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13th Ukraine Breakfast Debate: Economic Challenges amidst a Changing Government: Will Ukraine Become More Open for Business?

On 25 June 2019, our 13th Ukraine Breakfast Debate on “Economic Challenges amidst a Changing Government: Will Ukraine Become More Open for Business?” took place within the framework of the project “Platform for Analytics and Inter­cul­tural Commu­ni­cation” (PAIC) in cooper­ation with Berlin Policy Hub. Our experts, Oksana Kuziakiv, Chief Executive of the Institute for Economic Research and Policy Consulting (IER) in Kyiv as well as Hlib Vyshlinsky, Executive Director of the Centre for Economic Strategy (CES) and Dmytro Yablonovskyy, Deputy Director of CES in Kyiv provided some first-hand analyses on the possi­bil­ities and challenges the new Ukrainian government and both long-standing and aspiring business owners might face in the near future.

In order to contex­tu­alize the future of economic policy and business devel­opment, Hlib Vyshlinsky first provided a SWOT analysis of the current state of the Ukrainian economy. Accord­ingly, the small budget deficit and the sizable leftovers of approx­i­mately $2.7 billion in the state budget by the end of May 2019 create a fertile ground for further economic and business devel­opment, especially regarding foreign trade. Still, the decel­erated overall growth compared with the rest of the region, combined with the shrinking labor force present some major challenges for the recently elected president Zelenskyy. Vyshlinsky also presaged some additional problem areas such as the urgent external debt repay­ments of the public sector and the potential decrease or even suspension of the gas transit from Russia. Hence, according to Vyshlinsky, the need for the new government to maintain macro­eco­nomic stability, by guaran­teeing the indepen­dence of the central bank and by following a prudent fiscal policy, is exceed­ingly apparent. Large-scale priva­ti­zation, employment measures combined with human capital innovation and the further strength­ening as well as adherence to the rule of law were key points of his recommendations.

Oksana Kuziakiv subse­quently presented some contem­porary business trends in Ukraine, based on the longi­tu­dinal Business Tendency Survey (BTS) of Kyiv-based Institute for Economic Research and Policy Consulting. Generally speaking, a rather positive climate prevailed in the business sector since 2015. While the business environment has become more predictable since 2016, some uncer­tainty could in fact be measured in the last couple of months, due to the presi­dential election, as it has previ­ously been the case in times of ballots. The business devel­opment expec­ta­tions of both larger companies as well as small and medium-size enter­prises (SMEs) have improved since April 2019. However, some challenges are still reportedly present in the business community, such as general market shortages, high compe­tition and the alarming problem of the declining domestic labor force. According to the most recent surveys, business owners in Ukraine expected e.g. (1) the reduction of the so-called single social contri­bution (SSC), (2) the simpli­fi­cation of the taxation system and (3) an intro­duction of different instru­ments of state support.

Dmytro Yablonovskyy, Deputy Director of the Centre for Economic Strategy (CES) presented their current joint study on the possi­bil­ities of small and medium-sized business devel­opment in Ukraine, based on the success of the German SME sector. Yablonovskyy and his team suggest more investment into innovation support centres and university clusters as well as the estab­lishment of an overar­ching business network similar to the German Chambers of Commerce.

In order to broaden the perspective of the debate, our German commen­tators, Dr. Niclas Rüffer from the Kyiv office of the Deutsche Gesellschaft für Inter­na­tionale Zusam­me­narbeit (GIZ) and Ute Kochlowski-Kadjaia, Managing Director at the German Eastern Business Associ­ation elabo­rated on the above­men­tioned topics. Rüffer supported the Ukrainian proposals of a stronger orien­tation towards Research & Devel­opment (R&D) and human capital, and highlighted the impor­tance of well-estab­lished vocational education in the context of SME. He furthermore pleaded for more government support for grass­roots business initia­tives and networks as well as for the expansion of horizontal R&D networks throughout the regions. Kochlowski-Kadjaia sketched some of the practical deficits of the Ukrainian economy vis-à-vis the attraction of German as well as other foreign businesses, especially the inade­quate legal and regulatory framework and the high level of corruption. She also argued for a long-term (and more diver­sified) export enhancement to the EU, with increased SME participation.

The experts and the partic­i­pants further discussed the challenging task of business priva­ti­zation, consid­ering the informal power of oligarchs and their dispro­por­tional strong capital base as well as the question of economic and indus­trial transition in the Eastern regions of Ukraine. In connection with the latter topic, many empha­sized the role of the on-going war in the Donbass and the resulting necessity for continuous foreign support, especially from EU countries.

This event was a joint venture of the IEP projects “Platform for Analytics and Inter­cul­tural Commu­ni­cation” (PAIC) and the Berlin Policy Hub. The project PAIC aims at promoting profes­sional expertise among Ukrainian think tanks, creating synergies between German and Ukrainian think tanks and trans­ferring knowledge about devel­op­ments in Ukraine to Germany. PAIC is conducted in close cooper­ation with the Ilko Kucheriv Democ­ratic Inita­tives Foundation (DIF, Kyiv) and the think tanks devel­opment and research initiative think twice UA (Kyiv) and is kindly supported by the Federal Foreign Office. The Berlin Policy Hub seeks to bridge the gap between Europeanization discourses in the EU (Germany) and EU neigh­boring countries by bringing together policy research organi­za­tions from Eastern Partnership countries (Georgia, Moldova and Ukraine) with their counter­parts and decision-makers in Berlin. IEP acts as a first contact-point, hosting insti­tution and gateway for think tanks eager to expand their networks with German research insti­tu­tions and relevant policy makers.