Competitiveness Ukraine Eng Report 2011

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Ukrainian National Competitiveness

Report 2011

Towards Sustained Growth and Prosperity


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Ukrainian National Competitiveness Report 2011

is published by the Foundation for Effective Governance

with support of the World Economic Forum.

Layout and design: Print House Kolo.

Authors:

Timur Boyko

Anna Chukhay

Ildar Gazizullin

Igor Goncharenko

Vitaliy Kovalenko

The Foundation for Effective Governance

Copyright 2011

by the Foundation for Effective Governance

Published by the Foundation for Effective Governance

All rights reserved. No part of this publication may bereproduced, stored in a retrieval system, or transmitted,

in any form or by any means, electronic, mechanical,

photocopying, or otherwise without the prior permission of

the Foundation for Effective Governance.


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Contents

Opening Remarks

Overview

Chapter 1 Assessing Competitiveness of

Countries and Regions: The Global

Competitiveness Index

Annex A Structure and Calculation of the Global

Competitiveness Index

Annex B Ukrainian National Competitiveness

Index 2011 data

Chapter 2 The Most Problematic Factors for

Doing Business in Ukraines Regions in 2011

Chapter 3 Ukraines higher education system:

quantity does not always lead to quality

Chapter 4 The current state of transportation

infrastructure impedes economic growth

Chapter 5 Assessing the Competitiveness ofUkraines Regions in 2011

Ukraines Regions Competitiveness Profiles


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Macroeconomic stability has become a priorityin the agendas o most countries, and Ukraine is noexception. However, it is our opinion that the countrycannot occupy itsel with putting out fres as they areup even big fres like the world economic crisis. Instead,

it has to lay the oundations or uture prosperity. Asour experience with the municipal government o Kyivhas shown, development cannot move orward withouta strategic plan. Te Strategy to develop Kyiv City by2025 project, which the oundation helped work out,became a continuation o successul projects or thedevelopment o long-term regional strategies or Lviv,as well as Donetsk and Dnipropetrovsk oblasts. Tus,in this years report, we have more careully examinedthose components o competitiveness on which dependsthe productivity o the country in the midterm: highereducation and inrastructure.

In conclusion, I would like to say that the task o

the oundation in compiling this report on Ukrainesregions competitiveness was to create a unique andobjective tool or decision makers at all levels whetherthey be business people, potential investors, or local andnational government ocials. Each year, we try to makethis tool easier to understand and use. One o this yearsinnovations is the launching o a web site with interactivecapabilities that allow users to amiliarize themselveswith precisely those parts o the report that are o interestto them.

I sincerely hope that our eorts will acilitate anincrease in the number o people who can make use o theresults o this study, provoke higher quality discussion othe competitiveness o Ukraine and its individual regions,as well as stimulate the introduction o economic reormsand long-term programs o regional development.

Openingremarks

Opening Remarks

NATALYA IZOSIMOVA

Director of the Foundation for Effective Governance

Tis year, the oundation releases its ourth editiono Ukrainian National Competitiveness Report. In2008, in partnership with the World Economic Forum,we conducted our frst study o the competitiveness oUkraines regions, covering 12 o the countrys 27 oblasts

and special-status cities. We have annually increased thenumber o regions covered in our report, so that this yearI am pleased to announce that, or the frst time, all 27have been included.

As beore, the report contains a competitivenessindex o Ukraines regions, which is calculated using themethodology o the Global Competitive Index (GCI), aninternational rating o more than one hundred countries.However, this year, we have made improvements to theindex, adding analyses o two rating categories: Ukrainesinrastructure and education system. Additionally, theemphasis is now on comparisons between the ratings oUkrainian regions rather than with other countries.

Te success o Ukraine in the international arenais a direct result o the productivity o the countrysregions. At the same time, the problems o any particularregion, even one with a small population or that doesntmake a signifcant contribution to national GDP, aectthe entire country. An unbuilt tunnel in a region with aninternational border is a liability or the whole nationsoreign trade; while a corrupt education system in thecountrys leading universities amounts to a poor qualitylabor orce or all o Ukraine.

By analyzing the low scores o individual oblasts, wecan indentiy the reasons behind them, and thus apply

modern methods o correcting the situation in the oblastas well as the entire country. On the other hand, thehigh scores o certain Ukrainian regions can serve as anexample or other regions, and the basis or an exchangeo practical experience in the orging o national policy.


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Overview

o the impact o Ukraines transportation inrastructureand higher education system on the countrys competi-tiveness.

Te fh chapter o the report provides the mainresults o a study on the competitiveness o Ukraines re-gions. Te section analyzes the competitive strengths andweaknesses o the regions in general, as well as similaritiesand dierences in the individual assessments. Te secondpart provides a short description o each o Ukraines 27regions, including their strengths and weaknesses.

Finally, the report provides the regions competitive-ness profles, including the ranking and the data valuesused to calculate the index.

Overview

Tis year, the Ukrainian National CompetitivenessReport consists o fve sections. Te frst chapter presentsthe methodology o the World Economic Forum, which

was used in the Report to assess the competitiveness oUkrainian regions. Appendices A and B provide a de-tailed description o the Index as well as the statisticaldata and questions addressed to company executives,which were used to create the index.

Te second chapter provides the results o the Ex-ecutive Opinion Survey on the main problems o doingbusiness in Ukraine, broken down by industry and re-gion.

Te third and ourth chapters provide an analysis

Figure 1 Ukrainian National Competitiveness Index 2011

3,58

3,68

3,68

3,74

3,76

3,77

3,77

3,77

3,78

3,80

3,81

3,813,84

3,86

3,87

3,87

3,87

3,87

3,88

3,94

3,95

3,96

3,98

4,03

4,04

4,05

4,10

4,26

3,20 3,40 3,60 3,80 4,00 4,20 4,40

Kherson

Kirovohrad

Chernihiv

Ternopil

Zhytomyr

AR Crimea

Chernivtsi

Khmelnytsky

Ivano-Frankivsk

Zakarpattya

Rivne

CherkasySumy

Vinnytsya

Luhansk

Volyn

Ukraine (Regions average)

Mykolayiv

Lviv

Poltava

Odesa

Sevastopol

Zaporizhzhya

Donetsk

Kyiv Oblast

Kharkiv

Dnipropetrovsk

Kyiv


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Competitiveness Ranking


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Tis chapter sets out the basic principles o the Glob-al Competitiveness Index, a benchmarking tool used bythe World Economic Forum to assess the competitive-ness o nations.1 Te same tool is used in this report topicture competitiveness o Ukraine and its regions.

Tis report oers businesses and policymakers theinstrument to assess relative strengths and weaknesses o

a national economy comparing to other countries. Teresults may also help to identiy the best practices in cer-tain spheres.

One o the main advantages o the methodologyused in the report is that it is partially based on businessperceptions and thereore inorms the government andthe public about the view o the CEOs who stimulate eco-nomic growth by their investment decisions.

1.1 The 12 pillars of competitiveness

Continuous progress in theoretical and empiri-cal economic research inevitably makes the method-

ology used by the World Economic Forum to assessnational competitiveness to evolve over time. Te lat-est step in this evolution is the Global CompetitivenessIndex (GCI), which was frst introduced in 2004 andwhich has been developed in cooperation with ProessorXavier Sala-i-Martin o Columbia University. Since then,the GCI has become the World Economic Forums maintool or assessing competitiveness.

Te GCI is designed to evaluate the potential ocountries to grow over the medium to longer term, tak-ing into account present level o development, based onthe understanding that competitiveness is the set o in-

stitutions, policies and actors that determine the level oproductivity o a country.Te GCI sums up the latest thinking on competi-

tiveness and captures the complexity o the economicgrowth process by taking into account a weighted aver-age o many dierent components, each o which reectsone aspect o the complex reality o competitiveness. Tecomponents are grouped into 12 dierent categories,called the twelve pillars o competitiveness and describedbelow.2 Te detailed structure o the GCI is presented inAnnex A o this chapter.

