The growth of small- and medium-sized businesses in Ukraine will be a measure of the country's future export success, President and CEO of private equity fund Western NIS Enterprise Fund (WNISEF) Jaroslawa Johnson believes.
Two decades ago,
following the collapse of the Soviet Union, there were very few small- and
medium-sized businesses in Ukraine — the result of seventy years of Communist
Party rule. But these types of businesses have hardly thrived during the years
of Independence either.
“There are
still very few of them actually,” Johnson said in a Kyiv Post interview on
March 18.
The CEO will be
one of the moderators at the Kyiv Post’s
Capturing New Markets Conference on March 29 in the Hilton Kyiv Hotel.
The reason for
the continued slow growth of small- and medium-sized business is that today’s
government is not using the opportunities it has to create the necessary
environment, Johnson said. The government is foot-dragging on some very simple
legislative steps that would chop away bureaucracy, and as a result, not only
are small businesses suffering, but exports as well.
Since 1994,
WNISEF has invested over $168 million in 118 in small- and medium-sized companies
in Ukraine and Moldova. The initial $150 million were funded by the U.S.
government via the U.S. Agency for International Development. The fund is no
longer in the investment phase, but is only doing technical assistance now,
using $30 million out of the money it made off of selling some of its assets to
support Ukraine’s economy.
The Soviet past
Johnson said
that historically, the lack of small businesses in Ukraine was due to the country’s
Soviet authorities, which discouraged entrepreneurship and didn’t provide easy
access to financing.
“You had all
kinds of restrictions on private entrepreneurship. The state didn’t want people
to be independent,” Johnson said.
The state was much
more proud of its gigantic plants with thousands of workers. “Big was better
(for the Soviets), who didn’t realize that the rule of thumb everywhere else is
that small is better,” Johnson said. Today, no more than 10 percent of
Ukraine’s economy is driven by small businesses, whereas in the United States
the figure is closer to 90 percent, she said.
Helping businesses
But that could
easily change if the government gave some real help to Ukraine’s budding
businesses, Johnson said.
“One thing
about Ukrainian businesses is that (they) are very quick to learn,” she said. “You don’t have to show them something many times, but they need to see
it for the first time, (so that they)… understand what’s possible.”
One of WNISEF’s
goals is to provide such opportunities for small businesses, Johnson said.
“We’re also
funding the participation of various businesses in trade shows,” she said. “You
know Ukrainian businesses have been very insular, very isolated in Ukraine, and
most of them didn’t have to go abroad and find a market.”
Before the EuroMaidan
Revolution, most of Ukraine’s exports were to Russia or nearby markets.
Ukraine’s sufficiently
large domestic market, coupled with that of Russia, satisfied the needs of many
businesses. “But now all of a sudden Russia is cut off and you need to find
another market,” Johnson said.
Export strategy
In order to boost
Ukraine’s exports, WNISEF has been assisting the government in drawing up a
strategy to target priority countries for Ukrainian exports.
As part of its
technical assistance, the fund is also trying to coordinate the actions of the
top Ukrainian government officials who are involved in the exports sphere.
“There are a
lot of people in Ukraine working on exports, but no one ever coordinates them
completely,” Johnson said. “When (Economy
Deputy Minister) Nataliya Mykolska became trade representative of Ukraine, WNISEF
hosted the first meeting of all of the people in government who had the word ‘export’ in their official title. There were 40 people in the room,
and nobody knew what anyone else was doing.”
The European
Union market is an obvious priority for Johnson. Most of the Ukrainian companies
that have been exporting to the EU have been large ones, so the Ukrainian
government should really focus its attention on small- and medium-sized
businesses, Johnson said.
“We’re trying
to encourage Ukraine to help small- and medium-sized businesses find their
niches in the world,” she said.
Helping the economy
One company
called RITO, a manufacturer of women’s knitwear, has received a WNISEF grant to
be able to participate in a trade show in Copenhagen, Denmark, paving its way
into the EU market.
“It wasn’t a
very expensive investment on our part,” Johnson said. “But (the company) went
and made new contacts, and is selling to Lithuania and Latvia, and is now
finding (more) new markets.”
WNISEF helps
various small businesses participate in international events. For example, it
sponsored eight designers’ participation in a London international fashion
show. It also helped small Ukrainian honey producers attend a food festival in Berlin.
Johnson says
that this will give them new ideas, including what other honey products to make,
since most Ukrainian honey makers don’t specialize in their sales.
“Ukraine has
been traditionally known as a raw materials exporter. And they take all of the
honey, dump it in barrels and send the barrel abroad,” Johnson said. “But they
don’t distinguish between buckwheat honey, linden honey and alpine honey, and
so there’s no value added.”
Starting small
Another program
WNISEF is working on is helping Ukrainian small cities and villages coordinate
private efforts with those of the government in order to improve the lives of
communities. This often involves small businesses.
The fund
established the CANactions School of Urban Design, which brings in experts from
abroad to identify problems and solutions for city development.
The school’s
first semester focused on how a small Ukrainian town with historic significance
can improve the quality of life for its residents with minor changes. It produced
a plan for the city of Ivano-Frankivsk in western Ukraine, and the project is
now ready for implementation.
“Sometimes
these communities need a push, an idea,” Johnson said.
Social entrepreneurship
The fund also
has a social entrepreneurship program to encourage businesses to develop a
corporate responsibility policy. One company that has taken up the program is Horihovyy
Dim, a cookie bakery in Lviv.
“It’s a
business that bakes cookies, but its social orientation is to help disadvantaged
women,” Johnson said. The women have either been victims of abusive husbands or
of poverty.
The company’s cookies
are sold to hotels and restaurants, and over 10 percent of sales revenues now
go toward helping these disadvantaged women acquire new skills to keep building their careers, Johnson
said.
Government failure
But Ukraine’s
government has been making it more difficult for there to be more success
stories like this, and Johnson said she expected more from the
post-revolutionary authorities.
“I thought that
this government, this new government that came into power in 2014, had learned
from the mistakes of prior governments,” Johnson said. “But apparently it
doesn’t seem that they have. So it’s alarming that the political instability
continues… because it makes it more difficult to raise capital.”
