraine and Regional Peers, 2013�����������������������������������������������������60
Figure 47: Enforcing Contracts in Ukraine and Peer Countries, 2013������������������������������������������������61
Figure 48: Effective Interest Rates for SME Loans, Range and Average (August 2013)�������������������64
Figure 49: Local Hryvnia Debt of Private vs. Public Sector���������������������������������������������������������������65
Figure 50: Stock Market Capitalization, Ukraine and Peer Countries, 2002-2011�����������������������������65
Figure 51: Stock Market Turnover, Ukraine and Peer Countries, 2002-2011�������������������������������������66
Figure 52: Ukraine’s Performance on Competition Elements of the GCR, 2006-2013����������������������70
Figure 53: Indicators of Market Competition and Competition Policy�����������������������������������������������70
Figure 54: Measures of Firm Concentration in Ukrainian Manufacturing Sectors�����������������������������71
Figure 55: Market Structure in Manufacturing Sectors, 2009�������������������������������������������������������������71
Figure 56: Market Structure as Calculated by AMC, 2004-2011��������������������������������������������������������72
Figure 57: Budgetary Subsidies and Current Transfers to Enterprises (in Percent of GDP)���������������76
7
List of Acronyms
EU – European Union
GDP – Gross Domestic Product
ECA – Europe and Central Asia
SME – Small and Medium Enterprise
OECD – Organization for Economic Cooperation and Development
NGO – Nongovernmental Organization
RIA – Regulatory Impact Assessment
ICT – Information and Communication Technologies
NPL – Non Performing Loans
AMC – Anti-Monopoly Committee
AA – Association Agreement
DCFTA – Deep and Comprehensive Free Trade Area
IMF – International Monetary Fund
TFP – Total Factor Productivity
SOE – State Owned Enterprise
DB – Doing Business
EBA – European Business Association
CEO – Chief Executive Officer
CPI – Corruption Perception Index
WTO – World Trade Organization
EFI – Economic Freedom Index
IFC – International Financial Corporation
SES – State Sanitary Service
EC – European Commission
EBRD – European Bank for Reconstruction and Development
NBU – National Bank of Ukraine
CEE – Central and East Europe
M&A – Mergers and Acquisitions
FX – Foreign Exchange
IFI – International Financial Institution
FDI – Foreign Direct Investment
IPO – Initial Public Offering
ICN – International Competition Network
CEM – Country Economic Memorandum
GCR – Global Competitiveness Report
US – United States
CIS – Commonwealth of Independent States
8
Acknowledgments
This report was prepared by a team led by Marcin Piatkowski, and comprised of Melissa A. Rekas, Colleen
Mascenik, Yevhen Hrebeniuk, and Serhiy Osavolyuk. Kristina Mikulova, Inna Pidluska, Alina Tourkova,
and Mariana de Ioottyde Paiva Dias made additional contributions.
The team benefited from the guidance and advice of Qimiao Fan, Paloma Anos Casero, Alexander Pankov,
and four peer reviewers: Ruslan Pionktivskiy, Donato de Rosa and Marius Vismantas of the World Bank,
and Jose Roman Leon Lora of the European Commission’s Delegation to Ukraine.
9
Executive Summary
1. Ukraine has untapped growth potential. Ukraine has fertile agricultural land, an attractive
geographical location in Europe, bordering the European Union (the largest market in the world with a
GDP of almost $17 trillion), and a large domestic market of almost 46 million consumers. It also has
abundant natural resources, relatively well-developed infrastructure, high quality human capital, and a
significant industrial base.
2. However, Ukraine’s potential has yet to be adequately harnessed. Defying expectations at
the time of the collapse of the Soviet Union, when hopes that the newly found independence would spur
Ukraine’s development loomed large, the country’s GDP per capita still lingers below 1989 levels and at
a mere 10 percent of the European Union average after twenty years of transition. Incomes have increased
much more slowly in Ukraine than in the Europe and Central Asia (ECA) region as a whole. Ukraine has also
been under performing relative to regional peers, such as Poland, Romania, Russia and Belarus, especially
during the recent global crisis, registering a decline in GDP by 15 percent in 2009. Despite similar starting
points at the beginning of transition, Poland’s and Ukraine’s income levels, for instance, have diverged over
the years: income per capita in Poland is now almost four times higher than in Ukraine. Growth projections
suggest that the income gap between Ukraine and its peers will not be closed in the short term.
3. This note argues that the stunted growth of the private sector goes a long way in explaining
Ukraine’s poor growth performance. The tepid private sector growth is reflected in (i) the stagnant
structure of the country’s industry and exports, where old industries such as steel, machine-building and
chemicals continue to dominate. They operate at low levels of industrial productivity, which has grown
at a much slower pace than in peer countries in the last decade. There is also (ii) the low inflow of high
value-added FDI, especially in export-oriented manufacturing and (iii) the relatively limited role of SMEs
in developing the economy. All these factors suggest that the market-driven process of entrepreneurship,
innovation, and productivity does not seem to work properly, and thus undermines Ukraine’s growth
prospects.
4. This note identifies weaknesses in the regulatory environment, limited access to financing,
and lack of competition as the main constraints to private sector development, and offers short- and
medium-term policy reform options. The analysis offers evidence based on a stock-taking of existing
research produced by the World Bank and external partners – such as the European Commission and the
OECD – as well as on discussions with members of the Ukrainian government, business associations,
NGOs, and academia. The poor regulatory environment, including tax administration, property rights,
permits, certification and inspections, limited access to finance and low levels of overall competition pose
obstacles to private sector development, undercutting Ukraine’s growth prospects. It finds that there is
scope for reforms and provides a list of policy recommendations.
5. On the regulatory environment, the note argues that despite recent progress, Ukraine
continues to suffer from excessive red tape, poor implementation of business regulations, and weak
public sector governance. The note offers recommendations on how to overcome these obstacles, and move
ahead with reforming business regulations. The recommended reforms include: (i) full implementation of
measures aimed at improving the business climate, proposed in the President’s “2013 National Action
Plan”; (ii) wholesale reduction of the number of permits and licenses through the introduction of a full
regulatory guillotine exercise based on international good practice and building on the previous, partially
successful effort in 2005; (iii) fundamental strengthening of the regulatory impact assessment (RIA) of new
legislation (that is, some measure of the expected impact on the cost of doing business); (iv) completion
of a risk-based system of inspections, (iv) elimination of outdated standards and technical regulations;
(v) adoption of EU regulations, especially in areas such as food safety and technical regulations; (vi)
effective implementation of the new insolvency law, and (vii) broad introduction of e-government and
10
ICT solutions to increase transparency and reduce scope for graft. The note also recommends that aside
from improving primary and secondary legislation, mostly by harmonizing it with the EU standards,
the Government should emphasize the efficient implementation of regulations, as it often lags behind
legislation. Consistent, impartial, and efficient implementation of regulations offer substantial “quick
wins” for the business environment. Coupled with better governance and committed political leadership,
these reforms could play a key role in facilitating a decisive break from the legacy of the Soviet past.
6. As for access to finance, despite significant outstanding corporate borrowing, access to
finance remains limited, especially for SMEs. This is for a number of reasons. First, prohibitively high
interest rates, driven mainly by the central bank’s commitment to maintaining a de facto pegged exchange
rate, combined with government’s large borrowing needs that crowd out lending to the private sector,
represent a material obstacle to getting credit. Second, lax supervision over related-party lending supports
the dominance of the banking sector by a few, locally-controlled business groups, which tend to distribute
credit only within their groups rather to the whole economy. Third, access to credit is hindered by the ongoing
withdrawal of foreign banks, increased post-crisis risk aversion, and the large number of non-performing
loans. Fourth,credit is scarce due to limited access to long-term funding, a weak enforcement environment
characterized by inadequate judicial practices, and a fragmented credit information infrastructure that does
not support sound credit risk management. Finally, access to finance is undermined by the underdeveloped
non-bank and capital markets. Enhancing access to credit, which is critical for financing the private sector,
requires a coordinated approach to address inter-related challenges of transitioning to a flexible exchange
rate, supporting the growth of long-term deposits, enforcing legislation on the disclosure of the ultimate
beneficiaries of banks, identifying and limiting related party lending, removing tax disincentives for NPL
transfers and write-offs, and consolidating information on credit histories. The development of the capital
markets needs to be supported by enhanced market transparency, higher disclosure requirements, and
improved reporting standards and corporate governance.
7. On competition, this note argues that low levels of competition on Ukraine’s domestic markets
are restricting the country’s economic growth and potential. Many sectors exhibit a high concentration
of firms and low rates of firm entry and exit. The effectiveness of competition policy is weak. This is
problematic because the degree of competition in an economy has a direct impact on productivity, growth,
and consumer welfare. Competition problems in Ukraine are driven by barriers to market entry and exit,
created and supported by excessive red tape, weaknesses in the national competition policy framework,
and the often ineffective application of competition policies. The Anti-Monopoly Committee (AMC), the
competition watchdog, is supported by a relatively strong legal framework–though challenges such as the
lack of investigative power remain – but the main challenge is the inefficient application of the law. It is
reflected in the fact, for instance, that less than 10 percent of fines imposed by the AMC are actually paid,
or that merger and cartel control is often difficult if not impossible without knowledge of the ultimate
owners of companies involved. Going forward, enhancing competition to encourage market entry and
promote private sector growth would be supported by fully harmonizing Ukrainian legislation with that of
the European Union as well as implementing the National Competition Program 2014-2020, thus boosting
the AMC’s investigative power, and providing adequate resources to ensure that the AMC can maintain
high standards of performance and accomplish its mission. Moreover, enhanced competition would require
better-trained judges adjudicating competition cases, truly competitive public procurement and non-
distortionary state aid, and stronger awareness and involvement of the civil society. Finally, ensuring the
AMC’s independence and clear mandate to go after all transgressors will be decisive.
8. On a more general level though, private sector will not fulfill its potential without progress
in fighting state capture and corruption. These issues have an across-the-board impact on the business
environment, and they represent the main underlying cause for the stunted growth of Ukraine’s private
sector, the undiversified structure of the economy and its exports, and the low productivity and uneven
11
pace of reforms. While Ukraine has made a lot of progress on harmonizing legislation with EU standards,
the regulatory framework continues to be patchy, unpredictable and business-unfriendly, reflecting the
influence of business lobbies, rent-seeking and an ossified public administration, which benefits from the
status quo. The application of policies is, in turn, mired in a culture of legal relativism, where the meaning
of the law is subject to an ongoing re-interpretation depending on the play of various interests at the
national, regional and even local level. On top of that, corruption is pervasive, and it is perceived as much
more than a usual cost of doing business.
9. There are a number of ways of reducing state capture and corruption. State capture in Ukraine
is reflected in the adverse influence of selected vested interests on public policy at the cost of the society at
large. It is rooted in the country’s political culture, built upon an old model of fused political and economic
power, a non-transparent and non-competitive privatization process (which allowed for the accumulation
of large economic assets in the hands of only a few and largely excluded international investors), murky
public procurement and state aid. In addition, a partial, dependent and unreliable judiciary impels business
elites to resort to wielding direct influence over the legislative process and the state apparatus to secure
property rights. Given this background, reducing state capture will require the full transparency of the
legislative process for all new regulations, strengthening regulatory impact assessments, and expanding the
involvement of the business sector, trade unions, NGOs and society in the legislative process. In addition,
state capture and corruption canbe mitigated by installing a fully transparent public procurement and state
aid system, which would allow for full access to information on every Hryvnia spent from public money,
public hearings on the tender criteria in large public contracts, and public monitoring of the bidding process
itself. Transparent and competitive appointments of officials in public administration and state-owned
enterprises would also be helpful. Opening up to competition, especially from foreign companies, could
weaken special interests by forcing them to compete on more equal terms and by lowering rents.
10. A fundamental reform of the judicial system would also be a critical step towards reducing
state capture. Economies can hardly develop without secure property rights safeguarded by impartial and
independent courts. While this topic falls outside the scope of this note, it is clear that an independent,
impartial, and professional judicial system would provide the much needed recourse for the private sector
to defend itself against inconsistent, unfair, or incorrect application of the law. A reformed judiciary
would also strengthen the fundamental system of checks and balances between the courts and public
administration, and allow the regulatory framework to learn from its mistakes, based on court rulings, as
in other market economies. Today, the perceived lack of recourse to courts leaves enterprises largely at
the mercy of the public administration, sustaining state capture and corruption, undermining confidence,
and thwarting development. The AA with the EU, which has a special focus on the judicial system, could
provide the much-needed trigger for fundamental reform.
11. Finally, political commitment is also vital. Economic history shows that the fate of countries
ultimately depends on their culture, value system, and quality of leadership. Even the best-designed
legislative frameworks crumble in the face of ill-intentioned implementation and “ways of doing things”,
which tend to be driven by ingrained social and political behaviors. The political leadership in Ukraine thus
needs to start by providing the much-needed signal to the whole society and to the public administration
in particular that business is no longer as usual, and that poor implementation of the law, administrative
neglect and corruption will no longer be tolerated. There is hardly any other way to start improving the
business climate in the long-term.
12. Curbing state capture and corruption requires an across-the-board consensus on reforms.
The strong political momentum stemming from the cross-party consensus on the need to sign the AA with
the EU should be sustained to support the adoption of the hundreds of pieces of legislation that would
accompany the EU agreements and to spur the overall private sector reform agenda. The consensus could
be strengthened by, for instance, establishing a national round table on reforms, which would include all
12
political parties, business community and civil society. Launching a comprehensive information campaign
directed at the public could also be useful to strengthen consensus on reforms.
13. Progress in the reform process can also hardly be envisioned without a much stronger civil
society. The current, relatively weak, involvement of civil society – especially NGOs representing small
and medium enterprises (SMEs) – in monitoring the business environment and driving the reform process
is an important obstacle to private sector development. In contrast to their large counterparts, which often
have sufficient resources to deal with the poor business climate, SMEs harbor a long-term interest in
improving the regulatory environment and investment climate, as it strongly affects their chances for
survival. However, SMEs lack resources that would help them channel their commitment to the reform
process and facilitate access to policy-makers. SME business associations are not strong, and they largely
focus on advising members on how to cope with the existing regulatory maze rather than on how to
improve it. Going forward, the contribution of SMEs to the public debate could be increased by including
them in working groups and/or national round tables dealing with the business environment. Similarly, the
impact of society at large on the reform process could be elevated by involving it in monitoring progress
in implementation of reforms by providing free and user-friendly on line public access to state-generated
performance statistics.
14. In sum, Ukraine needs a decisive breakthrough in improving the business climate to fully
realize its growth potential. Previous studies of the World Bank (2007, 2010) argue that Ukraine seems
to be trapped in a self-perpetuating low equilibrium, characterized by high barriers to market entry, low
competition, limited incentives for technology absorption, low export diversification and sophistication, and
high vulnerability to commodity prices. This vicious circle, sustained via poor contract enforcement, weak
property rights, and weak governance, needs to be broken for the country to achieve its growth potential.
15. The Association Agreement (AA) with the EU could provide an important anchor for the
reform process. Implementation of the AA, together with the Deep and Comprehensive Free Trade Area
(DCFTA) agreement, could carry substantial benefits for Ukraine. EU accession had such an effect earlier
for thenew EU members in Central and East Europe, which took advantage of the intimate engagement
with the EU to increase exports, attract FDI, enhance competition, minimize the negative influence of
vested interests, and ultimately make a historically unprecedented step towards catching up with the
West. The entrance of the EU agreements into full force would create legally binding obligations for the
harmonization of Ukraine’s laws with the regulatory architecture of the EU’s single market.
16. Robust implementation of the private sector development agenda will be key to kick-starting
the market from its current self-perpetuating low equilibrium. There is often a disconnect between
legislation and policy implementation that undermines the impact of the government’s reform efforts.
Hence, a radically new approach to the implementation of policy measures will be needed if Ukraine hopes
to reap the full benefits of the recent and planned reforms. This would require higher quality of legislation,
but also enhanced capacity and efficient monitoring of implementing institutions.
17. If the reforms recommended in the note were effectively implemented, the impact on Ukraine’s
GDP would be substantial. A 2006 IMF study (Tiff in 2008) suggests that based on the existing stock of
capital and labor, Ukraine’s income levels could nearly double if the country approximated the levels of
institutional and market efficiency common in EU10. Given that the institutional gap between Ukraine and
EU10 has not diminished much since the analysis was performed, the benefits of further business reforms
would still be substantial, helping to offset the time lost since the beginning of transition and boost income
convergence.
18. The Ukrainian government is aware of the above-mentioned challenges: the national reform
agenda is focused on promoting private sector development. The National Action Plan adopted
13
in March 2013 by the Ukrainian Cabinet of Ministers aims to spur private sector growth and enhance
export competitiveness. The Action Plan offers a list of 44 legal reforms to be enacted in the course of
2013, in areas such as regulatory policy, permits and licensing, investor protection, customs, inspections,
competition protection, administrative services, technical regulations, food safety, access to electricity, and
tax administration. A summary of the Action Plan is included in Annex 1. The Action Plan sets an explicit
objective of improving Ukraine’s Doing Business ranking from 140th place in DB 2013 to the top 100. Thanks
to a number of reforms enacted under the Action Plan, Ukraine has already moved to 112th place in DB 2014.
19. This note aims to inform the World Bank Group’s policy dialogue and technical assistance to
the Government in support of its private sector development reform efforts. Given the Government’s
ambitious plans for improving the business climate and competitiveness, the World Bank Group stands
ready to continue to support the Government in its reform attempts, building on existing cooperation with
the IFC and on-going policy dialogue led by the World Bank Group Doing Business team, in line with the
Bank Group’s Country Partnership Strategy.
20. The note is structured as follows. The first chapter traces the roots of the tepid private sector
growth. The following three chapters focus on the three main constraints to private sector development,
reviewing the Ukrainian market’s structural weaknesses in business regulation, access to finance, and
competition, and providing recommendations. The last chapter concludes. Table 1 below offers a summary
of key policy recommendations made in this note.
Table 1: Key Policy Recommendations: Regulation, Access to Finance and Competition
Suggested Short-Term Medium-Term
Reforms Recommendations Recommendations
Regulatory Implement a regulatory guillotine in line Implement the 2013 National Action Plan
Framework with international best practice, to allow on improving the business climate.
for a wholesale reduction in permits, li-
Strengthen the regulatory impact assess-
censes and redundant business regula-
ment (RIA), in line with international
tions.
practice, to increase the quality of new
Extend the scope of self-certification to legislation.
more business activities.
Harmonize technical and food safety
Finalize the inspections reform by intro- lations with EU regulations.
regu
ducing afull-scale risk-based system, and
Finalize the institutional reform of the
adopt appropriate risk criteria and check-
technical regulations system.
lists across all inspectorates.
Ensure the effective implementation of
Eliminate mandatory certification for
the new insolvency law.
goods and services that do not require it
in line with EU and international practice. Improve the consultative process for new
legislation, including, for example, the
Improve the regulatory environment in
public posting of comments and responses.
the agrarian sector by eliminating the
compulsory certification of grains and Develop a comprehensive strategy for
grain storage and enhancing the transpa SME development in line with good in-
rency of policy implementation. ternational practice.
Implement further reforms measured by Introduce a broad range of e-government
the Doing Business ranking. and ICT solutions, including the online
registration of companies, online appli-
Enforce the law on public access to all
cations for permits and licenses, and an
documents related to business regula-
Internet based library of all business re-
tions, including proposed drafts and reg-
lated requirements.
ulatory impact assessments.
14
Suggested Short-Term Medium-Term
Reforms Recommendations Recommendations
Access Gradually transition to a flexible ex- Review constraints on foreign exchange
to Finance change rate, and tighten fiscal policy. lending and set appropriate prudential
limitations.
Encourage longer-term savings by more
strictly distinguishing demand and time Enforce legislation on disclosure of the
deposits and potentially expanding de- ultimate beneficiaries of banks, apply
posit guarantee coverage to include cer- consolidated supervision, identify and
tificates of deposit issued by banks to limit related party lending.
their clients.
Increase depositor confidence by intro-
Approve laws removing tax disincentives ducing market conduct regulation, ap-
for NPL transfer and write-offs. pointing a financial ombudsman, and
improving financial consumer protection
Expedite and reduce costs of access to
rules and industry standards.
the State Registry of Encumbrances over
Immoveable Assets. Approve legislation completing the con-
solidation of information on credit his-
Pass legislation allowing dual listings of
tories and introduce a minimum unified
Ukrainian companies that are currently
standard for information on the credit
listed in foreign jurisdictions.
history.
Remove constraints to Hryvnia-denomi
Enact and enforce further legal and regu-
nated lending by IFIs by reconsidering
latory reforms to improve capital market
the interest rate cap imposed by the NBU.
transparency, protect investors’ rights,
and enhance disclosure requirements.
Enact legislative and regulatory reforms
improving reporting standards, and en-
hancing transparency and corporate go
vernance in Ukrainian firms, including
SMEs.
15
Suggested Short-Term Medium-Term
Reforms Recommendations Recommendations
Competition Amend the Commercial Code to elimi- Pass legal amendments to harmonize
nate conflicts with competition laws. Ukraine’s competition legislation with
that of the European Union.
Enact the Law on State Aid to Business
Entities and implement an effective sys- Strengthen the de facto political indepen-
tem for controlling anticompetitive state dence of the AMC.
aid, as per the commitments in the EU
Improve co-operation with other
Association Agreement.
Ukrainian law enforcement agencies and
Increase the AMC’s investigative power investigative bodies.
and capacity to collect evidence of wrong
Clarify court jurisdiction for competition
doing.
cases.