1st pillar: Institutions

Institutions shape the ramework within which in-dividuals, frms and governments interact to generateincome and wealth in the economy, and thereore have astrong bearing on competitiveness and growth. Te qual-ity o the institutional environment plays a central rolein the ways in which societies distribute the benefts andbear the costs o development strategies and policies. Italso has an impact on investment decisions and on theorganization o production.

2nd pillar: Infrastructure

High-quality inrastructure is critical to ensuringthe ecient unctioning o the economy. It is also animportant actor determining the location o economic

CHAPTER 1

Assessing Competitiveness

of Countries and Regions: The

Global Competitiveness Index

MARGARETA DRZENIEK HANOUZ AND THIERRY GEIGER

World Economic Forum

Chapter1.

AssessingCompetitivenessofCountriesandRegions:

TheG

lobalCompetitivenessIndex

1 Tis chapter is based on Sala-i-Martin et al. (2009) and Browne, C., Geiger, . (2009). For more inormation on the topic pleasereer to these sources.

2 For a more detailed description o each pillar and expanded reerences, see Sala-i-Martin et al. (2009)


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Chapter1.AssessingCompetitivene

ssofCountriesandRegions:

TheG


nesses can adjust wages independently to a large extentand than their relationships with employees are smooth.Eciency o labor markets calls or meritocracy in theworkplace and the ability to retain talent in the country.

8th pillar: Financial market sophistication

An ecient fnancial sector allocates the resources

saved by a nations citizens, or those invested rom abroad,to its most productive uses. It channels resources to theentrepreneurial or investment projects with the high-est expected rates o return, rather than to the politicallyconnected, based on a thorough assessment o risks. Awell-unctioning fnancial market also makes dierentproducts and services available to businesses and entre-preneurs according to their fnancing needs, rom suchsources as loans, security exchanges, or venture capital.

9th pillar: Technological readiness

Tis pillar measures the readiness o an economyto adopt and use but not necessarily to develop new

technologies to enhance the productivity o its industries.In todays interconnected world, the ability to adopt anduse new technologies has become an important competi-tive advantage o frms. Inormation and communicationtechnologies (IC) have consequently evolved into thegeneral purpose technology o our time, given the criti-cal spillovers to the other economic sectors and their roleas ecient inrastructure or commercial transactions.

10th pillar: Market size

Te size o the market aects productivity becauselarge markets allow frms to exploit economies o scale.

raditionally, the markets available to frms have beenconstrained by a nations borders. In the era o globaliza-tion, international markets have become a substitute ordomestic markets, especially or small countries. Tis iswhy both domestic and oreign markets are taken intoaccount when constructing the tenth pillar o economiccompetitiveness, market size. By including both domesticand oreign markets in the measure o market size, thispillar also avoids discriminating against geographic areassuch as the European Union that are broken into manycountries, but have one common market.

11th pillar: Business sophistication

Business sophistication concerns the quality o acountrys overall business networks, as well as the sophisti-cation o the operations and strategies o individual frms.Tis is conducive to higher eciency in the production ogoods and services, leading to increased productivity andenhancing a nations competitiveness. When companiesand suppliers are interconnected in geographically proxi-mate groups (clusters), eciency is heightened, leading togreater opportunities or innovation and to reduced bar-riers to entry or new frms. Individual frms operationsand strategies branding, marketing, the presence o a

value chain, and the production o unique and sophis-ticated products all lead to sophisticated and modernbusiness processes, as they spill over to other companies.

12th pillar: Innovation

Te last pillar o competitiveness is technological in-novation. In the long run, eciency gains can be achieved

activity and the kinds o activities or sectors that candevelop in an economy. Well-developed transport inra-structure reduces the eect o distance between regions,thereby truly integrating the domestic market and con-necting it to other markets. It also acilitates the move-ment o workers around the country to the most suitable

jobs. Economies also depend on electricity supplies that

are ree o interruptions and shortages to ensure thatbusinesses and actories can work unimpeded, while a re-liable and extensive telecommunications network allowsor a rapid and ree ow o inormation.

3rd pillar: Macroeconomic environment

Although macroeconomic environment alone can-not increase the productivity o a nation, macroeconom-ic disarray seriously harms the economy. Firms cannotmake inormed decisions in the absence o price stability,the fnancial sector cannot unction i the governmentruns huge defcits, and the public sector cannot provideservices eciently i it has to make large interest pay-

ments on its past debts.

4th pillar: Health and primary education

A healthy and educated workorce is vital to a coun-trys competitiveness and productivity. Poor health pro-duces signifcant costs or business, as sick workers areoen absent or less productive. Investment in the provi-sion o health services is thereore critical or clear eco-nomic, as well as moral, considerations. As basic skills are

vital to the productivity o each individual worker, thispillar also takes into account the quantity and the qualityo basic education.

5th pillar: Higher education and training

Good quality higher education and training is cru-cial or economies that want to move up the value chainbeyond simple production processes and products. ocapture this concept, this pillar measures secondary andtertiary enrollment rates as well as the quality o educa-tion. Te extent o sta training and the availability o

vocational training is also taken into consideration, as itensures a constant upgrading o workers skills to meetthe changing needs o the production system.

6th pillar: Goods market efficiency

Ecient goods markets allow countries to producethe right mix o products and services given supply anddemand conditions, and ensure that these goods can bemost eectively traded. Healthy market competition,both domestic and oreign, is important in driving mar-ket eciency and thus business productivity. Such com-petition ensures that the most ecient frms are thosethat survive. Te pillar also looks at demand conditionsthat orce companies to be more innovative and morecustomer-oriented, thereby ostering healthy competi-tion.

7th pillar: Labor market efficiency

Te eciency and exibility o the labor market arecritical or ensuring that workers are allocated, or easilyre-allocated, to their most ecient use in the economyand provided with incentives to give their best eort intheir jobs. Labor market exibility also implies that busi-


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Chapter1.


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According to the GCI, in the frst stage, the econo-my is actor-driven and countries compete based on theiractor endowments, primarily unskilled labor and natu-ral resources. Maintaining competitiveness at this stageo development hinges primarily on well-unctioningpublic and private institutions (1st pillar), well-devel-oped inrastructure (2nd pillar), a stable macroeconomic

ramework (3rd pillar), and a healthy and literate work-orce (4th pillar).

As wages rise with advancing development, coun-tries move into the eciency-driven stage o develop-ment, when they must begin to develop more ecientproduction processes and increase product quality. Atthis point, competitiveness is increasingly driven byhigher education and training (5th pillar), ecient goodsmarkets (6th pillar), well-unctioning labor markets (7thpillar), sophisticated fnancial markets (8th pillar), a largedomestic or oreign market (10th pillar), and the abilityto harness the benefts o existing technologies (9th pil-lar).

Finally, as countries move into the innovation-driv-en stage, they are able to sustain higher wages and the as-sociated standard o living only i their businesses are ableto compete with new and unique products. At this stage,companies must compete through innovation (12th pil-lar), producing new and dierent goods using the mostsophisticated production processes (11th pillar).

Te concept o stages o development is integratedinto the GCI by attributing higher relative weights tothose pillars that are relatively more relevant or a coun-try given its particular stage o development. Tat is,although all twelve pillars matter to a certain extent or

all countries, the importance o each one depends on acountrys particular stage o development. o take thisinto account, the pillars are organized into three sub-in-dexes, each critical to a particular stage o development,as shown in Figure 1.1. Countries are allocated to stageso development based on the level o GDP and the shareo minerals exports3. Te precise thresholds are shown inable 1.2.

Countries alling in between two o the three stagesare considered to be in transition. For these countries,the weights change smoothly as a country develops, re-ecting the smooth transition rom one stage o develop-ment to another.

and standards o living expanded only through techno-logical innovation. Innovation is particularly importantor more advanced economies. Tese tend to operate atthe technology rontier, so that the possibilities o inte-grating and adapting exogenous technologies, as cap-tured in the ninth pillar o technological readiness, arelimited. Firms in these countries must design and de-

velop cutting-edge products and processes to maintaina competitive edge. Tis requires an environment that isconducive to innovative activity, supported by both thepublic and the private sectors. In particular, this entailssucient investment in research and development, es-pecially by the business sector; high-quality scientifcresearch institutions; collaboration in research betweenuniversities and industry; and the protection o intellec-tual property.

