FEATURE STORY

Bolstering Growth Through Private Sector Reforms in Ukraine

January 22, 2014

Ukraine needs a breakthrough in improving its business climate to achieve its growth potential, and robust implementation of the private sector development agenda will be key to kick start the market from its current state, according to a new report by the World Bank Group.

The report entitled “Opportunities and Challenges for Private Sector Development in Ukraine” shows that Ukraine’s private sector has the potential to drive the country’s long-term economic growth and create jobs, but it faces several obstacles for this potential to be fully realized.

In particular, the report focuses on the prospects for small and medium-sized enterprises (SMEs) and identifies important obstacles to their growth.

It also identifies a weak regulatory environment, limited access to finance, low level of competition, poor implementation of legislation, weak public sector governance and endemic corruption as the most serious obstacles to growth. 

These hurdles have hindered the private sector’s chance to grow, as reflected in the largely stagnant structure of the country’s industry and exports, low levels of industrial productivity, low inflow of high value-added foreign direct investments, especially in export-oriented manufacturing, and the relatively limited role of SMEs in the economy.

A critical step Ukraine must take in order to spur growth is to crack down on state capture and corruption -- key reasons for its poor investment climate and stagnant economic performance. The report recommends that Ukraine fight state capture and corruption by fully opening the legislative process to public review, introducing regulatory impact assessment procedure for new legislation, and ensuring full transparency and civil society involvement in public procurement and monitoring of state aid.

Other steps that can help, according to the report, include:

  • A wholesale reduction of ineffective permits, licenses and redundant business regulations and inspections
  • Gradually moving to a flexible exchange rate, upgrade credit information system and increase corporate transparency
  • Bringing the country’s competition legislation, including state aid provisions in line with international good practice
  • Boosting the capacity and independence of the Anti-Monopoly Committee
  • Increasing competition advocacy activities and outreach to the public