Modify merger/concentration notifi-
Provide adequate resources to ensure that
cation and abuse of dominant position
the AMC can maintain high standards of
thresholds to focus on transactions likely
performance in accomplishing its mis-
to raise competitive concerns, including
sion.
those involving entities concealing ulti-
mate owners. Reduce the burden on the AMC in areas
that should not belong to its core activi
Improve procedures for imposing and
ties such as natural monopolies, public
collecting monetary penalties imposed
procurement and trademarks.
by the AMC.
Complete the institutional reform of
Amend the leniency program to allow le-
AMC as outlined in the draft Law on
niency for more than one applicant.
“National Competition Program 2014-
Strengthen competition advocacy activi- 2024”.
ties and outreach to the public.
Expand the use of market studies to better
monitor levels of competition.
16
Chapter I: The Private Sector Growth Problem
Summary
21. This chapter argues that the stunted growth of the private sector goes a long way in
explaining Ukraine’s poor economic performance. The stunted growth is reflected in the generally
stagnant structure of GDP, domestic production and exports, where old industries such as steel, machine
building and chemicals continue to dominate; modest growth and low levels of industrial productivity,
which has grown at a slower pace than in peer countries in the past decade; low inflow of high-value added
FDI, especially in export-oriented manufacturing; high energy inefficiency; and the relatively limited role
of SMEs in the development of the economy. All of these factors suggest that the market-driven process
of entrepreneurial self-selection and self-discovery does not seem to work properly, and thus undermines
Ukraine’s growth prospects.
Introduction
22. At the beginning of transition, Ukraine had a number of strengths, which seemed to predict
a successful transition to a market economy and a gradual increase in living standards. It had fertile
agricultural lands, an attractive geographical location in Europe at the crossroads between the West and the
East, a large domestic market of almost 49 million consumers, abundant natural resources, relatively well-
developed infrastructure, high-quality human capital, and a significant industrial base in the east of the
country, featuring global technology leaders such as the Antonov aviation company, which manufactured
the largest airplane in the world.
23. Yet, the economic miracle did not materialize. Ukraine’s GDP per capita lingers below 1989
levels and at a mere 10 percent of the European Union average after twenty years of transition. Incomes
have increased much more slowly in Ukraine than in the Europe and Central Asia (ECA) region as a whole
(Figure 1). Ukraine has also been under performing relative to regional peers, such as Poland, Romania,
Russia and Belarus (Figure 2), including during the ongoing global crisis. Despite similar starting points at
the beginning of transition, Poland’s and Ukraine’s income levels have diverged over the years. Incomes in
neighboring Poland, arguably the most successful economy in Europe since 1989 (Piatkowski 2013), are
now almost four times higher than in Ukraine. Growth projections suggest that the income gap between
Ukraine and these peers will not be closed in the short term.1
1
In 2013, GDP growth in Ukraine and Poland, for instance, is projected at around 0 percent and 1.3 percent,
respectively.
17
Figure 1: GDP Growth in Ukraine and ECA, 1990-2013, 1990=100
'W'ƌŽǁƚŚϭϵϵϬͲϮϬϭϯ͕ϭϵϵϬсϭϬϬ
ϭϴϬ
ϭϲϬ
ϭϰϬ
ϭϮϬ
ϭϬϬ
ϴϬ
ϲϬ
ϰϬ
ϮϬ
Ϭ
ϵϬ ϵϭ ϵϮ ϵϯ ϵϰ ϵϱ ϵϲ ϵϳ ϵϴ ϵϵ ϬϬ Ϭϭ ϬϮ Ϭϯ Ϭϰ Ϭϱ Ϭϲ Ϭϳ Ϭϴ Ϭϵ ϭϬ ϭϭ ϭϮ ϭϯ
ϭϵ ϭϵ ϭϵ ϭϵ ϭϵ ϭϵ ϭϵ ϭϵ ϭϵ ϭϵ ϮϬ ϮϬ ϮϬ ϮϬ ϮϬ ϮϬ ϮϬ ϮϬ ϮϬ ϮϬ ϮϬ ϮϬ ϮϬ ϮϬ
ZĞŐŝŽŶ hŬƌĂŝŶĞ
Source: World Bank, ECA Regional Tables.
Figure 2: GDP per Capita in PPP, Constant 2005 International $
ϮϬϬϬϬ
ϭϴϬϬϬ
ϭϲϬϬϬ
ϭϰϬϬϬ
ϭϮϬϬϬ
ϭϬϬϬϬ
ϴϬϬϬ
ϲϬϬϬ
ϰϬϬϬ
ϮϬϬϬ
Ϭ
ϭϵϵϬ
ϭϵϵϭ
ϭϵϵϮ
ϭϵϵϯ
ϭϵϵϰ
ϭϵϵϱ
ϭϵϵϲ
ϭϵϵϳ
ϭϵϵϴ
ϭϵϵϵ
ϮϬϬϬ
ϮϬϬϭ
ϮϬϬϮ
ϮϬϬϯ
ϮϬϬϰ
ϮϬϬϱ
ϮϬϬϲ
ϮϬϬϳ
ϮϬϬϴ
ϮϬϬϵ
ϮϬϭϬ
ϮϬϭϭ
ĞůĂƌƵƐ WŽůĂŶĚ ZƵƐƐŝĂŶ&ĞĚĞƌĂƚŝŽŶ
ZŽŵĂŶŝĂ hŬƌĂŝŶĞ
Source: World Bank, ECA Regional Tables.
24. Ukraine was one of the economies most severely hit by the global crisis. Real GDP declined by
15 percent in 2009, much more than elsewhere in the region. While the economy regained some steam in
2010-2011, the GDP growth rate declined again in 2012, dropping close to zero. It is projected to stagnate
around 0 percent in 2013 and slightly pick to 2 percent in 2014, well below Ukraine’s potential.
18
Figure 3: Real GDP Growth Rate, 2008-2013
ϭϬ
ϱ
Ϭ
ϮϬϬϴ ϮϬϬϵ ϮϬϭϬ ϮϬϭϭ ϮϬϭϮ ϮϬϭϯ
ZĞŐŝŽŶ
Ͳϱ
hŬƌĂŝŶĞ
ͲϭϬ
Ͳϭϱ
ͲϮϬ
Source: World Bank, ECA Regional Tables, and projections for 2013.
25. The stunted growth of the private sector is among the key reasons for Ukraine’s poor
economic performance. Evidence of this structural problem is abundant: the stagnant structure of the
country’s exports; the low growth rate and overall level of productivity; the low inflows of FDI, particularly
in export-oriented manufacturing; high energy intensity; and the relatively small share of SMEs in GDP.
Each of these factors is documented in more detail below.
26. Ukraine’s productivity lags its regional peers. In 1996-2011, labor productivity growth (GDP
per person employed) was lower than in comparator countries (Figure 4). As a result, Ukraine’s level
of productivity in 2012 amounted to only 16 percent of the level of productivity in the US (Figure 5).
Importantly, Ukraine has done even worse when it comes to Total Factor Productivity (TFP) growth.
In 2006-2010, growth rates were actually negative. In the earlier period of 1996-2005, Ukraine’s TFP
growth amounted to the rather weak 1.7 percent per year (Figure 6). Such slow growth in TFP suggests
that Ukraine’s labor productivity growth was largely based on increases in capital investment, rather than
improvements in “pure” productivity driven by higher-quality human capital, enhanced business practices,
and faster technology absorption. In other words, Ukraine experienced “extensive” rather than “intensive”
growth, unlike most of its peer countries, where TFP growth was the predominant source of development
and economic convergence. Inefficient use of the existing, and relatively abundant, capital is also evident
in Figure 7, where Ukraine lags regional and global peers.
19
Figure 4: Labor Productivity Growth in Ukraine and Selected Countries, 1996-2011
ϴ
ϳ
ϲ
ϱ
ϰ ϭϵϵϲͲϮϬϬϱ
ϯ ϮϬϬϲͲϮϬϭϭ
Ϯ
ϭ
Ϭ
ƵƌŽƉĞ tŽƌůĚ hŬƌĂŝŶĞ WŽůĂŶĚ ZŽŵĂŶŝĂ ZƵƐƐŝĂ ĞůĂƌƵƐ
Note: sorted by 2006-2011
Source: Bank staff calculations based on the Conference Board’s Total Economy Database, January 2013.
Figure 5: GDP per Person Employed, US=100, 2012
80%
70%
60%
50%
40%
30%
20%
10%
0%
Europe Poland Russia Belarus World Romania Ukraine
Source: Bank staff calculations based on the Conference Board’s Total Economy Database, January 2013.
20
Figure 6: Total Factor Productivity Growth, 1996-2010
ϲ
ϱ
ϰ
ϯ
Ϯ
ϭ ϭϵϵϲͲϮϬϬϱ
Ϭ ϮϬϬϲͲϮϬϭϬ
Ͳϭ
hŬƌĂŝŶĞ ƵƌŽƉĞ ZƵƐƐŝĂ tŽƌůĚ WŽůĂŶĚ ĞůĂƌƵƐ ZŽŵĂŶŝĂ
ͲϮ
Ͳϯ
Ͳϰ
Ͳϱ
Source: Bank staff calculations based on the Conference Board’s Total Economy Database, January 2013.
Figure 7: Total Factor Productivity Levels Relative to the Global Production Frontier, 2010
ϱϬ ϱϬ
'ůŽďĂůƉƌŽĚƵĐƚŝŽŶ Z
ƉŽƐƐŝďŝůŝƚŝĞƐĨƌŽŶƚŝĞƌ͕ϮϬϭϬ
z
ddK
^hZ
ϯϬ ,hE ,Zs ϯϬ
Z
^z
^s<
Z' WK> ^d
dhZ hZz
ϱϬƉĞƌĐĞŶƚ
& ĞĨĨŝĐŝĞŶĐLJ
,> Dy
ϮϬ ϮϬ
& >dh
>s
sE
Dz^
Z Zh^ ϯϬƉĞƌĐĞŶƚ
'Z ĞĨĨŝĐŝĞŶĐLJ
ϭϬ ϭϬ
WZ >Z
,E K>
hE ^>s ZD hE ^>s ZD hŽǁĞƌ
K &ĞĚĞƌĂƚŝŽŶ DŝĚĚůĞ
DĞĚŝĂŶ /ŶĐŽŵĞ
'ƌŽƵƉ
DĞĚŝĂŶ
ŽŵĞƐƚŝĐĂŶŬĞƉŽƐŝƚƐͬ'W;йͿ WƌŝǀĂƚĞƌĞĚŝƚͬ'W;йͿ
Source: World Bank, Fin Stats (2011).
Figure 33: SME Lending in Ukraine Relative to Selected Peers, 2011
Source: OECD et al (2012) SME Policy Index.
87. The 2013-2014 Global Competitiveness Report high lights access to finance as the number
one obstacle to doing business in Ukraine, with 16.7 percent of respondents identifying it as such (in a
single choice survey), up from 15.3 percent in the 2012-2013 survey, and ahead of corruption and inefficient
public administration (Figure 34).
49
Figure 34: Main Challenges to Doing Business in Ukraine, GCR 2013-2014
WĞƌĐĞŶƚŽĨƌĞƐƉŽŶƐĞƐ
Ϭ Ϯ ϰ ϲ ϴ ϭϬ ϭϮ ϭϰ ϭϲ ϭϴ
ĐĐĞƐƐƚŽĨŝŶĂŶĐŝŶŐ ϭϲ͕ϳ
ŽƌƌƵƉƚŝŽŶ ϭϱ͕ϱ
/ŶĞĨĨŝĐŝĞŶƚŐŽǀƚďƵƌĞĂƵĐƌĂĐLJ ϭϯ͕ϰ
dĂdžƌĞŐƵůĂƚŝŽŶƐ ϭϭ
WŽůŝƚŝĐĂůŝŶƐƚĂďŝůŝƚLJ ϭϬ͕ϭ
dĂdžƌĂƚĞƐ ϴ͕ϰ
&ŽƌĞŝŐŶĐƵƌƌĞŶĐLJƌĞŐƵůĂƚŝŽŶƐ ϰ͕Ϯ
/ŶƐƵĨĨŝĐŝĞŶƚĐĂƉĂĐŝƚLJƚŽŝŶŶŽǀĂƚĞ ϰ͕ϭ
/ŶĨůĂƚŝŽŶ ϯ͕ϳ
'ŽǀƚŝŶƐƚĂďŝůŝƚLJͬĐŽƵƉƐ ϯ͕ϱ
ƌŝŵĞĂŶĚƚŚĞĨƚ Ϯ͕ϱ
/ŶĂĚĞƋƵĂƚĞƐƵƉƉůLJŽĨŝŶĨƌĂƐƚƌƵĐƚƵƌĞ Ϯ͕Ϯ
ZĞƐƚƌŝĐƚŝǀĞůĂďŽƌƌĞŐƵůĂƚŝŽŶƐ ϭ͕ϵ
WŽŽƌƉƵďůŝĐŚĞĂůƚŚ ϭ͕ϯ
/ŶĂĚĞƋƵĂƚĞůLJĞĚƵĐĂƚĞĚǁŽƌŬĨŽƌĐĞ Ϭ͕ϴ
WŽŽƌǁŽƌŬĞƚŚŝĐŝŶŶĂƚŝŽŶĂůůĂďŽƌĨŽƌĐĞ Ϭ͕ϲ
Source: World Economic Forum, the 2013-2014Global Competitiveness Report.
88. The World Bank’s research offers similar evidence. The World Bank Enterprise Surveys reveal
that access to finance remains a challenge in Ukraine: 34.7 percent of the surveyed enterprises perceive
access to finance as problematic. This is a significantly larger proportion than in Poland (22 percent), Russia
(28 percent), and developed economies (17.7 percent on average), as Figure 35 shows. In Ukraine’s over
banked system, limited access to financial services might either reflect voluntary exclusion of individuals
and businesses, or low afford ability of credit. Local business surveys conducted by the National Bank of
Ukraine (NBU) suggest that companies need credit, and are willing to take it, but remain challenged by
the high prices, the limited selection of products, the difficult access to long-term loans, and – in the case
of SMEs – banks’ risk filters.
Figure 35: Percentage of Firms Identifying Access to Finance as a Major Constraint
ϰϬ
ϯϱ
ϯϬ
Ϯϱ
ϮϬ
ϭϱ
ϭϬ
ϱ
Ϭ
ƵůŐĂƌŝĂ ,ŝŐŚͲŝŶĐŽŵĞ WŽůĂŶĚ ĂƐƚĞƌŶ ZƵƐƐŝĂŶ ƌŵĞŶŝĂ hŬƌĂŝŶĞ ZŽŵĂŶŝĂ
;ϮϬϬϵͿ K ;ϮϬϬϵͿ ƵƌŽƉĞΘ &ĞĚĞƌĂƚŝŽŶ ;ϮϬϬϵͿ ;ϮϬϬϴͿ ;ϮϬϬϵͿ
ĞŶƚƌĂůƐŝĂ ;ϮϬϭϮͿ
Source: World Bank, Enterprise Surveys, www.enterprisesurveys.org
50
89. Other domestic surveys paint a somewhat brighter picture, but nonetheless suggest that SMEs
have more difficult access to finance than larger firms. The 1Q2013 NBU survey of business expectations
finds that energy prices, high raw material prices, strong competition,and heavy tax pressure are the top
four hurdles in doing business. Access to finance ranks 10th on the list, following corruption. However, the
survey results highlight the more difficult position of SMEs relative to larger firms in getting financing:
securing a loan is more of a challenge for small enterprises (31 percent saw conditions deteriorate), than
for large enterprises (22.6 percent saw conditions deteriorate). Almost 95 percent of respondents reported
having no problems with processing bank transactions. However, 40.3 percent worried about the lack of
working capital, likely stemming from the high cost of credit rather than low accessibility (see Figure 36).
Figure 36: National Bank of Ukraine 1Q 2013 Enterprise Survey Results: Access to Finance
ϰϱ
ϰϬ
ϯϱ
ϯϬ
Ϯϱ
ϮϬ
ϭϱ
ϭϬ
ϱ
Ϭ
džƉĞĐƚŶĞĞĚƐ ^ĞĞƚĞƌŵƐŽĨŐĞƚƚŝŶŐ ^ĞĞůŝŵŝƚĞĚĂďŝůŝƚLJ ^ĞĞůĂĐŬŽĨǁŽƌŬŝŶŐ
ŝŶůŽĂŶƐ ůŽĂŶĚĞƚĞƌŝŽƌĂƚŝŶŐ ƚŽŐĞƚĂůŽĂŶƐĂƐ ĐĂƉŝƚĂůĂƐŽďƐƚĂĐůĞƚŽ
ƚŽŝŶĐƌĞĂƐĞ ŝŶůĂƐƚƋƵĂƌƚĞƌ ŽďƐƚĂĐůĞƚŽŐƌŽǁƚŚ ŐƌŽǁƚŚ
ǀĞƌĂŐĞ ^ŵĂůůĞŶƚĞƌƉƌŝƐĞƐ DĞĚŝƵŵƐŝnjĞĞŶƚĞƌƉƌŝƐĞƐ >ĂƌŐĞĞŶƚĞƌƉƌŝƐĞƐ
Source: NBU (2013).
90. Even if the overall conditions for getting credit seem to have improved, significant obstacles
remain, especially for SMEs. According to the NBU survey, access to credit for companies has become
much easier since the 2008-09 crisis. The NBU uses the spread between the negative and positive answers
(the higher the spread, the harder to get a loan) as an indicator of difficulty in accessing credit. In 1Q 2013,
the spread of opinions stood at 20.3 pp, down from 69.2 pp in 1Q 2009, but up from the bottom level of
10.9 pp in 2Q 2011. The majority of businesses, however, while maintaining the same appetite for credit,
saw the conditions for getting a loan deteriorate in 1Q 2013: only 5.4 percent of the respondent companies
(3 pp up q/q) believed that the conditions improved over the past quarter, while 25.6 percent held the
opposite view (see Figure 37).
51
Figure 37: NBU Enterprise Survey Results, 1Q 2009-1Q 2013
ϴϬ
ϳϬ
ϲϬ
ϱϬ
ϰϬ
ϯϬ
ϮϬ
ϭϬ
Ϭ
ŝĨĨŝĐƵůƚLJƚŽŐĞƚĐƌĞĚŝƚ;ƐƉƌĞĂĚŽĨĂŶƐǁĞƌƐͿΎ
EĞĞĚĨŽƌĐƌĞĚŝƚ;ƐƉƌĞĂĚŽĨĂŶƐǁĞƌƐͿΎΎ
*
Percentage point difference between the share of those that believe it became harder to get a loan in past quarter
and those that believe it became easier. The lower the better.
**
Percentage point difference between the share of those that believe they will need more credit in next quarter and
those that believe they will need less.
Source: National Bank of Ukraine.
91. Banking sector asset growth has been nearly flat in the past few years. The banking sector
represents 95 percent of the total assets of the financial sector. The compounded annual growth rate
(CAGR) of the banking sector gross loan portfolio was only four percent in 2010-2012, and in 2012 alone
the banks’ gross loan portfolio expanded by only 2 percent, driven mainly by loans to the corporate sector.
Lending slightly picked up in 2013, rising by 4.5 percent from January to August, but this is happening
against the backdrop of negative GDP growth, which suggests that the growth may be driven by a few large
state related projects.
92. In addition, the banking sector seems to be over saturated. Ukraine has 176 active banks
running a network of nearly 20,000 outlets, 1.5 payment cards per person (and 0.7 active cards per person),
and a ratio of banking assets to GDP of 81 percent (see Figures 38-39). In terms of the number of accounts,
and banking branches per adult person (see Figure 38), Ukraine is ahead of its peers, and could even be
considered a regional leader.
52
Figure 38: Banking Sector Coverage
ϰ ϱϬ
ϯ͕ϱ ϰϱ
ϰϬ
ϯ
ϯϱ
Ϯ͕ϱ ϯϬ
Ϯ Ϯϱ
ϭ͕ϱ ϮϬ
ϭϱ
ϭ
ϭϬ
Ϭ͕ϱ ϱ
Ϭ Ϭ
hŬƌĂŝŶĞ DĞĚŝĂŶ >ŽǁĞƌDŝĚĚůĞ ,ŝŐŚ/ŶĐŽŵĞ WŽůĂŶĚ
/ŶĐŽŵĞ K
ĐĐŽƵŶƚƐWĞƌĚƵůƚ͕ŽŵŵĞƌĐŝĂůĂŶŬƐ
EƵŵďĞƌŽĨƌĂŶĐŚĞƐWĞƌϭϬϬ͕ϬϬϬĚƵůƚƐ͕ŽŵŵĞƌĐŝĂůĂŶŬƐ;Z,^Ϳ
Source: World Bank: Fin Stats (2011), National Bank of Ukraine (2013), www.prnews.pl
Figure 39: Use of Banking Services by Companies
120
100
80
60
40
20
0
Percent of firms with a checking or savings account Percent of firms with a bank loan/line of credit
Source: World Bank, Fin Stats (2011).
93. The banking system has an inefficient structure. The sector is dominated by small, captive banks
closely related to domestic business groups, which tend to direct most of their lending internally. The banking
system remains highly fragmented, with the share of the top five banks in total assets amounting to only
40 percent in 2010, less than in peer countries (Figure 40). The very low 2012 YE Herfindahl – Hirschman
53
index for assets of 470 also indicates that only a few large banks have achieved economies of scale.31 The
majority of small banks operate inefficiently, and do not sufficiently utilize capital (see Figure 41). These
banks drag down the profitability of the system, which reports a high average cost to income ratio of 66
percent. This has resulted in low returns on equity, which have not significantly exceeded 10 percent, even
in good years. This is less than in peer countries. For example, according to a special Central and East
European (CEE) banking study done by Raiffeisen International, the Polish banking sector posted an ROE
of 14.3 percent in 2012 and 23.6 percent prior to the crisis in 2008. The incentives for domestic business
groups to retain stakes in seemingly under performing banks may appear puzzling, but this may reflect the
investors’ preference to mask profits in their captive banks, ensure the access to business networks and
related-party lending that such captive banks provide, enhance security by in-house processing onshore
financial transactions, and retain free financial resources within the same group.