The interrelation of the 12 pillars

Although the 12 pillars o competitiveness are dis-cussed separately, this should not obscure the act that

they are interdependent: they are related to each otherand also tend to reinorce each other. For example, busi-nesses will not innovate at a large scale (12th pillar) iinstitutions (1st pillar) that protect intellectual propertyrights are not in place or i the labor orce is poorly edu-cated and trained (5th pillar). Although the actual con-struction o the Index will involve the aggregation o thetwelve pillars into a single index, measures are reportedor each pillar separately, thereby oering an analysis othe competitive strengths and weaknesses o countries.By highlighting and prioritizing areas or improvementand strengths to build upon, this analysis provides a basis

or policy ormulation.

1.2 Competitiveness and the stages ofeconomic development

It is clear that dierent pillars are o dierent im-portance to dierent countries. Cameroon is likely to o-cus on other issues to improve its competitiveness thanFrance. Tis is because Cameroon and France are in di-erent stages o development: as countries move alongthe development path, wages tend to increase, and inorder to sustain this higher income, labor productivitymust improve.

3

Countries are allocated to stages o development based on two criteria. Te frst criterion is the level o GDP per capita at marketexchange rates. Tis widely available measure is used as a proxy or wages, as internationally comparable data or the latter arenot available or all countries covered. Te precise thresholds are shown in able 1.1. A second criterion measures the extent towhich countries are actor driven. We proxy this by the share o exports o primary goods in total exports (goods and services)and assume that countries that export more than 70 percent o primary products (proxied by minerals) are primarily actordriven. See Sala-i-Martin et al (2009).

Table 1.1 Subindex weights and income threshholds for stages of development

17 000

60 40-60 40 20-40 20

35 35-50 50 50 50

5 5-10 10 10-30 30

* For economies with a high dependency on mineral resources, GDP per capital is not the sole criterion for the determination of the stage of development. See text for details.

Stage 1:

Factor-driven

Transition

from stage 1

to stage 2

Stage 1:

Efficiency-driven

Transition

from stage 2

to stage 3

Stage 1:

Innovation-driven

Weights for innovation and sophistication factors subindex, %

GDP per capita (USD) thresholds*

Weights for basic requirements subindex, %

Weights for efficiency enhancers subindex, %


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TheG


depending on their level o development.Te GCI is constructed by combining hard data with

perception data gathered through the Executive Opin-ion Survey. As a result, the relative scores o the varioussubcategories o the GCI provide useul inormation asto what the priorities or reorm should be, both rom thecold reality o the hard data and rom the point o view

o the business community that is currently operating inthe country.

Te GCI is an instrument that can be used to iden-tiy the competitive strengths o a country as well as thebarriers to its economic progress. It can also be used toestablish comparisons with neighboring countries andthe relative position in the overall rankings that a particu-lar country holds. In this context, the particular strengtho the World Economic Forums competitiveness work isthat it provides a platorm or dialogue among govern-ment, business, and civil society that can serve as a cata-lyst or productivity-raising reorms, with the aim o im-

proving living standards.

References

1. Browne, C. and . Geiger. 2009. Te Executive Opin-ion Survey: Capturing the Views o the BusinessCommunity. Te Global Competitiveness Report2009-2010. World Economic Forum. 49-57.

2. Sala-i-Martin, X., J. Blanke, M. Drzeniek Hanouz, .Geiger, and I. Mia. 2009. Te Global Competitive-ness Index 20092010: Contributing to Long-ermProsperity amid the Global Economic Crisis. Te

Global Competitiveness Report 2009-2010. WorldEconomic Forum. 347.

1.3 The Global Competitiveness IndexData

Out o the 119 indicators composing the index,about one third are hard data, i.e. statistical data typicallycollected rom international organizations. Te remain-ing indicators are obtained rom the Executive Opinion

Survey (the Survey) based on the methodology o theWorld Economic Forum in all countries covered by theReport.

Te aim o the Survey is to capture the qualitativedimension o specifc aspects o competitiveness and toprovide comparable data on issues or which hard dataindicators do not exist. Business leaders are asked to as-sess specifc aspects o the business environment in thecountry in which they operate. o conduct the Survey ineach country, the Forum relies on a network o 150 Part-ner Institutes. ypically, the Partner Institutes are recog-nized economics departments o national universities, in-dependent research institutes, or business organizations.In Ukraine, the Centre or Social and Economic ResearchUkraine (CASE) is the Forums Partner Institute.4

1.4 Conclusions

Tis chapter has presented the Global Competitive-ness Index which serves as the main vehicle or assessingcompetitiveness o Ukraines regiona in this Report. TeGCI captures what government and business leaders haveknown or a long time. Competitiveness is a complexphenomenon and the overall level o competitiveness oa nation can be improved only through a wide array o

reorms in dierent areas. Te GCI also highlights theact that the priorities are dierent or dierent countries,

4 For more detailed inormation about the survey process and the treatment o survey data, please reer to Browne, C. Geiger, .(2009).


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Chapter1.


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Table 1.2 Countries/economies at each stage of development

Stage 1:

Factor-driven

(37 economies)

Transition from

stage 1 to stage 2

(24 economies)

Stage 2:

Efficiency-driven

(28 economies)

Transition from

stage 2 to stage 3

(18 economies)

Stage 3:

Innovation-driven

(35 economies)

Bangladesh Algeria

Angola

Armenia

AzerbaijanBotswana

Brunei Darussalam

Egypt

Georgia

Guatemala

Guyana

Honduras

Iran, Islamic Rep.

Jamaica

Kazakhstan

Kuwait

Mongolia

Paraguay

Philippines

Qatar

Saudi Arabia

Sri Lanka

Syria

Ukraine

Venezuela

Albania

Belize

Bosnia and Herzogovina

BulgariaCape Verde

China

Colombia

Costa Rica

Dominican Republic

Ecuador

El Salvador

Indonesia

Jordan

Macedonia, FYR

Malaysia

Mauritius

Montenegro

Morocco

Namibia

Panama

Peru

Romania

Serbia

South Africa

Suriname

Swaziland

Thailand

Tunisia

Argentina

Barbados

Brasil

ChileCroatia

Estonia

Hungary

Latvia

Lebanon

Lithuania

Mexico

Oman

Poland

Russian Federation

Slovak Republic

Trinidad and Tobago

Turkey

Uruguay

Australia

Austria

Bahrain

BelgiumCanada

Cyprus

Czech Republic

Denmark

Finland

France

Germany

Greece

Hong Kong SAR

Iceland

Ireland

Israel

Italy

Japan

Korea, Rep.

Luxemburg

Malta

Netherlands

New Zealand

Norway

Portugal

Puerto Rico

Singapore

Slovenia

Spain

Sweden

Switzerland

Taiwan, China

United Arab Emirates

United Kingdom

United States

Benin

Bolivia

Burkina FasoBurundi

Cambodia

Cameroon

Chad

Cote dIvoire

Ethiopia

Cambodia, The

Ghana

Haiti

India

Kenya

Kyrgyz Republic

Lesotho

Madagascar

Malawi

Mali

Mauritania

Moldova

Mozambique

Nepal

Nicaragua

Nigeria

Pakistan

Rwanda

Senegal

Tajikistan

Tanzania

Timor-Leste

Uganda

Vietnam

Yemen

Zambia

Zimbabwe


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Tis appendix provides details on the structureand calculation procedure o the Global Competitive-ness Index (GCI). Te structure and calculation proce-dure o the Ukraines regions Competitiveness Index is

the same.Te numbering o the variables matches the num-bering o the Data ables o the World Economic Fo-rums Global Competitiveness Report 20112012. Tenumber preceding the period indicates the pillar towhich the variable belongs (e.g. variable 1.01 belongsto the 1st pillar, variable 12.04 belongs to the 12th pil-lar). Published numbers are rounded to the nearest in-teger, but when calculating the GCI accurate data areused.

