Doing Business 2018: rise before falling?

31-10-2017

Source: biz.nv.ua.

Traditionally, the results of the Doing Business index are made known on the last day of October.

This year, Ukraine showed quite a good result – a rise of 4 positions, demonstrating a series of six annual rises in a row. Such results are good news, especially given the recent analysis provided by the Financial Times, according to which Ukraine is the global leader in terms of the rates of rise in the Doing Business rating for the last seven years.

Unfortunately, a successful series of wins of our country can be over already next year, but let’s take it in turns.

What is the progress of this year’s rating?

First of all, our this year’s driver – the component “Obtaining construction permits” – is worthy of special mention. In terms of this component, Ukraine has shown the highest rise among all other countries of the world – plus 105 points. Such a stunning success was due to two factors:

  1. The Kyiv City Council reduced the size of the share participation in infrastructure development for non-residential buildings from 10 to 2%,
  2. The Ministry of Regional Development and Construction demonstrated a significant reduction in the cost of technical maintenance services in construction to the rating’s observers and expert community.

Another important reform, which gave Ukraine 41 points in terms of the component “Paying taxes”, was the reduction and unification of the Unified social tax rate. The reform was implemented in 2015, but due to methodological specificities of the rating, it was included only this year.

The implementation of the legal requirement on disclosure of information on related-party transactions by the State Commission for Securities and Stock Market at the level of by-laws was also a win, but not so important. This was not enough to improve the progress of Ukraine in terms of the component “Protecting minority shareholders”, but it allowed to reduce the negative effect of falling other indicators under this component.

In the component “Connecting to electricity networks”, Ukraine demonstrated a slight increase of 2 points due to a decrease in the cost of connecting the electricity-generating equipment to Kyivenergo networks.

Finally, due to the technical adjustment of indicators (without any reforms), the results under the component “Resolving insolvency” were slightly improved, and Ukraine went up 1 position in this component.

All of the above positive results entirely provided Ukraine with a chance to improve its positions with plus 10 points in the total score, but it did not happen because of real (and somewhat unexpected) failures in other components of the rating.

Where did Ukraine lose its positions?

Our country has shown a recession in six (that is, most) components of the rating. The component “Starting a business”, in which we’ve lost 32 points, was the biggest failure. In this context, it should be noted that there were no significant “treasons” in the area of starting a business last year.

Ukraine failed to demonstrate any reforms in such components as “Registering Property”, “International trade”, “Enforcing Contracts” and “Getting Credit”. That is why, in this case, the rule that no reforms mean the falling instead of keeping the status quo, since our competitors do not sleep, worked. Therefore, as a natural result, our country lost 1 point in the component “Registering Property” and “Enforcing Contracts”, 4 points in “International trade” and 9 points in the component “Getting Credit”.

The decrease in several indicators in the component “Protecting minority shareholders” was another unpleasant surprise.

Such disappointing results have significantly reduced the positive effect of construction and taxation reforms.

What does the next year hold for us?

It seems to be hardly likely that we will have even more success (or at least repeat it) in the coming year. The fact that the main success of this year – reducing the rate of the share participation in infrastructure of Kyiv by 2% – was only temporarily. If the Kyiv City Council does not make another decision, this rate will increase to 4%, which will automatically lead to worsening Ukraine’s results in the component “Obtaining Construction Permits”. Similarly, the lack of reforms in terms of other components will also lower most other indicators.

Why then did the government declare its plans for Ukraine to enter the TOP-40 in the Doing Business rating next year?

The answer is simple – such a fantastic result is still possible. The fact is that the government together with the BRDO developed a package of laws on improving the investment climate (#6540, #6541, #6542 and #6543) and submitted it to the parliament. The main of them (#6540) has already received a positive conclusion from the profile committee, but none of the draft laws was adopted by the parliament even in the first reading.

In such a way, the significant breakthrough in the rating panned by the government is possible only if the Verkhovna Rada of Ukraine considers and adopts the aforementioned draft laws as a whole in the shortest possible time. However, just the adoption of the law will not be enough. It takes at least one month (and it would be better to have few months) to implement it. Taking into account the fact that the period of rating assessment will end on May 1 (instead of May 31) the next year, there is almost no time left.

Therefore, if deputies do not demonstrate the magic efficiency, Ukraine will have either nothing or (in an optimistic scenario) a few minor reforms that will not significantly influence the rating and only allow to face with not such a catastrophic falling.

We hope and continue to do everything possible to prevent this from happening and allow Ukraine to continue sending only positive signals to investors and the business community.

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