Figure 40: Banking Market Concentration in Selected Countries, 2010 (in Percent)
ϵϬй
ϴϬй
ϳϬй
ϲϬй
ϱϬй
ϰϬй
ϯϬй
ϮϬй
ϭϬй
Ϭй
Source:Based on “Ukraine Banking Sector Report”, Raiffeisen Research, 12 February 2013.
Figure 41: Peer Countries’ Banking Sector ROE and CAR, 2012 (in Percent)
Ϯϱ
ϮϬ
ϭϱ
ϭϬ ZK
Z
ϱ
Ϭ
hŬƌĂŝŶĞ ƵůŐĂƌŝĂ ^ůŽǀĂŬŝĂ WŽůĂŶĚ ZƵƐƐŝĂ njĞĐŚ
ZĞƉ͘
Source: Raiffeisen Research CEE Banking Sector Report (2013).
31
World Bank 2010.
54
94. The banking sector is only slowly consolidating. Until 2012, fewer than ten mergers took and
those happened only within business groups. This reflected complex rules that make mergers burdensome
for parties as well as a lack of transparency and trust that would allow for credible valuations and competitive
tenders. M&A activity picked up in 2012-2013, as foreign investors exited the Ukrainian market, but it has
not materially changed the fragmented structure of the market.
Underlying Causes of Weak Access to Finance
Macro- and Micro-Level Constraints on Finance
95. There are several key reasons for the relatively difficult access to finance in Ukraine. First
and foremost, access to finance is thwarted by the high prices of credit instruments caused by macro-
level policies, and increasing domination of banks controlled by business groups. On the macro level,
maintenance of a de facto fixed exchange rate in an environment of expansive fiscal policy results in tight
liquidity, and high interest rates in the banking sector. Since 2009, increasing market control by business
groups has led to an expansion of internally-focused lending to the detriment of outside businesses.
Furthermore, following the 2008-2009 financial crisis, universal banks with Western capital, which have
served as the primary source of financing for SMEs and households, have adopted much stricter risk
criteria. Many foreign banks have sold their Ukrainian subsidiaries, or are shrinking their balance sheets, as
discussed below. The remaining banks face further constraints: the overhanging burden of bad assets, legal
and tax obstacles to effective non-performing loan (NPL) workout, limited access to long-term funding
(available mainly to large businesses on foreign markets), a weak enforcement environment caused and
sustained by inadequate judicial practices, and finally, a fragmented and inadequate credit information
infrastructure upon which a sound credit risk management must be built.
96. A de facto foreign exchange (FX) peg has been the key driver of high and volatile interest
rates. While the NBU officially states that it does not maintain a currency peg, interventions in the foreign
exchange market in 2012-2013, non-market-based public debt issuance, limited and nontransparent
refinancing facility, and tightened export foreign exchange surrender requirements suggest that the stability
of the exchange rate is the NBU’s priority. The de facto currency peg leads to chronically high interest
rates for Hryvnia resources, as the NBU supports the exchange rate by limiting Hryvnia liquidity on the
interbank market. This also leads to extreme volatility in overnight rates, thus driving up bank interest
rates. This pattern was repeated in October-November 2008, 2011, and 2012. In all three cases, the NBU
sterilized Hryvnia liquidity on the interbank market, making overnight rates skyrocket to levels above 30
percent on some days. As a result, nominal and real interest rates (given zero inflation) amount to almost
20 percent per year, undermining lending (see Figure 42).
55
Figure 42: Interest Rates and Inflation, 2007-2012
HF DU Q S HF DU Q S HF DU Q S HF DU Q S HF DU Q S HF
' 0 -X 6H ' 0 -X 6H ' 0 -X 6H ' 0 -X 6H ' 0 -X 6H '
1%8'LVRXQWUDWH $YHUDJH*RYSULPDU\ERQGV\LHOG
,QWHUEDQN8$+OHQGLQJUDWH00$ $YHUDJH8$+OHQGLQJUDWH
$YHUDJH8$+GHSRVLWVUDWH &3,\R\
Source: National Bank of Ukraine.
97. The FX peg has also created a number of structural problems. The fixed exchange rate
undermines the development of the domestic hedging market for foreign exchange and other derivatives.
In addition, it encourages international transfer pricing, whereby large exporters keep foreign currency
revenues in offshore centers to avoid returning them to Ukraine and exchanging for Hryvnia, which is
expected to depreciate. Finally, it increases macroeconomic risks and thus lowers the banks’ risk appetite.
98. Limitations on foreign exchange lending have made it more difficult to access credit. Whereas
the brisk credit expansion before the crisis was primarily driven by expansion of foreign currency loans,
such credit is now limited. The NBU has completely banned FX retail lending, and limited FX corporate
lending only to exporting enterprises. Although such limitations reflect a justifiable caution of the regulator,
they have nonetheless contributed to reducing imports of foreign savings, and have made it more difficult
to benefit from domestic foreign exchange savings, which represent around 40 percent of the banking
sector’s deposits, as well as from cash accumulated outside the system.32
99. Moreover, access to long-term corporate funding has diminished, as the foreign-owned banks,
preoccupied with NPL workout and deleveraging, have adopted much more risk-averse policies than
before the crisis. Foreign banks are not willing to accept currency risk by providing loans to Ukrainian
clients in Hryvnia, while taking EUR/USD parent funding. At the same time, little has been done to create
long-term local currency funding for financial institutions, notwithstanding the enactment in July 2013 of
32
The authorities admit (as stated in an April 2013 interview of the former NBU Governor and First Vice-Premier
Serhiy Arbuzov) that up to USD 100 billion of cash, equivalent to some 70 percent of banking sector assets,
circulates outside the banking system in Ukraine.
56
the law enabling IFIs to issue local currency-denominated bonds. Despite the fact that shares of short-term
deposits in the system have been gradually declining since 2009, banks have generally failed to transform
them into longer-term credit. The share of short-term loans in total corporate credit increased to almost
50 percent by 2012 (Figure 43).
Figure 43: Shares of Short-term Loans and Deposits in Total Loans and Deposits
ϵϬй
ϴϬй
ϳϬй
ϲϬй
ϱϬй
ϰϬй
ϯϬй
ϮϬй
ϭϬй
Ϭй
ϮϬϬϱ ϮϬϬϲ ϮϬϬϳ ϮϬϬϴ ϮϬϬϵ ϮϬϭϬ ϮϬϭϭ ϮϬϭϮ
^ŚĂƌĞŽĨƐŚŽƌƚƚĞƌŵĐŽƌƉŽƌĂƚĞĚĞƉŽƐŝƚ ^ŚĂƌĞŽĨƐŚŽƌƚƚĞƌŵƌĞƚĂŝůĚĞƉŽƐŝƚ
^ŚĂƌĞŽĨƐŚŽƌƚͲƚĞŵƌĐŽƌƉŽƌĂƚĞůŽĂŶƐ ^ŚĂƌĞŽĨƐŚŽƌƚͲƚĞƌŵƌĞƚĂŝůůŽĂŶƐ
Source: NBU.
100. Ukrainian banks lack local currency funding from which to extend long-term credit, and
finance investment projects. The majority of retail deposits, 55 percent, are demand deposits or short-
term deposits are under one year in maturity, and only 3 percent of retail deposits are two or more years
in maturity.33 Private pension funds are virtually non-existent. Heavy government borrowing on the bond
markets at high yields has also crowded out borrowing by banks and then lending to the private sector.
101. As a result, domestic project financing is practically absent in Ukraine. As such, banks lend
primarily to fund only short-term capital needs. According to NBU data, half of the corporate loans in the
banking system are short-term, under one year in maturity, and only about twelve percent of corporate
loans have maturity of five years or more. Although group-related lending is under-reported, it is likely
that these longer-term credits are issued by captive banks to related enterprises within the same business
groups.
102. International financial institutions could help expand long-term project finance. IFIs such as
the European Bank for Reconstruction and Development (EBRD) and the International Finance Corporation
(IFC) have comparative advantages in long-term project finance, because they can spread the risk among
foreign and local sponsors, and therefore offer longer-term loans at a lower cost than domestic financial
institutions. However, it was only in July of 2013 that the parliament adopted a law enabling IFIs to place
Hryvnia-denominated local bonds to raise additional capital for project finance. It remains to be seen how
this mechanism will work in reality and what will be the volume of IFI placements.
33
Moreover, the term-deposits held by banks are all de facto demand deposits, since the Civil Code allows all
deposit types to be withdrawn on demand with forgone interest as the only penalty. Certificates of deposits have
defined maturity and could become funding vehicles for more stable and long-term retail financing for banks.
However, CDs are not covered in the deposit insurance scheme, reducing their appeal.
57
Market Structure and Competition
103. Western banks significantly enhanced access to finance in the pre-crisis period. The en
masse expansion of Western banks to Ukraine commenced in 2005 following the Orange Revolution and
subsequent lifting of foreign exchange limits on lending for foreign banks. The inflow of foreign capital
started with the acquisition of Aval Bank by Raiffeisen. Subsequently, the number of banks with foreign
capital more than doubled, from 23 in late 2005 to 53 in late 2008. At the peak of foreign investment in
the banking sector in 2008, Ukrainian banks were acquired at price-to-book-value multiples above four.34
104. Foreign-owned bank shave introduced higher service standards and more diversified
products. They have been promoting healthy financial intermediation, as they use about the same
proportion of parent capital and deposits to extend retail loans, whereas state-owned banks have
continued relying mainly on state capital for corporate credit, and local banks have disproportionately
depended on the deposit base as opposed to equity capital (see Figure 44). Foreign-owned banks have
also introduced new, European standards of service and new products, such as cash management and
settlement services. As a result, foreign-owned banks started to crowd out and marginalize the captive
banks of Ukrainian business groups.
Figure 44: Portfolio Composition by Bank Ownership, 2012 YE
ĞƉŽƐŝƚƐ
ϲϬй
ϱϬй
ϰϬй
ϯϬй
ϮϬй
ϭϬй
ŽƌƉŽƌĂƚĞůŽĂŶƐ Ϭй ZĞƚĂŝůůŽĂŶƐ
ĂƉŝƚĂů
ŽŵĞƐƚŝĐ;ƉƌŝǀĂƚĞͿ ^ƚĂƚĞ ͲŽǁŶĞĚ
Source: National Bank of Ukraine and World Bank estimates.
105. Unfortunately, the post-crisis environment saw the reversal of this trend, as foreign
banks started exiting the market. Their exit, driven both by the pressure of home-country regulators
to deleverage and exit risky frontier markets like Ukraine, and by the unrealized growth prospects of
the Ukrainian market, has reduced access to higher-quality financial services and led to the revival and
expansion of captive banks. In 2012-2013, Commerzbank, Swedbank, SEB and Erste have all left Ukraine
by selling their subsidiaries to Ukrainian investors. Platinum Bank was sold to Delta Bank, and Unicredit
Bank and Ukrsotsbank have merged, consolidating the position of the Italian parent. Other groups, like
BNP Paribas and Raiffeisen have stayed but remain in a risk-averse mode, and have been shrinking assets.
Some remaining foreign-owned banks allegedly are considering market exits, too. Overall, the share of
foreign non-state-owned banks in total banking assets halved from 40 percent in late 2008 to 20 percent of
the market in 2012 (see Figure 45).
34
The last large pre-crisis deal was closed in February 2008: Intesa Sanpaolo acquired Pravex Bank at price-to-book
value ratio of nearly 4.8.
58
Figure 45: Ownership Structure of the Banking Sector, 2003-2012, in Percent of Total Assets
ϭϬϬй ϳй ϳй ϴй ϵй ϴй
ϵϬй
ϴϬй Ϯϭй
ϯϯй Ϯϴй
ϰϮй ϯϴй
ϳϬй
ϭϳй
ϲϬй
ϭϰй
ϱϬй ϭϰй
ϭϭй ϭϯй
ϰϬй
ϯϬй ϱϰй
ϰϵй
ϮϬй ϰϬй ϰϭй ϰϰй
ϭϬй
Ϭй
ϮϬϬϴ ϮϬϬϵ ϮϬϭϬ ϮϬϭϭ ϮϬϭϮ
ŽŵĞƐƚŝĐƉƌŝǀĂƚĞ ŽŵĞƐƚŝĐƐƚĂƚĞͲŽǁŶĞĚ &ŽƌĞŝŐŶƉƌŝǀĂƚĞ ZŝƐƐŽĂŶƐƚĂƚĞͲŽǁŶĞĚ
Source: National Bank of Ukraine, World Bank estimates.
106. The banking system is increasingly dominated by large domestic banks organized around
holding company structures and industry groups. These so-called captive banks work as in-house
treasuries of business groups, taking deposits and lending to related companies and individuals within
the holding company structure. Growth in bank lending has been facilitated by the aggressive lending
activity of a few banks, and there has been little additional intermediation to enterprises outside the group
structures, including especially start-up firms. In the context of non-transparent ownership structures and
weak enforcement of regulation on the disclosure of ultimate ownership by the central bank, this pattern of
lending may lead toward excessive concentration of risk in industry segments and related parties as well
as an inadequate measure of risk by banks and the regulator. Such banks also put household deposits at
risk, offering high interest rates and then lending out to related companies. Without adequate disclosure of
related-party lending, the scale of this problem is hard to estimate.
Legislative, Regulatory, and Infrastructure Hurdles to Credit Supply
107. Ukrainian banks lend in a risky environment. The environment is characterized by group
business affiliations; uncertain, absent or inaccessible information about borrowers’ creditworthiness;
limited creditor rights; and costly, prolonged and unpredictable judicial proceedings for contract
enforcement. This type of lending environment inhibits the development of bank risk management and
lending to underserved segments or new firms, and it is inclined to develop conservative and expensive
credit allocation patterns. In this context, Ukraine’s financial sector needs to upgrade its information
infrastructure – collateral registries and credit history bureaus – and its legal and enforcement frameworks
for protecting creditor and debtor rights.
108. Knowledge of borrowers’ creditworthiness is a critical factor in bank lending decisions. In
an uncertain enforcement environment, especially, creditors place strong emphasis on such information.
Asymmetric information is a root cause of credit rationing in Ukraine: when banks lack prior lending
experience with firms, they are limited in their capacity to distinguish among borrowers, and identify and
score risks accordingly. For this reason, many banks serve small groups of repeat borrowers, and some
banks display poor credit risk management. The lack of adequate, accessible, and timely credit history
information is cited by many banks as an obstacle to the growth of their portfolios. SMEs, entrepreneurs,
59
and start-up businesses that could be potential customers within a well-constructed risk management model
are often rejected by banks. Many conservative banks do not trust their credit worthiness: the companies’
(especially SMEs’) financial reporting is often unreliable, as they hide their activities for tax reasons and
in fearful attempts to preserve their business when it becomes successful.
109. But Ukraine’s credit information system is fragmented, unreliable, and incomplete. It consists
of seven licensed credit history bureaus, of which three are active, that gather various, non-standardized
data based on contributions by selected banks. There is no public credit registry, no information aggregator,
and no mechanism for quality assurance or format standardization among the private bureaus. As a result,
credit information is less available than among peers (Figure 46). Banks tend to purchase the services
of one or a few bureaus (one bank owns a proprietary bureau) and then lend to those customers whose
data can be found in the bureau(s) to which they have access. Bankruptcies are registered with the State
Bankruptcy Authority, and can be accessed through publicly available information channels. The State Tax
Authority can verify basic information for banks – borrowers’ identity and any unpaid tax issues – only
upon a specific written request. To obtain an information packet consisting of a new borrower’s identity,
tax, bankruptcy and credit history, a bank needs to submit several written requests to several government
authorities (even though some of this information is publicly available, it is not easily accessible, or
consolidated in a one-stop shop), and search up to five credit bureaus, none of which might end up having
the necessary data. The delays, costs and risks inherent in this process are passed along to borrowers in the
form of higher interest rates, less favorable terms, and rejections.
Figure 46: Credit Information: Ukraine and Regional Peers, 2013
ϵϬ ϳ
ϴϬ ϲ
ϳϬ
ϱ
ϲϬ
ϱϬ ϰ
ϰϬ ϯ
ϯϬ
Ϯ
ϮϬ
ϭϬ ϭ
Ϭ Ϭ
ĂƐƚĞƌŶ KŚŝŐŚ ƌŵĞŶŝĂ ƵůŐĂƌŝĂ WŽůĂŶĚ ZŽŵĂŶŝĂ ZƵƐƐŝĂŶ hŬƌĂŝŶĞ
ƵƌŽƉĞΘ ŝŶĐŽŵĞ &ĞĚĞƌĂƚŝŽŶ
ĞŶƚƌĂůƐŝĂ
WƵďůŝĐƌĞŐŝƐƚƌLJĐŽǀĞƌĂŐĞ;йŽĨĂĚƵůƚƐͿ WƌŝǀĂƚĞďƵƌĞĂƵĐŽǀĞƌĂŐĞ;йŽĨĂĚƵůƚƐͿ
ĞƉƚŚŽĨĐƌĞĚŝƚŝŶĨŽƌŵĂƚŝŽŶŝŶĚĞdž;ϬͲϲͿ͕Z,^
Source: World Bank, Doing Business, 2014, www.doingbusiness.org
110. Establishing a National Credit Histories Registry would help improve the credit information
system. Some of the private bureaus have spearheaded an initiative called “One-Point-of-Access” that seeks
to put together a voluntary consortium of credit bureaus for the purpose of information-sharing, so that
banks subscribed to any one bureau can access information from all of them. The draft law on establishing
a National Credit History Registry would offer a single credit information locator, which would point to
the location of credit history subjects in existing private bureaus. The law proposes an arrangement similar
to the Central Catalogue of Credit Histories maintained by the Central Bank of Russia. Banks and credit
bureaus have formed a working group, and are discussing various policy options for improving the credit
information system. However, this approach falls short of what is needed; data reporting is still voluntary;
60
credit bureaus have partial coverage; banks get only a rudimentary picture by subscribing to an individual
bureau, and data are not standardized or aggregated by a supervisor. In this regard, further consideration
should be given by the authorities to approaches that would require the sharing of an information minimum
across bureaus, standardization of the information required, and appropriate supervision of credit bureaus.
It is imperative that any proposed legislation takes account of governance and accountability, quality
assurance, timeliness and reliability of data, and accessibility by banks and credit history subjects.
111. The secured transaction framework, particularly in the registration of moveable and
immoveable collateral, has recently improved. A new Law on the Single State Register of Immovable
Property came into effect on January 1, 2012, providing banks with a reference to borrowers’ property
rights and encumbrances. Furthermore, a State Registry of Encumbrances Over Movable Property,
administered by the State Enterprise Information Center, has also been created. These registries provide
information to banks, and they have contributed to Ukraine’s progress in the Doing Business ranking on
the “Enforcing Contracts” indicator in 2012. This should help improve access to finance, as a recent World
Bank/IFC study demonstrates that borrowers across European and Central Asian financial markets that
secure financing with collateral usually obtain better terms than borrowers without collateral.35
112. However, the timeliness and accessibility of information on secured collateral remain
problematic. Since January 2013, according to the Ministry of Justice Order 17-32/1661 of December
29, 2012, banks seeking information from the State Register of Encumbrances Over Movable Property are
required to submit written requests for data, pay ex-ante fees, and wait several days for the information
that they need. Previously, the system allowed for electronic submission of requests, invoiced monthly fee
payment by banks, and provided the necessary information within an hour.
113. In addition, secured lending relies on the creditors’ confidence that they will be able to execute
collateral efficiently in the event of a default. In this respect, Ukraine can make further progress in improving
the efficiency, cost, and simplicity of court proceedings, and should introduce out-of-court arbitration and
resolution options. While the 2013 Doing Business survey reflected improvement in the efficiency of contract
enforcement in Ukraine, DB 2014 survey showed increasing costs of contract enforcement. As a result,
Ukrainian firms face the highest costs of enforcing contracts among regional peers (Figure 47).
Figure 47: Enforcing Contracts in Ukraine and Peer Countries, 2013
ϲϬ
ϱϬ
ϰϬ
ϯϬ
ϮϬ
ϭϬ
Ϭ
ĂƐƚĞƌŶ KŚŝŐŚ ƌŵĞŶŝĂ ƵůŐĂƌŝĂ WŽůĂŶĚ ZŽŵĂŶŝĂ ZƵƐƐŝĂŶ hŬƌĂŝŶĞ
ƵƌŽƉĞΘ ŝŶĐŽŵĞ &ĞĚĞƌĂƚŝŽŶ
ĞŶƚƌĂůƐŝĂ
ŽƐƚ;йŽĨĐůĂŝŵͿ WƌŽĐĞĚƵƌĞƐ;ŶƵŵďĞƌͿ
Source: World Bank, Doing Business, 2014.
35
Shahidsaless 2012.
61
114. Banks’ associations have lobbied for the simplification of judicial proceedings in which banks
are claimants as creditors or pledges, but with few results as of yet. Banks have also petitioned to
improve out-of-court tools for pledged assets forfeiture, but such mechanisms do not yet work in Ukraine.
Though the fast track procedure for repossessing collateral under retail loans has been provided for in the
legislation, it is rarely used by banks, only in cases when there is goodwill on the part of the borrower
and no legal complications, since any such out-of-court fast-track repositioning of collateral can be easily
challenged and blocked at a court.
