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7 steps to improve the investment climate in Odessa Region for 2021

15/ 02/ 2021
  Kateryna Morozova. Team Lead of EBA Southern Ukrainian Office. There are many hopes and expectations for 2021. So, we at the European Business Association have come up with a roadmap for prospective changes in the current year. It is based on the results of our Regional Index Survey conducted among the EBA member-companies. This questionary helped us to investigate the level of ease-of-doing-business in the region and identify what steps could help the regional companies in the nearest future. According to the Survey, 50% of respondents assess the conditions of doing business as satisfactory, but 33% note that it is difficult to work here as an entrepreneur. Of course, such indicators sound not so attractive to potential investors. Thus, what are the 7 steps that should be taken to improve the investment climate in 2021? Improvement and modernization of transport infrastructure. The transport sector in the Odessa region is represented by all modes of transport and includes the largest sea commercial ports for freight forwarding, shipping companies, a developed railway and road economy, a wide network of motor transport enterprises, airport and airfield complexes, airlines. However, according to the Survey, 43% of respondents rated the conditions of transport infrastructure in the region as “bad” and only 13% as “good”. Therefore, to improve the situation, 51% believe that roads need to be reconstructed. Meanwhile, 21% think that it is more important to modernize railways and 15% – to develop river infrastructure. Also, one of the priorities for business development in 2021 is to reduce port fees and deductions of net profit of Ukrainian Sea Ports Authority (USPA) to the state budget, to create an independent regulator – the National Commission for the State Regulation of Transport, to systematize services provided by the USPA, etc. In turn, to improve the situation in the road infrastructure, the business expects the strengthened liability and weight control, the involvement of international independent players in road’s construction technical supervision and monitoring, the use of transparent and non-discriminatory public procurement procedures. In order to accelerate the development of the river transportation industry, it is necessary to provide state support for public infrastructure and the shipbuilding industry, to create the State Inland Waterways Fund as part of a special state budget fund, to improve conditions and mechanisms for attracting private investment in public infrastructure.   Reform of the State Customs Service of Ukraine and cooperation with the regional Customs. According to the results of the Survey, 57% of businesses assess the performance of the regional Customs authorities as neutral, 23% claim they are dissatisfied with it, and only 10% are satisfied. It should be noted that last year the companies faced systematic delays in customs clearance of goods by Odessa customs inspectors, overstatement of the customs value of goods, difficulties in passing customs control of the State Service of Ukraine on Food Safety and Consumer Protection. The companies still have not gotten a specific list of documents required to confirm the customs value. Currently, we all look forward to having an open dialogue with the new head of the Odessa Customs Office to learn about its intentions and for 2021 and work on problematic issues, after all the EBA is a perfect platform to hold such discussions.   Improving the environmental policy efficiency and open dialogue with the local Environmental Inspectorate. Reform of state environmental control is one of the priorities of environmental business policy in 2021. Thus, the only state authority that, according to the Survey, did not receive any satisfactory indicators is the local Environmental Inspectorate. Most of the respondents, namely 43%, are neutral about the Inspectorate, slightly less are dissatisfied – 33% and 23% are completely dissatisfied with its work. The effectiveness of the state environmental control system in Ukraine has been questionable for many years, and this has a negative impact on both the environment and business. At the same time, an open dialogue can somehow fill the gaps in the interaction of regional business with the local Environmental Inspectorate. In particular, the Environmental Inspectorate should promote business and help it become more environmentally friendly and efficient, provide appropriate consultations and conclusions. Currently, the Environmental Inspectorate is perceived by businesses as an inspection body that is authorized only to put pressure on companies. Therefore, the EBA has consistently advocated comprehensive reform of the state environmental control system, which will include a balance of interests of all stakeholders – the state, business, the public. There are several draft laws on the environmental control system reform registered in the Verkhovna Rada of Ukraine. However, the business community mostly supports the Draft Law №3091 on condition that such key provisions are provided: a clear algorithm and timing of inspections – both scheduled and unscheduled based on the experience of the European Union, exclusion of the possibility to carry out inspections on weekends, non-working days, holidays or at night with the participation of witnesses and in the absence of the head of the company, shutdown of enterprises without a prior court decision, etc. Therefore, we expect the resumption of work on revising the text of the draft law which will enable us to begin full-scale work on the creation of a progressive and effective state institution in Ukraine.   Improving tax regulation and reducing the burden on the payroll. There are three priority areas for further improvement of the business environment in the context of the tax sphere: corporate income tax, value-added tax, and personal income tax.   There are well-founded fears that increasing the tax burden on wages, even during the economic crisis, will stimulate the growth of the grey salary sector. After all, the increase in the “shadow” sector creates non-competitive conditions for honest taxpayers, and in the worst case can lead to increased pressure on honest taxpayers from government agencies. Therefore, reducing the tax burden on the payroll can help minimize the pressure on legal business. On the contrary, as a result of increasing the tax burden on wages, we can expect a decrease in official employment, a reduction in labor costs, and, ultimately, a reduction in budget revenues.   Reducing pressure from regulatory authorities. Today we can already see reduced pressure on business from market supervision authorities. Thus, the first positive changes began with the adoption of the relevant Law of Ukraine №2172 “On Amendments to the Law on Market Supervision”, which aims to reduce corruption risks in the activities of officials during inspections. It should be noted that the EBA experts took an active part in the work from the very beginning of the draft law and supported its adoption in Parliament. Besides, the practice of the fiscal authorities to arrange unwarranted inspections and audits during the pre-trial investigation of criminal proceedings is also becoming less and less present in the economic activities of the region. The business expects this positive trend to continue in 2021. Effective fight against the shadow economy. Thus, the main idea is about combating smuggling, counterfeiting, and protecting intellectual property rights. The EBAhas repeatedly stressed that the shadow economy causes significant damage not only to fair competition but also leads to significant losses to the state budget and poses a threat to Ukrainian consumers. Therefore, the Association supports the expansion of the mandatory use of Cash registers or Payment Transaction Recorders (PTRs) in smartphones, as well as increasing the liability for non-issuance of fiscal checks, promotion of non-cash payments, and digitalization of communication processes between the state, the business, and the public. It can be done, for example, by the introduction of e-receipts, the use of a POS terminal for data transfer to the State Fiscal Service, etc. Improving the judicial and law enforcement system. Interestingly, 20% of the surveyed companies in the region were satisfied with the work of the judiciary system. However, the results of the EBA Court Index, an expert survey conducted in 2020, show another picture on the nationwide scale. Thus, 50% of businesses have a neutral attitude towards the judiciary, while 27% expressed their dissatisfaction with the system. We are convinced that a fair and impartial judiciary is the basis for the rule of law which makes it possible to ensure a level playing field for all market participants. The Regional Index Survey also highlights other business trends such as active digitalization of companies’ processes, costs reduction, work on the attraction of new funds, optimization of the office space, unchanged staff, plans to enter new markets. Nevertheless, balanced, and constructive steps of the authorities could still help to keep the economy running and reduce the negative effect of the pandemic on the business entities. We at the European Business Association are ready for the cooperation in order to stimulate the improvement of conditions for doing business in Ukraine and in the Odessa region particularly. Finally, the business community of the region is quite optimistic and even declares its readiness to attract new investments. Source: The Odessa Journal
Kateryna Morozova Team Lead of EBA Southern Ukrainian Office
There are many hopes and expectations for 2021. So, we at the European Business Association have come up with a roadmap for prospective changes in the current year.