Te calculation o the GCI is based on successiveaggregation o scores rom the indicator level (the mostdisaggregated level) up the overall GCI score. Unlessotherwise specifed, an arithmetic mean is used to ag-

gregate individual variables within a same category atall level o aggregation. a

For aggregation o the variables a percentage in-dicated next to each category is used. It is a weight oa category within the parent group o indicators. Forexample, a 9th pillar score a country is 17 percent othe eciency enhancers subindex score regardless oits stage o development. Similarly, the transport inra-structure score accounts or 50 percent o a inrastruc-ture pillar score.

In contrast to lower aggregation levels, shares oeach o the three sub-indices (the basic requirements,eciency enhancers and innovation and sophistication

actors) are not constant. Tey depend on the stage odevelopment o a country, as noted in the frst chapter. b

For example, Ukraine is between the frst and sec-ond stages o development, and the weight the basicrequirements subindex in the overall GCI index or thecountry is 40 percent, while or Norways (a country atthe third stage o development) GCI it is only 20.

Variables that are not derived rom the ExecutiveOpinion Survey (Survey) are identifed by an asterisk(*). For technical notes and data sources please reerto the Appendix B. o make the aggregation possible,these variables are transormed into a 1-to-7 scale inorder to align them with the Survey results. We applya transormation method that preserves the order o,

and the relative distance between, country scores.c In-dicators marked with a superscript means that weassign a hal-weight to each instance. o avoid doublecounting, they are assigned to hal their weight in eachcase. d

Weight (%)within immediate

parent category

BASIC REQUIREMENTS

1st pillar: Institutions..................................................25%A. Public institutions.......................................................................... 75%Property rights...................................................................................20%

1.01 Property rights

1.02 Intellectual property protection* 1/2

Ethics and corruption........................................................................20%

1.03 Diversion of public funds

1.04 Public trust of politicians

1.05 Irregular payments and bribes

Undue influence.................................................................................20%

1.06 Judicial independence

1.07 Favoritism in decisions of government officials

Government inefficiency....................................................................20%

1.08 Wastefulness of government spending

1.09 Burden of government regulation

1.10 Ef ficiency of legal framework in settling disputes

1.11 Efficiency of legal framework in challenging regulations

1.12 Transparency of government policymaking

Security.............................................................................................20%

1.13 Business costs of terrorism

1.14 Business costs of crime and violence

1.15 Organized crime

1.16 Reliability of police services

B. Private institutions........................................................................ 25%

Corporate ethics................................................................................50%

1.17 Ethical behavior of firms

Accountability....................................................................................50%

1.18 Strength of auditing and reporting standards

1.19 Ef ficacy of corporate boards

1.20 Protection of minority shareholders interests

1.21 Strength of investor protection*

2nd pillar: Infrastructure..............................................25%A. Transport infrastructure................................................................ 50%

2.01 Quality of overall infrastructure

2.02 Quality of roads

2.03 Quality of railroad infrastructure

2.04 Quality of port infrastructure

2.05 Quality of air transport infrastructure

2.06 Available seat kilometers*

B. Energy and telephony infrastructure................................................ 50%

2.07 Quality of electricity supply

2.08 Fixed telephone lines* 1/2

2.09 Mobile telephone subscriptions* 1/2

3rd pillar: Macroeconomic environment.....................25%3.01 Government budget balance *

3.02 National savings rate*3.03 Inflation* e

3.04 Interest rate spread*

3.05 Government debt*

3.06 Country credit rating*

4th pillar: Health and primary education....................25%A. Health............................................................................................ 50%

4.01 Business impact of malaria f

4.02 Malaria incidence* f

4.03 Business impact of tuberculosis f

4.04 Tuberculosis incidence* f

4.05 Business impact of HIV/AIDS f

4.06 HIV prevalence* f

4.07 Infant mortality*

4.08 Life expectancy*

B. Primary education.......................................................................... 50%4.09 Quality of primary education

4.10 Primary education enrollment rate*

Chapter1.AssessingCompetitivenessofCountriesandRegions:

TheG


Appendix : Calculation and structure of Global Competitiveness Index in 2011


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EFFICIENCY ENHANCERS

5th pillar: Higher education and training...................... ........17%A. Quantity of education...................................................................... 33%

5.01 Secondary education enrollment rate*

5.02 Tertiary education enrollment rate*

B. Quality of education...................................................................... 33%

5.03 Quality of the educational system

5.04 Quality of math and science education

5.05 Quality of management schools5.06 Internet access in schools

C. On-the-job training........................................................................ 33%

5.07 Local availability of specialized research and training

services

5.08 Extent of staff training

6th pillar: Goods market efficiency..........................................17%A. Competition................................................................................... 67%

Domestic competition.......................................................................75%

6.01 Intensity of local competition

6.02 Extent of market dominance

6.03 Effectiveness of anti-monopoly policy

6.04 Extent and effect of taxation 1/2

6.05 Total tax rate*

6.06 Number of procedures required to start a business*

h

6.07 Time required to start a business* h

6.08 Agricultural policy costs

External competition........................................................................25%g

6.09 Prevalence of trade barriers

6.10 Trade tariffs*

6.11 Prevalence of foreign ownership

6.12 Business impact of rules on FDI

6.13 Burden of customs procedures

6.14 Imports as a percentage of GDP* i

B. Quality of demand conditions....................................................... 33%

6.15 Degree of customer orientation

6.16 Buyer sophistication

7th pillar: Labor market efficiency...........................................17%A. Flexibility....................................................................................... 50%

7.01 Cooperation in labor-employer relations

7.02 Flexibility of wage determination

7.03 Rigidity of employment*

7.04 Hiring and firing practices

7.05 Redundancy costs*

6.04 Extent and effect of taxation 1/2

B. Efficient use of talent.................................................................... 50%

7.06 Pay and productivity

7.07 Reliance on professional management 1/2

7.08 Brain drain

7.09 Female participation in labor force*

8th pillar: Financial market development............................17%A. Efficiency...................................................................................... 50%

8.01 Availability of financial services

8.02 Affordability of financial services8.03 Financing through local equity market

8.04 Ease of access to loans

8.05 Venture capital availability

B. Trustworthiness and confidence.................................................... 50%

8.06 Soundness of banks

8.07 Regulation of securities exchanges

8.08 Legal rights index*

9th pillar: Technological readiness.........................................17%A. Technological adoption................................................................. 50%

9.01 Availability of latest technologies

9.02 Firm-level technology absorption

9.03 FDI and technology transfer

B. ICT use......................................................................................... 50%

9.04 Internet users*

9.05 Broadband Internet subscriptions*

9.06 Internet bandwidth*

2.08 Fixed telephone lines* 1/2

2.09 Mobile telephone subscriptions* 1/2

10th pillar: Market size...................................................................17%A. Domestic market size................................................................... 75%

10.01 Domestic market size index* i

B. Foreign market size...................................................................... 25%

10.02 Foreign market size index* k

INNOVATION AND SOPHISTICATION FACTORS

11th pillar: Business sophistication...........................50%11.01 Local supplier quantity11.02 Local supplier quality

11.03 State of cluster development

11.04 Nature of competitive advantage

11.05 Value chain breadth

11.06 Control of international distribution

11.07 Production process sophistication

11.08 Extent of marketing

11.09 Willingness to delegate authority

7.07 Reliance on professional management 1/2

12th pillar: Innovation................................................50%12.01 Capacity for innovation

12.02 Quality of scientific research institutions

12.03 Company spending on R&D

12.04 University-industry collaboration in R&D

12.05 Government procurement of advanced technology

products

12.06 Availability of scientists and engineers

12.07 Utility patents*

1.02 Intellectual property protection* 1/2

References

. For each category i that consist from K indica-tors:

b. As described in the chapter, the weights are thefollowing:

* For economies with a high dependency on mineral resources, GDP per capita is notthe sole criterion for the determination of the stage of development. See text for details.