115. Notable legislative progress has been made in streamlining bankruptcy and insolvency
proceedings. The Law on Restoring the Debtor’s Solvency or Declaring it Bankrupt #4212 of December
22, 2011 and accompanying regulations on Training and Licensing Insolvency Practitioners, as well as
the Law on Amendments to Certain Legal Acts on Improvement of Bankruptcy Proceedings #7329 of
December 23, 2012, are welcome improvements to creditor rights in Ukraine. The former law establishes
professional quality standards for insolvency practitioners; introduces procedures for out-of-court
restructuring and cross-border bankruptcy; provides transparent and competitive procedures for selling
debtors’ assets; establishes the priority of sale as an ongoing concern; reduces the time at each stage of the
insolvency proceedings, and lifts a moratorium on the bankruptcy of insolvent state-owned enterprises.
The latter law requires the announcement of bankruptcy filings on the website of the State Bankruptcy
Authority; clarifies the rules of appealing that does not allow appeals to halt proceedings; sets a 12-month
limit on the duration of property management processes; limits rehabilitation actions to cases in which a
rehabilitation plan is approved by court; and sets a duration limit for such actions at 18 months. The new
law is expected to reduce or remove attempts of borrowers to use managed insolvency procedures to void
or delay repayments of the bank laws, a practice widely utilized under the old legal framework. The impact
of the new law, however, will largely depend on its application in practice, which so far has largely lagged
behind progress in legislation.
Mechanisms for Disposing of Non-Performing Loans
116. New bank lending is constrained by the burden of impaired assets on bank balance sheets,
in a market that fails to provide mechanisms and incentives to unload non-performing loans. While
officially reported non-performing loans according to the narrow definition set by the NBU are at 10 percent,
the IMF estimates NPLs at 35-40 percent of the banks’ aggregate portfolio. Econometric analysis in the
2011 IMF Europe Regional Economic Outlook indicates that banks with higher NPL ratios systematically
demonstrate lower loan growth.
117. Tax incentives for NPLs write-off remain limited. The banking community has lobbied for
improvements in the tax treatment of write-offs and transfers of non-performing loans to boost incentives
to unload bad assets from the banks’ balance sheets, but to no avail. Moreover, the market for purchasing
distressed assets has shown little activity, mainly due to non-uniform and complicated treatment of such
transactions by tax authorities, and the unclear definition of such transactions and buyers (e.g. licensed
factoring companies or non-financial companies) by the legal framework. Different agencies and regulators
within the country treat NPL transfers differently, creating additional hurdles. This has opened a door to
various interpretations of the law, and increased the risk that banks engaging in sales of distressed assets
may face fines, additional tax liabilities, penalties, or later nullification of such sales.
62
Demand-Side Trends
118. There seems to be unmet demand for credit. As shown in a recent NBU survey of business
expectations, Ukrainian enterprises would generally prefer to use credit to support their growth, but barriers
such as the cost of credit limit their appetite substantially. 43.4 percent of respondent enterprises plan to
take a loan within the next quarter. This ratio, fairly stable at 40-45 percent over the past several years,
implies voluntary exclusion from credit among the remaining 55-60 percent of enterprises. The respondents
planning to take a loan are predominantly large enterprises from processing industries, agriculture, and
construction. Among the companies that plan to take a loan abroad, large mining companies are the leaders.
More than 35 percent of respondent enterprises expect to increase their need for borrowed funds. The vast
majority of respondents, 83.3 percent, also seek to borrow in Hryvnia.
119. Large Ukrainian business groups (mainly in steel and energy sectors) as well as large public
agriculture holdings are “too big to lend to” for local banks, given the banks’ lending limits relative
to equity capital. Hence, the business groups access foreign debt and equity markets instead. Such
conglomerates are usually not interested in loans from Ukrainian banks, mainly due to high local interest
rates. Secondly, Ukrainian banks must comply with the regulatory single exposure limit of 25 percent of
capital, which makes it difficult for large business groups to deal with local banks. Syndicated lending
among local banks is not a widespread practice, due to weak contract enforcement and legal practices.
120. Large business group also utilize intra-group offshore financing. They retain revenues abroad
via international transfer pricing and then re-invest them into Ukrainian enterprises as foreign direct
investment (FDI). Cyprus is reportedly the number one source of FDI inflows into Ukraine, accounting for
32 percent of the total in 2011.
121. The recent NBU survey of business expectations suggests that SMEs are generally more
inclined to seek loans than large enterprises, implying that they have a greater need for external
financing. 39 percent of smaller-sized companies expect their need for credit to increase in the next
quarter, compared to 32 percent of medium-sized enterprises and 36 percent of large enterprises. However,
getting a loan is generally more complicated for SMEs, as 31 percent of smaller companies – compared to
22 percent of larger companies – believe that conditions for getting a loan have deteriorated. The majority
of small companies, 88 percent, plan to borrow in Hryvnia, whereas 24 percent of large companies plan to
borrow in foreign currency.
122. However, Ukrainian group-owned banks and the growing number of Russian-owned banks
have not shown much interest in lending to SMEs. Although official statistics for SME-lending are not
provided by the NBU, bankers report that the SME segment has had a larger portion of problematic loans
than the large enterprise segment during the 2008-2009 financial crisis, as SMEs were borrowing in foreign
currency, disregarding the devaluation risk. In addition, there is a relative lack of credit worthy SMEs, as
many of them suffer from inadequate management capacity, poor accounting and reporting standards, and
low transparency. Moreover, the level of financial education among the key managers is often low. Finally,
the quality of the available collateral is often far from adequate. Therefore, most banks are now employing
stricter risk metrics in this sector, which results in prohibitively high interest rates on SME loans (see
Figure 48), while FX loans for non-exporting SMEs are legally prohibited.
63
Figure 48: Effective Interest Rates for SME Loans, Range and Average (August 2013)
ϯϱй
ϯϬй
Ϯϱй
ϮϬй
ϭϱй
ϭϬй
ϱй
Ϭй
ŽŵŵĞƌĐŝĂů
ŽŵŵĞƌĐŝĂů ŽŵŵĞƌĐŝĂůƌĞĂů
ŽŵŵĞƌĐŝĂůƌĞĂů ƋƵŝƉŵĞŶƚ
ƋƵŝƉŵĞŶƚ tŽƌŬŝŶŐĐĂƉŝƚĂů
tŽƌŬŝŶŐĐĂƉŝƚĂů
ƚƌĂŶƐƉŽƌƚ ĞƐƚĂƚĞ
ƚƌĂŶƐƉŽƌƚ ĞƐƚĂƚĞ
Source: based on www.prostobankir.com.ua, 2013.
123. SMEs thus partly rely on lending support from programs financed by the IFIs and Western
banks. The most active providers of refinancing for SME lending are the EBRD and KfW. Since the SME
segment is one of the key drivers of banking business in Western Europe, European banks have been very
active in implementing special programs focused on SME lending in Ukraine. However, with the exit of
Western banks from Ukraine, discussed above, access to credit for SMEs is declining.
124. State support for SME lending may become an important driver of improvement in SMEs’
access to finance. In the current inopportune economic conditions it will be hard to re-launch SME
lending on a mass scale without additional support from the IFIs or the government. Ukraine may consider
launching a state supported program for SME lending based on experience in EU countries. For instance,
in 2013, BGK, Poland’s state development bank, introduced a new de minimis portfolio guarantee facility
to support access to finance for SMEs by reducing lending risks for commercial banks participating in the
program. Within less than a year, the new program helped finance almost 15,000 SMEs for a total amount
of more than US $1.5 billion.36
Access to Finance Outside the Banking Sector
125. Non-bank financial institutions comprise only about 5 percent of Ukraine’s financial sector
assets, and of these 4.5 percent are insurance companies. Other non-bank companies, such as factoring,
leasing, and credit unions, hold negligible shares of assets, compared to banks. The largest factoring and
leasing companies are subsidiaries of or related to large banks; they function as supplements for the parent
banks’ core lending activities or special-purpose vehicles for NPL-workout.
126. The key reason for the weak development of NBFIs is the poor institutional and regulatory
framework. NBFIs rely on healthy judicial systems and efficient and transparent enforcement of contracts,
which are areas often described by market participants as problematic in Ukraine. Also, the National
Regulatory Commission for Financial Markets, which regulates NBFIs, lacks capacity, compared tothe
NBU, to enact and enforce sound rules for market participants.
36
Based on information from www.bgk.com.pl and http://www.deminimis.gov.pl/
64
127. Ukraine’s capital markets have been in a standstill in recent years. Despite the fact that
local stock exchanges are technologically advanced, they are in a stagnant state. Likewise, private bond
issuance has been flat since 2008, crowded out by heavy government borrowing. Although the volume
of bond issuances on domestic capital markets has increased markedly since the 2008 financial crisis,
the overwhelming majority of issuances have been government bonds financing the state budget deficit
(Figure 49).
Figure 49: Local Hryvnia Debt of Private vs. Public Sector
ϮϬϬ
ϭϴϬ
ϭϲϬ
ϭϰϬ
ϭϮϬ
ϭϬϬ
ϴϬ
ϲϬ
ϰϬ
ϮϬ
Ϭ
ϮϬϬϴ ϮϬϬϵ ϮϬϭϬ ϮϬϭϭ ϮϬϭϮ
WƌŝǀĂƚĞďŽŶĚƐƉůĂĐĞŵĞŶƚƐƌĞŐŝƐƚĞƌĞĚ >ŽĐĂůƉƵďůŝĐĚĞďƚ
Source: Ministry of Finance, National Regulatory Commission for Securities and Stock Market.
128. Equity markets have failed to mobilize capital for banks and private firms. Issuance, market
capitalization, and turnover are very low (Figures 50 and 51). This is attributed to a number of factors,
including the underdeveloped local investor base, the concentration of shareholdings of listed companies,
poor information disclosure, and weak rights of minority shareholders, which suffer because the free-float
in most locally listed stocks is under 5 percent. On top of this, incomplete corporate disclosures create an
information asymmetry that undermines investor confidence and raises transaction costs, while majority
shareholders continue to benefit from large transaction gains.
Figure 50: Stock Market Capitalization, Ukraine and Peer Countries, 2002-2011
ϭϰϬ͘Ϭ ^ƚŽĐŬDĂƌŬĞƚĂƉŝƚĂůŝnjĂƚŝŽŶͬ'W;йͿ
h
ϰϬ͘Ϭ ZKD
ϮϬ͘Ϭ
Zh^
Ϭ͘Ϭ
ϮϬϬϮ ϮϬϬϯ ϮϬϬϰ ϮϬϬϱ ϮϬϬϲ ϮϬϬϳ ϮϬϬϴ ϮϬϬϵ ϮϬϭϬ ϮϬϭϭ
Source: World Bank, Fin Stats, 2011.
65
Figure 51: Stock Market Turnover, Ukraine and Peer Countries, 2002-2011
^ƚŽĐŬDĂƌŬĞƚdƵƌŶŽǀĞƌZĂƚŝŽ;йͿ
ϭϰϬ͘Ϭ
h
ϰϬ͘Ϭ ZKD
ϮϬ͘Ϭ
Zh^
Ϭ͘Ϭ
ϮϬϬϮ ϮϬϬϯ ϮϬϬϰ ϮϬϬϱ ϮϬϬϲ ϮϬϬϳ ϮϬϬϴ ϮϬϬϵ ϮϬϭϬ ϮϬϭϭ
Source: World Bank, Fin Stats, 2011.
129. Recent tax changes have further complicated the situation on the equity markets. Earlier this
year, the government enacted new legislation aimed at reducing the turnover of junk bonds and stocks
used for tax evasion purposes, converging the tax and financial accounting of securities operations, and
introducing an excise tax for securities transactions (higher rate for over-the-counter deals and lower rate
for in-market deals). Although these measures sought to prevent the use of capital markets for tax evasion,
they have inadvertently reduced the volume of healthy capital market activity.
130. Nontransparent privatization and weak protection of minority shareholders undermine
the potential for equity market development. The post-Soviet privatization of state enterprises rarely
involved transparent, equitable tenders and open access for foreign investors. As a result of questionable
practices of acquiring property, new owners lacked the incentive to conduct initial public offerings (IPOs),
make their businesses transparent, and comply with high standards of disclosure and corporate governance,
which are essential to the operation of a healthy stock market. Thus, privatization has not created a critical
mass of properly governed companies to enter the stock market. Paradoxically, only few of the companies
listed on local exchanges have been listed with the consent of their owners or management; most of the
shares were brought to the stock exchanges after the voucher privatization in the 1990s. In addition, the
insufficient protection of minority shareholder rights reduced retail investors’ confidence in the market.
131. Low liquidity makes Ukrainian exchanges uncompetitive relative to neighboring countries.
Among Ukraine’s neighbors, Poland and Russia have very strong capital markets. The growth of Poland’s
equity market has been strongly supported by a large number of transparent IPOs of state-owned enterprises,
strong governance standards, and high transparency. Russia’s market in turn has been supported by strong
oil- and gas-driven cash inflows. Ukraine has neither the former nor the latter, and thus most of its healthy
local companies seek capital on foreign exchanges. In 2005-2011, Ukrainian companies conducted over
50 IPOs and sizable private placements, of which only one was a dual placement on the local market and
abroad (through depositary receipts traded in Frankfurt). The remaining placements were on Western stock
exchanges in London, Frankfurt and Warsaw.37
37
During 2005-2011, 13 placements were done in London raising about $1.9 billion and 13 in Warsaw, raising
nearly $1 billion.
66
132. To revitalize Ukraine’s enterprise sector, financial services for SMEs, which represent the
critical growth engine, need to be expanded. Although Ukraine’s bank branch penetration, deposit
account penetration, and large corporate borrowing suggest adequate access to finance, the story is quite
different for SMEs. Due to a combination of misaligned macro-level policies, limited long-term funding,
group ownership structures in banking, weak infrastructure, under-developed legal environment for
lending, and stagnant capital markets, small and start-up enterprises have limited prospects for accessing
credit.
133. Unlocking access to finance for enterprises requires a coordinated approach to addressing
the inter-related challenges cited above. Recommendations for policy reforms are provided for each
area.
Policy Recommendations
Suggested Short-Term Recommendations Medium-Term Recommendations
Reforms
Access Gradually transition to a flexible Review constraints on foreign exchange lending and
to Finance exchange rate, and tighten fiscal set appropriate prudential limits.
policy, while maintaining mac-
Enforce legislation on disclosure of the ultimate bene
roeconomic and banking system
ficiaries of banks, apply consolidated supervision,
stability.
identify and limit related party lending.
Encourage longer-term savings
Increase depositor confidence by introducing market
by more strictly distinguishing
conduct regulation, appointing a financial ombuds-
demand and time deposits and
man, and improving financial consumer protection
potentially expanding deposit
rules and industry standards.
guarantee coverage to include
certificates of deposit issued by Approve legislation completing the consolidation of
banks to its clients. information on credit histories and introduce a mini
mum unified standard for information on the credit
Approve laws removing tax di
history.
sincentives for NPL transfer and
write-offs. Improve the capacity of commercial courts, train bai-
liffs and judges, and expedite collateral enforcement
Expedite and reduce costs of ac-
by reducing loopholes and possibilities for delay tac-
cess to the State Registry of En-
tics.
cumbrances over Immoveable
Assets. Enact and enforce further legal and regulatory reforms
to improve capital market transparency, protect the in-
Pass legislation allowing dual
vestors’ rights, and enhance disclosure requirements.
listings of Ukrainian companies
Enact legislative and regulatory reforms improving
that are currently listed in foreign
jurisdictions. reporting standards, and enhancing transparency and
corporate governance in Ukrainian firms, including
Remove constraints on Hryvnia-
SMEs.
denominated lending by IFIs by
reconsidering interest rate cap Enact legislation aimed at strengthening supervision
imposed by NBU. in non-banking segment of the financial market (main-
ly new laws on insurance and credit unions).
67
Chapter IV: Competition
Summary
134. The low level of competition on Ukraine’s domestic markets is limiting the country’s economic
growth and potential. Many sectors have a high concentration of firms; the rates of firm entry are low,
and the effectiveness of competition policy is weak. This is a problem because the degree of competition
in an economy has a direct impact on productivity, growth, and consumer welfare. Competition problems
in Ukraine are driven by barriers to market entry, which are created by oligopolistic market structures,
vertically and horizontally integrated business group structures, the exit of many foreign investors, non-
market input prices (especially of natural gas) and weaknesses in the design and implementation of the
economy-wide competition policy framework. To address these issues, barriers to market entry must be
lifted, through reforms of licensing, permits, technical regulations, and inspections; price controls must be
removed, and future rounds of privatization must be carried out in a way that enhances competition. The
framework for competition must also be upgraded, via legislative improvements harmonizing it with EU
legislation, enactment and robust implementation of the Law on State Aid, and reform of the Anti-Monopoly
Committee’s (AMC) operations, investigations, and enforcement. Above all, however, competition policies
need to be enforced more effectively. This will require enhancing AMC’s capacity, ensuring its political
independence and impartiality, and strengthening competition outreach and advocacy to the public at large.
Introduction
135. Competition policy is defined as the set of policies and laws which ensures that competition in
the marketplace is not restricted in a way that reduces economic welfare. In practical terms, competition
policy usually involves the enforcement of antitrust legislation (typically rules against anticompetitive
business conduct and mergers), and the promotion of measures enabling firm entry and rivalry, through the
elimination of restrictive product market regulation and the opening of markets to competition, typically
referred to as competition advocacy.38
136. Competition on domestic markets is critical to ensure increased productivity, innovation, and
economic growth, and ultimately international competitiveness. Firms facing more intense competitive
pressures are more likely to introduce new products and upgrade existing product lines. Firms usually
acquire many of their inputs (such as transportation, energy, construction, and professional services) on
local markets. If these upstream markets lack sufficient competition, the goods and services necessary for
production will not be provided at competitive prices. As a result, firms may be less competitive than their
foreign rivals, and less likely to compete globally.
137. Empirical evidence indicates that increased competition has a traceable impact on
productivity, growth, and consumer welfare.39 A recent study of 22 industries across twelve OECD
countries has shown that a 20-percent improvement on a competition policy index – roughly equivalent
to moving from the level of enforcement in the Czech Republic to that in the United Kingdom – increases
total factor productivity growth by one percent. In Australia, competition policy reforms during the 1990s
increased GDP by 2.5 percent, or US $20 billion. In 24 transition economies, firms facing between one and
three competitors saw real sales grow by almost 11 percent over three years, while monopolists saw real
38
Motta (2004). For more details, see International Competition Network’s (ICN) Report on Assessment of the ICN
Members’ Requirements and Recommendations on Further ICN Work on Competition Advocacy, 2009.
39
This paragraph summarizes findings from a literature review conducted by the World Bank Group’s Competition
Policy Team and published in: “Competition Policy: Encouraging Thriving Markets for Development”, View
Point Note 331, September 2012.
68
sales decline by one percent in the same period. A study of 40 international cartels in the 1990s concluded
that prices had reduced by 20-40 percent since the cartels dissolved. A study of 20 OECD countries
showed that reforms reducing state controls that affect competition increased long-term employment rates
by 2.5-5.0 percentage points. Research on state aid suggests that sectors in which subsidies and state aid
are concentrated in a few firms exhibit lower productivity growth, and that the effect is especially strong
in developing countries.
138. A healthy level of competition on domestic markets helps firms prepare for possible future
external and competitive shocks, such as the one that hit Ukraine in 2009. Conversely, the existence
of distorted and uncompetitive markets reduces investment opportunities, increases business risks, raises
the costs of inputs, and reduces the private sector’s contribution to economic development and poverty
reduction.
139. Some progress in liberalizing Ukraine’s services sectors has demonstrated the potential
benefits of enhancing competition. According to a study done by the Kyiv School of Economics,
the liberalization of the services sector in2001-2007 was accompanied by a 68 percent increase in the
productivity of service providers. Total factor productivity (TFP) levels in manufacturing firms indicate that
exports also grew in this period, and that TFP growth is associated with more intensive use of liberalized
services inputs.40 This shows that increased competition can have significant effects, not only in liberalized
sectors, but across the economy.
Evidence of Problems
140. Insufficient competition adversely affects the performance of Ukrainian enterprises and
the whole economy. Sector- and micro- analyses undertaken as part of the World Bank’s 2010 Ukraine
Country Economic Memorandum (CEM) show that Ukraine seems to be trapped in a self-perpetuating low
equilibrium of high barriers to market entry, low competition, limited incentives for technology adoption,
low export diversification and sophistication, and high vulnerability to commodity prices. The CEM
also finds that this “vicious circle hampers the structural transformation of the country’s economy while
key comparator countries move ahead, and cripples the aspiration of achieving higher per capita income
levels and living standards for Ukraine’s citizens”.41 Businesses complain not only about shortcomings in
competition policy and enforcement, but also about weak rule of law, excessive and unjustified hassles
from regulatory and inspection authorities, and about an overall lack of a level playing field, sustained via
feeble governance in most institutions.42
141. Available evidence points to a low level of competition on domestic markets, a high
concentration of firms, and low rates of firm entry. While concentration is not a problem in itself, it
creates possibilities for abuses of dominant positions, and for collusions or anticompetitive cooperation by
a small number of firms in ways that limit the entry of new firms onto the market. These problematic issues
are further explored below.
142. Indicators reflecting on concentration levels and competitive pressures show that the economy
suffers from insufficient competition. There are signs of weak firm dynamics and significant barriers to
entry and exit, which hamper healthy churn in the economy and thus reduce productivity growth. While
much of the market-specific data are quite old, Ukraine’s scores on the Global Competitiveness Report’s
40
Shepotylo and Vakhitovy 2010.
