Most small and medium businesses (57.4%) expect conditions for doing business in Ukraine to improve in the near future. According to 45.7% of managers, current conditions are unfavorable, and only 22.0% are satisfied with the business environment. Rating the most corrupt government agencies, business people named the tax inspection and tax police (72.0%), the fire safety inspection (51.4%), and the sanitation and epidemiology service (38.4%). A majority (56.7%) of businesses believe that local authorities have a neutral attitude toward small and medium businesses, i.e., they neither help nor hinder, while only 27.7% of those polled give a positive rating to local authorities.
These are some of the results of the nationwide survey, “Small and Medium Businesses in Ukraine: Operational Indicators and Development Strategies,” conducted by the BIZPRO Project jointly with the American Chamber of Commerce in Ukraine in September-October 2004. The survey included a representative sample of 2,500 small (fewer than 50 employees) and medium (51 to 250 employees) businesses in all of Ukraine’s oblasts, Kyiv, Sevastopol, and the Crimea. “We wanted to find out whether businesses are ready to benefit from an improved business environment,” says BIZPRO Project manager Hanna Melnyk.
Despite the overall hostile business environment, entrepreneurs are quite optimistic about their growth prospects. This confidence obviously stems from the fact that a little over half of all businesses (52.2%) have increased their labor efficiency, and many still have untapped reserves. To illustrate, only one- third of small and medium businesses (29.3%) have a production program in the form of a business plan. While 73.3% of businesses raise wages as a form of incentive to employees, 20.1% of managers claim that they are not doing anything to strengthen employee motivation. At the time of the survey, the financial status of small and medium businesses in Ukraine was as follows: 36.4% were operating at a profit, 43.7% were operating without losses, and 19.9% were losing money.
Most small and medium businesses (62.7%) operate within the oblast where they are based. Their unwillingness to expand beyond their home territory is primarily due to low capacities and output. Most (58.7%) businesses have managed to maintain their market positions largely because their prices are lower than those of their competitors. In the domestic market, businesses mostly compete with their Ukrainian counterparts (77.7%), while a mere 5.7% of those polled face competition from foreign firms. Market analysts view this as evidence of the relative autonomy of the Ukrainian economy. Trade businesses (43.1%) and industrial enterprises (42.6%) are particularly vulnerable to competition from companies that work under the table or enjoy subsidies or support from the government, while agricultural businesses (33.7%) are the least vulnerable to such competition. Small and medium businesses have an insignificant presence in foreign markets, with 6.4% of those polled involved in exports, and 8.1% in imports. Notably, there are 3.4 times more companies engaged in importing than exporting among trade businesses.
Small and medium businesses do not attract much domestic or foreign investment: 90.5% of those polled are making do without any investments at all. One of the reasons behind this is difficulties finding investors. This situation should change now that a new government is in place. According to American Chamber of Commerce president Jorge Zukoski, “It will be interesting to see the results of a similar survey one year from now: how the new government and new governors will combat corruption, and how they will manage to improve the business environment.”
