Analysis. Public finances. Budget of Kiev Articles.

Failures of the Kyiv City Authorities to Promote SMEs

Thursday, 07 November 2013 974
The Effectiveness of Spending of UAH 11,1 mln from the Budget Funds Remains Unclear

Despite the approved 2011-2012 city program to promote small- and medium-sized business the Kyiv SMEs had not received more than UAH 100 million. The bulk of the allocated funds (11.1 million) went to pay off interest on loans received in 2007-2008. The list of the 42 "lucky" enterprises-recipients is carefully concealed by the city authorities behind a screen of banking secreсу of the bank "Khreschatyk" which was responsible for such operations.

However, even under conditions of effective, transparent (competitive) distribution of such funds,providing loans to less than 0.1% of the total of Kyiv SMEs is inefficient. The international experience suggests that to make a difference such crediting should include a hundred times larger number of SMEs.

«The Kyiv city 2011-2012 program on SME promotion and development failed to fulfill its tasks and has not improved the business climate in the capital of Ukraine, and the names of 42 enterprises-recipients of such loans are still unknown as well as effectiveness of spending of UAH 11,1 mln», says the project manager and OSF’s analyst Olexander Babanin.

Absence of a register of real estate and land resources allows the city authorities to manage in the "manual mode" and cultivate corruption in its ranks. This increases the cost of doing business and drastically reduces budget revenues. Just slightly more than 5,000 temporary sale structures (TSSs) out of 24,000 are legalized. A recent initiative of the city authorities to conclude agreements with the TSS owners via the communal enterprise "Svitoch" can only lead to the continuation of the practice of "raiding", promotion of a shadow market and will continue the practice of "manual" control.

Significantly, the entrepreneurs and their associations mostly do not view the program on SME promotion and development as an effective tool for solving their problems. No representative of 274 business associations did attend the meeting of the committion of the Kyiv city council on trade, entrepreneurship, catering and services to discuss the results of the program.

Director of the Open Society Foundation Ivan Sikora believes that "the results of consultations with representatives of SME associations , Ukraine’s MPs and experts give grounds to affirm the urgent need for reform of public policy on SME promotion and development at the local level, avoiding the current practice of "manual" control and simulation of formal activity. It is time to change the order of formation, execution and reporting for the fulfillment of regional SME promotion programs."

The MP Kseniya Lyapina, Head of the Regional Council of Entrepreneurs under the Kyiv City State Administration Serhiy Dorotych and the Chairman of the All-Ukrainian Union of Trade and Services Employees "The Working Community» Lolita Kartoziya agreed that the local target programs should be fulfilled under control of the community, and that the policy to support SMEs in Kyiv and the appropriate 2013-2014 SME promotion and development target program needs serious reforms.

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