41
World Bank 2012.
42
From World Bank Group enterprise surveys conducted in Ukraine over several years. For more information, see
www.enterprisesurveys.org
69
(GCR) measures of the intensity of competition have not improved, suggesting that similar problems still
persist. In the 2006-07 GCR, Ukraine earned 4.45 (out of 7) on the intensity of local competition indicator.
In the 2013-14 GCR, the score has hardly changed (4.5), ranking Ukraine only 106th worldwide. Likewise,
in 2006-07, Ukraine was awarded 3.31 on the extent of market dominance indicator, and received a lower
score of 3.0 in 2013-14 (ranking Ukraine 132nd out of 144 economies, down from 108th a year earlier). The
country also ranks low on the effectiveness of anti-monopoly policy indicator, which will be discussed in
the next section.
Figure 52: Ukraine’s Performance on Competition Elements of the GCR, 2006-2013
,QWHQVLW\RI/RFDO
&RPSHWLWLRQ
([WHQWRI0DUNHW
'RPLQDQFH
(IIHFWLYHQHVVRI$QWL
0RQRSRO\3ROLF\
,/&3HUFHQWLOH
(0'3HUFHQWLOH
$033HUFHQWLOH
Source: Global Competitiveness Reports for the years indicated.
Note: score scale is 1-7, with 1 being worst. Percentile is calculated using Ukraine’s rank out of the total
number of economies included in the ranking for that year to make it comparable across time periods.
143. Market competition and competition policy in Ukraine is weaker than in peer countries. The
figure below outlines how Ukraine performs on these measures compared to other countries in the region.
The largest difference is among Ukraine and Poland, a neighboring EU member state with the strongest
levels of competition, and a potential benchmark for Ukraine.
Figure 53: Indicators of Market Competition and Competition Policy
8NUDLQH
0DFHGRQLD)<5
+XQJDU\
0ROGRYD
5RPDQLD
3RODQG
Note: Height of bar corresponds to score, which for Ukraine is the same as the bars in the figure above.
Number shown corresponds to rank out of 144 economies, which for Ukraine
is the same rank used to calculate the percentiles in the figure above.
Source: Global Competitiveness Report 2013.
70
144. Measures of firm concentration and productivity also point to low levels of competition. The
HHI and Boone in dices calculated by the World Bank show that concentration in manufacturing increased
in the 2001-2007 period, and that competition decreased in the 2004-2007 period, respectively (Figure 54).
Within manufacturing, the pulp and paper industry exhibits relatively higher levels of competition, but the
metal and machinery sectors show very low levels of competition. In the services sector, high mark-ups, high
entry barriers, and higher productivity of new entrants rather than incumbents, also indicate that competition
is insufficient. These factors are pronounced especially in wholesale and large retail trade, and in the
transportation industry. This is not surprising, as there are only five to seven large market players in the grocery
and large consumer products retail segments, and given that the transport sector has large state monopolies.
Figure 54: Measures of Firm Concentration in Ukrainian Manufacturing Sectors
Source: World Bank, 2010.
145. Ukraine has a greater share of monopolistic and oligopolistic markets than other economies
in the region. This is evidenced in data from the World Bank’s 2009 Enterprise Survey, which suggests that
almost half of the manufacturing sub-sectors covered in the survey exhibit an oligopolistic or monopolistic
market structure. This is higher than in the other comparator countries depicted in the graph below, with
the exception of Hungary. However, Ukraine’s share of monopolies in manufacturing is double Hungary’s
share (6 percent vs. 3 percent).43
Figure 55: Market Structure in Manufacturing Sectors, 2009
100%
90%
80%
70%
60% more than 6
50% oligopoly (3-6)
40% duopoly
30% monopoly
20%
10%
0%
Ukraine Moldova Poland Romania Macedonia Hungary
Source: World Bank Group Enterprise Surveys, 2009.
43
Results from a new, 2013 BEEPS study should be available in early 2014.
71
146. Market concentration has recently deepened further. In 2011, the AMC calculated that 7.2
percent of the markets in Ukraine were controlled by monopolies; 15.4 percent of local markets were in
the hands of strong oligopolies, and 27.6 percent of Ukrainian markets showed signs of the presence of
dominant companies. All three categories of market dominance widened in 2008- 2011, as the Figure 56,
below, suggests.
Figure 56: Market Structure as Calculated by AMC, 2004-2011
ϭϬϬй
ϵϬй
ϴϬй
ϳϬй
ϲϬй ŽŵƉĞƚŝƚŝǀĞ
ϱϬй ŽŵŝŶĂŶƚŽŵƉĂŶŝĞƐ
ϰϬй ^ƚƌŽŶŐKůŝŐŽƉŽůLJ
ϯϬй DŽŶŽƉŽůLJ
ϮϬй
ϭϬй
Ϭй
ϮϬϬϰ ϮϬϬϴ ϮϬϭϭ
Source: Maria Zaslavska “Tycoon Heaven: Ukraine Offers the Perfect Environment
for Monopolies to Grow and Thrive”. The Ukrainian Week, September 17, 2012.
147. Output and employment also tend to be concentrated in larger enterprises. Though they
represent a mere 0.1 percent of firms in the Ukrainian economy, large enterprises account for almost half of
the sales, with 49 percent in 2011, and 46 percent in 2010. They also employ nearly 40 percent of salaried
workers, with 39 percent in 2011, and 37 percent in 2010.44 The World Bank CEM has found that average
firm size in Ukraine tends to be larger than in other transition and industrial economies, and that the share
of small firms in total employment has been decreasing (see also Chapter I for more details). A 2013 United
Nations Conference on Trade and Development (UNCTAD) peer assessment of Ukraine’s competition
policy confirms that “Ukraine’s economy still features exceptionally high levels of concentration unrelated
to superior economic performance”, driven by distortive state aid, barriers to entry of new firms, and weak
governance of natural monopolies.45
148. Market dominance in Ukraine can be explained via a four-category classification.46 First,
there are natural monopolies, in which the underlying economics of the sector – for instance, high barriers
to entry, high sunk costs, and economies of scale – imply that a monopolist will have the lowest long-run
average cost, and thus monopoly is the most efficient organization of production. In these cases, prices
are regulated by economic regulators to simulate the price pressures of a competitive market, and the
capacity and strength of the regulator is thus very important. Examples of natural monopolies include
railways, water utilities, and electricity transmission and distribution utilities. The second category of
market dominance includes regional players that have distinct advantages in certain geographic areas.
Ukraine’s National Committee for State Regulation of Communication and Computerization has found
that over 400 Ukrainian operators enjoy such market privileges. The AMC has uncovered the existence
of these types of companies on regional markets with funeral services, bus stations, parking, paid health
44
World Bank 2010.
45
Page 2 of UNCTAD’s “Voluntary Peer Review of Competition Law and Policy: Ukraine. Overview”.
46
As argued by Zaslavska 2012.
72
care, etc. The third category of market dominance consists of national Ukrainian companies operating on
competitive markets where they have large market shares. This includes two mobile phone operators that
cover 45.8 percent and 35.5 percent of the market, respectively. Finally, the fourth category of market
dominance includes companies that are part of large financial and industrial groups. Because of economies
of scale in administration, and potentially also because these enterprises are controlled by and have access
to powerful individuals, they can assert market power on multiple markets.
149. Firm entry and exit rates also indicate insufficient competition. The World Bank CEM has
found that the entry rate of new firms onto the Ukrainian market has been low compared to other countries
– including transition economies – and is a sign of lingering regulatory obstacles to entry. Exit rates of
firms have also been persistently low.47 Inefficient large firms, often SOEs, are able to continue operating
in numerous sectors; data on the services sector indicate that firms that exit the market do so with a level
of productivity that is extremely low compared to the average incumbent. This suggests that the firm was
able to survive on the market even with extremely low levels of productivity. Having scarce factors of
production bound up in these firms and thus unavailable to more efficient smaller producers is a drag on
economic efficiency and growth.
150. Ukrainian authorities acknowledge problems with competition. The draft 2013 Law on
the “National Competition Program for 2014-2020” agrees that, “the level of competition in products
markets remains low”, both on the national and regional level, which undermines the efficiency of product
markets.48 The low level of competition is inter alia reflected in high prices that are not always justified
by fundamentals, high degree of monopolization of commodity markets and utilities, including fuel and
energy, transport and postal services, and housing, and low level of enterprise productivity and innovation.
According to AMC’s research, only 25-49 percent of business managers consider competition to have a
big impact on their activity.
Drivers of Competition Problems
151. Competition problems generally occur due to the following factors:49
■■ Absence of pro-competition sector policies. Competition in key economic sectors is hampered by
regulations that limit entry, or affect firms’ capacity to compete. For example, in the transport sector,
restrictive road transport regulations (backhaul and cabotage regulations) hinder the operation of
foreign companies, encourage unregulated vertical relations in complementary markets (such as
warehouses and ground handling services), and distort competition dynamics, resulting in higher
transportation costs.
■■ Ineffective competition policy frameworks and implementation. Weaknesses include: (i) unjustified
and discretionary exemptions (for example, utilities managed by the state, key sectors); (ii) lack
of sufficient investigative powers, including for instance “dawn raids”, and tools to deter
anticompetitive behavior (leniency for a number of whistleblowers, effective fines); (iii) a broad
range of reasons and discretion to exempt cartels; (iv) no effective provisions for distortive state
aid; (v) lack of clarity in the division of competence between the competition watchdog and
various ministries and other public agencies; (vi) insufficient financial and human resources of
the competition watchdog; (vii) an ineffective judiciary and lack of clear division in handling
47
World Bank 2010.
48
“National Competition Program for 2014-2020”, II General Part, p. 2. From:
49
Competition Policy Approach, 2012 (Competition Policy Practice, Investment Climate, World Bank Group) and
UNCTAD’s “Voluntary Peer Review of Competition Law and Policy: Ukraine. Overview”.
73
competition cases between various courts; and (viii) significant government intervention in
markets (such as price controls in potentially competitive markets), controlling essential products,
margins, and geographic areas.
■■ Discriminatory treatment and distortive state aid for incumbents. Discriminatory policies favoring
incumbent firms and excessive government intervention still dominate many markets in developing
economies. In some economies, more than 50 percent of anticompetitive actions are carried out by
public and local authorities.
■■ Lack of competitive access to essential business services. These services facilitate the entry and
expansion of young firms (essential local business services such as banking and related financial
services, communications, transport and required energy services, gateways to export markets,
open real estate markets, and profession and administrative support services).
■■ Poor market practices and regulations that hinder competition. These include firm collusion,
market foreclosure, and discrimination against new entrants: all practices that also limit firms’
competitiveness, and affordability of key consumer goods. Self-regulation imposed by business
associations, particularly in the services sectors, decreases competition by either restricting entry
or aiding members in coordinating prices. Lack of transparency on the companies’ ultimate owners,
especially for business registered offshore.
■■ Lack of independence. Competition watchdogs, while often de jure independent, are de facto often
subject to substantial pressures from the political establishment and businesses’ vested interests,
which undermines their impartiality and effectiveness.
Barriers to the Development of Competitive Markets: Market Entry and Expansion
152. The ease with which companies can enter and exit markets affects the competitive dynamics
even in the absence of deliberately anticompetitive behavior. This area includes not only starting and
closing a business, but also policies and regulations that govern market access, restrict the number and type
of firms, and control prices. Markets will have freer competition when company owners can enter them
relatively easily, operate in a fairly stable and predictable regulatory environment, and exit the business if
the investors identify a market where their capital can be employed more productively.
153. Registering a business has recently been made easier. In 2014, after a number of reforms,
Ukraine improved to 47th place in the “starting a business” category in the Doing Business survey.50 In
addition to reforms reflected in DB 2013 such as the elimination of the minimum capital requirement for
company incorporation, the requirement to have incorporation documents notarized, and the requirement
to obtain approval for a corporate seal, in 2013 eliminated the requirement for registration with the statistics
authority and eliminated the cost for value added tax registration (for more detail, see Chapter III on the
regulatory environment).
154. However, the permit and license environment continues to block market entry. Companies
still have to comply with a long list of permits, go through a protracted process of licensing, and often meet
unnecessary mandatory standards and certifications. The World Bank’s 2010 report found that entry and
operation costs are particularly burdensome for promising growth sectors that have export potential and
have been more resilient to the crisis, such as food processing and new light manufacturing. In addition,
it concluded that Ukraine’s institutional and regulatory framework, “imposes high entry barriers, high
operational costs, high exit barriers, and consequently limits competition, new products in the market and
50
World Bank Doing Business data, available at: www.doingbusiness.org
74
export potential” in all sectors, with some exception for banking.51 In addition, the processes of setting
up a business are prone to rent-seeking activities of regulatory agencies and local governments. Prior to
the crisis, and in the context of high profits and low competition, these issues were considered by many
enterprises as an unavoidable extra tax on their business; however, in the post-crisis environment, they
hinder growth and employment recovery by keeping the number of new businesses and FDI inflows low
(while sustaining high rents for incumbents).
155. Exiting the market is also long, cumbersome and costly. This keeps economic resources tied up
in unproductive activities and hampers the efficient allocation of factors of production. Companies also face
difficulties when dealing with the tax authorities during the process of closing a business. Difficulties with
closing a business increase entrepreneurs’ perception of risk of market entry, tie up investors’ capital in non-
productive firms for a substantial amount of time, and therefore often deter entry. The new law on insolvency,
which entered into force in January 2013, promises welcome improvements as it clarifies and cuts time lines
of specific procedures during the bankruptcy process; ensures a better balance between debtors’ and creditors’
rights; and introduces mechanisms expected to enhance the effectiveness of insolvency officers. However, as
is common in Ukraine, the challenge will be to ensure that the new law is implemented well.
156. Ukraine’s economy maintains substantial barriers to FDI in some sectors. Among the 20
countries covered by the World Bank Group’s Investing Across Sectors indicators in Eastern Europe
and Central Asia, the restrictions on foreign equity ownership imposed by Ukraine are more severe than
in most other countries. For instance, foreign capital participation in the domestic and international air
transportation sectors is restricted to 49 percent. In addition to legal barriers, foreign investors are also
deterred from entering Ukrainian markets in practice, by the non-transparent and unpredictable regulatory
environment. The overall low FDI inflows as well as high levels of net inflows from Cyprus and other tax
havens, which largely represent recycled investment from Ukraine, support this statement.
Discriminatory Treatment of Market Players
157. The state involvement in the economy often results in the discriminatory treatment of some
market players. Examples of this include the establishment of the State Food and Grain Corporation
in 2010, state control over domestic food prices and grain export quotas, and government price controls
and subsidies in gas, heating, and electricity supply. There are ongoing attempts to further increase state
control. For instance, in 2010-2011, the government imposed ad-hoc export restrictions on grains, blocking
access to export markets and paralyzing FDI in these sectors. Other government policies that interfere with
market entry include favoritism toward domestically-produced equipment, which deters competition from
foreign suppliers (as well as foreign investment), the moratorium on agricultural land sales that has been in
effect since 2001, and the need to register exports exclusively at the State Agrarian Commodity Exchange.
158. Competition in the agriculture and food-processing sector is stymied by the overabundance
of regulations. As argued by the World Bank, government policy in the sector is “outdated, fragmented,
complex, burdensome, and plagued by governance shortcomings”.52 Over time, the government has
developed different regulations for different subsectors, including specific regulations for sugar, bakery,
oilseeds, alcoholic beverages, dairy products, and baby food, among others. Factories that produce various
types of products face complex and overlapping requirements. Even existing firms wishing to expand their
product variety face lengthy and costly permit and licencing procedures: for instance, a fruit juice company
that sought to add a line of pear juice to an existing line of apple juice had to go through the full process of
licensing and permitting, as if it were a new business.
51
World Bank 2010, p. 41.
52
World Bank 2010, p. 33.
75
159. Competition is strong in some segments of the telecommunications sector, mostly mobile
services, but weak in Internet and landlines. A double licensing system is in place, out of line with the
common practice in the European Union. Internet providers must obtain three licenses from the regulators
to start operations, and the landline market is dominated by Ukrtelecom, the old incumbent operator.
According to the company website, the company has a 71 percent market share on the local telephone
market and 83 percent share on the long-distance and international telephone market.53
160. A level playing field needs to be guaranteed for all market players. The principle of competitive
neutrality stipulates that no entity operating on an economic market is subjected to undue competitive
advantages or disadvantages. The rationale for pursuing competitive neutrality is both political and
economic. The main economic rationale is that it enhances the efficiency of allocation across the economy,
where economic agents – whether state-owned or private – are put at an undue disadvantage, so that goods
and services are no longer produced by those who can do it most efficiently. The political rationale is
linked to the government’s role as universal regulator in ensuring that economic actors are “playing fair”
– where state-owned corporate assets are concerned and vis-à-vis other market participants – while also
guaranteeing that public service obligations are being met.54
Government Interventions through State Aid
161. The government is an active market participant through its control of state-owned
enterprises (SOEs) and allocation of state aid. SOEs continue to represent a substantial portion of GDP –
approximately 20 percent – and have a strong presence in several sub-sectors, including energy, transport,
and machine-building. The government itself spends roughly 47 percent of GDP. The government provides
product-specific subsidies in agriculture, including area payments for horticulture, viticulture and hops;
and it reserves substantial support for poultry and sugar production. Meanwhile, government policies
implicitly tax cereals exports, a sector in which Ukraine is more competitive. Budgetary subsidies and
current transfers to enterprises represented 2.9 percent of GDP in 2008, down from 3.1 percent in 2006,
but still a greater amount than any other in 2003-2005 (Figure 57).55
Figure 57: Budgetary Subsidies and Current Transfers to Enterprises (in Percent of GDP)
ϰй
ϯ͕ϭй
Ϯ͕ϴй Ϯ͕ϵй
ϯй
Ϯ͕Ϯй Ϯ͕Ϯй Ϯ͕Ϯй
Ϯй
ϭй
Ϭй
ϮϬϬϯ ϮϬϬϰ ϮϬϬϱ ϮϬϬϲ ϮϬϬϳ ϮϬϬϴ
Source: EBRD 2009.
53
From: http://en.ukrtelecom.ua/about/today. There is also a lack of clarity about the ultimate ownership of the
company: it was privatized in 2011 and sold to a small, previously unknown Austrian investment company EPIC.
54
OECD 2012 “Competitive Neutrality. Maintaining a Level Playing Field Between Public and Private Business”.
55
EBRD 2009.
76
Controls on Prices Increase Business Risk and Reduce the Ability of Firms to Compete
162. Prices of socially sensitive products are often subjected to de facto price controls, thus
undermining competition. The Holzler 2013 report notes that, “currently, the AMC invests substantial time
in price control – the majority of the AMC assignments is initiated by the central executive government, and
the AMC is expected to immediately react to price fluctuations on so-called ‘socially sensitive’ markets”.56
The report also states that, “the AMC is a governmental instrument for controlling sensitive markets, and
price movements in particular”. The UNCTAD peer review report presents the same view. The AMC staff
understands its own role as that of a kind of a price controller, moving prices up in parallel, so that there
is no obvious increase in costs for such a price movement. Automatically, such price movements are seen
as cartels.57 Such de facto price controls may be effective in stabilizing prices in the short term, but are
likely to decrease consumer welfare in the long run as such controls encourage the formation of cartels,
facilitate market control by favored individuals, reduce market entry, and raise governance issues related
to corruption and arbitrariness of price levels.
Competition/Antitrust Framework
163. The legal framework and its implementation remain deficient. In the 2013-14 GCR, Ukraine
ranks 137th out of 148 economies on the effectiveness of anti-monopoly policy. Likewise, the EBRD
index of competition policy has rated Ukraine as a 2.3 in 1997-2012, just above category number two, i.e.
“competition policy legislation and institutions set up; some reduction of entry restrictions or enforcement
action on dominant firms,” but still well below category number three, i.e. “some enforcement actions to
reduce abuse of market power and to promote a competitive environment, including break-ups of dominant
conglomerates; substantial reduction of entry restrictions”.58
164. The Competition Law is broadly aligned with international practices. The 2001 Law on
the Protection of Economic Competition (or more simply, the Competition Law) is the principal law on
competition. It addresses five main categories of uncompetitive activities: 1) concerted actions, 2) abuse of
dominance, 3) concentrations, 4) certain “restricting and discriminating” activities of business entities and
associations, and 5) anticompetitive actions of government bodies. The 1996 Law on Protection against
Unfair Competition deals with conduct by a single company intending to reduce the competitive ability
of a competing enterprise. It prohibits activities such as exploiting another firm’s reputation, gaining an
unfair competitive advantage by disseminating false information, inducing third parties to boycott another
company, bribing another company’s employee, and illicit acquisition or unauthorized disclosure of
commercial secrets.
165. But some regulatory weaknesses still linger. The 2008 OECD peer review report on Ukraine’s
competition law and policy and the 2013 UNCTAD report conclude that overall the country has developed
a rather comprehensive and well-designed legal framework for competition. However, some notable
structural weaknesses have remained in place. They are identified in the OECD and UNCTAD analyses
and other reports59, and they include the following:
56
Completion report of the project “Harmonization of Competition and Public Procurement Systems in Ukraine
with EU Standards”, (Holzler 2013, p. 9).
57
Holzler 2013, p. 38.
58
EBRD 2012.
59
OECD 2008b, Svechkar 2010, Haid 2010, Holzler 2012, Denisenko and Nizhnik 2013. See also the upcoming
UNCTAD peer assessment.
77
■■ A number of provisions of the Competition Law are in conflict with Ukraine’s Commercial Code.
