Doing business in Ukraine: how to make it more "user-friendly"

Author : Artem Rafaelyan

Source : 112 Ukraine

All the developed countries have already reformed their systems of business management, and it is high time for Ukraine to do it
10:10, 22 February 2016

Read the original text on Novoye Vremya.

Recently, my colleague told me an instructive story in "Don'tMakeBusinessInUkraine" genre. He had a small cafe with a creative coworking. It was a place for discussing ideas, presenting books and socially significant projects, holding meetings for business startups. The owner did not consider this project as a major or profitable, but rather, as a place for realization of his own business fantasies. But at some point these fantasies cost him too dearly.

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Firefighters, tax services, inspection to control prices, and, of course, sanitary and hygiene department became frequented in his workshops. Accountants and lawyers worked overtime. Instead of handling with marketing, the owned had to spend more and more time on the delegation of supervisory bodies. It does not matter whether his café had real risks, it was important for the latter to surprise and "stun". "The inspectors with roentgen did not show up," he joked.

Everything ended sadly – after half years, the cafe was closed, and the building was rented. This is a typical example of how the system is able to "push" an active entrepreneur, causing him to everyday corruption or curtailing his business.

Hundreds of similar examples can be avoided, if we apply the principles to the current legislative framework of deregulation, which are proven by the civilized world.

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These changes relate to the restriction of administrative powers of state oversight bodies, as well as the introduction of a specific methodology for performing their inspector functions. Our audit has shown that only a third of them uses the selection criteria of control objects and adheres to the principle of planning, as required by the method for determining the risk assessment criteria. The rest are, it seems, "on a whim". Audit is reliable channel of corruption.

All developed countries have passed through the process of reforming their systems of control. They were gradually turned from Cerberus to defenders of consumers and business partners. For example, in Latvia, changes began after reducingnumber and duration of state control revisions. Country's corruption index by version of Transparency International was changed immediately.

Bosnia and Herzegovina, have resorted to more drastic measures, reducing the share of the business to be inspected at least three times a year, from 65% to 25%. Only a fifth part of those inspections was allowed to conduct unscheduled. For comparison, we have four unscheduled which mean one planned inspection.

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Moreover, Ukraine’s inspectors do not have unified approach to the design of test results. Registration of fact checking takes place on an irregular basis. Because of this, it is difficult to document the abuse of power. The Law of Ukraine "On main principles of state supervision" does not clearly define the state bodies responsible for the violation of the procedure of inspection.

Many post-Soviet countries learned how to fight with it. The maximum fine for the damage of business as a result of inspections in Kazakhstan is $ 810, $ 575 in Belarus, $ 350 in Uzbekistan. In Moldova, those inspections, which are carried out in violation of the regulations, are unlawful, and representatives of the regulatory authorities who have committed violations can be prosecuted.

The existing system of state control in the Ukraine has 60 central executive bodies authorized to carry out oversight functions. In Latvia, this number is 16, in Armenia - 19, in Georgia until 2011, there were 20 such bodies.

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In 2010, the World Bank conducted a detailed study of the adverse effects on the state control bodies of business liquidity in Ukraine. As it turned out, the loss of Ukrainian enterprises, which are not related to the production of goods or the provision of services, were $ 840 during each inspection. During the year, the private sector lost about $ 400 million.

Today, these numbers may differ slightly due to currency fluctuations and contraction of the real economy. But the pernicious influence of the existing practices of state control remains at the same level, if not worse.

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Moreover, incompetence and inconsistency of control bodies often leads not only to damage, but large-scale tragedies. Let us recall the recent disaster in the infamous oil depot under the cornflower. It is unlikely that such an explosive object was subject to due diligence all the ten years of its operation. Otherwise, the fact that it was in fact transshipment of counterfeit goods, would not become known after the event of sabotage and man-made disaster. Accordingly, the consequences could be prevented, if not avoided.

Well, what initiatives do the NGO experts propose to deregulate this area?

First of all, the competence of regulatory authorities should acquire a clear separation of powers and duties of inspectors - maximum details. Instead of planning audits for the quarter, planning for the year should be conducted, based on the potential riskiness of the business entity.

However, the main innovation, according to the spirit of the times, should be the creation of a public electronic register of the activities of the State Control. The main task is to display on a single portal all annual work schedules of inspectors on industry and business entities. In the "personal office" of businesses should be available all the information on inspections, acts and regulations, information on the imposition of sanctions, and so on.

Of course, this is not all that should be an impetus to increase the status of Ukraine as a business-oriented economy to the state administration. But this is the first step in the process of bringing the regulatory framework in line with international standards - a kind of "taming of the shrew." And Ukraine should do it without delay.

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