October 28, 2015
Five Steps to Unleash Ukraine’s Economy
By Sergiy Tsivkach
Developing an effective competition policy to eliminate the poisonous influence of monopolies and cartels, and protect competition and consumers is key. Competition makes market players stronger, fills markets with quality products and services, ensures economically justified prices, creates jobs, and contributes to higher wages.
A comprehensive competition policy would also contribute to the country's economic stabilization and development—an important feature for regional stability. Ukraine's integration into international markets and closer cooperation with the EU and the United States are also on the table. Getting the policy right is vital, especially after the commitments Ukraine made in the EU-Ukraine Association Agreement and the promises made to the Ukrainian people after the Euromaidan.
Australia, Brazil, Chile, Mexico, South Korea, and new EU members provide an inspiring example: they improved competition policies and saw immediate economic growth.
We can do it, too, and rapid growth should be the objective. Here's how:
1. Develop a long-term and comprehensive competition development program
Ukraine's institutional (Antimonopoly Committee of Ukraine or AMCU) and legislative (national competition law) pillars protect economic competition. Along with other state bodies and laws that address competition issues, these form the country's competition protection system.
Ukraine's competition law and policy are based on European models and are quite developed. However, they require modernization and alignment with international practices to respond to current challenges.
The program should prioritize six issues: first, it should eliminate monopolistic market abuse and curb the influence of monopolies over state policy and interference in law making; second, it should remove barriers to market entry; third, it should introduce a level playing field for public and private competitors; fourth, it should improve Ukraine's consumer protection system; fifth, it should mandate strict control over state and business compliance with competition laws; and sixth, it should reform the judicial system to create specialized competition courts and ensure a fair review process when the AMCU imposes sanctions on a business.
The government would need to set up a special supervisory body to confer with other parts of the government, to observe the program's progress, and intervene when necessary. Ukraine's vibrant civil society and expert community should actively take part.
A program of this scope and magnitude will require the participation of the President, Parliament, Cabinet of Ministers, Ministry of Economy, AMCU, sectoral ministries, energy, transport, telecom, and utilities regulators, and local governments.
2. Reform Ukraine's Antimonopoly Committee
The AMCU oversees the compliance of competition laws and participates in the development of competition policy, but its powers aren't always sufficient to effectively detect, investigate, and sanction those who break the law.
Reforming the AMCU's institutional design and aligning its enforcement with the current challenges and best international practices is a top priority. It protects competition, offers better business conditions for entities, and punishes wrongdoers.
But the AMCU needs more resources and high-level expert training for its staff. The average committee staffer makes approximately $200 dollars per month, compared to $1,000 dollars in the private sector, making it difficult to retain talented staff and potentially making them vulnerable to bribery.
The AMCU can be financed by the state budget or from alternative sources. Some countries use a percentage of fees from the registration of companies, while others tax natural monopolies.
In addition, the clear allocation of responsibilities and roles between the AMCU and regulators will bring more legal certainty to their enforcement practices.
3. Scrutinize Ukraine's markets for illegal behavior that distorts competition
The AMCU should analyze Ukraine's various market sectors, including energy, agriculture and food, pharmaceutical and medical services, transport and logistics, and telecom to find violators and impose sanctions or recommendations on them. There's no need for unreasonable punishment—drastic sanctions could scare businesses and discourage competition—but there's no time to turn a blind eye to issues that restrict competition.
This step may have international impact. For example, creating a competitive energy market in Ukraine will lead to supply diversification and energy independence. Consequently, this will improve regional and EU energy security.
4. Advocate the value of competition to the government and the public
Competition is an important but often underestimated element of every successful economy. State authorities, the business community, and civil society need to be reminded of its importance. The AMCU and the expert community shall lead this process, and they must communicate using real examples where restored competition brought economic benefits to the state, markets, and individuals.
When business associations form codes of competition ethics that self-regulate behavior, we'll know that business circles have bought into the reforms.
5. Bring in law enforcement agencies
Law enforcement agencies must cooperate with the AMCU and other regulators to fight corruption in cases where competition is distorted (i.e. bid rigging).
A majority of Ukrainians tell pollsters that reforms have been too slow and that they cannot feel their impact. It's time for the government to put real reforms into place that voters and the business community can see and feel today.
Sergiy Tsivkach is Co-Chair of the Competition Development Foundation in Kyiv, Ukraine.