Note: There is inverse dependence between GDP per capita and weight in the range of

subindex weights. For example, for a country with GDP per capita of USD 2999 the weight used

for subindex Basic Requirements is 40%.

Ukraine is between the 1st and the 2nd stages of development.

. Te standard formula for converting hard datais the following:

Te sample minimum and sample maximumare, respectively, the lowest and highest country scoresin the sample of countries covered by the GCI. In someinstances, adjustments were made to account for ex-

treme outliers. For those hard data variables for whicha higher value indicates a worse outcome (eg, diseaseincidence, government debt), we rely on a normaliza-tion formula that, in addition to converting the seriesto a 1-to-7 scale, reverses it, so that 1 and 7 still cor-

1

6 +

(country score - sample minimum)

(sample maximum - sample minimum)

17 000

60 40-60 40 20-40 20

35 35-50 50 50 50

5 10 30

Weights for innovation and sophistication factors subindex

GDP per capita (USD) thresholds*

Weights for basic requirements subindex

Weights for efficiency enhancers subindex

Stage of development

Stage 1:

Factor-driven

Transition

from stage 1

to stage 2

Stage 1:

Efficiency-driven

Transition

from stage 2

to stage 3

Stage 1:

Innovation-driven

5-10 10-30


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18

responds to the worst and best possible outcomes, re-spectively:

d. For those groups o variables that contain oneor several hal weight variables, country scores or

those groups are computed as ollows:

. In order to capture the idea that both high in-ation and deation are detrimental, ination entersthe model in a U-shaped manner as ollows: or val-ues o ination between 0.5 and 2.9 percent, a countryreceives the highest possible score o 7. Outside thisrange, scores decrease linearly as they move away romthese values.

. Te impact o malaria, tuberculosis, and HIV/

AIDS on competitiveness depends not only on their re-spective incidence rates, but also on how costly they areor business. Tereore, in order to estimate the impacto each o the three diseases, we combine its incidencerate with the Survey question on its perceived cost tobusinesses. o combine these data we frst take the ratioo each countrys disease incidence rate relative to thehighest incidence rate in the whole sample. Te inverseo this ratio is then multiplied by each countrys scoreon the related Survey question. Tis product is thennormalized to a 1-to-7 scale. Note that countries withzero reported incidence receive a 7, regardless their

scores on the related Survey question.

g. Te Competition sub-pillar is the weightedaverage o two components: Domestic competitionand Foreign competition. In both components, theincluded variables provide an indication o the extent

to which competition is distorted. Te relative impor-tance o these distortions depends on the relative sizeo domestic versus oreign markets. Tis interactionbetween the domestic market and the oreign marketis captured by the way we determine the weights o thetwo components. Domestic competition is the sum o

consumption (C), investment (I), government spend-ing (G), and exports (X), while oreign competitionis equal to imports (M). Tus we assign a weight o(C+I+G+X)/(C+I+G+X+M) to Domestic competi-tion and a weight o M/(C+I+G+X+M) to Foreigncompetition. For Ukraine, the calculation yields aweight o 0.75 or the Domestic competition compo-nent and o 0.25 or the Foreign competition compo-nent.

h. Variables 6.06 and 6.07 combine to orm asingle variable.

i. Te values o this variable are normalized.

j. Te size o the domestic market is constructedby taking the natural log o the sum o the gross do-mestic product valued at PPP, plus the total value (PPPestimates) o imports o goods and services, minus thetotal value (PPP estimates) o exports o goods andservices. Data are then normalized on a 1-to-7 scale.PPP estimates o imports and exports are obtained bytaking the product o exports as a percentage o GDPand GDP valued at PPP.

k. Te size o the oreign market is estimated asthe natural log o the total value (PPP estimates) oexports o goods and services, normalized on a 1-to-7scale. PPP estimates o exports are obtained by tak-ing the product o exports as a percentage o GDP andGDP valued at PPP.


TheG


76 +

(country score - sample minimum)

(sample maximum - sample minimum)

2

12

1

+

+(sum of scores on full weight variables)

(coun t o f f ul l w eigh t v ar iabl es ) (coun t o f f ul l w eigh t v ar iabl es )

(sum of scores on half weight variables)


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19

Property rights

Property rights, including over fnancial assets (1 = are poorly defnedand not protected by law, 7 = are clearly defned and well protected bylaw)

Source: Foundation or Eective Governance, Executive Opinion

Survey, 2011

Intellectual property protection

Intellectual property protection in your region (1 = is weak and notenorced; 7 = is strong and enorced)

Source: Foundation or Eective Governance, Executive OpinionSurvey, 2011

Diversion of public funds

In your region diversion o public unds to companies, individuals, orgroups due to corruption (1 = is common, 7 = never occurs)


Public trust of politicians

Public trust in the fnancial honesty o politicians is (1 = very low,7 = very high)


Irregular payments and bribes

In your region, how common is it or frms to make undocumentedextra payments or bribes connected with the ollowing

a. Import and export permits?b. Public utilities (e.g., telephone or electricity)?c. ax payments?d. Awarding o public contracts and licenses?e. Obtaining avorable judicial decisions?(1 - common, 7 - never occurs)


Judicial independence

Is the judiciary in your region independent rom political inuenceso members o government, citizens, or frms? (1 = no heavilyinuenced, 7 = yes entirely independent)


Favoritism in decisions of government officials

When deciding upon policies and contracts, government ocials(1 = usually avor well-connected frms and individuals, 7 = areneutral)


Survey, 2011

Wastefulness of government spending

Public spending in your region (1 = is wasteul, 7 = provides necessarygoods and services not provided by the market)


Burden of government regulation

Complying with administrative requirements (permits, regulations,reporting) issued by the government in your region is (1 =burdensome, 7 = not burdensome)


Efficiency of legal framework in settling disputes

How ecient is the legal ramework in your region or privatebusinesses in settling disputes? (1 = Extremely inecient, 7 = Highlyecient)


Efficiency of legal framework in challenging regulations

How ecient is the legal ramework in your region or privatebusinesses in challenging the legality o government actions and/orregulations? (1 = Extremely inecient, 7 = Highly ecient)


Survey, 2011

Transparency of government policymaking

Are frms in your region usually inormed clearly by the governmenton changes in policies and regulations aecting your industry?(1 = never inormed; 7 = always inormed)


Business costs of terrorism

Te threat o terrorism in your region (1 = imposes signifcant costson business, 7 = does not impose signifcant costs on business)


Business costs of crime and violence

Te incidence o common crime and violence (e.g., street muggings,frms being looted) (1 = imposes signifcant costs on businesses,7 = does not impose signifcant costs on businesses)


Organized crime

Organized crime, such as mafa-oriented racketeering, extortion inyour region (1 = imposes signifcant costs on businesses, 7 = does notimpose signifcant costs on businesses)


Reliability of police servicesPolice services (1 = cannot be relied upon to protect businesses romcriminals, 7 = can be relied upon to protect businesses rom criminals)


Ethical behavior of firms

Te corporate ethics (ethical behavior in interactions with publicocials, politicians, and other enterprises) o frms in your region are(1 = among the worlds worst, 7 = among the best in the world)


Efficacy of corporate boards

Corporate governance by investors and boards o directors in your

region is characterized by (1 = management has little accountability,7 = investors and boards exert strong supervision o managementdecisions)


Protection of minority shareholders interests

Interests o minority shareholders in your region are (1 = not protectedby law and seldom recognized by majority shareholders, 7 = protectedby law and actively enorced)


Strength of investor protection*

Strength o investor protection, 010 (best), 2010

Source: Te World Bank, Doing Business 2010

Quality of overall infrastructure

General inrastructure (transport, telephony and energy) in yourregion is (1 = underdeveloped, 7 = as extensive and ecient as the

Annex B: Ukrainian National Competitiveness Index 2011 data

Chapter1.


