When working on the article about small-size and medium-size enterprises in metal-making and metal-working, the editorial board found out an interesting fact: neither the Ukrainian Union of Manufacturers and Entrepreneurs nor the Ukrainian Union of Small
“… A GUIDE TO ACTION RATHER THAN A TENET”
“… A GUIDE TO ACTION RATHER THAN A TENET”
When working on the article about small-size and
medium-size enterprises in metal-making and metal-working, the editorial board found out
an interesting fact: neither the Ukrainian Union of Manufacturers and Entrepreneurs nor
the Ukrainian Union of Small and Medium Businesses know anything about this type of
enterprises in the indicated industries. Is it possible that there is no such a problem as
development of the small business in metallurgy and metal-working? The editorial board
hopes to find an answer to this question and invites all the interested persons for
discussion.
As of today, there exist nearly 200,000 small-size
enterprises in Ukraine, which collectively account for 11% of the aggregate production.
The year 2000 was remarkable with the fact that the State
publicly proclaimed its support of the small business. Legal grounds of the state policy
in this sphere are laid in the Laws “On state support of small business” and “On the
national program of facilitation of small business’s development in Ukraine”.
The enacted laws aim, first of all, to positive structural
changes in the Ukrainian economy, support of the domestic consumer, battling the
unemployment, and creation of new workplaces. It is remarkable that small entrepreneurship
is defined as the driving force in overcoming of the negative processes in the country’s
economy and sustaining the society’s progressive development.
The international aspect of small and medium business
development in Ukraine is a no-less important factor. New legal acts that define state
policy as regards small and medium businesses will contribute to formation of our
country’s positive image on the international scene. On the other hand, building of an
efficient market economy will facilitate its integration into the European and world
economic environment.
Creation of the favorable business climate in Ukraine
should become the starting point for improvements in relationships with donor organization
and cooperation within joint international projects. In the enacted law, Ukraine declares
its intent to accede to international programs and international and inter-departmental
agreements that concern small business.
Altogether, over 2.7 million people are employed in the
small business in Ukraine, which is equal to 9% of the total population capable of
working. At the same time, small businesses account for 11% of the country’s total
output of commodities and services. This is an indication of small business’s higher
efficiency, as compared with the large-scale business.
As regards industrial production, data with the State
Committee for Industrial Policy indicate that, as of January 1, 2001, Ukraine was home to
around 6,000 large-size and medium-size enterprises and over 27,000 small-size ones. The
latter include metal-making enterprises and those of allied industries.
There are many factors that are peculiar to small-size
enterprises’ development in the metallurgical and allied industries. The legislative
basis is not the only decisive factor in this sector of economy. Other fundamental
elements include conceptual ideas of the national industrial doctrine, which was worked
out by the State Committee for Industrial Policy and presented publicly in the media by
the committee’s chairman, Mr. Novitskiy (Zerkalo Nedeli, January 27, 2001).
The key internal problems of the Ukrainian metallurgy are
its institutional and structural mismatch with up-to-date requirements and an acute
deficit of financial resources. This key problem is deepened by other ones, which include
poor interaction with other sectors of the Ukrainian economy and the global market, owing
to low quality of most of the Ukrainian products and high resource-consumption rates.
A systemic transformation in the metal industry, first of
all, presumes an optimization of the product assortment and formation of a reasonable
balance of productive capacities. As a result of this transformation, the share of ferrous
metallurgy in the total metal output is expected to go from 23.6% down to 17.6% in 2004
and to 10.1% in 2010.
One of the prerequisites for such changes would be
consistent introduction of the corresponding institutional policy, which should include
the following elements: development of entrepreneurship, establishment of small-size and
medium-size businesses, optimization of the numbers of large-, medium-, and small-size
companies of various forms of ownership, granting and support of the autonomous status to
business entities, and creation of the optimized market infrastructure.
Thus, proceeding from the objectives set in the national
industrial doctrine, establishment and development of small businesses in metal-making
have all the required objective prerequisites.
Analysis of the development problem of the small business
in Ukraine leads us to an unpleasant conclusion: notwithstanding the legislative
breakthrough as regards state policy aimed at support of the small business, it is too
early to speak about practical results. And it is not only because these legislative
changes entered into force only a short time ago. The National state support program
cannot be fulfilled unless the successful and full transformation of the country’s
system of social and economic relations is completed, which means not only formation of
the market infrastructure and creation of the corresponding economic climate, but, first
of all, a change in the present attitude of official bodies and population towards the
small business. These are the conditions, under which the National program stands a chance
of transforming from a “tenet” to a “guide to action”.
