When it comes to improving the business climate for individual entrepreneurs, it is advisable to focus on those sectors that can become drivers of growth for the Ukrainian economy.
Every week more than 5 thousand new individual entrepreneurs (FLP) are registered in Ukraine – one and a half times more than it is closed. According to the Opendatabot service, 1 million 844 thousand FLPs were registered in the country at the end of March.
This is almost 100 thousand more entrepreneurs than in March 2018. However, it has not yet been possible to reach the level of the end of 2017, when this number exceeded 2 million people.
Immediately after the changes in legislation, according to which FLP must pay a single social contribution, even if they have suspended their activities, more than 250 thousand entrepreneurs closed down.
Temptation by your own business
The motivation for this change was the government’s desire to fill the budget and curb abuses where large companies operate under the guise of FLP.
However, the massive queues to state registrars for the closure of the business environment have become a negative sign for the business environment. How has the business climate changed over the past two years? Do the statistics reflect the restoration of trust between small businesses and the state?
According to the results of the February poll of the Rating Group, today almost 40% of Ukrainians would like to have their own business and 10% already own it. And half of the respondents do not see themselves as entrepreneurs.
Moreover, the number of such people has increased over the past six months: in June 2018, 41% of respondents expressed their unwillingness to have their own business. Sociologists say the desire to start their own business is more often expressed by citizens of young age or with higher income.
Most respondents are convinced that the role of the state in the development of the economy is to ensure income equality and social justice. The number of people who support this opinion increased from 48% to 64% between June 2018 and February 2019. Only 27% share the opinion that the state should establish the freedom of entrepreneurship and fair competition rules.
This thesis is more popular among young respondents, residents of central and eastern regions, people with higher income level or those who already own their own business.
As we can see, the dynamics of public sentiment tends towards social justice, which is explained by the consequences of a number of economic reforms, the growth of utility tariffs and other factors.
The migration sentiments of Ukrainians, who often prefer to go abroad to work as hired personnel rather than earn the same amount of money at home, but as an individual entrepreneur, have also had an impact.
Lack of trust.
The crisis of trust in state institutions in Ukraine has also affected the trust of small and medium-sized businesses. Two thirds of the respondents interviewed by sociologists believe that the state interferes with the activity of such business. Only 7% are convinced that the authorities promote entrepreneurship, and 14% – that the government does not interfere in the activities of entrepreneurs.
Let us recall the history: the mass appearance of the first private enterprises in the 90s was not connected with the creation of conditions, but with the economic crisis. When thousands of citizens were forced to drastically change their jobs and lifestyles.
So the unwillingness of the majority of Ukrainians to start their own business can also be regarded as the presence of other options for citizens to choose from – perhaps with a lower level of risk or personal responsibility for the result.
Nevertheless, a number of proposals to improve the business climate, which are voiced by both ordinary Ukrainians and experts, deserve wide discussion. 57% of respondents believe that it is necessary to leave the simplified tax system, as it stimulates business development.
Also, representatives of small businesses offer to consider the possibility of a “tax pause” in case of suspension of work. This may be relevant for seasonal activities – for example, in tourism or agriculture.
Against the background of a generally skeptical attitude of the majority of Ukrainians to start their own business, a restructuring of FLP’s activities has been outlined.
On the one hand, as before, the majority of individual entrepreneurs choose to engage in trade and purchase activities or provide services. On the other hand, there has been an increase (and even a jump) in some areas.
For example, over the past three years, the number of FLPs in the IT industry has increased by 45%, while their total number has decreased by 8%. IT sector creates high added value and is one of the key items of Ukrainian services exports.
Among the areas where the largest number of FLPs has been registered over the past three years are provision of information services (26,000), production of food and beverages (2,200), and activities in the field of architecture (1,300).
Such directions as office activity, film production and tourism have restored the “pre-reform” number of entrepreneurs. As we can see, programming and the creative economy today demonstrate the greatest dynamics of growth.
Therefore, in my opinion, when it comes to improving the business climate for individual entrepreneurship, it is important to see the priorities of those sectors that can become drivers of growth for the Ukrainian economy.