It is based on the results of our Regional Index Survey conducted among the EBA member-companies. This questionary helped us to investigate the level of ease-of-doing-business in the region and identify what steps could help the regional companies in the nearest future. According to the Survey, 50% of respondents assess the conditions of doing business as satisfactory, but 33% note that it is difficult to work here as an entrepreneur. Of course, such indicators sound not so attractive to potential investors. Thus, what are the 7 steps that should be taken to improve the investment climate in 2021?

Improvement and modernization of transport infrastructure

The transport sector in the Odessa region is represented by all modes of transport and includes the largest sea commercial ports for freight forwarding, shipping companies, a developed railway and road economy, a wide network of motor transport enterprises, airport and airfield complexes, airlines. However, according to the Survey, 43% of respondents rated the conditions of transport infrastructure in the region as “bad” and only 13% as “good”. Therefore, to improve the situation, 51% believe that roads need to be reconstructed. Meanwhile, 21% think that it is more important to modernize railways and 15% – to develop river infrastructure. Also, one of the priorities for business development in 2021 is to reduce port fees and deductions of net profit of Ukrainian Sea Ports Authority (USPA) to the state budget, to create an independent regulator – the National Commission for the State Regulation of Transport, to systematize services provided by the USPA, etc. In turn, to improve the situation in the road infrastructure, the business expects the strengthened liability and weight control, the involvement of international independent players in road’s construction technical supervision and monitoring, the use of transparent and non-discriminatory public procurement procedures. In order to accelerate the development of the river transportation industry, it is necessary to provide state support for public infrastructure and the shipbuilding industry, to create the State Inland Waterways Fund as part of a special state budget fund, to improve conditions and mechanisms for attracting private investment in public infrastructure.  

Reform of the State Customs Service of Ukraine and cooperation with the regional Customs

According to the results of the Survey, 57% of businesses assess the performance of the regional Customs authorities as neutral, 23% claim they are dissatisfied with it, and only 10% are satisfied. It should be noted that last year the companies faced systematic delays in customs clearance of goods by Odessa customs inspectors, overstatement of the customs value of goods, difficulties in passing customs control of the State Service of Ukraine on Food Safety and Consumer Protection. The companies still have not gotten a specific list of documents required to confirm the customs value. Currently, we all look forward to having an open dialogue with the new head of the Odessa Customs Office to learn about its intentions and for 2021 and work on problematic issues, after all the EBA is a perfect platform to hold such discussions.  

