Anatoly KINAKH,
President of the Ukrainian
League of Industrialists and Entrepreneurs
The Ukrainian people have never lived under propitious conditions. Much too often they had to fight in defence of their land, their families and their life. Today the fighting seems to be a thing of the past. But the new times have brought new problems. Political scientists and economists believe that it is only successful development of economy that can get Ukraine out of the difficult situation it is in now.
Ukraine has shown its good will by preserving its status of a state that has got rid of nuclear weapons and by maintaining good relations with neighbouring states. That is why the Western democracies continue to support reforms in Ukraine and help it realize its potential and get integrated into the European community.
Ukraine is committed to reforms and the new — new for Ukraine — class of businessmen and entrepreneurs are all for reforms. These people are the force that can set Ukraine onto the course of steady economic development.
The Ukrainian League of Industrialists and Entrepreneurs (ULIE) makes a weighty contribution to the efforts directed at solving economic problems Ukraine is facing. It was founded six years ago and at present unites more than 16, 000 collective members and has branch offices in all 25 Oblast’s of Ukraine. The ULIE takes part in the work of the International Congress of Industrialists and Entrepreneurs; it is a member of the International Organization of Employers. The ULIE has initiated the creation of the National Chamber of Commerce.
Mr. Anatoly Kinakh, ULIE President, has been interviewed by Andriy Shestakov, a Welcome to Ukraine (WU) correspondent.

WU: Could you, Mr. Kinakh, comment on the macroeconomic situation in Ukraine?
Kinakh: The socio-economic situation in Ukraine can be described as a difficult one. On the one hand, there have been definite changes to the better but on the other, deepening of crisis in some areas can be observed. The rate of inflation in 1997 at the final count at the end of the year was 10.1% , and for the first three months of this year it has been 1.7%. The fact that inflation has been kept within the planned limits, the introduction of the national currency hryvnya and strengthening of its stability, all these factors give one a reasonable ground for rejoicing. What is more — in the past three months the growth of production in Ukraine constituted 0.7%, with the rates of decreasing of the gross product being only 0.4% and there are indications that they are slowing down. In other words, one could say that at the macroeconomic level the situation is getting stabilized.
According to the International Monetary Fund estimates the possible world rates of annual growth of production will be around 4% in the next few years. So, one can be reasonably optimistic as to the growth of the volume of production in Ukraine. At the same time, the structure of Ukraine’s economy in general, and the financial and credit system in particular, cause concern and continue to be in need of being paid close attention to. Say, the bank rate of the National Bank (41%) and of commercial banks (60%), limits the access of companies and other industrial enterprises which are to be found operating at the market, to the financial resources, to the possibilities of financing investment projects, particularly on the long-term basis. One of the priorities now is getting the tax policy right. It must be stable, predictable and transparent. Taxes are one of the factors that influences the attitude of potential investors towards Ukraine. Urgent measures are needed in order to change the fiscal character of the tax system which hinders the development of enterprising activity, creates conditions under which Ukraine is gradually slipping into what is called «grey economy». The current tax policy does not encourage the growth of purchasing power of the population. We cannot avoid changing the value added tax. This tax must be turned into a factor stimulating the economic reforms, rather than be a hindrance the way it is now.
Another important problem — the situation with arrears in payments which has reached a critical point. To solve this problem one has to introduce a legally regulated promissory-notes turnover and a working mechanism dealing with bankruptcy. Unfortunately in the first three months of 1998 the consolidated budget of Ukraine was fulfilled only by 62% in its revenues section. A considerable budget deficit is still to be dealt with.
The volume of production in resources- and energy-consuming branches of economy is dynamically growing. Their production constitutes up to 60% of GDP. Such an economic structure is not good for the interests of a civilised country with a high level of economic development. Our goal is to develop those branches which are based upon high technologies, and which require a considerable intellectual potential and qualified training of the personnel. With all things considered, the necessity of overcoming all these difficulties shows only one way out — efficient, professional interaction of all the branches of power. Not a single problem — improvement of the taxation system and of the investment climate; creation of favourable conditions for entrepreneurial activity; effective privatisation — can be solved independently of the others, they have to be solved collectively, together with all the others. And the level of responsibility for solving them must be very high indeed.
The place of any state in the international system of division of labour is determined in the first place by the efficiency and competitiveness of its economy. It is true for any truly independent country, Ukraine including. Striving to achieve it must, in the final count, become our national goal, a motivating national idea, which will unite us.