■■ The Competition Law’s merger notification requirements clash with accepted international
standards, although a recent draft amendment to the law provides for a significant increase in
thresholds, which – if adopted – would enhance the merger control regimen and help the AMC
focus on the most important cases.60
■■ Concentrations exceeding specified thresholds must be reported to the AMC, and may not be
prosecuted until a waiting period has elapsed. The notification thresholds have been criticized for
disallowing the AMC to effectively focus on transactions likely to spark competitive concerns.
Furthermore, the AMC has not issued merger guidelines to explain the methodology that it uses to
permit or ban concentrations.
■■ The Competition Law states that Ukraine’s Council of Ministers may grant permission on public
interest grounds to allow certain conduct or a merger that the AMC has previously rejected.
■■ The limits on concerted actions are similar to those common in the EU, but Ukraine’s block
exemptions are generally less detailed, and local procedures still call for companies to apply to the
AMC for approval of concerted agreements.
■■ The legislation does not distinguish between very serious cartel behavior (price fixing, market
sharing, bid rigging or production/sales quotas), and other types of cartel behavior.
■■ There is no criminal regime for cartel offenses.61
■■ The AMC’s investigative power is weak, including a lack of authority to conduct “dawn raids”
(firms accused of cartel behavior are supposed to deliver evidence of wrong doing voluntarily),
and the agency has a poor cooperative relationship with the police, prosecutors, and other law
enforcement agencies.62
■■ The leniency program applies only to the first applicant, reducing incentives for other whistleblowers.
■■ The choice of jurisdiction between administrative and commercial courts is not always clear.
■■ Merger control is weakened by a lack of information on the ultimate business owners, especially
for offshore companies.
166. The AMC seems overextended. Unlike most other competition watchdogs, italso deals
with procurement. It audits government agency compliance with procurement laws, examines alleged
tender violations by procuring agencies, and authorizes the use of restricted tendering and single-source
procurement procedures. These additional duties have put a strain on the AMC’s capacity and resources. In
addition, AMC handles some cases that could be left to the courts if they dealt more effectively with disputes
between companies over claims of unfair competition and trademark infringement. If privatizations were
carried out with a greater emphasis on creating multiple competing entities (on markets where competition
is possible), then the AMC would be faced with fewer cases of abuse of dominance, which would also
reduce its workload. There are also some weaknesses in the economic regulation of natural monopolies
by regulatory bodies, which increases the burden on the AMC’s enforcement resources. According to the
OECD, “all of these diverse demands on the AMC’s attention and resources challenge the agency in its
efforts to maintain high standards of performance in accomplishing its mission”.63
167. The AMC’s overextension has contributed to the poor execution of its duties. Legal practitioners
reason that the AMC is not able to complete the reviews of concentration applications within the allotted
60
OECD 2008a and UNCTAD 2013.
61
Denisenko and Nizhnik 2013.
62
OECD 2008b.
63
OECD 2008b, p. 77.
78
time frames, and that the AMC sometimes takes a superficial approach to cases, avoiding examination
of the underlying competitive dynamics. The AMC is aware of these perceptions, and has stated that
additional resources are necessary for it to maintain high standards of performance. The OECD made
general recommendations on budget allocations for the AMC as well.
168. Some of the procedures prescribed in the law, regulations, and/or procedures are
burdensome for the AMC. For instance, the AMC’s concentration notification requirements call for the
parties to provide extensive documentation, even from affiliated entities that may not be active on the
markets relevant to the transaction. Additionally, a great number of global transactions with no impact on
competition on Ukrainian markets still triggers local merger control thresholds. The AMC has expressed
its interest in simplifying merger control clearance procedures. In other areas, the AMC has the power
to adopt regulations and guidelines that can help reduce inefficiencies and improve its operations, but it
has not fully taken advantage of this possibility.64 Finally, the AMC could also facilitate understanding of
and compliance with competition frameworks across the private sector, by articulating its decisions and
policies more clearly to the public. Doing so could also improve the efficiency of its work.
169. There are claims that the AMC is not effectively combating the abuse of dominant positions
by monopolists. Annual reports by the AMC have stated that, “Ukraine has not yet established a system
to counteract and prevent monopolies, adjusted its antimonopoly legislation to EU competitive policy
standards, systemized and monitored violations on the commodities markets by branches, analyzed the
competitive status of commercial entities, or examined monopoly (dominating) entities”.65 In the energy
sector, the Audit Chamber’s report on sector regulation in 2008-2011 has noted that the sector regulator’s
“existing system to control monopoly companies on Ukraine’s energy market is inefficient, therefore their
violations of the legislation have become systemic.66 The Antimonopoly Committee has often failed to
apply any relevant measures against violators”.67
170. Cartel behavior and the systematic application of fines is also an area that needs attention.
About half of the AMC’s caseload involves abuses of dominance, while only 4 percent of it focuses on
concerted actions, and less than 3 percent deals with horizontal concerted actions.68 Horizontal concerted
actions are, “widely considered to be the most pernicious form of anticompetitive behavior by business
entities, and should therefore be a prime focus of enforcement efforts”69, but Ukraine’s efforts to uproot
these practices have been feeble. The most effective way of deterring cartels is through the imposition of
heavy sanctions and the consistent, effective and efficient investigation of cartel behavior. An analysis
published in the 2010 Schoenherr Roadmap70 has found that Ukraine’s AMC has deficiencies in these
areas, compared to other competition authorities in CEE.
171. The AMC does not make use of maximum fines for breaches of competition laws. It is
entitled to apply fines of up to three times the unlawfully-earned profit in some instances, and even if
the undertaking did not produce any turnover or information, the AMC can still impose a fine of up to
UAH 340,000 (approximately €32,000). Thresholds for these amounts are determined and applied in other
cases. However, many experts argue that the AMC rarely resorts to imposing maximum fines and as a
64
Svechkar 2010.
65
As reported by Kramar 2012, p. 14.
66
The sector regulator is the Committee for the Regulation of the Energy Sector.
67
Kramar 2012.
68
OECD 2008.
69
OECD 2008b, p. 92.
70
An annual publication by a leading Central European law firm.
79
result, the sanctions often do not have the desired deterrent effect.71 In addition, only a small portion of
the fines that the AMC does impose are paid. The 2008 OECD report notes that only 10 percent of the
fines imposed in 2004-2007 were actually paid (Table 3). If penalties are not paid, the AMC must go to
court for a judicial order. If, after this order, the fine is still not paid, the court order must be referred to
Ukraine’s State Executive Service for Collection. According to UNCTAD’s 2013 report, the amount of
paid penalties declined to only 5 percent in 2012, largely because many liable entities avoid payments
by being liquidated, and then re-registered as new legal entities. Thus, even if the AMC applies large
penalties, they do not serve as effective deterrents.
Table 3: Penalties Imposed and Collected Under the Competition Law and Unfair Competition Law
Penalties imposed Penalties collected
Year
UAH (million) EUR (million) UAH (million) EUR (million)
2012 814.7 74.0 40.6 3.7
2011 43.5 4.4
2010 27.1 2.7
2007 11.6 1.7 5.9 0.9
2006 23.5 3.7 3.5 0.6
2005 4.0 0.6 2.3 0.4
2004 2.9 0.5 1.7 0.3
2003 102.8 17.1 1.9 0.3
Total 144.8 23.6 15.3 2.5
Source: OECD 2008, Kramar 2012 for 2010 and 2011 and UNCTAD for 2012.
172. Inadequate training among judges and prosecutors undermines the implementation of
competition policy frameworks. Public prosecutors are commonly unfamiliar with the complexities of
investigating anticompetitive conduct. Judges’ education is also not conducive to thorough analyses of
the economic dynamics at play in the various cases, as it is based on a civil law tradition. As argued by
UNCTAD, judges must be sufficiently specialized to “understand the wider implications of competition
with respect to issues beyond pure law enforcement”.72
173. The delay in enacting legislation on state aid is also a constraint to market competition. The
EU-Ukraine Association Agreement requires Ukraine to apply EU-compatible rules on state aid.73 The
logic of the EU legislation on state aid is to ensure that government interventions do not distort competition
and trade on the common market. State aid is generally considered to be incompatible with the common
market. However, it is compatible in some cases of regional development, horizontal objectives (related
to SMEs, employment, environment, research and development, and others), and sectoral aid. The EU
frameworks provide guidelines on the types of aid that are acceptable, and the ways in which they should
be applied. The process of granting incentives to firms needs to be clear, transparent, and competitive. EU
authorities must be notified of some types of state aid schemes.
71
Haid 2010. See also the European Antitrust Review 2013 Ukraine: Merger Control and Kramar (2012).
72
UNCTAD 2013, p. 15.
73
The AA states that: “Any aid granted by Ukraine or the Member States of the European Union through state
resources which distorts or threatens to distort competition by favoring certain undertakings or the production of
certain goods is incompatible with the proper functioning of this Agreement insofar as it may affect trade between
the Parties” (Article 262).
80
174. A new law on State aid is expected to be approved later this year. Even as early as 2005, the
draft law on state aid was supposed to pass “soon”. The draft Law on State Aid to Business Entities was
drafted by the AMC with support of the EU-funded project described below in paragraph number16974,
approved by the Cabinet of Ministers, and submitted to the Parliament in August 2012. But voting on the
Law has not taken place yet. Many agencies within the Ukrainian government are administering state
aid programs, and the AMC needs to be given the authority to assess and interdict aid on the basis of its
prospective anticompetitive effect. The EU-funded project produced an introductory handbook on state aid,
and prepared draft guidelines, templates and instructions for the state aid inventory that will be required by
law. The project also provided some relevant training and staged public awareness activities.
175. Finally, the AMC is in need of capacity-building and improved human resource management
policies to address weaknesses identified in the completion report of the EU-funded project. The
Holzler report states that the AMC suffers from a large staff turnover, there is not much learning effect from
the AMC’s participation in OECD, UNCTAD, ICN and other international conferences, and the fact that
“AMC decisions are not published as to their legal deliberations for decision-making, the learning effect
among the AMC employees is also limited, although the number of decisions made is high (more than
2000 decisions per year)”.75
176. The AMC has recently formulated new policy and enforcement priorities. The draft Law on the
“National Competition Program 2014-2020” has a number of important priorities, including harmonization
with EU regulations, improvement in the implementation of state aid, improvement in the institutional
framework for monopolized commodity markets, strengthened investigative powers, reduction of barriers
to firm entry, and enhanced engagement of the civil society.
177. The AMC has also engaged in preparatory and capacity-building activities, especially through
the EU-supported project on “Harmonization of Competition and Public Procurement Systems in
Ukraine with EU Standards”.76 The project helped the authorities develop the concept and draft action
plan for the “National Program for Competition in Ukraine in 2014-2024”; itmade recommendations
on amendments to the competition law in some specific, technical areas; and it deepened the AMC’s
understanding of EU guidance and practices in areas such as fines and transparency of decisions made by
competition authorities. It also assisted the AMC with institutional development, training, and attendance
of international conferences; and it helped draft amendments to public procurement laws. There are also
additional initiatives in the area of competition law and policy undertaken by the Ukrainian authorities
themselves, as well as Ukraine’s commitments under its draft AA and its Partnership and Cooperation
Agreement with the European Union.77
178. However, enhancing competition will require more fundamental reforms. The completion
report of the EU-funded project on competition, state aid, and public procurement notes that the,
“willingness to change the Ukrainian system in accordance with [developments in the EU and US] is
limited,” attributing this limited political will to concerns related to political economy and rule of law.78
Additional concerns include, for instance, that certain individuals or groups will not be able to influence
state agencies to make favorable decisions that would protect their economic interests. Overcoming this
will require deep institutional reforms in the longterm, including (i) the reform of the judiciary and the
74
“Harmonization of Competition and Public Procurement Systems in Ukraine with EU Standards”.
75
Holzler 2013, p. 38.
76
Project carried out under the “Technical Assistance to the Commonwealth of Independent States” (TACIS)
program of the EU, which aims to promote the transition to a market economy and reinforce democracy and
the rule of law in partner states in Eastern Europe and Central Asia. See the completion report from this project
(Holzler 2013).
77
See Holzler 2013 for details.
78
Holzler 2013, p. 38.
81
entire legal system, (ii) public administration reform, (iii) the reform of oversight bodies, and (iv) enhanced
institutional transparency and accountability. These reforms are complex and politically difficult. They will
require leadership and quick “early wins” to be sustained.
179. The potential benefits of enhanced competition are large. Signs of improved governance would
give more confidence to domestic and foreign investors. This would increase economic activity, creating
more jobs, spurring enterprise growth, and facilitating the transition to a more dynamic economy. It would
also nudge Ukraine forward on its path to European integration.
180. Specific recommendations to improve competition law and policy are listed below. The
recommendations are largely in line with the draft Law on the “National Competition Program 2014-
2020”, the UNCTAD’s 2013 peer review report as well as the 2008 OECD peer review and Holzler’s 2012
and 2013 reports.
Policy Recommendations
Suggested
Short-Term Recommendations Medium-Term Recommendations
Reforms
Competition Amend the Commercial Code to eliminate Pass legal amendments to harmonize
conflicts with the competition laws. Ukraine’s competition legislation
Enact the Law on State Aid to Business En- with that of the European Union.
tities and implement an effective system Strengthen the de facto political in-
for controlling anticompetitive state aid, as dependence of the AMC.
per the commitments in the EU Association Improve co-operation with other
Agreement. Ukrainian law enforcement agencies
Increase the AMC’s investigative power and and investigative bodies.
capacity to collect evidence of wrongdoing. Clarify court jurisdiction for compe-
Adjust enforcement priorities to focus more tition cases.
on substantial violations of the competition Establish effective penalties for hard
laws. violations of the competition law.
Modify merger/concentration notification Provide adequate resources to en-
and abuse of dominant position thresholds sure that the AMC can maintain high
to focus on transactions likely to raise com- standards of performance in accom-
petitive concerns, including those involving plishing its mission.
entities concealing ultimate owners.
Upgrade the investigative and ana
Make more use of block exemptions for hori- lytical skills of the AMC staff, in-
zontal and vertical restrictions of competition. cluding in regional offices.
Issue and publish relevant guidelines, includ- Reduce the burden on the AMC in
ing those on mergers and abuse of dominance. areas that should not belong to its
Improve procedures for imposing and collect- core activities such as natural mo-
ing monetary penalties imposed by the AMC, nopolies, public procurement and
including by prosecuting willful wrongdoing. trademarks.
Amend the leniency program to allow lenien- Complete the institutional reform of
cy for more than one applicant. AMC as outlined in the draft Law
Increase transparency of decisions by pub- on “National Competition Program
lishing their full text on the AMC website. 2014-2024”.
Expand international cooperation, including Work to create a “culture of compe-
by creating effective twinning arrangements tition” within the business commu-
with counterparts in the European Union. nity.
Strengthen competition advocacy activities Expand the use of market studies to
and outreach to the public. better monitor levels of competition.
82
Concluding Remarks
181. Ukraine seems to have many strengths that could help it to become Eastern Europe’s future
economic powerhouse. It benefits from an attractive location with direct access to markets in the EU and
the CIS,relatively high-quality human capital and abundant natural resources. It also has fertile agricultural
lands, relatively well-developed infrastructure, and a large industrial base in the east of the country. Finally,
it has notable space to boost productivity by simply absorbing technologies and ideas from abroad. These
strengths, if managed properly, should allow Ukraine to start catching up with developed countries at a
fast pace.
182. However,Ukraine continues to struggle to turn it sen viable comparative advantages into
competitive advantages and accelerated growth rates. It remains among Europe’s economic laggards,
with current income levels below those from the beginning of the transition to a market economy and only
at a fraction of those registered in neighboring countries, which started the transition at the same income
level. Short-term growth projections suggest that the income gap between Ukraine and the neighboring
countries will not diminish in the short term.
183. The private sector has not been given a full chance to grow. This note provides evidence that
the private sector has been relatively stagnant since 1991. The structure of the country’s exports has hardly
changed in the past twenty years, and the sophistication of value-added products and services has not
progressed. Levels and growth rates of productivity have remained below that of Ukraine’s peers. There
is hardly any export-oriented FDI, the proven engine of industrial restructuring, technology transfer and
know-how in the neighboring new EU member states. The role of SMEs in the development of the formal
economy is limited. In short, the market-driven process of entrepreneurial self-selection and self-discovery
does not seem to work properly, thus undermining the country’s growth prospects.
184. The missed growth opportunities can largely be explained by a poor business environment.
Ukraine scores below peers in most international ranking son doing business, competitiveness, economic
freedom, governance, and corruption. It also scores low in domestic opinion surveys among private sector
entities operating in Ukraine. The low quality of the general business environment undermines entry of
new firms, pushes firms into informality, weakens incentives to grow, and thwarts the will to compete with
incumbents.
185. To move ahead, Ukraine should emulate the more successful economies of the new EU
member states in their decisive efforts to leave the past behind, and wholeheartedly embrace the
principles of a properly functioning market economy. It needs to break the vicious circle of weak
governance, weak property rights, and poor business environment, driven by state capture, corruption,
and political culture. Otherwise, the growth of the private sector will remain stunted, and continue to
undermine Ukraine’s economic development.
186. This note provides recommendations on how to spur the growth of the private sector by
improving the regulatory environment, enhancing access to finance, and increasing competition.
Based on the existing research as well as discussions with the Government, the private sector, the academia
and NGOs, it diagnoses the situation in each of the three challenged issue areas. It focuses on specific
obstacles to private sector development such as permits, licenses, certification and inspections; high cost of
financing; inadequate credit information, and poor implementation of pro-competition policies. It provides
short- and medium-term policy recommendations, including “quick-win” reforms that can be implemented
quickly at a low cost, but with a large impact.
187. However, this note also posits that more fundamental reforms will be needed for Ukraine to
become an economic powerhouse. The challenges include greater macroeconomic stability, enhanced
public sector governance, improved financial sector stability, more robust technology absorption and
83
innovation, stronger property rights, and a more independent judiciary. Above all, however, Ukraine needs
to crack down on state capture and corruption, the ultimate causes of its poor economic performance, and
sustain strong political commitment and leadership. While calling for more research on the underlying
causes of the poor business climate, this note recommends fighting state capture and corruption by fully
opening the legislative process to public review, strengthening regulatory impact assessment (RIA) of
new laws, ensuring full transparency and civil society involvement in public procurement and monitoring
of state aid, and enhancing policy coordination among the private sector associations, especially those
representing SMEs.
188. The adoption of AA and the DCFTA with the EU provides a historical opportunity to
address many of the causes of Ukraine’s economic underperformance. Both agreements, especially
if implemented efficiently, could provide the much-needed incentives for pro-reform political and social
forces to inter alia improve public governance, ensure full independence of the judiciary, and enhance the
level of competition in product and service markets.
189. Ukraine has a rendezvous with history. It can continue to muddle through, or it can reinvent
itself as a success story. Committed, unwavering, and persistent leadership, as well as substantial changes
in business culture, will be needed to achieve this goal.
84
Annex 1
APPROVED
2013 NATIONAL ACTION PLAN
of the Implementation of the Economic Reform Program for Years 2010 to 2014
“Prosperous Society, Competitive Economy, Efficient State”
World Bank Summary79
VI. Deregulation, Entrepreneurship Development and Reform
of the Provision of Administrative Services
Entering and Withdrawing from a Business
63 Simplification 63.1. Submission of a draft Law of Ukraine on incorporating amendments to
of the procedure some Laws of Ukraine concerning the simplification of the procedure for starting
for starting a a business for consideration in the Verkhovna Rada of Ukraine, such draft Law
business providing, in particular, for:
furnishing the state registrar in the course of state registration of a legal entity or
a sole proprietor with information required by the state tax service authorities to
register such legal entity or sole proprietor as payer of value added tax, single
tax or other taxes and levies (provided that registration of such legal entity or
sole proprietor as payer of a respective tax is envisaged by applicable law or
under a decision of such legal entity or a sole proprietor);
abolishing the requirement to pay a registration fee for state registration of a
legal entity or a sole proprietor;
state registration of a legal entity or a sole proprietor against electronic docu-
ments without mandatory affixation of a digital signature (using other means of
identification);
principle of carrying out a business without a seal by entities governed by pri-
vate law
63.2. Submission of a draft Law of Ukraine on incorporating amendments to the
Tax Code of Ukraine for consideration in the Verkhovna Rada of Ukraine, such
draft Law providing, in particular, for:
abolishing the requirement for a business entity to apply to state tax service
authorities for registration as payer of value added tax, single tax or other taxes
and levies if the respective information has been furnished to the state registrar
in the course of state registration of the legal entity or sole proprietor;
shortening the time frame for notification of state tax service authorities by
banks and other financial institutions of an account opening by tax payers and
the time frame for notification of banks and other financial institutions by the
state tax service authorities that the said accounts have or have not been taken
record of
79
Selected highlights of the 2013 National Action Plan. Unofficial translation.
