Andy Hunder: "Our message is to accelerate, speed up reforms"
Interview with President of the American Chamber of Commerce in Ukraine Andy Hunder
Q: Recently, the two largest business associations, which were created for lobbying their members' interests, – the American Chamber of Commerce in Ukraine and the European Business Association (EBA) – have met with the prime minister and the government. The press was invited only to the opening. The prime minister offered the business representatives to sign a bilateral facility agreement. How viable, in your opinion, is this idea? What does the business want from the government?
A: Practice shows that the business fulfils its obligations before the state sometimes better than the state does the same for business. What does the business want from the state? First, it wants the state not to impede the business processes, so that they could be easy to manage, in other words – the entrepreneurs should not face the number of obstacles they face nowadays. I think it's really important for the business to have an opportunity to develop easily and transparently.
What else does the business want? The business wants predictability, so that we could make predictions regarding where they will be. Let there be some new taxes or new regulations, the main thing is that you have to know about it. A new tax is not as bad as the unpredictability of its introduction. That is because when a business draws up projections, it makes a business plan for 12, 18, 24 months. So, firstly– it's the simplicity of doing business, and secondly – predictability.
What do we see now? On the positive side is that the dialogue between the government and the business is continuing. During the period of the last month we have conducted over 80 meetings for the Chamber members with the different officials: ministers, deputy ministers, parliament committees' representatives. The government definitely listens to, but the question is whether it hears? The business wants faster reforms, as time flies by. And we have raised this issue.
Do you want to know how one our member company, which deals in sales, tries to solve such an issue and make its employees to be really motivated, and not only with financial incentives? If a department sells badly – it's awarded a tortoise. For one month they are given a tortoise because this department is slowing down the progress of the whole company. Today we can see that sometimes the government is so slow, that we are bound to raise a question – why is it so slow?
Let's take, for example, corruption, which is much talked about. We've recently conducted a poll among member companies and 97% of the respondents say corruption is the number one obstacle on the way of business development. The imperfect judicial system was mentioned by 92% of the respondents, bureaucracy by 77%, overregulation by 74%!
Q: Who of the incumbent government would get a tortoise from you?
A: I think a few of them could be given away. As everything is very slow. Let's act a bit quicker. As not only businessmen, but also voters will ask questions about what has been done. All we see in fact is that professionals are working for the government.
Q: Do you see any changes?
A: There are a few examples. Take a 3G tender, for instance. It hasn't been called in Ukraine before, as it was the government which was the biggest obstacles to obtaining licenses. A new government came and arranged a transparent tender. Many believe that it was one of the most transparent tenders in the history of Ukraine. Operators are satisfied with how the services are being developed, and the government has funneled several billion hryvnias into the national budget. This is a really positive step for the development of the economy.
The cancelation of some destructive regulators was also a positive change. One of the most notorious was UkrEcoResources. Simultaneously, there is an example of the appointment of a new head of the State Service for Food Safety and Consumer Protection (DerzhProdSpozhyvSluzhba), which took many months, and its head has only recently been appointed by the Cabinet of Ministers.
A painful problem is taxation. Even the head of the State Fiscal Service acknowledged at a meeting with businesses that corruption stills exists, and it even increased at the customs, and smuggling hasn't stopped.
Q: Premier Yatseniuk, when meeting with businesses, once rebuked them that when it comes to the actual facts of corruption, when exact names should be announced, the business is trying to shun?
A: Some large companies, especially those listed on the stock exchange, may even face a change in price of stocks after such publicly demonstrated criticism.
Q: So it's better to stick to the same old procedure: a communication through an ambassador, a letter to the president and the prime minister...
A: We also get letters asking us to raise that issue. But there are those who are not afraid of speaking about this on their own. For example, a question was raised at a meeting with the prime minister about AtlasJet airlines, which experienced difficulty with obtaining permits for international flights. And the very next day, the problem was resolved.
Another question raised was about the culture of paying taxes, which does not exist in Ukraine. It is important. It is important to understand that people send this money to the army and social costs. It is necessary to demonstrate that the taxes are really spent for the intended purpose. The level of confidence is now not very high, it's difficult to understand how these taxes are spent. The confidence of both sides must be won.
Q: Well, is a certain contract between the government and businesses possible? Or these are mere words, and it's impossible to influence the acceleration of the change?
A: As I have earlier said, companies significantly better fulfill their obligations to the state than the state does before the business. It is obvious that companies must pay taxes, create jobs, promote corporate social responsibility.
Once churches were the tallest buildings in the city, nowadays these are business centers. This demonstrates not only how influential businesses are, but also the responsibility they have got before the citizens and the state. I think it's important. Likewise, it is important to understand that this white, transparent, honest business that pays taxes and creates jobs should be given support for further development.
