How to improve Ukraine’s business climate already in 2018

11/ 12/ 2018

The European Business Association appeals to the Verkhovna Rada and the Government to adopt five important initiatives this year, aimed at creating fair business conditions, promoting a transparent economy and attracting investment. They relate to the development of infrastructure, creation of transparent conditions for employment, cashless economy, forest and medical industries. Anna Derevyanko. Executive Director of the European Business Association. Many important steps to improve the business climate have been made this year. These include the adoption of the Law on Currency and intensification of the fight against smuggling and illegal imports. Some discriminatory practices have been suspended, in particular with regard to the expansion of the Single Social Contribution calculation base, which worked against paying substantial fair wages. So, we are very grateful to the authorities that made the right moves in these regards. However, 2018 isn’t over yet. The EBA has identified a number of initiatives that are feasible to adopt this year. It is clear that the list is not exhaustive. But it can serve as a good start for 2019. The development of infrastructure in the country is a very important issue. Business supports the introduction of a concession mechanism - one of the most common forms of public-private partnership in the world to attract private investment. That’s why the bill No. 8125 On Concessions was elaborated. The law covers a large number of areas, but the main one is infrastructure, in particular, seaports. For now, the document is awaiting the second reading in the Verkhovna Rada and the business community hopes that the bill will be adopted. However, in order for this Law to lead to positive changes throughout the economy, it is very important to take into account the relevant proposals and comments from business on the environmental impact assessment, the criteria to be met by the concessionaire, the concession agreement with the tenant of state property, and other key terms. Returning to the issue of infrastructure more deeply, it is important to create a cashless infrastructure for the development of a cashless economy. Ukraine’s network of POS-terminals and the number of non-cash transactions really lags behind European Union countries. The number of POS terminals in Ukraine averages 6.3 thousand units per 1 million population. While in the EU this indicator is 26.4 thousand. Moreover, even the European Union countries with lowest rates of this indicator (Romania - 9.9 thousand, Slovakia - 10.8 thousand) are significantly above Ukraine. Only in Kyiv, this indicator is more or less on the EU level - about 12. In other regions, the situation is much worse. The possibility to pay by card is not available at all outlets. Therefore, a closed circle is created, because the infrastructure is constructed in such a way that citizens use cash. In turn, a high level of cash in circulation inhibits economic growth, reduces transparency and delays the active development of modern services and technologies. A positive change in this situation may be caused by the adoption of a draft resolution of the Cabinet of Ministers On Approval of Requirements for Business Entities on the Acceptance of Electronic Payment Facilities for Payment for Goods Disposed of (Services rendered), which was developed and promulgated by the Ministry of Economic Development and Trade. In accordance with it, a phased transition of business entities to mandatory acceptance of electronic payment facilities for payment for goods or services should be commenced. In this case, besides the most common way of receiving cashless payments (POS terminal + card), alternative technologies will be allowed - like payments using QR codes, payments via Internet banking, mobile applications, online services. This approach will ensure the legal rights of the holders of payment cards, will become the norm for business and convenient for the consumer. Consequently, we urge all central executive authorities to support the draft resolution and ensure its adoption by the Government this year. An urgent issue that has been actively appearing in Ukraine in recent years is the fight against illegal deforestation. Recently a Law which increased administrative and criminal liability for smuggling, illegal logging, transportation, storage and sale of illegally harvested timber was adopted. At the same time, the increase of sanctions imposed by legislation is an important but insufficient step to solve the problem. The actions should be more comprehensive. So, in parallel, it is necessary to introduce a record of harvested forests. In Ukraine, a special system exists in all forestry enterprises of the State Agency of Forestry (which is about 70% of all forest users). It remains to spread the Electronic Wood Accounting System to forest lands of all forms of ownership. The corresponding Cabinet of Ministers draft has already existed for approximately two years, pending development and approval. Representatives of the Committee on Wood and Furniture once again underline the need for its adoption and call all forest users to join the electronic system. Another solution which business is awaiting is adoption of a resolution that cancels a 10% surcharge on medical products procured with state budget funds. The position of the Association to abolish such an allowance with the economic justifications available to the experts was supported by representatives of the Ministry of Health, Ministry of Finance, Ministry of Economic Development and the Anti-Monopoly Committee at a joint meeting in May 2018. Also, the DRS promptly supported such a necessity. The process of coordination was somewhat delayed, but on November 27, 2018, the State Committee for Proprietary Service sent the Heath Ministry its approval of the Draft Resolution of the Cabinet of Ministers. According to the latest available information from the Ministry of Health, the draft resolution is currently being prepared by the Ministry of Health for transmission to the Ministry of Justice, and then it should be submitted to the Cabinet of Ministers for final approval. So, hopefully, this draft resolution will be adopted by the Cabinet of Ministers by the end of 2018. Last but not least is the adoption of the Labor Code of Ukraine. This Code should become a modern labor code to replace the current Soviet Labor Code in Ukraine. Therefore, business calls for the adoption of the bill No. 1658 on the draft Labor Code of Ukraine. The document provides the implementation of more flexible forms of accounting and planning of working time, limiting the role of trade unions in certain aspects, for example, when an employee is dismissed in the event of a reduction or lack of qualifications, and involvement in overtime work and the introduction of the use of technical means of control over the work process, for example, video recording. It is also necessary to update practices around refusal to hire procedures and for various types of distance work. Outdated concepts such as Tariff-qualifying directories and Classifier of professions will not be mandatory. The bill is currently awaiting consideration in the second reading, and business hopes that this step towards European labor law standards will be made this year.

