Let’s imagine a foreign investor who wants to start a business in a Ukrainian city. What criteria will he or she use to choose which one to do it in? At Open Data Forum, representative of Drohobych city council Stanislav Haider said that several investors had recently made the decision to open their subsidiaries in that city. According to Stanislav, the company looked at Drohobych’s high score in the Transparency Ranking by Transparency International Ukraine.
What other criteria do investors use before investing in a city? There is the regional Doing Business, implemented by BRDO, and the Community of Ukrainian Enterprises (CUE). They assess five areas of interaction between entrepreneurs and local authorities in terms of time and money. These areas include payment of taxes, starting an enterprise, receipt of permits for construction, documentary work associated with land plots under real estate, connection to utilities.
It is a highly important and informative ranking, since it takes into account absolutely measurable points – the number of hours required to register a business and the amount of money spent on it.
But is this information enough for an investor to make the choice? Transparency International Ukraine believes that it is not, which is why the experts of our organization, together with BRDO, EBA, Chamber of Commerce and Industry, with advice from the World Bank and EBRD, have developed the methodology to measure investment sector transparency. It is a continuation of our city transparency ranking. Investment sector transparency shows how well the city informs potential investors about its investment potential, how open the rules of the game are for investors and entrepreneurs, how convenient it is to start a business.
Is the city connected to the official platform helping people to start their own business? Is there a special website with information for investors, are investment objects and their utility networks published there? Has the local council passed a program of support and development of entrepreneurship and does it finance it? Has the local council made the decision to implement electronic auctions for seasonal trade placement rights?
Among other things, answers to these questions influence whether the investor will want to invest in the city and whether a citizen will want to start a business.
For instance, let us consider electronic auctions for sales of rights for placement of seasonal trade. They are useful primarily for small business. Small business is a sector highly sensitive to corruption. When it does not have equal access from the start (which is precisely what is provided by electronic auctions), they do not contribute to the budget and do not create jobs. Every seasonal trade object means income; the local budget also benefits from the money received for sales of the placement rights.
According to our research, only 4 cities out of 100 have implemented such electronic auctions, as of July-August 2018 – Kyiv, Drohobych, Lviv and Khmelnytskyi.
The Effective Regulation Platform contains the section #StartBusiness Challenge, which helps citizens to start their own business. It includes business cases – step by step guidelines which explain what permits can be required to start this or that kind of business. The research shows that only 2 cities have uploaded 1 to 5 business cases in the system – Vinnytsia and Zhytomyr.
There are also more optimistic research results: 69 cities publish information on objects and projects available for investors on their websites. Admittedly, some cities confuse investments with charity and include kindergartens or parks to be reconstructed in this section.
Cities also have quite good results with regulatory policies, even though there are not many cities where regulatory acts are actively discussed and where protocols of such discussions are published.
The ranking leaders are Ivano-Frankivsk, Kyiv, Vinnytsia, Lviv and Bila Tserkva. However, I would like to highlight once again: it is not about investment attractiveness. It is about investment sector transparency. It means that these cities provide the most opportunities to start a business and information how to do it, as well as possibilities to influence it.
It is also noteworthy that transparency of the investment sector does not necessarily mean that a lot of investors will immediately want to work with the city. It is, however, the first step towards it. It should be followed by real work to provide auspicious environment for businesses.