Reanimation package of reforms > News > Columns > Instead of the state and from the state: how business associations protect the Ukrainian entrepreneurs

Instead of the state and from the state: how business associations protect the Ukrainian entrepreneurs

Ukrainian business is ready to pay business associations for the protection of their interests. However, not so many associations now provide legal and advocacy services to businesses.

There is a number of services in Ukraine that will let you know if your real estate or business is grabbed by raiders.

For free or for a fee, you will be informed in the event someone changes the status of your home, land or company in state registers without your knowledge.

In this case, you have the hope that you will be able to contact law enforcement or the court in a timely manner and bring an action against the illegal actions with your property.

The appearance of such products in the domestic market shows that Ukrainians are ready to pay for protection against the raiders.

They are likely to be particularly attractive for the entrepreneurs who are constantly in danger of being subject to raider attacks.

According to the data of the Office of Attorney General of Ukraine published by the OpendataBot service, there are hundreds of raider seizures that occur annually in Ukraine.

Taking advantage of the legislative deficiencies and the lack of response from the courts, the raiders make changes to the property registries and the grounds for this may even be formally legal (documents, court decisions).

This year, Ukraine has taken important steps to address this. Open data on legal entities began to be published daily, not weekly, as before.

Complaints to the Anti-Raiding Commission can now be made online, and the recently adopted anti-raiding law tightens control over ownership registration.

In the meantime, the business is ready to pay to protect it.

What does Ukrainian business come for to business associations?

A survey of more than a thousand Ukrainian businesses conducted by the Kyiv analytical center of the Institute for Economic Research and Policy Consulting in 2018 showed that protecting the interests of business is the service that businesses need most.

30% of business executives who took part in this survey said they were ready to pay business associations (i.e. associations of entrepreneurs) to protect their businesses.

This is more than those interested in other services provided by business associations, such as trainings or consulting services.

In addition to that, those were only exporters and importers participating in the survey, in other words, the sufficiently developed Ukrainian companies trading with other countries.

An international trade business is different from the rest in that it involves more large and medium-sized enterprises.

And they, as a rule, have the capacities to hire their own lawyers to solve a variety of problems.

But even exporters and importers are ready to turn to business associations for business protection services.

At the same time, the same survey showed that only a small proportion of associations provide legal services and advocacy services to businesses. These two activities can be classified as related to the protection of business.

Only 10% of the surveyed members of business associations said that their organizations are engaged in such activities as advocacy (i.e. defending the business interests).

This includes the organization of business meetings with the MPs and government officials, public discussions of important issues, the publication of statements and protests as well as conducting research and making their own recommendations to public authorities.

And only 18% of members of business associations reported that their associations provide legal assistance to their members.

Legal assistance may be needed for businesses that have encountered a problem with raiding or, for example, violations by the regulatory authorities in the course of audit inspections.

Hence, the proportion of business associations willing to protect entrepreneurs by defending their interests before the state or assisting them with legal issues is less than the percentage of businesses willing to pay associations for such services.

Why doesn’t the supply of business associations cover the business demand?

One reason may be the low organizational capacity of such associations.

Experts interviewed in 2015 by the Ukrainian NGOs, i.e. the Center for International Private Entrepreneurship and the Center for Public Expertise, identified several factors that limit the effectiveness of business associations.

According to experts, such organizations often lack professional knowledge, they do not maintain enough contacts with entrepreneurs and are not aware of their needs, while also not working systematically with government bodies.

A second reason why business associations do not sufficiently protect the business interests may be that small businesses make up a small proportion of their members.

According to research by the Institute for Economic Research and Policy Consulting, with the decrease of the Ukrainian businesses in size, the number of those becoming the members of business associations also decreases.

As a result, there is a situation where small businesses, which are less protected against adverse regulation and administrative obstacles than larger businesses, are the least represented in business associations.

It can be assumed that if the number of small businesses in business associations increased, such associations would pay more attention to protecting the business interests.

For more information on the activities of business associations and the problems they face, see the advisory paper “Entrepreneurs’ participation in business associations as a tool to protect their rights”.

And finally, another reason for the gap between supply and demand in business security services can be found by asking yourself: why is demand so high?

Why does almost every third company need protection?

The realities of doing business in Ukraine are that business associations have to protect entrepreneurs, including from the state.

The problem of business protection is laid not only in the prevalence of raiding, but also in the fact that illegally imposed fines, searches by law enforcement agencies, unsubstantiated criminal cases, or vice versa – the inaction of law enforcement agencies – are detrimental to Ukrainian entrepreneurs.

This forces entrepreneurs to seek protection from business associations.

Therefore, the state should ensure the legality, independence and transparency of the judicial system and law enforcement agencies to protect business interests.

And business associations should enhance their professionalism and attract more small businesses to better meet the needs of businesses.

This column was prepared as part of the Public Initiative for Transparent and Fair Customs which is being implemented by the Institute for Economic Research and Policy Consulting and funded by the International Renaissance Foundation.

Iryna Fedets for Ekonomichna Pravda