Improving the environmental policy efficiency and open dialogue with the local Environmental Inspectorate

Reform of state environmental control is one of the priorities of environmental business policy in 2021. Thus, the only state authority that, according to the Survey, did not receive any satisfactory indicators is the local Environmental Inspectorate. Most of the respondents, namely 43%, are neutral about the Inspectorate, slightly less are dissatisfied – 33% and 23% are completely dissatisfied with its work. The effectiveness of the state environmental control system in Ukraine has been questionable for many years, and this has a negative impact on both the environment and business.

At the same time, an open dialogue can somehow fill the gaps in the interaction of regional business with the local Environmental Inspectorate. In particular, the Environmental Inspectorate should promote business and help it become more environmentally friendly and efficient, provide appropriate consultations and conclusions. Currently, the Environmental Inspectorate is perceived by businesses as an inspection body that is authorized only to put pressure on companies.

Therefore, the EBA has consistently advocated comprehensive reform of the state environmental control system, which will include a balance of interests of all stakeholders – the state, business, the public. There are several draft laws on the environmental control system reform registered in the Verkhovna Rada of Ukraine. However, the business community mostly supports the Draft Law №3091 on condition that such key provisions are provided: a clear algorithm and timing of inspections – both scheduled and unscheduled based on the experience of the European Union, exclusion of the possibility to carry out inspections on weekends, non-working days, holidays or at night with the participation of witnesses and in the absence of the head of the company, shutdown of enterprises without a prior court decision, etc. Therefore, we expect the resumption of work on revising the text of the draft law which will enable us to begin full-scale work on the creation of a progressive and effective state institution in Ukraine.  

Improving tax regulation and reducing the burden on the payroll

There are three priority areas for further improvement of the business environment in the context of the tax sphere: corporate income tax, value-added tax, and personal income tax.  

There are well-founded fears that increasing the tax burden on wages, even during the economic crisis, will stimulate the growth of the grey salary sector. After all, the increase in the “shadow” sector creates non-competitive conditions for honest taxpayers, and in the worst case can lead to increased pressure on honest taxpayers from government agencies. Therefore, reducing the tax burden on the payroll can help minimize the pressure on legal business. On the contrary, as a result of increasing the tax burden on wages, we can expect a decrease in official employment, a reduction in labor costs, and, ultimately, a reduction in budget revenues.  

Reducing pressure from regulatory authorities

Today we can already see reduced pressure on business from market supervision authorities. Thus, the first positive changes began with the adoption of the relevant Law of Ukraine №2172 “On Amendments to the Law on Market Supervision”, which aims to reduce corruption risks in the activities of officials during inspections. It should be noted that the EBA experts took an active part in the work from the very beginning of the draft law and supported its adoption in Parliament.

Besides, the practice of the fiscal authorities to arrange unwarranted inspections and audits during the pre-trial investigation of criminal proceedings is also becoming less and less present in the economic activities of the region. The business expects this positive trend to continue in 2021.

Effective fight against the shadow economy

Thus, the main idea is about combating smuggling, counterfeiting, and protecting intellectual property rights. The EBAhas repeatedly stressed that the shadow economy causes significant damage not only to fair competition but also leads to significant losses to the state budget and poses a threat to Ukrainian consumers.

Therefore, the Association supports the expansion of the mandatory use of Cash registers or Payment Transaction Recorders (PTRs) in smartphones, as well as increasing the liability for non-issuance of fiscal checks, promotion of non-cash payments, and digitalization of communication processes between the state, the business, and the public. It can be done, for example, by the introduction of e-receipts, the use of a POS terminal for data transfer to the State Fiscal Service, etc.

Improving the judicial and law enforcement system

Interestingly, 20% of the surveyed companies in the region were satisfied with the work of the judiciary system. However, the results of the EBA Court Index, an expert survey conducted in 2020, show another picture on the nationwide scale. Thus, 50% of businesses have a neutral attitude towards the judiciary, while 27% expressed their dissatisfaction with the system. We are convinced that a fair and impartial judiciary is the basis for the rule of law which makes it possible to ensure a level playing field for all market participants.

The Regional Index Survey also highlights other business trends such as active digitalization of companies’ processes, costs reduction, work on the attraction of new funds, optimization of the office space, unchanged staff, plans to enter new markets. Nevertheless, balanced, and constructive steps of the authorities could still help to keep the economy running and reduce the negative effect of the pandemic on the business entities. We at the European Business Association are ready for the cooperation in order to stimulate the improvement of conditions for doing business in Ukraine and in the Odessa region particularly. Finally, the business community of the region is quite optimistic and even declares its readiness to attract new investments.

Source: The Odessa Journal

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