85
VI. Deregulation, Entrepreneurship Development and Reform
of the Provision of Administrative Services
Simplification of the Permit and Licensing System
66 Improvement 66.1. Submission of a draft Law of Ukraine on incorporating amendments to the
of permit Law of Ukraine "On the Permitting System in the Field of Business" for con-
procedures sideration in the Verkhovna Rada of Ukraine, such amendments providing, in
particular, for:
issue (re-issue, duplicate issue, cancellation) of permitting documents, executed
by central executive agencies, to business entities by the state administrator at
administrative service provision centres;
assigning it to the exclusive competence of the court to make decisions to can-
cel a permit subject to a request from a permitting agency if it has been ascer-
tained that a business entity has furnished unreliable information or violated the
law in the course of business covered by the permit
66.2. Submission for consideration in the Verkhovna Rada of Ukraine of a draft
Law on incorporating amendments to some Laws of Ukraine that govern relations
associated with the obtaining of permitting documents by bringing them into con-
formity with the provisions of the Law of Ukraine "On Administrative Services"
and of the Law of Ukraine "On the Permitting System in the Field of Business"
66.3. Submission for consideration in the Verkhovna Rada of Ukraine of a draft
Law on incorporating amendments to the Law of Ukraine "On Radio frequency
Resource of Ukraine" and other legal acts of Ukraine in respect of withdrawing
government functions from the Ukrainian State Radio frequencies Centre State-
owned Enterprise, including, in particular, provision of administrative services
and involvement in state surveillance (control) measures
66.4. Adoption of regulations by the Cabinet of Ministers of Ukraine to approve
procedures for the issue of permitting documents that must be obtained in accor-
dance with the Law of Ukraine "On the List of Permitting Documents in the Field
of Business"
66.5. Issue of an act by the Cabinet of Ministers of Ukraine to amend Resolution
of the Cabinet of Ministers of Ukraine No. 725 of 25 August 2010 "On approval
of the list of certain actions as to carrying out an economic activity or types of
economic activity, which cannot be carried out based on a declaration of compli-
ance of a business entity’s material and technical facilities with the requirements
of the law", by deleting the permitting documents, the obtainment of which is not
mandatory under the Law of Ukraine "On the List of Permitting Documents in the
Field of Business", from this list
86
VI. Deregulation, Entrepreneurship Development and Reform
of the Provision of Administrative Services
68 Improvement of 68.1. Submission for consideration in the Verkhovna Rada of Ukraine of a draft
the mechanism Law of Ukraine on incorporating amendments to some legal acts of Ukraine, pro-
for state viding, in particular, for:
regulation of assigning decision-making functions in respect to the issue of permitting docu
the issue of ments for the performance of operations in the field of hazardous waste mana
permitting gement to the scope of powers of local executive agencies;
documents
in the field of mandatory annual notification of the Ministry of Ecology and Natural Resourc-
es of Ukraine by local executive agencies of the indicators of total waste gene
environmental
ration in the regions;
protection
setting at least a three year validity period for permitting documents in the field
of waste management;
cancellation of the requirement to obtain waste generation limits;
cancellation of the licensing of the business of collecting and procuring some
types of waste as secondary raw materials (according to lists to be specified by
the Cabinet of Ministers of Ukraine);
shortening of the list of documents to be submitted by business entities to obtain
permitting documents in the field of waste management, and the prohibition of
additional expert appraisals of such documents on a paid basis;
exemption of business entities generating waste, which are not subject to the
entry into the Waste Generation, Processing and Disposal Facilities Register
in terms of the total waste generation volume, from obtaining permitting docu-
ments for the performance of operations in the field of waste management;
introduction of the submission of annual waste declarations by such entities via
permitting centres and administrative service provision centres, andregistration
of such declarations;
the reversal of provisions requiring the endorsement of the issue of permitting
documents by central executive agencies in charge of implementing the state
policy of state supervision (control) in the field of protection and sustainable use
of water and water resource restoration, in the field of management and control
of protection and use of water and water resource restoration
68.2. Issue of an act by the Cabinet of Ministers of Ukraine to specify the proce-
dure for the issue of permits to carry out operations in the field of waste manage-
ment
69 Simplification 69.1. Submission of a draft Law of Ukraine on incorporating amendments to the
of the urban Law of Ukraine "On Regulation of Urban Development Activities" for conside
development ration in the Verkhovna Rada of Ukraine, such draft Law providing, in particular,
permitting for:
system approval by the Cabinet of Ministers of Ukraine of the procedure for categoriz-
ing a construction project under complexity categories I to V and the procedure
for connecting a completed construction project to utility networks (other than
electricity and gas networks);
the right of the project principal to apply autonomous utility systems regardless
of the availability of the required utility networks within the relevant area;
87
VI. Deregulation, Entrepreneurship Development and Reform
of the Provision of Administrative Services
69 Simplification cancellation of the procedure for registration by the state architectural and con-
of the urban struction control agency of declarations of the commencement of preparatory
development and construction works;
permitting the right of a project principal to dispute at court decisions to deny:
system
registration of an object operation readiness declaration;
issue of a certificate confirming the commissioning of completed construction
projects of complexity categories IV and V;
placement of the information about received notices of commencement of con-
struction work, filed declarations of the commencement of preparatory and con-
struction works, issued construction work execution permits on official web
sites of the relevant state architectural and construction control inspectorates in
order to secure free and at will access to the said information
69.2. Submission for consideration in the Verkhovna Rada of Ukraine of a draft
Law of Ukraine providing for bringing the laws of Ukraine that govern the issues
of connection to utility networks into conformity with the provisions of the Law
of Ukraine "On Regulation of Urban Development Activities"
69.3. Submission for consideration in the Verkhovna Rada of Ukraine of a draft
Law of Ukraine on incorporating amendments to some Laws of Ukraine, such
amendments providing, in particular, for:
cancellation of the requirement to obtain a permit for reequiping or rearrang-
ing a dwelling house or residential premises not interfering with load-bearing
elements;
specification of conditions for reconstruction and major repair of a dwelling
house or residential premises (apartment);
introduction of liability for the performance of construction works related to
reconstruction or major repair of an apartment in a multi-dwelling building
without obtainment of a document (declaration, permit) granting the right to
perform such works, for the provision of inaccurate data in such a document,
and for the operation of reconstructed apartments or apartments subjected to
major repairs that have not been taken over for operation
69.4. Approval of the composition, contents and procedures of the issue of techni-
cal specifications for installing utilities at the construction project and procedures
for determining the cost of services associated therewith
88
VI. Deregulation, Entrepreneurship Development and Reform
of the Provision of Administrative Services
69 Simplification 69.5. Bringing the Procedure for the Issue of Construction Certificate for the
of the urban Development of a Land Plot approved by Order of the Ministry for Regional
development Development, Building and Housing of Ukraine No. 103 of 5 July 2011, into
permitting conformity with the requirements of the Law of Ukraine "On Regulation of Urban
system Development Activities" by making, in particular, provisions for the following:
issue of a construction certificate within ten business days of receipt of the re-
spective application and appropriate document package;
cancellation of the requirement for mandatory inclusion of technical specifica-
tions for utilities into the construction certificate;
cancellation of the provision requiring a specifically authorized urban develop-
ment and architecture agency to prepare the requirements for the development
of a land plot as a separate document
69.6. Preparation and issuance of clarifications on the procedures for obtaining
permitting documents in the field of construction for private developers and
legal entities (depending on the construction project complexity), placement of
printed copies of clarifications in permitting centres, administrative service pro-
vision centres, on the premises of authorized urban development and architec-
ture agencies and state architectural and construction control agencies, in which
developers are received, with the simultaneous placement of the electronic ver-
sion of clarifications on official web sites of the said agencies
69.7. Bringing regulations of local executive agencies into conformity with the pro-
visions of the Law of Ukraine "On Regulation of Urban Development Activities"
70 Further 70.1. Submission for the introduction by the President of Ukraine of a draft Law
reduction of Ukraine on incorporating amendments to the Law of Ukraine "On Licensing of
in the types Certain Types of Economic Activity" and other legal acts of Ukraine concerning
of economic a more than 50-percent reduction in the number of types of economic activity,
activity, which which are subject to licensing
are subject to
licensing
Strengthening Protection of Investors’ Rights
71 Enhancing 71.1. Submission for consideration in the Verkhovna Rada of Ukraine of a
protection of draft Law of Ukraine on incorporating amendments to some legislative acts of
investors’ rights Ukraine concerning the protection of investors’ rights providing, in particular,
for the right of shareholders to file actions with a court in the company’s inte
rests (derivative actions) to the extent permitted by applicable law (concerning,
in particular, declaring revenue intensive transactions and related party transac-
tions null and void)
89
VI. Deregulation, Entrepreneurship Development and Reform
of the Provision of Administrative Services
Reform of Customs Procedures
75 Reduction in 75.1. Introduction of electronic waybills (SMGS, CIM/SMGS, CIM) for
the number non-excisable goods to replace customs declarations
of documents
submitted
for customs
clearance
State Supervision (Control)
76 Streamlining 76.1. Submission for consideration in the Verkhovna Rada of Ukraine of a draft
and refining Law of Ukraine on incorporating amendments to the Law of Ukraine “On Fun-
the procedure damental Principles of the State Supervision (Control) in the Field of Business”,
of state providing, in particular, for the following:
supervision shortening of the list of relations associated with the exercise of state supervision
(control) in the (control) in the field of business, which are not subject to operation of the Law;
field of business; mandatory publication of regulations, with which the compliance is checked
reducing the in the course of state supervision (control) measures, on official web sites of
number of state state supervision agencies, and prohibition from checking compliance with the
supervision requirements that are not freely and accessible at will by business entities;
(control)
performance of a comprehensive scheduled inspection of a business entity
measures, in
during a calendar year together with state supervision (control) agencies per-
particular by
mitted by law to carry out the relevant measures;
eliminating
duplication of approval of the procedure for the development and implementation of comprehen-
functions of sive state supervision (control) measures by the Cabinet of Ministers of Ukraine;
the supervision publication of plans of comprehensive state supervision (control) measures on
(control) the official web site of a government authority in charge of implementing the
agencies policy of state supervision (control) in the field of business and on official web
sites of state supervision (control) agencies by 20 December of the year preced-
ing the year under planning;
removal of requests of legal entities and requests of individuals from the list
of grounds for off-schedule state supervision (control) measures, unless the re-
quest is substantiated by pecuniary damage caused to the author (authors) of
the request as a result of a violation of the requirements of the applicable law
by a business entity or unless the entitlement to proper, safe and healthy lab our
conditions, to the environment safe for life and health, safety of products, work
and services guaranteed by the Constitution of Ukraine has been violated;
establishment of an integrated automated system of state supervision (control),
which must contain information about business entities, automatic assignment
of business entities to risk groups depending on the degree of risk associat-
ed with the exercise of business and frequency of performance of scheduled
measures by each of the state supervision (control) authorities eligible to carry
out such measures by law, as well as information about all of the performed
(scheduled and off-schedule) inspections of the business entity with indication,
in particular, of the inspection date, officers of the state supervision (control)
agency who participated in the inspection, grounds for the off-schedule inspec-
tion, information provided in the certificate of inspection, and decisions of state
supervision (control) agencies made as a result of the performed inspection;
90
VI. Deregulation, Entrepreneurship Development and Reform
of the Provision of Administrative Services
76 Streamlining placement of the generalized information about results of the performed state
and refining supervision (control) measures on official web sites of state supervision (con-
the procedure trol) agencies, detected typical violations and explanations of the contents of the
of state relevant regulatory requirements;
supervision specification of the procedure for business entities to dispute actions of state
(control) in the supervision (control) agencies, their officers, and decisions of state supervision
field of business; (control) agencies;
reducing the
introduction of administrative liability of officers of state supervision (con-
number of state
trol) agencies for violation of the procedure for performance of scheduled and
supervision
off-schedule state supervision (control) measures
(control)
measures, in
particular by 76.2. Submission for consideration in the Verkhovna Rada of Ukraine of a draft
eliminating Law of Ukraine on incorporating amendments to legislative acts of Ukraine on
duplication of state supervision (control) in the field of business, providing, in particular, for:
functions of specification of the list of state supervision (control) agencies, scopes of their
the supervision supervision (control) and the subject matters of their supervision and control
(control) powers;
agencies
bringing the legislative acts of Ukraine used as guidance by central executive
agencies during performance of the state supervision (control) measures into
conformity with the Law of Ukraine "On Fundamental Principles of the State
Supervision (Control) in the Field of Business"
76.3. Development of a draft Law of Ukraine on incorporating amendments to
some legal acts of Ukraine concerning response measures to be taken towards
business entities and introduction thereof to the President of Ukraine for submis-
sion for consideration in the Verkhovna Rada of Ukraine, such draft Law provid-
ing, in particular, for:
application of response measures to business entities (suspension of manufac-
ture (production) or sale of goods and works, provision of services, etc.) solely
under the administrative court decision in all areas of state supervision (control);
definition of situations, in which the application of response measures to busi-
ness entities (suspension of the manufacture (production) or sale of goods and
works, provision of services, etc.) are to be carried out by state supervision
(control) agencies subject to mandatory confirmation of reasonability of re-
sponse measures in the field of state supervision (control);
definition of specific features of proceedings under cases related to the con-
firmation of the reasonability of response measures taken by state supervision
(control) agencies
76.4. Approval of the procedure for the development and implementation of com-
prehensive state supervision (control) measures by the Cabinet of Ministers of
Ukraine
76.5. Approval of the Integrated Automated State Supervision (Control) System
Development Program by the Cabinet of Ministers of Ukraine
91
VI. Deregulation, Entrepreneurship Development and Reform
of the Provision of Administrative Services
76 Streamlining 76.6. Development of a pilot version of the Integrated Automated State Supervi-
and refining sion (Control) System on the basis of the Uniform State Register of Legal Enti-
the procedure ties and Sole Proprietors, thus making it possible to automatically group business
of state entities depending on the level of risk associated with the exercise of business,
supervision and the frequency of performance of scheduled measures by each of the state
(control) in the supervision (control) agencies
field of business;
reducing the 76.7. Adoption of the acts by the Cabinet of Ministers of Ukraine concerning the
number of state review of the criteria for the assessment of the degree of risk associated with the
supervision exercise of business in order to:
(control) reduce the number and frequency of inspections; review the criteria for assign-
measures, in ing business entities to high and medium risk groups for the purpose of narrow-
particular by ing the range of such business entities
eliminating
duplication of 76.8. Approval of a common form for reports that are drawn up following the
functions of results of scheduled state supervision (control) measures, having provided, in par-
the supervision ticular, for:
(control) their compliance with the recommended practices for developing checklists to
agencies carry out scheduled measures of state supervision (control) with due account for
the degrees of risk associated with the exercise of business activities, as well as
standard forms of reports drawn up following the results of scheduled measures
of state supervision (control);
setting up an exhaustive state supervision (control) checklist;
preclusion (prohibition) of the measures of state supervision (control) on the
issues that have not been included in the report’s form
76.9. Securing free and at-will access of business entities to the regulations, the
compliance with which is checked in the course of scheduled and off-schedule
measures of state supervision (control), by having such regulations placed on of-
ficial websites of regulatory authorities
76.10. Adoption of regulations for the establishment of an efficient mechanism
to coordinate the efforts of the state supervision (control) authorities, securing
a consistent methodological approach to the development of draft regulations in
the area of state supervision (control) concerning, in particular, the assignment of
business entities to respective risk categories, preparation of common forms of
reports drawn up following the results of state supervision (control) measures and
the involvement of business associations and non-governmental organizations in
these activities
77 Optimization
77.1. Submission for consideration in the Verkhovna Rada of Ukraine of the draft
of activities Law of Ukraine on incorporating amendments to some Laws Ukraine concerning
of the state the elimination of the duplication of functions of the central executive agency
supervision in charge of implementing state policy in the field of supervision (control) over
(control) the agriculture industry (the State Agricultural Inspectorate of Ukraine) by mak-
agencies, ing provisions for the transfer of powers of the State Agricultural Inspectorate of
elimination of Ukraine to other central executive agencies as follows:
duplication of
their functions
92
VI. Deregulation, Entrepreneurship Development and Reform
of the Provision of Administrative Services
77 Optimization control over compliance with occupational safety legislation — to a central
of activities executive agency in charge of implementation of the state industrial safety and
of the state occupational safety policy (the State Service of Mining Supervision and Indus-
supervision trial Safety of Ukraine);
(control) control over the quality and safety of agricultural products, supervision and
agencies, co-ordination of implementation of targeted programs and measures aimed at
elimination of producing radiologically safe agricultural products and control over the content
duplication of of radionuclides in agricultural products — to a central executive agency in
their functions charge of implementing state policy in the field of veterinary medicine, food
safety, plant quarantine and protection, protection of the right to plant varieties
and the state supervision (control) over pedigree management in animal hus-
bandry (the State Veterinary and Phytosanitary Service of Ukraine);
control over fire safety at agro-industrial enterprises, institutions and organisa-
tions of all forms of ownership — to a central executive agency in charge of
implementing the state policy in the fields of fire and technogenic safety (the
State Emergency Service of Ukraine);
control over compliance with the consumer protection legislation — to a central
executive agency in charge of implementation of the state policy in the field of
the state control over compliance with the consumer protection legislation (the
State Inspection of Ukraine for Protection of Consumers’ Rights);
control over road traffic safety — to a central executive agency in charge of de-
velopment and implementation of the state road traffic safety policy (the Minis-
try of Internal Affairs of Ukraine);
control over inspection of establishments for training, re-training and advanced
professional training of tractor drivers/machine operators — to a central execu-
tive agency in charge of developing and implement the state policy in the fields
of education and science (the Ministry of Education and Science of Ukraine);
control over laboratory analysis of land contamination (including radioactive
contamination) in the zones of direct impact of contaminant discharges and
emissions by enterprises and control in the event of accidents and emergency
situations — to a central executive agency in charge of implementation of the
state policy of state supervision (control) in the field of environmental protec-
tion (the State Environmental Inspectorate of Ukraine) and a central executive
agency in charge of implementation of the state policy in the field of sanitary
and epidemic well-being of the population (the State Sanitary and Epidemio-
logical Service of Ukraine);
metrological supervision and control over compliance with the requirements of
standards and regulations, metrological support to radiation and dose metering
control in the course of producing and processing of agricultural products in the
prescribed control zones — to a central executive agency which isa specially
authorized body in the field of metrology (the Ministry of Economic Develop-
ment and Trade of Ukraine)
93
Annex 2
Overview of the Regulatory Guillotine
The regulatory guillotine is a process of evaluating the entire stock of regulations that leads to an
automatic repeal by a set deadline of all regulations, which do not continue to provide social value.
The guillotine is designed be quick and efficient and implemented according to clear and
understandable rules. This increases the likelihood of successful reform and prevents the blocking
of reforms by vested interests. Filters and criteria used during the guillotine process can be used for
the further evaluation of new regulations.
The objectives of the regulatory guillotine include:
1. Reducing administrative costs of doing business by can celling a large number of unnecessary
rules.
2. Changing the motivation of regulatory bodies, ensuring an attitudinal change and transfer from
passive resistance to support of reforms.
3. Setting up of an active consultation process with business and other stakeholders.
4. Introducing a solid procedure for the future control of safety and quality assurance of regulations,
primarily through reviewing the stock of regulations, establishing a regulatory registry and the
subsequent analysis of all new regulations.
5. Creating an institutional infrastructure for sustained and effective implementation of the
reform in general, including mechanisms of interaction between regulatory bodies and building
capacities for performing regulatory analysis.
The essential principles of the guillotine are that:
■■ There is no selection bias in that all regulations in the scope of the guillotine are reviewed. That
is, the scope is determined top-down and comprehensive in the field of regulations included in
the guillotine;
■■ The burden of proof is reversed in favor of reform. In the listing approach,reformers must make
the case for why reform is needed. This is reversed in the guillotine. The presumption is that all
regulations in the scope of the guillotine will be eliminated UNLESS they are shown to meet
basic standards of need, legality,and market friendliness within the time frame of the reform.
In other words, those who want to keep the regulations must defend them. This threat provides
the key incentive for cooperation in the reform.
■■ The review is fast and the final decision is taken collectively by the Council of Ministers or the
Parliament without the need for an individual decision on each affected regulation. This avoids
reform fatigue and reduces the capacity of insider interests to block change.
■■ The filters and criteria used for the guillotine review process can be used on an ongoing
basis to review new regulations within the scope of the guillotine, that is, the guillotine is
the first step of the larger regulatory strategy. This ongoing regulatory quality management
is strengthened by the establishment of an electronic registry of regulations with positive
security that is self-enforcing.
94
This guillotine process can be broken down into the following steps:
1. The government establishes the scope of the guillotine, that is, defines precisely the kinds of
regulatory instruments to be included.
2. The government adopts a legal instrument that sets out the guillotine process, schedule, and
institutions.
3. The legal instrument contains a set of explicit and simple criteria that define which regulations
pass and which regulations fail. Three common criteria are: (i) Is the regulation legal (has it
been published and is it authorized by parliamentary law)?, (ii) is the regulation necessary for
the future policy priorities of the country?, and (iii) is the regulation business friendly?
4. The regulations are passed through three filters or review processes. In each filter, unnecessary,
outdated, and illegal rules are identified, and excluded from the list. In the first review, all
government agencies establish lists of their regulations within the scope of the guillotine by
a certain date, and justify those regulations that they want to keep;in the second review, the
lists are reviewed by a central review unit which carries out the same review of regulations
that passed the first review; in the third review, the lists are reviewed by stakeholders and
recommendations are given to the central review unit.
5. Once the final review is completed, a centralized list is created by adding all the ministries’
lists together. When the deadline is reached, any regulation not on the list is automatically can
celled without further legal action or further legal action is scheduled to eliminate any rules not
on the list (the guillotine drops).
6. The list defines the contents of a comprehensive electronic registry of all regulations in force,
and is recognized in law as the legal database of regulations for purposes of compliance.
7. In future, all new regulations and changes are entered in the registry within one day of adoption
and/or publication. The registry should have legal security – no regulation not in the registry
can be enforced against a business.
8. This process is explicitly a top-down and rather brutal approach to reform. It is designed to
break through the paralysis and interest group capture that so often slow sand blocked reforms.
Its implementation requires the careful design of three strategies: an administrative strategy
to enable a highly structured “top-down” review process with clear filters and incentives for
reform; a legal strategy for an over-arching legal process within the legal system of the country;
a political strategy to support the brave ministers who champion this reform, and to gain and
sustain support for a radical reform affecting many stakeholders.