Possibly, entrepreneurs’ attitude to their own problems
should be changed as well. They should unite in some way, in order to make up a uniform
opinion of various issues. This method is rather traditional and not very effective, as
experience indicates, but there is no other way at the moment. One of the surveys
indicated that only an insignificant portion of small-size enterprises are parts of
various institutes. Only a few of them believe that being a member of an association is
useful for them (first of all, as regards the information aspect and lobbying their
interests). As concerns small businesses in metal-making and allied industries, our
question about such entities’ business activity addressed to various associations only
produced the counter-question “Are there any small businesses in metal-making?” We
would like to hope that they are successful and simply do not need to speak out about
their problems. We also hope that the adopted National program will contribute to
prosperity of the small business in Ukraine.
COMMENT
Yuriy STASOVSKIY, deputy head of the department for
mining-and-metallurgical industry of Dnepropetrovsk regional state administration
Financial and investment support of metallurgical companies
is a prerequisite for normal operation of all industries.
Today, neither domestic nor foreign financial and
investment companies pursue active operations in Ukraine. As regards domestic investment,
private and state-owned banks prefer to work with short-term returns, which exclude the
metallurgical industry from the sphere of their interests, because in order to resolve the
urgent problems within the industry (these, mainly, include production upgrades and
technical re-equipment), long-term loans are needed.
It is highly difficult to attract foreign investors, owing
to the country’s unfavorable climate for operations of international financial and
investment companies. In addition, they do not think the very idea of investing in
Ukrainian metallurgical giants attractive. In the current situation, small-size,
medium-size, and venture businesses stand a higher chance of obtaining investment, because
their programs forecast high rates of return and short pay-off periods. Additional
opportunities include obtaining credits in the form of commodities, conclusion of leasing
contracts for equipment purchases, etc.
On average, investments in small-size and medium-size
business entities range between USD 1 million and USD 30 to 40 million. The interest rate
may reach 10% a year (mandatory insurance included), thus, the possibility of obtaining
loans of this type is more real. As concerns financing of Ukrainian large-size mining and
metallurgical enterprises, the aggregate required investment for the near 10 years is
estimated at USD 9-10 billion, which is distributed as follows: metallurgical companies
– USD 5.3 billion, mining companies – USD 2.9 billion, and chemical-recovery
production – USD 0.9 billion. This means that before the year 2010, the industry will
require the average of USD 700-850 million in investment per annum.
Such factors as the economic crisis, a downfall of funding
available for scientific research institutes and design offices, lack of demand for
scientific and technical innovations, inventions, and patents, the steady worsening of
working and living conditions of scientists and technologists, and the resulting “brain
drain” abroad have led to a significant weakening of the industrial
scientific-and-technical potential including that of the Ukrainian metallurgy.
Small-size scientific and production enterprises and
mini-plants are now engaged in a number of activities. These, mainly, include research,
modification, and experimental introduction of large labor-consuming and science intensive
technical innovations; designing and construction of new equipment and development of new
technological processes; organization of commercialized production of new commodities and
their sales; and, finally, production upgrades or reconstruction, owing to the need for
introduction of new technologies or because of changes in market demand. This is why, not
only should the State welcome establishment of venture businesses but it also should
facilitate their development. Moreover, the state support of venture businesses ought to
be raised to the status of state policy.
Nikolay GEORGIEVSKIY, chairman of public commission for
development of small-size and medium-size businesses at the USPP (Ukrainian Union of
Manufacturers and Entrepreneurs)
Speaking out about metal makers’ problems is necessary,
although, from the conceptual point of view, they hardly differ from those of other
Ukrainian industries.
Experience of work in the commission for development of
small-size and medium-size businesses has naturally formed my certain predisposition to
this problem’s coverage.
Any person determined to start his own business will have
to resolve not only the problems defined by the business-plan. This process is
scientifically called strategy planning in small business. There are two primary
strategies that a small-size enterprise has to pursue: either a development strategy or a
survival strategy. If you wish to do small business in Ukraine you will have to combine
the two. In order to develop, your business will first of all have to survive. The
economic, organizational, and legislative environments of the struggle process will be
highly unfavorable and your main enemy will be the State. Because the State in Ukraine is
the largest owner of land and energy resources, it is capable of dictating its game rules
to the business and the state officials can wreck any business. And in my opinion, the
main negative factor is not taxes: one can avoid taxes for a bribe just as he can obtain
tax incentives. It is the state official who is the key obstacle to successful business in
Ukraine. The official smothers the entrepreneur pursuing his personal interests, not the
State’s.