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Europe, Middle East & North Africa

Ukraine Makes Landmark Improvements to Regulatory Regime with IFC Support


When Serhiy Averchenko came to the town of Chernigov, Ukraine in the early 1990s, it was with his wife and two young children in tow, a car, $300 in his pocket and the dream of setting up his own business. Things were a bit different in those days, he says.

"When I first registered my firm in 1994 the process took two and a half months. Today it takes two weeks, and that includes opening a bank account and social fund – it actually takes only two days to obtain the registration certificate. So the system has changed dramatically for the better."


Investment Climate Advisory Services of the World Bank Group (IC) in Ukraine has been working since 2007 to improve and simplify laws and procedures related to business registration. The project, led by IFC, helped the Ukrainian Parliament in May 2011 adopt a law that cancels the minimum charter capital requirement for limited liability firms and the requirement that all charter documents be notarized.

This will help save firms up to two business days in processing time as well as fees, and builds on earlier reforms which include cancelation of a permit needed to apply for company seal (stamp), saving even more time and bureaucratic hurdles for businesses.
In addition to business registration, the project is also working to improve Ukraine's legal regime and systems for inspections, permits, technical regulations, food safety and insolvency procedures. It was instrumental in supporting the passage of a law which eliminates the requirement of licenses for 18 types of economic activity including tourism services, cargo transportation, manufacture and storage of bio-gas and liquid fuel produced from bio-mass. These activities are deemed either not risky for society and the environment or governed by other regulations so doing away with the additional license requirements was important for growth of businesses focused in these areas.

It is IC work on technical regulations however, elimination of compulsory certification and the authority of the State Committee on technical regulations to control foodstuff that has been a monumental step for investment climate reform in Ukraine. The project helped draft and advocate for the Law on Market Surveillance, adopted in December 2010 that establishes a risk-based market surveillance system, eliminates burdensome and duplicative pre-market controls and inspections by different regulatory agencies.

"Adoption of the Law on Market Surveillance is a big milestone for investment climate reform in Ukraine." according to Svetlana Mikhaylovska of the European Business Association, "In the rest of Europe technical standards are voluntary-based. These are considered and adopted by business associations, scientists and other industry stakeholders and the responsibility of quality control lies with businesses. In Ukraine we faced double mandatory regulation - both in terms of safety and quality provided by technical regulations and standards respectively. Working closely with IFC, in a way as consultants advising the government, we were successful in removing this outdated system."

This is echoed by manufacturers: "The Law on Market Surveillance which IFC assisted with drafting was revolutionary for us. Previously the regulatory environment was the same for manufacturers of all types of products. But now the amendment has helped focus the attention of the government on products where may be safety concerns. This is a tremendous benefit in terms of the ease of doing business" said Olexander Borodynya who heads the associations of leather goods, shoe and fur manufacturers of Ukraine.
But it is food producers who may reap the biggest benefits from the abolition of arcane Soviet-era regulations achieved with World Bank Group support. These include:
- Cancellation of mandatory certification of food products (excluding baby food, tobacco and alcoholic products)
- Cancellation of costly duplicative licenses for certain agribusiness activities including wholesale seed trading, rearing of domestic animals, and manufacturing of agrochemicals
- Licenses for trading of agrochemical and selling of biogas/biofuel, previously subject to 5-year renewals, were made permanent
- The President of Ukraine committed to establish a single food safety controlling agency instead of several agencies undertaking duplicative responsibilities

According to an IC survey report, prior to these reforms the average food producer in Ukraine obtained at least eight certificates from the State Committee on Technical Regulations, spending over three months on the procedure in 2008 alone.

Another study focusing on the dairy sector identified compulsory certification as the single most burdensome requirement, accounting for ten percent of the overall food safety regulatory burden borne by dairy producers.  
"Abolishing mandatory certification has helped tremendously" said Serhiy Samonenko, a director at Vimel Company which produces potatoes and starch "There is now one less regulatory body duplicating the same type of controls on food products. For us, in monetary terms this means that we no longer need to pay 1600 UAH ($200 approx.) for a certificate for each delivery of raw materials. In approximate terms the cost savings to us per year is up to 30,000 UAH ($3750 approx.) and 500 man hours it took to obtain the certificates!"
In addition to food products with IC support compulsory certificates have also been cancelled for catering services, toys, personal protective equipment, as well as some light industry products, home appliances and glass crockery.

The IC team together with the Food Safety Advisory project in Ukraine also helped develop 4 industry checklists on HACCP in the poultry and eggs sectors in collaboration with the Veterinary Service and endorsed by the EU. These, while awaiting adoption are expected to open up new export opportunities to EU markets.
"Development of HACCP checklists is very important since inspections right now often focus on vague issues and this will give inspectors a very clear-cut set of rules and specific questions by which to conduct inspections. It also gives businesses clear guidance on what will be inspected and what needs to be improved." said Gennadiy Kuznetsov, Head of the League of Food Processors.

There is still much to be done to continue to improve the investment climate in Ukraine. Momentum gained on the food safety work has helped set the stage for a new phase of the project which will focus on streamlining regulations for agribusiness and food safety, a strategic priority for the Bank Group given Ukraine's potential to contribute to global food security.
The IC work in Ukraine, in addition to the improvements in regulations has strongly monitored the business environment through surveys, such as the 'Costs of Mandatory Certification of Food Products' the findings of which are shared widely with the business community and government. The project has also built a strong outreach and advocacy component through campaigns, conferences, media appearances, informational materials and even participation in Parliamentary Hearings which have brought greater attention and understanding to the reforms. In June 2011 the President of Ukraine acknowledged the support the project provided to the Committee on Economic Reforms.

Businesses are also becoming increasingly engaged and experiencing firsthand the results of reforms in critical areas. "The reforms IFC is assisting the government to put in place will help create jobs as they are heralding systemic changes. These are not one time or localized changes but changes to rules and approaches, which are also reducing avenues for corruption" said Averchenko, whose Chernigov-based firm Avrora has found it increasingly easier to navigate the regulatory regime. Alongside Averchenko's personal growth – the 46 year-old now has four children - his business has also grown and diversified in recent years from the tiny restaurant equipment supplier incorporated in 1994 to a multi-product business today that also produces furniture and metal products and conducts business more easily and efficiently without the shadow of multiple inspections, mandatory certificates and permits at every turn.

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