Doing Business 2009: Ukraine fails to improve in global ranking, as other CIS countries push ahead

Kyiv, September 10, 2009— Ukraine’s overall standing on the ease of doing business has not improved this year although several reforms were implemented, finds Doing Business 2009 —the sixth publication in an annual series of reports published by the World Bank and IFC. Ukraine is ranked 145th out of 181 countries reviewed in the report, after finishing 144th out of 178 countries last year. By comparison, three other CIS countries, Azerbaijan, Belarus and Kyrgyz Republic were among the top ten reformers globally in the ease of doing business. The rankings present indicators of the time and cost of meeting government requirements to business start-up, operation, trade, taxation, and closure.

Between June 2007 and June 2008, Ukraine made a few positive changes in the areas of Getting Credit and Trading across Borders.  In particular, a new private credit bureau has made it easier to get credit by sharing credit information among financial institutions. Now banks can better assess the creditworthiness of potential borrowers. In trade, improvements to port infrastructure and services reduced the time to import by three days. 

Ukraine also eased the tax burden on business by reducing several social security tax rates (including pension fund, social security fund, and social insurance for accidents at work). In addition, thanks to the spread of electronic tax filing, the time to pay taxes was reduced by 1237 hours per year. Yet these positive changes did not allow Ukraine to close the gap with top reformers. The Doing Business 2009 finds that a Ukrainian business still has to pay 99 separate taxes and its profits are taxed at a rate of 58.4%, while the global average is about 40%. Consequently, Ukraine’s ranking in the ease of paying taxes remains a low (#180).
 
Ukraine’s ranking on Dealing with Construction Permits (#179) is only marginally better. This indicator analyses the procedures, time, and cost to build a warehouse, including obtaining necessary licenses and permits, completing required notifications and inspections, and obtaining utility connections. According the report, the cost and time for dealing with construction permits increased in Ukraine. A regulation introduced in 2007 requires businesses to pay a “contribution” to infrastructure development that amounts to 15% of construction costs. The cost of construction related licenses and permits has tripled as a result to around 200 times income per capita and the time required increased from 421 to 471 days.  

 “Reforms are taking place in Ukraine, but not at a pace sufficient to allow Ukraine to advance vis-a-vis the other economies with whom it is competing for investment and markets”, - said Martin Raiser, World Bank Country Director for Ukraine, Belarus and Moldova. “The reform agenda is well known, but its implementation needs to be accelerated.  World Bank and IFC programs in Ukraine are dedicated to this goal.” 

The World Bank and IFC have identified the following areas for priority action, based on a review of the regulatory environment and regular consultations with the business sector:

• adopt a new Tax Code that includes a significant decrease in the number and complexity of procedures
• radically reduce and simplify the regime of licenses and permits, including for construction
• adopt a new Law on Joint Stock Companies, which should establish clear rules regarding director liability, disclosure and protection of minority shareholders
• revise legislation on technical regulations (standardization and certification) to reduce the number of procedures and time needed to comply, thus making external trade easier and faster.

Ukraine’s ranking on Doing Business Indicators