WU: Could you, please, tell us about the main directions in the work of the ULIE, aimed at creating conditions favourable for developing entrepreneurship in Ukraine?
Kinakh: I think that the development of entrepreneurship, of small- and middle-sized businesses, under present economic conditions that exist in Ukraine, occupies a special place. One has also to take into account the specific features of our mentality, and consequently, the way business is conducted. In the course of structural reforms now underway in Ukraine, millions of people lose their jobs and land at the labour market. A chance of creating new jobs for them is connected with the formation of a small- and middle-sized business sector. In many countries of the world the small and middle-sized businesses account for 40% or even 60% of the gross national revenues. In Ukraine — only 7-9%. But it is the small- and middle-sized business that is the main foundation upon which the middle class is to be built, and the middle class is a guarantor of democracy and of the irreversible character of the market-oriented reforms.
As always is the case, the legal foundation here is of primary importance. Our efforts directed at creating a legal mechanism of stimulating this sector have already borne fruit: a presidential decree dealing with deregulation of entrepreneurial activity in Ukraine has been already issued and mechanisms of simplifying the permissive licensing system are being actively worked. Thanks to the initiative of Ukrainian entrepreneurs a Council dealing with problems of entrepreneurial activity has been created at the Cabinet of Ministers. There are committees in the ULIE structure which deal with promotion of entrepreneurship, with defence of the producers from illegal interference («SOS system-entrepreneur»). In this sphere we work in close co-operation with the Union of Lawyers and the Union of Advocates of Ukraine.
One of the key conditions under which Ukraine’s economy would successfully adopt the new market mechanisms is privatization. We are actively involved in this process and even now we have come to the stage of privatization of major industrial entities of strategic importance in all main branches of economy: chemistry, metallurgy, machine building, transport, energy. We are trying to help substitute the ineffective mechanism of privatization that is being carried out on the basis of «property certificates» for something more efficient. Our goal is to help all the participants of this process get rid of certain psychological stereotypes. In the long run, it is not so important who is the owner of this or that company. What is important is that it should function without violating laws, pay taxes, create jobs and produce competitive goods and offer quality services.

WU: What can you say about the investment climate in Ukraine now? What is her potential that can make one feel optimistic, and what are the urgent problems remaining to be solved?
Kinakh: Ukraine has a very high potential. We have a group of science-intensive, technologically complicated branches which can be of a considerable interest for the world community. Ahead of anything else it is the space research and rocket building industry, aircraft building, shipbuilding, transport communications. Our metallurgy, for example, is unique in being based to a great extent on our own raw materials supply. The agrarian and industrial complex, with its 30% of the world’s chernozem-soil lands, is a very vast market for development of modern technologies in growing and processing agricultural products. Our gas turbines which are made in Kharkiv and Mykolayiv, are among the best in the world. AN-70 transport plane is viewed by many countries as an aircraft that is worth buying. The same can be said about weapons and military equipment. It is worth recalling that Ukraine has participated in the international SEA START programme (together with the USA, Norway and Russia). The first communications satellites will be launched as early as this October. We participate in the GLOBAL-STAR long-term programme which is designed to create the world’s space communications system.
All the branches mentioned above have an export potential. The conditions for investments into these branches are rather favourable. And this opinion is held not only by Ukrainian experts.
But our greatest asset is our people. As to the level of their qualifications and education Ukraine occupies one of the leading positions in the world. This fact has been widely acknowledged.
Ukraine has been plagued by a certain measure of political instability and want of stable laws, lack of transparency, inefficient administrative mechanisms, inadequate inter-action of different branches of power. The recent elections to Parliament have shown that the population of Ukraine is losing their trust in demagogic, populistic statements and slogans. The initiative, energy and ingenuity have always been natural traits of Ukrainian character and spirit. What we have to do is just to learn and master new systematic and professional approaches to solving the tasks of economic management. And also, no doubt, to ensure a wide inflow of investments pouring into our large-scale prospective economy.
We have been working at it from the very first days of our existence and will keep working hard in the future.