Source: Based on Jacobs and Astrakhan (2006).
95
Annex 3
Overview of the Regulatory Impact Assessment (RIA)
Objective
The objective of RIA is to improve the quality of regulation. Regulation only maximizes community
welfare when it is effective, efficient and transparent. However, the impacts of regulation, both
positive and negative, are not always apparent. For example, the behavior of firms and individuals
will often change in response to regulation, but these changes are often subtle and difficult to predict
or measure. The problem of understanding regulatory impacts is especially acute when the longer-
term is considered, because the impacts of regulation can often change substantially as the economic
and social environment in which it operates changes. Indeed, decisions about regulation are often
based on limited information and in some cases ‘guesses’ regarding who is affected and how.
Therefore, a systematic approach is needed to identifying and weighing regulatory effects. Only in
this way can policymakers be confident that the benefits of a policy action are likely to be greater
than the costs. Only if total benefits exceed costs will society as a whole be better off as a result of
regulation.
While there is no one single definition of RIA, RIA systems have several common elements and
features which are evident in all countries with functioning RIA systems. A common feature of
RIA is that each country with RIA has used this process to strengthen existing decision making
processes, not replace them. Furthermore, existing RIA process include (i) a process of systematically
identifying policy options and assessing the expected effects of regulatory proposals, using a
consistent analytical method; and (ii) a document presented to policy makers summarizing potential
alternatives, their impacts and implementation aspects of proposed measures.
Who does it?
RIA is prepared by regulatory departments, agencies or ministries — sometimes called regulators
— which sponsor new or amended regulation. The regulators responsible for areas of regulation are
generally best placed tounderst and regulatory problems, issues and possible solutions in their area
of responsibility. Regulators also typically have links with affected stakeholders,have a relatively
good understanding of the impact of regulation on them and are well placed to lead consultation
processes on regulatory issues. That said, such regulatory agencies also can have an entrenched
culture which is risk averse or conservative and, therefore, is not open to new ideas or approaches
to regulation. Regulators can be ‘captured’ by the businesses they regulate and seek to benefit these
businesses, even it this is at the expense of consumers and broader society. Indeed, regulators may
also benefit from particular regulatory outcomes, for example, because their budgets or staff can gain
from particular regulatory solutions or approaches. For these reasons, the RIA process is usually
supervised by an independent unit or group based in a central agency. This unit is not involved in
regulating business and does not have vested interest in particular regulatory out comes. Therefore,
it can provide regulators and ultimately decision-makers with high quality, trusted and impartial
advice about regulatory issues and the quality of analysis contained in RIA.
96
The potential benefits of RIA
The main focus of RIA is to improve the quality of regulation. A common feature of poor quality
regulation is that the underlying problem and objective of an existing (or proposed) regulation are
not clearly identified. The RIA process favors the identification of the underlying policy problem
and then an objective which is focused specifically on addressing the problem. Clearly identifying
the policy problem and then objective is necessary in high-quality regulatory policy analysis and
development. There are usually several different policy actions that could potentially be taken to
achieve a particular objective. However, only if the policy problem and objective are properly
identified can a ‘menu’ of possible and feasible solutions be identified. The RIA process is also
inherently an evidence based approach to scrutinizing and comparing several policy options. It
involves not only comparing the impacts, positives and negatives (e.g. benefits and costs) likely
to be associated with a particular policy action. RIA also compares these expected outcomes with
those that would result from the other possible policy actions that could also be taken in pursuit of
the same objective. RIA helps identify information gaps, highlighting where information collection
programs should be focused. For example, RIA encourages the use of consultation with stakeholders
in considering how identified problems might be fixed. Consultation can also be a useful way of
collecting information about possible solutions and the likely impacts.
Only if governments choose a policy response — or mix of responses — that is based on high
quality and reliable information can governments be confident that they are making the right
choices. Indeed, if government decisions are based on poor quality information then such decisions
are essentially based on guesses and, therefore, are likely to result in ‘regulatory failure.’In addition
to limited information, governments also have limited capacities to make, administer and enforce
regulation. This, in itself, means that governments must take care before committing to new
regulatory requirements. Indeed, there are limits to the amount of regulation that any government
can impose. Some critics of the use of RIA have questioned whether it is appropriate to all legal and
constitutional contexts or whether its development largely reflects the specific circumstances of the
common-law countries in which it has historically been largely developed. In assessing this view, it
is important to bear in mind that the expected result of applying the RIA model is the provision of
better information to political decision-makers. These outcomes are clearly desirable in all political,
legal and institutional contexts. The key premise underlying RIA is that decision-makers will make
better decisions — and the quality of regulation will be better — if decision makers are presented
with better quality information, prior to making decisions. In these ways, RIA can contribute to
the improvement of all the different aspects of regulatory quality. Better quality regulation is less
restrictive of business,effectively protects consumers, better protects citizens’ rights, especially
those of vulnerable groups, and reduces opportunities for corruption.
Further benefits of RIA are that it (i) does not necessarily involve making significant institutional
and processes changes, (ii) does not require significant additional resources or fiscal outlays and (iii)
results not only in more and better information being made available, but also that this information
is presented in a systematic, logical manner.
Source: Based on World Bank. 2010. “Making It Work: “RIA Light” for Transition and Developing Countries”.
Investment Climate Advisory Services. The World Bank Group.
97
Annex 4
Actions Under the Proposed EU-Ukraine Association Agreement: the Financial Sector
(Appendix XVII-2 of the Proposed AA)
Banking sector
■■ Directive 2006/48/EC of the European Parliament (EP) and of the Council of 14 June 2006
relating to the taking up and pursuit of the business of credit institutions (recast) (here in
after referred to as “Directive 2006/48/EC”). Within four years:
■■ principles of prudential supervision;
■■ large exposures provisions;
■■ definition of own funds;
■■ requirements for access to the taking up and pursuit of the business of credit institutions;
■■ relations with third countries;
■■ Basel I (capital requirements for credit risk, position risk, settlement and counter party
risk, FX and commodity risk);
■■ Within 6 years: Basel II, Title V Chapter 4 on supervision
■■ Commission Directive 2007/18/EC of 27 March 2007 … as regards the exclusion or
inclusion of certain institutions from its scope of application and the treatment of exposures
to multilateral development banks (4 years)
■■ Directive 2007/44/EC of the EP and of the Council of 5 September 2007 … as regards
procedural rules and evaluation criteria for the prudential assessment of acquisitions and
increase of holdings in the financial sector (6 years)
■■ Directive 2006/49/EC of the EP and of the Council of 14 June 2006 on the capital adequacy
of investment firms and credit institutions (4-6 yeas)
■■ Directive 2002/87/EC of the EP and of the Council of 16 December 2002 on the supplemen
tary supervision of credit institutions, insurance undertakings and investment firms in a
financial conglomerate (4 years)
■■ Directive 2009/110/EC of the EP and of the Council of 16 September 2009 on the taking up,
pursuit of and prudential supervision of the business of electronic money institutions (4 years)
■■ Directive 94/19/EC of the EP and of the Council of 30 May 1994 on deposit-guarantee
schemes (4 years)
■■ Council Directive 86/635/EEC of 8 December 1986 (and Directive 2003/51/EC of the EP
and of the Council of 18 June 2003 and Directive 2006/46/EC of the EP and of the Council
of 14 June 2006) on the annual accounts and consolidated accounts of banks and other
financial institutions as well as Directive 2001/65/EC of 27 September 2001 as regards the
valuation rules for the annual and consolidated accounts of certain types of companies as
well as of banks and other financial institutions (4 years)
■■ Council Directive 89/117/EEC of 13 February 1989 on the obligations of branches
established in a Member State of credit institutions and financial institutions having their
head offices outside that Member State regarding the publication of annual accounting
documents (4 years)
■■ Directive 2001/24/EC of the EP and of the Council of 4 April 2001 on the reorganisation
and winding up of credit institutions (4 years)
98
Insurance sector
■■ Directive 2009/138/EC of the EP and of the Council of 25 November 2009 on the taking-
up and pursuit of the business of Insurance and Reinsurance (Solvency II) (4-8 years)
■■ Directive 2009/103/EC of the EP and the Council of 16 September 2009 relating to
insurance against civil liability in respect of the use of motor vehicles, and the enforcement
of the obligation to insure against such liability (codified version) (2-8 years)
■■ Council Directive 91/674/EEC of 19 December 1991 on the annual accounts and
consolidated accounts of insurance undertakings (4 years)
■■ 92/48/EEC: Commission Recommendation of 18 December 1991 on insurance
intermediaries (no need of legislative changes)
■■ Directive 2002/92/EC of the EP and of the Council of 9 December 2002 on insurance
mediation (2 years)
■■ Directive 2003/41/EC of the EP and of the Council of 3 June 2003 on the activities and
supervision of institutions for occupational retirement provision (2 years)
Securities
■■ Directive 2004/39/EC of the EP and of the Council of 21 April 2004 on markets in financial
instruments (4 years)
■■ Commission Directive 2006/73/EC of 10 August 2006 implementing Directive 2004/39/
EC of the EP and of the Council as regards organizational requirements and operating
conditions for investment firms (4 years)
■■ Directive 2004/39/EC of the EP and of the Council as regards record-keeping obligations
for investment firms, transaction reporting, market transparency, admission of financial
instruments to trading (4 years)
■■ Directive 2003/71/EC of the EP and of the Council of 4 November 2003 on the prospectus
to be published when securities are offered to the public or admitted to trading and other
directive regarding prospectus and disclosure (4 years)
■■ Directive 2004/109/EC of the EP and of the Council of 15 December 2004 (and
Commission Directive 2007/14/EC of 8 March 2007) on the harmonization of transparency
requirements in relation to information about issuers whose securities are admitted to
trading (4 years)
■■ Directive 97/9/EC of the EP and of the Council of 3 March 1997 on investor-compensation
schemes (4 years)
■■ Directive 2003/6/EC of the EP and of the Council of 28 January 2003 on insider dealing and
market manipulation (market abuse) (4 years)
■■ Commission Directive 2004/72/EC of 29 April 2004 implementing Directive 2003/6/EC
of the EP and of the Council as regards accepted market practices, the definition of inside
information in relation to derivatives on commodities, the drawing up of lists of insiders, the
notification of managers’ transactions and the notification of suspicious transactions (4 years)
■■ Commission Directive 2003/125/EC of 22 December 2003 implementing Directive
■■ 2003/6/EC of the EP and of the Council as regards the fair presentation of investment
recommendations and the disclosure of conflicts of interest (4 years)
99
■■ Commission Regulation (EC) No 2273/2003 of 22 December 2003 implementing Directive
2003/6/EC of the EP and of the Council as regards exemptions for buy-back programs and
stabilization of financial instruments (4 years)
■■ Regulation (EC) No 1060/2009 of the EP and of the Council of 16 September [2009] on
Credit Rating Agencies (4 years)
■■ 10 more Directives related to information disclosures, prevention of abuse and conflict of
interests on securities markets
Collective Investment in Transferable Securities (UCITS)
■■ Directive 2009/65/EC of the EP and of the Council of 13 July 2009 on the coordination
of laws, regulations and administrative provisions relating to undertakings for collective
investment in transferable securities (UCITS) (4 years)
■■ Commission Directive 2010/43/EU of 1 July 2010 implementing Directive 2009/65/EC
of the EP and of the Council as regards organizational requirements, conflicts of interest,
conduct of business, risk management and content of the agreement between a depositary
and a management company (4 years)
■■ Directive 2009/65/EC of the EP and of the Council as regards certain provisions concerning
fund mergers, master-feeder structures and notification procedures (4 years)
■■ Three more directives related to activities of UCITS
Market infrastructure
■■ Directive 2002/47/EC of the EP and of the Council of 6 June 2002 on financial collateral
arrangements (6 years)
■■ Directive 2009/44/EC (and Directive 98/26/EC) of the EP and of the Council of 6 May 2009
amending Directive 98/26/EC on settlement finality in payment and securities settlement
systems and Directive 2002/47/EC on financial collateral arrangements as regards linked
systems and credit claims (6 years)
Other issues related to financial services markets:
■■ Directive 2007/64/EC of the EP and of the Council of 13 November 2007 on payment
services in the internal market (5 years)
■■ Directive 2005/60/EC of the EP and of the Council of 26 October 2005 on the prevention of
the use of the financial system for the purpose of money laundering and terrorist financing
(2 years)
■■ Directive 2005/60/EC of the EP and of the Council as regards the definition of ‘politically
exposed person’ and the technical criteria for simplified customer due diligence procedures
and for exemption on grounds of a financial activity conducted on an occasional or very
limited basis (2 years)
■■ Regulation (EC) No 1781/2006 of the EP and of the Council of 15
■■ November 2006 on information on the payer accompanying transfers of funds (2 years)
■■ Articles of TFEU related to free movement of capital and payments (time table to be
decided separately)
100
Financial Consumer Protection / ADR (ANNEX XXXVIII)
Among numerous consumer protection measures, AA provides for concrete steps in the financial
sector. Within 3 years Ukraine undertakes to implement:
■■ Directive 2002/65/EC of the EP and of the Council of 23 September 2002 concerning the
distance marketing of consumer financial services and amending Council Directive 90/619/
EEC and Directives 97/7/EC and 98/27/EC
■■ Directive 2008/48/EC of the EP and of the Council of 23 April 2008 on credit agreements
for consumers and repealing Council Directive 87/102/EEC
Ukraine will also take into account (without making legislative changes):
■■ Recommendation on principles applicable to out-of-court settlement (98/257/EC)
Commission Recommendation of 30 March 1998 on the principles applicable to the bodies
responsible for outof-court settlement of consumer disputes
■■ Recommendation on consensual resolution out-of-court (2001/310/EC) Commission
Recommendation of 4 April 2001 on the principles for out-of-court bodies involved in the consensual
resolution of consumer disputes
Furthermore Ukraine undertakes to implement Rules of Procedure for Dispute Settlement and Code
of Conduct for Members of Arbitration Panels and Mediators
Corporate Governance, Accounting and Auditing (ANNEX XXXIV)
Within two-four years Ukraine undertakes to implement a number of measures to improve corporate
governance and other measure aimed at strengthening capital markets:
■■ Commission Directive 2007/14/EC of 8 March 2007 laying down detailed rules for the
implementation of certain provisions of Directive 2004/109/EC on the harmonization of
transparency requirements in relation to information about issuers whose securities are
admitted to trading on a regulated market (4 years)
■■ Directive 2004/109/EC of the EP and of the Council of 15 December 2004 on the
harmonization of transparency requirements in relation to information about issuers whose
securities are admitted to trading on a regulated market and amending Directive 2001/34/
EC (4 years)
■■ Directive 2007/36/EC of the EP and of the Council of 11 July 2007 on the exercise of certain
rights of shareholders in listed companies(4 years)
■■ Fourth Council Directive of 25 July 1978 based on Article 54(3)(g) of the Treaty on the
annual accounts of certain types of companies (78/660/EEC) (3 years)
■■ Seventh Council Directive of 13 June 1983 based on the Article 54 (3) (g) of the Treaty on
consolidated accounts (83/349/EEC) (3 years)
■■ Regulation (EC) No 1606/2002 of the EP and of the Council of 19 July 2002 on the
application of international accounting standards (2 years)
■■ Directive 2004/25/EC of the EP and of the Council of 21 April 2004 on takeover bids (4 years)
■■ Additionally Ukraine undertakes to observe OECD Principles on Corporate Governance
Source: based on the proposed text of the Association Agreement between Ukraine and the European Union.
101
References
Balcerowicz Ewa and Oleg Ustenko. 2006. “Regulatory Policy in Ukraine: Current
State and What Should be Done to Improve the Business Environment”. Center for
Social and Economic Research (CASE), Report 324, April.
Claessens Stijn. 2005. “Access to Financial Services: a Review of the Issues and Public
Policy Objectives”. Policy Research working paper Series no. WPS 3589. Washington
D.C. - The World Bank.
Dethier Jean-Jacques; Hirn Maximilian; Straub, Stéphane.2011. “Explaining Enterprise
Performance in Developing Countries with Business Climate Survey Data Business
Climate Survey Data” World Bank Research Observer, Volume 26, Issue 2, August.
Denisenko Sergey and Mariya Nizhnik. 2013. “Ukraine: Merger Control” in European
Antitrust Review 2013. Available at: http://www.globalcompetitionreview.com/
reviews/47/the-european-antitrust-review-2013/
European Bank for Reconstruction and Development (EBRD). 2009. “Ukraine: Key
Developments and Challenges,” in Transition Report 2009.
EBRD. 2012. Transition Indicators. Available at:
http://www.ebrd.com/pages/research/economics/data/macro.shtml
Government of Ukraine. 2013. “Regulatory Reforms in Ukraine and Their Impact on
Doing Business Rating.” Presentation prepared for a World Bank mission meeting,
April 15, 2013.
Haid Christopher, et. al. 2010.“Public Enforcement in Ukraine – Review and
Outlook.”Schoenherr Roadmap 2010. (for more information about this publication, see:
http://roadmap2013.schoenherr.eu/schoenherr/)
Hellman J. G. Jones and D. Kaufmann. 2000. “Seize the State, Seize the Day: State
Capture, Corruption, and Influence in Transition Economies.” World Bank Policy
Research Working Paper 2444.September.
Holzler Heinrich. 2012. White Paper on Ukrainian Competition Policy. Prepared as
part of the EU-funded project “Harmonisation of Competition and Public Procurement
System in Ukraine with EU Standards”.
Holzler Heinrich. 2013. “Harmonisation of Competition and Public Procurement
Systems in Ukraine with EU Standards Draft Completion Report.” Project carried out
under the Technical Assistance to the Commonwealth of Independent States (TACIS)
program of the EU.
IFC.2011. “Investment Climate in Ukraine as Seen by Private Businesses”, International
Finance Corporation.
IFC.2009. “Investment Climate in Ukraine as Seen by Private Businesses”, International
Finance Corporation.
102
IFC.2010. “Mandatory Certification of Food Products in Ukraine: the Case for Reform”,
a policy note, International Finance Corporation.
IFC.2009. “Ukrainian Tax Compliance Cost Survey”, International Finance Corporation.
IFC.2009. “Reforming Food Safety Regulation in Ukraine: Proposals for Policymakers”,
International Finance Corporation.
IMF.2012.Ukraine: Article IV Consultations. International Monetary Fund. November.
International Competition Network. 2009. Report on Assessment of ICN Members’
Requirements and Recommendations on Further ICN Work on Competition Advocacy.
Jacobs Scott, and Astrakhan Irina. 2006. “Effective and Sustainable Regulatory Reform:
The Regulatory Guillotine in Three Transition and Developing Countries”. Jacobs and
Associates. January 10.
Kramar Oleksandr. 2012. “Government in the Service of Monopolies”. The Ukrainian
Week, August 31, 2012.
Motta Massimo. (2004). Competition Policy. Cambridge Books, Cambridge University
Press.
OECD et al.2012.SME Policy Index. Eastern Partner Countries 2012.Progress in the
Implementation of the Small Business Act for Europe. OECD, EBRD, the European
Commission and the European Training Foundation.
OECD.2008a. “Competition Law and Policy in Ukraine.”July 2008 Policy Brief.
OECD.2008b. Ukraine: Peer Review of Competition Law and Policy. OECD Country
Study.
Piatkowski Marcin. 2013. “Poland’s New Golden Age: Shifting from Europe’s Periphery
to Its Center”. World Bank Policy Research Working Paper WPS 6639, October 1. The
World Bank.
Sarna Arkadiusz. 2012. “Ukrainian Economy on the Verge of Recession”, OSW (Center
for Eastern Studies).Commentary, 2012/11.
Shahidsaless Rachel, et al. 2012. “Improving Access to Credit Through Secured
Transaction Reform.” World Bank, Europe and Central Asia Vice Presidency and
Investment Climate Unit, and International Finance Corporation, Access to Finance
Team. Washington, D.C. January.
Shepotylo Oleksandr, and Volodymyr Vakhitovy. 2010. “Impact of Services
Liberalization on Firm Performance: Evidence from the Ukrainian Firm-Level Data.”
Kyiv School of Economics.
Stigler G. (1968). Barriers to Entry, Economies of Scale, and Firm Size. In: G. Stigler,
The Organization of Industry, Richard D Irvin Inc., Homewood Ill.
103
Svechkar Igor. 2010. “Competition Policy in Ukraine: At the Crossroads Again.” Asters
Attorneys at Law, Kyiv.
Tiffin Andrew. 2006. “Ukraine, the Cost of Weak Institutions”, IMF Working Paper
WP/06/167, July.
World Bank. 2007. “Ukraine Private Sector Development Strategy: Building the
Microeconomic Foundations for Private-Sector Led Growth”. March 2007 (Authored
by Paulo Correa).
World Bank. 2010. “Ukraine Country Economic Memorandum: Strategic Choices to
Accelerate and Sustain Growth”.
World Bank. 2012. “Competition Policy: Encouraging Thriving Markets for
Development”.View Point Note 331, September 2012.
World Bank Group. 2013. Doing Business 2013 Economy Profile: Ukraine.
World Bank Group. 2010. “Investing Across Borders: Ukraine”. Data available at:
http://iab.worldbank.org/Data/Explorepercent 20Economies/Ukraine
World Bank Group. 2011. “Investment Climate in Ukraine as Seen by Private
Businesses”. October 2011.
Zaslavska Maria. 2012. “Tycoon Heaven: Ukraine Offers the Perfect Environment for
Monopolies to Grow and Thrive.” The Ukrainian Week, September 17, 2012.
104
|