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20

worlds best)


Quality of roads

Roads in your region are (1 = underdeveloped, 7 = extensive andecient by international standards)


Quality of railroad infrastructure

Railroads in your region are (1 = underdeveloped, 7 = as extensive andecient as the worlds best)


Quality of port infrastructure

Port acilities and inland waterways in your region are (1 =underdeveloped, 7 = as developed as the worlds best) | * For landlockedregions, this measures the ease o access to port acilities and inlandwaterways.


Survey, 2011

Quality of air transport infrastructure

Passenger air transport in your region is (1 = inrequent, limited, andinecient, 7 = as requent, extensive, and ecient as the worlds best)


Available seat kilometers*

Air transport passenger turnover in a region per week, million seatkilometers

Source: State Statistics Committee o Ukraine

Quality of electricity supply

Te quality o electricity supply in your region (lack o interruptionsand lack o voltage uctuations) is (1 = worse than in most othercountries, 7 = meets the highest standards in the world)


Fixed telephone lines*

Main telephone lines per 100 population, 2010

Source: National Commission or Communications Regulation oUkraine

Government budget balance*

Central government gross surplus/defcit as a percentage o GDP, 2010

Source: National Bank o Ukraine

Gross national savings*National savings rate as a percentage o GDP, 2010


Inflation*

Annual percent change in consumer price index, 2010


Interest rate spread*

Average interest rate spread (dierence between typical lending anddeposit rates), 2010

Source: National Bank o Ukraine, Calculation: Foundation orEective Governance

General government debt*Government gross debt as a percentage o GDP, 2010


Business impact of malaria

How serious do you consider the uture impact o malaria on yourcompany in the next 5 years? (1 = extremely serious, 7 = not a problem)


Malaria cases*

Number o malaria cases per 100,000 population, 2010


Business impact of tuberculosis

How serious do you consider the uture impact o tuberculosis onyour company in the next 5 years? (1 = extremely serious, 7 = not aproblem)


Tuberculosis incidence*

Number o tuberculosis cases per 100,000 population, 2010

Source: Ministry o healthcare o Ukraine

Business impact of HIV/AIDS

How serious do you consider the uture impact o HIV/AIDS onyour company in the next 5 years? (1 = extremely serious, 7 = not aproblem)


HIV prevalence*

HIV prevalence as a percentage o adults aged 15-49 years, 2010

Source: Ukrainian AIDS prevention and control center

Infant mortality*

Inant (children aged 012 months) mortality per 1,000 live births,2010


Life expectancy*Lie expectancy at birth (years), 2010


Quality of primary education

Primary schools in your region are (1 = o poor quality, 7 = among thebest in the world)


Primary education enrollment*

Net primary education enrollment rate, 2010


Secondary education enrollment*Gross secondary education enrollment rate, 2010


Tertiary education enrollment, gross %*

Gross tertiary education enrollment rate (18-23), 2010

Source: State Statistics Committee o Ukraine, Caclulation: Foundationor Eective Governance

Quality of the educational system

Te educational system in your region (1 = does not meet the needs oa competitive economy, 7 = meets the needs o a competitive economy)


Quality of math and science education

Math and science education in your regions schools (1 = lag ar behindmost other countries, 7 = are among the best in the world)




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21

Chapter1.

AssessingCompetitivene


TheG


Quality of management schools

Management or business schools in your region are (1 = limited or opoor quality, 7 = among the best in the world)


Internet access in schools

Internet access in schools is (1 = very limited, 7 = extensivemost

children have requent access)


Availability of research and training services

In your region specialized research and training services are (1 = notavailable, 7 = available rom world-class local institutions)


Extent of staff training

Te general approach o companies in your region to human resourcesis (1 = to invest little in training and employee development, 7 = toinvest heavily to attract, train, and retain employees)


Intensity of local competition

Competition in the local market is (1 = limited in most industries, 7 =intense in most industries)


Extent of market dominance

Corporate activity in your region is (1 = dominated by a ew businessgroups, 7 = spread among many frms)


Effectiveness of anti-monopoly policyAnti-monopoly policy in your region is (1 = lax and not eective atpromoting competition, 7 = eective and promotes competition)


Extent and effect of taxation

Te level o taxes in your region (1 = signifcantly limits the incentivesto work or invest, 7 = has little impact on the incentives to work orinvest)


Total tax rate*

Tis variable is a combination o proft tax (% o profts), labor tax and

contribution (% o profts), and other taxes (% o profts), 2010Source: Te World Bank, Doing Business 2010

No. procedures to start a business*

Number o procedures required to start a business, 2010


No. days to start a business*

Number o days required to start a business, 2010


Agricultural policy costs

Agricultural policy in your region (1 = is excessively burdensome orthe economy, 7 = balances the interests o taxpayers, consumers, andproducers)


Prevalence of trade barriers

In your region, tari and non-tari barriers signifcantly reduce theability o imported goods to compete in the domestic market (1 =strongly agree, 7 = strongly disagree)


Trade-weighted tariff rate*

Average import tari, 2010

Source: International rade Centre

Prevalence of foreign ownership

Foreign ownership o companies in your region is (1 = rare andlimited, 7 = prevalent and encouraged)


Business impact of rules on FDI

In your region, rules governing oreign direct investment (1 =discourage oreign direct investment, 7 = encourage oreign directinvestment)


Survey, 2011

Burden of customs procedures

Customs procedures (ormalities regulating the entry and exit omerchandise) in your region are (1 = extremely slow and cumbersome,7 = rapid and ecient)


Degree of customer orientation

Customer orientation: Firms in your region (1 = generally treat theircustomers badly, 7 = are highly responsive to customers and customerretention) | 2008-09


Buyer sophistication

Buyers in your region make purchasing decisions (1 = based solely onthe lowest price, 7 = based on a sophisticated analysis o perormanceattributes)


Cooperation in labor-employer relations

Labor-employer relations in your region are (1 = generallyconrontational, 7 = generally cooperative)


Flexibility of wage determination

In your region, wages are (1 = set by a centralized bargaining process,7 = up to each individual company)


Rigidity of employment index *

Rigidity o Employment Index on a 0100 (worst) scale


Hiring and firing practices

Te hiring and fring o workers is (1 = impeded by regulations,7 = exibly determined by employers)


Redundancy costs, weeks of salary*

Firing costs (in weeks o wages), 2010



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22


TheG


Strength o legal rights index on a 010 (best) scale


Availability of latest technologies

In your region, the latest technologies are (1 = not widely available orused, 7 = widely available and used)


Firm-level technology absorption

Companies in your region are (1 = not able to absorb new technology,7 = aggressive in absorbing new technology)


FDI and technology transfer

Foreign direct investment in your region (1 = brings little newtechnology, 7 = is an important source o new technology)


Mobile telephone subscriptions*

Mobile telephone subscribers per 100 population

Source: National Commission or Communications Regulation oUkraine

Internet users*

Internet users per 100 population, 2010

Source: Gemius/GFK-Ukraine

Broadband Internet subscriptions*

Broadband internet subscribers per 100 population, 2010

Source: IKS-consulting

Internet bandwidth*

Internet bandwidth, kb/s/capita, 2010

Source: International elecommunications Unit

Domestic market size index*

Sum o gross domestic product plus value o imports o goods andservices, minus value o exports o goods and services, normalized ona 17 (best) scale

Source: Calculations: Foundation or Eective governance.See Annex

Foreign market size index*

Value o exports o goods and services, normalized on a 17 (best)scale

Source: Calculations: Foundation or Eective governance.

