Kyiv, 14 January 2014 – Ukraine’s private sector has the potential to drive the country’s long-term economic growth and create jobs, but many obstacles are standing in the way for this potential to be fully realized, according to a new report published by the World Bank Group.
The report entitled “Opportunities and Challenges for Private Sector Development in Ukraine” focuses in particular on the prospects for small and medium-sized enterprises (SMEs) and identifies important obstacles to their growth.
“The role of Ukraine’s private sector has yet to be adequately strengthened.With the country’s GDP per capita still lingering below 1989 levels and at a mere 10 percent of the European Union average after twenty years of transition, the private sector has all it takes to realizeUkraine’s substantial growth potential,” says Marcin Piatkowski, Senior Economist at the World Bank and one of the report’s authors.
The report identifies a weak regulatory environment, limited access to finance, low level of competition, and most importantly, poor implementation of legislation, weak public sector governance and endemic corruption as the most serious obstacles to growth.
Because of these obstacles, the private sector has not been given a full chance to grow, as reflected in the largely stagnant structure of the country’s industry and exports, low levels of industrial productivity, low inflow of high value-added FDI, especially in export-oriented manufacturing, and the relatively limited role of SMEs in the economy.
“To unleash the full potential of the private sector, particularly of SMEs, comprehensive structural reforms and political commitment to implement them are urgently needed,” says Qimiao Fan, World Bank Country Director for Belarus, Moldova and Ukraine.
In particular, Ukraine needs a wholesale reduction of ineffective permits, licenses and redundant business regulations and inspections; it should gradually move to a flexible exchange rate, upgrade credit information system and increase corporate transparency; Ukraine needs to also bring the country’s competition legislation, including state aid provisions, in line with international good practice, boost the capacity and independence of the Anti-Monopoly Committee, and increase competition advocacy activities and outreach to the public.
Most importantly, Ukraine must seriously crack down on state capture and corruption, the ultimate cause of its poor investment climate and stagnant economic performance. The report recommends that Ukraine should fight state capture and corruption by fully opening the legislative process to public review, introducing regulatory impact assessment procedure for new legislation, and ensuring full transparency and civil society involvement in public procurement and monitoring of state aid.
”With sustained, strong political commitment and leadership, many of the proposed short- and medium-term policy recommendations could be implemented quickly at a low cost, but will have a large positive impact on the country’s business environment, growth and jobs,” Fan added.
The World Bank’s current investment portfolio in Ukraine consists of 9 investment projects totaling US$ 1.95 billion. Since Ukraine joined the World Bank in 1992, Bank commitments to the country totalled about US$ 7.7 billion for 40 projects and programs. The International Finance Corporation, a member of the World Bank Group, is the largest global development institution focused exclusively on the private sector. We help developing countries achieve sustainable growth by financing investment, mobilizing capital in international financial markets, and providing advisory services to businesses and governments. In 2013, our global investments reached an all-time high of more than US$25 billion, leveraging the power of the private sector to create jobs, spark innovation, and tackle the world’s most pressing development challenges. For more information, visit www.ifc.org.
About the World Bank Group:
The World Bank Group is one of the world’s largest sources of funding and knowledge for developing countries. It comprises five closely associated institutions: the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA), which together form the World Bank; the International Finance Corporation (IFC); the Multilateral Investment Guarantee Agency (MIGA); and the International Centre for Settlement of Investment Disputes (ICSID). Each institution plays a distinct role in the mission to fight poverty and improve living standards for people in the developing world. For more information, please visit www.worldbank.org, www.miga.org, and www.ifc.org.