The European Business Association appeals to the Verkhovna Rada and the Government to adopt five important initiatives this year, aimed at creating fair business conditions, promoting a transparent economy and attracting investment. They relate to the development of infrastructure, creation of transparent conditions for employment, cashless economy, forest and medical industries.

Anna Derevyanko Executive Director of the European Business Association

Many important steps to improve the business climate have been made this year. These include the adoption of the Law on Currency and intensification of the fight against smuggling and illegal imports. Some discriminatory practices have been suspended, in particular with regard to the expansion of the Single Social Contribution calculation base, which worked against paying substantial fair wages. So, we are very grateful to the authorities that made the right moves in these regards. However, 2018 isn’t over yet. The EBA has identified a number of initiatives that are feasible to adopt this year. It is clear that the list is not exhaustive. But it can serve as a good start for 2019.

The development of infrastructure in the country is a very important issue. Business supports the introduction of a concession mechanism – one of the most common forms of public-private partnership in the world to attract private investment. That’s why the bill No. 8125 “On Concessions” was elaborated. The law covers a large number of areas, but the main one is infrastructure, in particular, seaports. For now, the document is awaiting the second reading in the Verkhovna Rada and the business community hopes that the bill will be adopted. However, in order for this Law to lead to positive changes throughout the economy, it is very important to take into account the relevant proposals and comments from business on the environmental impact assessment, the criteria to be met by the concessionaire, the concession agreement with the tenant of state property, and other key terms.

Returning to the issue of infrastructure more deeply, it is important to create a cashless infrastructure for the development of a cashless economy. Ukraine’s network of POS-terminals and the number of non-cash transactions really lags behind European Union countries. The number of POS terminals in Ukraine averages 6.3 thousand units per 1 million population. While in the EU this indicator is 26.4 thousand. Moreover, even the European Union countries with lowest rates of this indicator (Romania – 9.9 thousand, Slovakia – 10.8 thousand) are significantly above Ukraine. Only in Kyiv, this indicator is more or less on the EU level – about 12. In other regions, the situation is much worse. The possibility to pay by card is not available at all outlets. Therefore, a closed circle is created, because the infrastructure is constructed in such a way that citizens use cash. In turn, a high level of cash in circulation inhibits economic growth, reduces transparency and delays the active development of modern services and technologies. A positive change in this situation may be caused by the adoption of a draft resolution of the Cabinet of Ministers “On Approval of Requirements for Business Entities on the Acceptance of Electronic Payment Facilities for Payment for Goods Disposed of (Services rendered)”, which was developed and promulgated by the Ministry of Economic Development and Trade. In accordance with it, a phased transition of business entities to mandatory acceptance of electronic payment facilities for payment for goods or services should be commenced. In this case, besides the most common way of receiving cashless payments (POS terminal + card), alternative technologies will be allowed – like payments using QR codes, payments via Internet banking, mobile applications, online services. This approach will ensure the legal rights of the holders of payment cards, will become the norm for business and convenient for the consumer. Consequently, we urge all central executive authorities to support the draft resolution and ensure its adoption by the Government this year.

An urgent issue that has been actively appearing in Ukraine in recent years is the fight against illegal deforestation. Recently a Law which increased administrative and criminal liability for smuggling, illegal logging, transportation, storage and sale of illegally harvested timber was adopted. At the same time, the increase of sanctions imposed by legislation is an important but insufficient step to solve the problem. The actions should be more comprehensive. So, in parallel, it is necessary to introduce a record of harvested forests. In Ukraine, a special system exists in all forestry enterprises of the State Agency of Forestry (which is about 70% of all forest users). It remains to spread the Electronic Wood Accounting System to forest lands of all forms of ownership. The corresponding Cabinet of Ministers draft has already existed for approximately two years, pending development and approval. Representatives of the Committee on Wood and Furniture once again underline the need for its adoption and call all forest users to join the electronic system.

Another solution which business is awaiting is adoption of a resolution that cancels a 10% surcharge on medical products procured with state budget funds. The position of the Association to abolish such an allowance with the economic justifications available to the experts was supported by representatives of the Ministry of Health, Ministry of Finance, Ministry of Economic Development and the Anti-Monopoly Committee at a joint meeting in May 2018. Also, the DRS promptly supported such a necessity. The process of coordination was somewhat delayed, but on November 27, 2018, the State Committee for Proprietary Service sent the Heath Ministry its approval of the Draft Resolution of the Cabinet of Ministers. According to the latest available information from the Ministry of Health, the draft resolution is currently being prepared by the Ministry of Health for transmission to the Ministry of Justice, and then it should be submitted to the Cabinet of Ministers for final approval. So, hopefully, this draft resolution will be adopted by the Cabinet of Ministers by the end of 2018.

Last but not least is the adoption of the Labor Code of Ukraine. This Code should become a modern labor code to replace the current Soviet Labor Code in Ukraine. Therefore, business calls for the adoption of the bill No. 1658 on the draft Labor Code of Ukraine. The document provides the implementation of more flexible forms of accounting and planning of working time, limiting the role of trade unions in certain aspects, for example, when an employee is dismissed in the event of a reduction or lack of qualifications, and involvement in overtime work and the introduction of the use of technical means of control over the work process, for example, video recording. It is also necessary to update practices around refusal to hire procedures and for various types of distance work. Outdated concepts such as Tariff-qualifying directories and Classifier of professions will not be mandatory. The bill is currently awaiting consideration in the second reading, and business hopes that this step towards European labor law standards will be made this year.