Q: Your criticism of the government is constructive, while the Employers Federation clearly demands the dismissal of the government. Does it mean that you still wait any miracles from the government?
A: We've discussed one of the most important issues. It is a question of corruption and the use of three principles: prevention, publicity and punishment. The Anti-Corruption Bureau has begun work; there is a business ombudsman as prevention, so change is under way. As for publicity, it is your job – that of journalists and the public.
Q: Everything is clear with domestic businesses – they have nowhere to go. But foreign businesses, if they don't see quick results, they will simply vote with their feet and leave the country, won't they?
A: We look at our members. They report to their headquarters. The first year, 2014, was said to be war and they should wait. 2015, well, let these be the effects of war, economic crisis. But in 2016 they will ask about the result.
Q: Then the year 2016 is a decisive one, isn't it?
A: Yes, it is. We hope that the growth will restore. If not, then costs will be cut. Either layoffs or a halt to production. The most important thing is to realize that the decline may last for a year or two, but a prospect of growth should exit, let it be very insignificant in 2016, but prospects should be outlined for 2017, 2018. It is important.
As for the prime minister, our message is to accelerate, speed up reforms.
Q: What improvements to the tax reform does your organization suggest? What are major ideas?
A: Tax legislation should be understandable, transparent, and predictable. This spring we prepared detailed proposals as to models of a new taxation system. Out of the major ideas is a drastic simplification of tax administration, free automatic VAT refunds, and the possibility of offsets when one overpaid tax is used to set off another tax. A the Chamber, we've got separate committees for taxation and customs, Big Four audit firms are our members, therefore we're working in that direction hard.
Q: Let's talk about social corporate responsibility, which was recently mentioned by the prime minister. Does your organization have any standards for this? What does this notion suggest?
A: This is so-called corporate governance: How decisions are taken and on what principles business is being done. Of course, this also means responsibility before employees, before the state, as well as issues related to transparency and corruption.
Q: Let's take this office center, Horizon Park on Amosova Street in Kyiv. They're building a new road, as the current approach road is inconvenient, especially in winter. Who should sponsor the building? Is it the office center or the municipal authorities? Or both? Or the city provides land, and the center builds the road?
A: In this particular case, it is the office center. But Ukraine should implement mechanisms of public-private partnership, and this is important.
Q: What would be your advice for the government?
A: I'd advise them to look at donor money less, and pay more attention to investment. The prime minister said at a conference in April that no one is going to buy a flat in a residential house on fire. But our vision is that the conflict involves only 6% of the country's territory, while 94% of the territory is suitable for doing business. There are countries that have been seeing a conflict for long, but business has been developing there. Take Israel, for example.
What is to be changed is our country's image abroad. There are companies that even bar their employees from travelling to Ukraine because of allegedly high risks here (these are not our members who work in Ukraine, having enough information). But when they come here, their perception changes. And it's very important. The management of one hotel told us about one case when 60 people cancelled their bookings for the reason they wouldn't like a meeting being held in Kyiv.
Q: Was it long ago? As no drastic deteriorations have happened recently.
A: It wasn't that long ago. Unfortunately, this is how Ukraine is perceived. This picture is broadcast abroad not without the assistance of Russian mass media, reporting war, poverty. And it has an impact on investors' moods. This perception needs to be broken. And the function of our business association to promote Ukraine is also very important here.
Q: What are the dynamics of the membership rate at your organization? Once you've mentioned it numbers over 600 members. There is information that you'll become more regional, develop a network.
A: There has been a slight decline in the past year for various reasons, but now the number is again on the rise. There are companies, which earlier were our members, and now they return again. The important thing to us is to provide our members with opportunities at a high-quality level. It includes four major directions: B2G with an active dialogue with the government, B2B with opportunities to promote products and services between Chamber members, the third is to supply business-related information, the analysis of changes in legislation, and the fourth is the promotion of Ukraine as a country that attracts investors. We'll be present in the regions, but it's too early to speak about a certain format. We are very active in Lviv and Odesa now, we've held some important business events there, and we jointly with the U.S. Ambassador met with our current and potential members there. We'll have a look which of the models is the best, gathering more feedback from our members, and they share information what they need. Issues of local and national levels differ, and we need different approaches to work on them. Many companies from the regions come to attend our committee events in Kyiv, and actively participate in the development of proposals put forth by businesses in connection to changes to laws, but there are a number of problems we need to assist them in solving at the local level. A balance has to be found between large-, small- and medium-sized businesses. I'm going to have a conference call with one of the largest U.S. organizations whose core business is SMBs, and we'll see if we could be useful to each other.