Ukraine,
especially right now, doesn’t need billionaires to drag it out of recession. They
won’t be the ones who do the cutting edge research, create new jobs, and raise
social standards. Their businesses are mainly focused on raw materials
production – steel, chemicals, oil and gas extraction, and agro-holdings – old-economy
businesses which only a few profit from.
It’s no secret
that countries that have a strong small- and medium-sized business sector
generally have healthier economies — less wealth is concentrated in the hands
of the greedy few, and the average citizen has a bigger stake in the country’s
development.
But today in
Ukraine, a huge chunk of the country’s wealth is concentrated in the hands of
no more than a couple of dozen people. According to Ukraine’s Focus Magazine,
the country’s top 100 richest own a third of the nation’s dwindling economy,
and the top 10 alone own more than 16 percent.
Ukrainian SMEs
should make up a greater percentage of the nation’s gross domestic product. These
enterprises account for only up to 10 percent of the country’s economy, whereas
in developed countries the figure is closer to 90 percent, according to
Jaroslawa Johnson, the CEO of private equity fund Western NIS Enterprise Fund.
Big vs. small
“Small is good
and big is bad” should be the rule of thumb, says Johnson. I agree. It’s time
to stop repeating this delusional “big-business-is-good-for-all-it’s-a-win-win-situation”
mantra.
SME
businesspeople are thirsty for practical knowledge. They are hungry for
sustainable growth and Western standards. I have seen dozens of times, at
various interviews, conferences and trade fairs, the glow in the eyes of
Ukrainian entrepreneurs, their appetite for change.
These are
people who still have hope, who want to make their country sustainably competitive,
respected abroad, and, most of all, who want their country to be a great place
to live.
These are the people
who will change their country, not the tired old oligarchs.
In interviews,
SME businesspeople are less afraid of speaking out – they’ll say what needs to
change and what works better for the common good. The tycoons, on the other
hand, tend to speak in general terms — or simply avoid being interviewed
altogether.
Tax big business hard
One way to fix
this is to tax the rich — and tax them hard. While in other countries this might
not be the best solution, in Ukraine at the present time it definitely is, as
Ukraine is trying to break the grip the oligarchs still hold on the economy.
The country
should have a progressive taxation system for the
rich, and a broad, flat-rate tax for the middle class. This should be
applied over the short term, until the country’s SMEs grow and gain more weight
in the business community. At the moment, the cards are simply stacked against
small business, and heavily in favor of the kleptocrats who enriched themselves
in the 1990s after the fall of the Soviet Union.
Give more
The oligarchs won’t
have to hand over billions of dollars – a few tens or perhaps hundreds of
millions would do. They should do it because the nation has already suffered
enough because of their greed. It is time for them to end their hypocrisy, pretending
to be the workhorses of the Ukrainian economy, and not its parasites.
Ukraine’s oligarchs
like to see themselves as Western-oriented. Viktor Pinchuk’s Yalta European Strategy
conferences are an exercise in rebranding the oligarchy, giving it progressive economic
credentials. But Pinchuk has given only $1.8 million over the past six years to
financing education programs like World Wide Studies, and probably invested
more into advertising his philanthropic work. Given that his fortune is about $1.3
billion, according to Forbes Magazine, that’s just not serious money.
President Petro
Poroshenko is no different. The candy king could give much more than the $158,000
he has given to support soldiers fighting in the east, even considering that,
as president, he shouldn’t be doing business at all.
Changes in government
There are many
other things that the government and parliament can do it in order to make
lives easier for SMEs.
For example, parliament
should have approved Finance Minister Natalie Jaresko’s initial proposed tax
reform package, which would have cancelled the private entrepreneurship tax.
Commonly known in Ukraine as the SPD, the tax has been a window for corruption,
through which big companies would register as multiple private entrepreneurs
and avoid paying the corporate income tax.
Next, overhaul
the tax authorities.
Businesses are
sick of this outdated, blood-sucking Soviet monster. The Finance Ministry said
that reforming the system would be top priority in 2016. One quarter in, we’re
are still eagerly waiting to see a clear sign that this is still the case.
Third, entrepreneurs
should not be chained to a failed business, but should be given freedom to wind
it up, and quickly.
Typically, Ukrainians
don’t complain much about the time it takes to register a new business. But
they do complain about the months — if not years – it takes to close one down.
In an innovative country, entrepreneurs should be able to wind up an
unsuccessful business as easily as they create one. When the prospect of going
through a tortuous process to close a business is removed, the result is
less-constrained and more entrepreneurial thinking.
Fourth,
Ukraine’s education ministry should focus more on finance management courses.
The system
doesn’t push students to make personal decisions, and it doesn’t teach them how
to manage their money. Students should be able to choose to study anything from
modern economics, to accounting, to personal finance management. And financial
decision-making needs to be taught from the very beginning in schools.
Growth platforms
Thankfully some
projects and platforms have been created to help SMEs grow.
The European
Business Association recently launched a platform for small businesses to help
them integrate with the European market. The Ukrainian Chamber of Commerce has
been hosting events through which hundreds of SMEs have learned how to attract
international financing. And a business platform called Export.UA was launched
in April to help SMEs export to the EU.
But more can
and must be done by various chambers of commerce and business associations,
which tend to be dominated by big business, and the big-business mentality that
Ukraine so much needs to get rid of.
Accessible financing
There are two
factors that can help Ukrainian SMEs gain better access to financing. First,
the National Bank of Ukraine must lower interest rates so that private banks
can borrow at internationally competitive rates. Second, more financing
organizations and funds have to enter Ukraine’s market – ones like WNISEF and
Horizon Capital. The European Bank of Reconstruction and Development is already
doing a great job, helping SMEs cover part of their costs as they try to obtain
the licenses they need, or launch marketing drives, but, again, more needs to
be done.
Some success
Just recently
WNISEF and Ukraine’s state-owned Oschadbank launched a project making Hr 100
million available for social enterprises.
More companies should
carry out similar social responsibility projects, and more international
organizations should provide microloans and education for entrepreneurs. In the
past, organizations such as Hope International and Kiva were active providers
of micro-financing. The Mennonite
Economic Development Associates, in collaboration with the Canadian Embassy in
Ukraine, has launched a seven-year fruit-and-vegetable project that is planned
to help up to 30,000 small farm producers access international markets.
The success of
this last project would be an apt metaphor for the entire economy: provide
fertile soil for SMEs to grow, water them with financing and advice, and
through them the entire Ukrainian economy will, at last, flourish.