See Annex

Local supplier quantity

Local suppliers in your region are (1 = largely nonexistent, 7 =numerous and include the most important materials, components,equipment, and services)


Local supplier quality

Te quality o local suppliers in your region is (1 = very poor, 7 = verygood)


State of cluster developmentIn your regions economy, well-developed and deep clusters are(1 = rare or absent, 7 = widespread in many felds)


Pay and productivity

In your region, pay is (1 = not related to worker productivity,7 = strongly related to worker productivity)


Reliance on professional management

Senior management positions in your region are (1 = usually held

by relatives or riends without regard to merit, 7 = mostly held byproessional managers chosen based or their superior qualifcation)


Brain drain

Your regions talented people (1 = normally leave to pursueopportunities in other countries, 7 = almost always remain in theregion)


Women in labor force*

Female participation in the labor orce as a percentage o maleparticipation, 2010


Availability of financial services

Te level o sophistication o fnancial markets in your region is(1 = poor by international standards, 7 = excellent by internationalstandards)


Affordability of financial services

Does the fnancial sector in your region provide a wide varietyo fnancial products and services to businesses? (1 = Not at all,7 = Provides a wide variety)


Financing through local equity market

Raising money by issuing shares on the stock market in your region is(1 = impossible, 7 = very easy)


Ease of access to loans

How easy is it to obtain a bank loan in your region with only a goodbusiness plan and no collateral? (1 = impossible, 7 = very easy)


Venture capital availability

In your region, how easy is it or entrepreneurs with innovative butrisky projects to fnd venture capital? (1 = impossible, 7 = very easy)


Soundness of banks

Banks in your region are (1 = insolvent and may require a governmentbailout, 7 = generally healthy with sound balance sheets)


Regulation of securities exchanges

Regulation o securities exchanges in your region is (1 = nottransparent, ineective and subject to undue inuence rom industryand government, 7 = transparent, eective and independent o undue

inuence rom industry and government)


Legal rights index*


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Chapter1.

AssessingCompetitivene


TheG


Control of international distribution

Competitiveness o your regions companies in international marketsis primarily due to (1 = low-cost or local natural resources, 7 = uniqueproducts and processes)


Value chain breadth

Exporting companies in your region are (1 = primarily involvedin individual steps o the value chain, e.g., resource extraction orproduction, 7 = present across the entire value chain, e.g., do not onlyproduce but also perorm product design, marketing sales, logisticsand aer-sales services)


Control of international distribution

International distribution and marketing rom your region (1 = takeplace through oreign companies, 7 = are owned and controlled bylocal companies)


Production process sophisticationIn your region, production processes use (1 = labor-intensive methodsor previous generations o process technology, 7 = the worlds best andmost ecient process technology)


Extent of marketing

In your region, the extent o marketing is (1 = limited and primitive,7 = extensive and employs the worlds most sophisticated tools andtechniques)


Willingness to delegate authority

In your company, willingness to delegate authority to subordinatesis (1 = low top management controls all important decisions, 7 =highauthority is mostly delegated to business unit heads and otherlower-level managers)


Capacity for innovation

In your region, companies obtain technology (1 = exclusively romlicensing or imitating oreign companies, 7 = by conducting ormalresearch and pioneering their own new products and processes)


Quality of scientific research institutions

Scientifc research institutions in your region (e.g., universitylaboratories, government laboratories) are (1 = nonexistent, 7 = thebest in their felds internationally)


Company spending on R&D

Companies in your region (1 = do not spend money on research anddevelopment, 7 = spend heavily on research and development relativeto international peers)


University-industry collaboration in R&D

In the area o R&D, collaboration between the business community

and local universities is (1 = minimal or nonexistent, 7 = intensive andongoing)


Govt procurement of advanced tech products

In your region, government procurement decisions result intechnological innovation (1 = strongly disagree, 7 = strongly agree)


Availability of scientists and engineers

Scientists and engineers in your region are (1 = nonexistent or rare,7 = widely available)


Utility patents granted*

Number o utility patents (i.e., patents or invention) granted by USApatent authority, per million population, 2010

Source: USPTO, State Statistics Committee o Ukraine. Calculations:Foundation or Eective Governance


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Chapter2.

TheMostP

roblematicFactorsforDoingBusinessinUkrainesRegionsin2011

CHAPTER 2

The most problematic factors for

doing business in Ukraines

regions in 2011

Corruption and policy instability are among the topthree problems aced by businesses in Ukraine,1 accord-ing to company executives polled rom a wide variety osectors across Ukraine (see Figure 2.1).2 However, where-as last year the problem o policy instability topped thelist, in 2011 it has moved down two positions to 3rd place.

Ukraines new ax Code, which came into orce on 1

January 2011, and the high level o uncertainty surround-ing its application, are likely to be two reasons why taxpolicy is now perceived as the number one problem odoing business in Ukraine. Business continues to respondnegatively to any sudden changes in state policy and thehigh risk that such changes create.

Its not surprising that ination and oreign currencyregulation, which were seen as pressing problems imme-diately ollowing the 2008 economic crisis, have in 2011been put on the back burner. However, considering thehigh level o macroeconomic instability currently beingexperienced by Ukraine, its likely that these two indica-tors will again move to the oreront o concerns about

doing business in the country.Compared to last year, the number o respondents

who indicated corruption as a problem o doing businessin Ukraine increased by hal. At the same time, oreigncurrency regulations, ination, access to fnancing andthe unpredictability o local and national governmentpolicy are mentioned less requently by business execu-tives as problems.

Tis year, 95% o company executives working indierent regions o Ukraine have noted rustration withthe same problems. Tis was not the case last year.

However, opinions are divided as to the biggest prob-lem o doing business in Ukraine. Tus, tax policy ranks1st in 13 out o 27 Ukrainian regions, as well as in Ukrainein general. Remarkably, taxation is the biggest concernor business executives in both the east (Dnipropetrovsk,Zaporizhzhya and Luhansk oblasts) and the west (Zakar-pattya, Ivano-Frankivsk and Rivne oblasts).

Te second biggest problem or Ukrainian businessas a whole is corruption, which becomes problem numberone in the countrys south (the Autonomous Republic oCrimea, Kherson and Odesa oblasts) as well as in the cit-ies o Kyiv and Sevastopol.

Policy instability was perceived as the main problemin only three Ukrainian regions, but it nevertheless re-

mains frmly embedded in the number three spot or thecountry in general.

In addition to the above top three problems,Ukraines tax rates also fgured prominently in responsesby businessmen in some regions. Although this problemwas noted in only 7.1% o responses in the country as awhole, it appeared more requently in regions where taxpolicy in general is seen as the biggest problem.

A sector analysis o the Executive Opinion Surveyshows that dierent industries and regions agree in theirperceptions about the top three problems o doing busi-ness in Ukraine (Figure 2.2). However, investment andinsurance companies as well as the hospitality and restau-

rant industry are more concerned by tax regulations. Tisproblem is less pressing or the ood processing industry,

1 Here we are talking about average scores across the regions o Ukraine.2 Executive opinion survey was conducted in the beginning o 2011.


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26

Chapter2.TheMostProblematicFactorsforDoingBusiness

inUkrainesRegionsin2011

three additional questions in its poll o company ex-ecutives: the diculty o receiving licenses and permits,working with regional customs, and access to land plots.As a result, one in our executives mentioned the permitsystem as an impediment or doing business, while one infve noted Ukraines customs policy as a problem.

the energy sector or utilities. At the same time, the bank-ing sector, construction business, and transportation andcommunications are more worried about corruption. Teagriculture sector perceives policy instability as its prior-ity problem.

