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Could small and medium-sized businesses ensure growth of Ukrainian economy?

Author : Oleksandr Okhrymenko

11:00, 4 December 2017
Could small and medium-sized businesses ensure growth of Ukrainian economy?

Author : Oleksandr Okhrymenko

Only the underdeveloped countries of Africa, Asia and Latin America can boast of a large number of small and medium-sized businesses. Developed countries always boast of large transnational corporations

11:00, 4 December 2017

Read the original text at 112.ua.

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The issue of the need of small and medium business development in Ukraine is very popular today. At the same time, many refer to the experience of the EU, where the share of small and medium-sized businesses plays an important role in the country's economy and forms the bulk of GDP.

To begin with, let us cite a couple of figures from the official statistics of Ukraine and the EU. The share of large businesses in the GDP of Ukraine in 2016 amounted to about 40%. In 2012, it was 47.5%. There is a real decrease in the share of large business in Ukraine's GDP and the growth of the share of small and medium one. I would rather say, of a small business. In 2012, the share of small business in Ukraine's GDP was 10.7%, and in 2016 it was 16.7%. Significant growth is evident.

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As for the EU, in general, the share of large businesses in the EU's GDP is 38% (the last data is available only for 2015). At the same time, the share of medium-sized businesses in the EU GDP is 29%, and the smallest amounts to 27%. But these indicators are different in some EU countries. In Poland, the share of large business in the country's GDP is 49%, in Germany - 46%, and in France - 45%. In Cyprus, the share of large business is only 23%, and in Malta - 23%. At the same time, Malta is a leader in small business. In Malta's, GDP 47% belong to small businesses.

A large proportion of small and medium-sized businesses is typical for weak EU member states, such as Estonia, Lithuania, Latvia, Bulgaria. These countries are betting on the services sector, the same tourism and logistics, and therefore there is nothing surprising that many people are working in small and medium business. Therefore, small and medium-sized businesses are more important for the economies of these countries. But not for Germany, France or United Kingdom, where the share of large business is about 50% and is not going to decline.

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A major business in the EU is, above all, transnational corporations that operate in many countries around the world, but have a central office in Germany or France. And transnational corporations pay taxes in these countries. And they do not hide their money in the offshore, although some still do it.

Here are two figures that show the difference betweena business in German and in Poland. The share of foreign companies in Germany's GDP is only 18%, while Poland's GDP is 38%. It turns out that the big business of such countries as Germany or France, in many respects influences the economy of Poland and other eastern EU countries. Therefore, although in Poland there is a large share of large business in GDP, it is most often German, English or French business.

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Ukraine can also move in the Polish direction. This can happen if Ukrainian large companies owned by the Ukrainian oligarchs are plundered or closed, and transnational corporations from Germany or France, or perhaps the United States will come to their place. Then the role of the Ukrainian business will be reduced to the level of small and medium. In such a way, it is really necessary to develop the medium and small business and to make a bet on it as the main landmark of Ukraine's economy. One can even take as an example Estonia, where the share of small business in GDP is about 40% and the average - about 30%. But is it possible to call it an economic miracle? I do not think so.

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The basis of the economy of any developed country, be it Germany or the United States, is large business in the form of transnational corporations. State support and lobbying for the interests of American transnational corporations is the basis of US foreign economic policy. The same thing could be seen in the EU. The main goal for them is the success of a large business. Small and medium business might develop well when a large business is working well. Small and medium business receives most of the orders from a large business. Buyers who buy eggs and potatoes on the market must first receive a salary from a large company, and then the small sellers will be happy. If there is no big business, there are no buyers on the market place. Small and medium-sized businesses always suffer from low wages. Therefore, it is not surprising that people in the EU do not seek to set up their own companies or work in small and medium businesses, but dream of getting a job in a large company. That is the real economy.

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