Tis year, the Foundation, in partnership with theAmerican Chamber o Commerce in Ukraine, included

Figure 2.1 Most Problematic Factors for doing business - 2011 vs 2010

Source: Foundation for Effective Governance, Executive Opinion Survey 2011

4%

1%

2%

2%

3%

3%

9%

10%

5%

10%

8%

17%

10%

14%

1%

1%

2%

2%

2%

2%

3%

3%

4%

5%

6%

6%

6%

7%

7%

12%

15%

16%

0% 5% 10% 15% 20%

2011

2010

Tax regulations

Corruption

Policy instability

Tax rates

Inflation

Inefficient government bureaucracy

Local and national government instability

Access to financing

Permit and licensing system for doing business

Inadequately educated workforce

Regional customs policy

Inadequate supply of infrastructureCrime and theft

Poor public health

Access to land plots

Restrictive labour regulations

Poor work ethic in the national labour force

Foreign currency regulations

1%

Figure 2.2 Most problematic factors for business by industry, share of respondents who picked a factor as a problematic, 2011

Source: Foundation for Effective Governance, Executive Opinion Survey 2011

61 53 65 57 66 72 61 62 62 61 64 80 73

57 50 66 54 55 56 56 57 58 62 72 80 61

46 53 48 37 37 33 45 48 49 48 49 40 51

33 35 29 36 22 39 32 34 33 33 43 10 35

32 28 36 28 30 50 32 34 39 24 29 30 24

29 22 22 27 39 39 29 27 32 31 37 50 33

29 31 30 33 24 33 29 30 29 29 22 20 25

24 18 28 30 32 22 24 28 24 21 21 40 29

24 29 28 30 20 11 23 22 20 27 24 30 12

22 26 18 21 18 11 29 20 18 17 15 10 24

17 10 4 3 10 17 26 11 20 17 19 30 24

16 21 11 18 13 22 16 17 11 18 24 10 24

11 15 10 13 9 17 9 14 12 11 11 10 8

10 10 9 13 4 22 10 13 13 9 9 0 12

10 14 3 15 9 11 10 10 9 10 12 10 10

10 16 11 5 22 17 8 10 9 8 8 10 8

8 8 6 5 13 6 7 9 7 10 9 10 10

5 3 3 6 4 0 6 3 6 5 5 30 8

Ukraine

Agriculture

Construction

Electricity,

water

andgassupply

Extractiveindustry

Hotelsandrestaurants

Manufacturing

Otherservices

Wholesaleandretailtrade

Transportand

communications

Banking

Investmentbanking

Insurance

Tax regulations

Corruption

Policy instability

Tax rates

Inflation

Inefficient government bureaucracy

Local and national government instability

Permit and licensing system for doing business

Access to financingInadequately educated workforce

Regional customs policy

Inadequate supply of infrastructure

Crime and theft

Restrictive labour regulations

Poor public health

Accessto land plots

Poor work ethic in the national labour force

Foreign currency regulations


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Chapter3.

Ukraine

shighereducationsystem:quantitydoesnotalwaysleadtoquality

CHAPTER 3

Ukraines higher education

system: quantity does not

always lead to quality

According to the Executive Opinion Survey, theeducation system o Ukraine does not contribute to thegrowth o regional competitiveness, despite the relative-ly high scores it receives or individual indicators in theindex. Te scores or the indicators secondary educationenrollment rate and tertiary education enrollment rateplace the country among the top 20 in the WEF Glob-

al Competitiveness Index (able 3.1). It is ranked 8thamong 142 countries included in the report accordingto number o students at higher educational institutions(79.4%).1 However, Ukraines overall score under theHigher education and training pillar puts the countryin the lower global ranking o 51st place. Te reason orthis low ranking is Ukraines poor Quality o educationand On-the-job training. Every year, these two sub-pil-lars contribute to a lower overall education score or thecountry. Just our years ago, Ukraine was ranked 55thon its Quality o education and 83rd on its On-the-jobtraining. Tis year, it ranks 72nd and 103rd respectively.Despite its low ranking, the score o the Quality o high-

er education in Ukraine has been growing over the lastthree years, which means that Ukraine is lagging behindother countries in the rate o its educational improve-ment rather than in absolute terms.

Ukraines poor perormance in the Higher educa-tion and training pillar leads to a weakening o its overallcompetitiveness rating. Tis pillar is included under thesub-index o Eciency Enhancers, which are paramountin calculating the scores o countries at the second stageo development (under WEF methodology) whichmeans they will be very important or Ukraine in thenear uture. Te importance o Eciency Enhancers is

demonstrated by the high correlation between its Indexvalue and the welare o the region evaluated in termso Gross Regional Product (Figure 3.1). It will be verydicult or Ukraine to improve its competitiveness andwelare without improving its education system, par-ticularly Quality o education and On-the-job training.

oday, the most problematic actors o Ukraineseducation system are the ollowing:

The quality of education does not meet the current

expectations of employers. Tere is a gap between theskills o Ukrainian graduates and the needs o Ukrainianemployers. According to Executive Opinion Survey 2011(hereinaer reerred to as the Survey), one in fve em-

ployers considers poorly qualifed employees a problemor their business; six percent o executives believes it isthe biggest problem. In terms o sectors, ood process-ing and agriculture suer the most diculties as a re-sult o poorly qualifed employees. In these sectors, 29%o (ood processing) and 26% o (agriculture) businessexecutives noted that poorly qualifed employees hin-der the operation o their business. Te mining indus-try aces the same problem: nine percent o employersnote poorly qualifed workers as their biggest problem.Considering that over 30% o Ukraines working-agepopulation is employed in one o the above three sectors,qualifcation criteria is surely an important issue or theoverall economy.

In addition, each year Ukrainian business has be-come less and less satisfed with the qualifcations o the

1 World Economic Forum Global Competitiveness Report 2011.


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Chapter3.Ukraineshighereducationsystem:quantitydo

esnotalwaysleadtoquality

in the public sector. Tese are low-paid proessions asa result o a non-competitive labor market. Te ageingphenomenon is also observed in jobs with airly specifcworking conditions and qualifcations. As a result, youngspecialists are reluctant to work in these felds. Many ex-perts note that this will eventually lead to a signifcantshortage o such specialists, and thus to higher head-hunting and recruitment costs.

The system of education does not develop skills im-

portant for competitiveness. Te quality o management

training, which is a key element in any modern compa-nys perormance, is very low in Ukraine. Te countrydoes not train Western-style executives who can success-ully handle all the challenges o a market economy. Mostsurveyed company executives noted that Ukrainian busi-ness schools do not meet international standards. Teyscore 2.97 out o a possible seven points, with the inter-national average being 4.18 points.

In terms o quality o math and science educa-tion, the key indicator or measuring the developmento logical thinking and critical analysis, Ukraine lags arbehind most developed countries. Te average regionalscore is 4.21 points on a scale o one to seven. Ukrainethus exceeds the global average by 0.27 points, but places

available workorce. For example, last year, the poorquality o the countrys workorce ranked 13th in a list othe biggest hindrances to doing business in Ukraine. In2011, it ranks 10th out o 18.

The number of higher education graduates does not

meet the needs of the economy. Tis has led to a shortageo certain types o graduates and a high number o over-qualifed people at certain skills levels. On the one hand,employers experience diculties in fnding employeeswith the required skills; and on the other hand, univer-

sity graduates cannot fnd jobs. Te Ukraine Labor De-mand Study, produced by the World Bank, demonstratesthis mismatch o skills in the Ukrainian labor market.2 Ashortage o skilled blue-collar workers and an oversupplyo white-collar workers were recorded in 2009. Te studyalso demonstrates a lack o skilled employees in the pub-lic sector and many unflled vacancies as a result.

Te skills mismatch in the labor market can bepartially explained by a decline in Ukraines vocationaleducation. Tus, the share o students seeking vocationalqualifcations3 rom among the total number o Ukrain-ian students has dropped rom 62% in 1990-1991 to 27%in 2010-2011 (Figure 3.1).

Some proessions in Ukraine are ageing, primarily

Source: World Economic Forum Global Competitiveness Reports 2008 - 2011

Table 3.1 Results for Ukraine in the higher education and training pillar and its components

Indicator

5th pillar: Higher education and training

A. Quantity of education

B. Quality of the education

C. On-the-job training

2011

(out of 142)

Rank Score

51 4.58

14 6.23

72 3.97

103 3.54

2010

(out of 139)

Rank Score

46 4.61

13 6.23

67 3.95

97 3.65

2009

(out of 133)

Rank Score

46 4.38

16 5.59

61 3.92

89 3.64

2008

(out of 134)

Rank Score

43 4.46

21 5.58

55 4.09

83 3.70

2 Ukraine labor demand study, 2009, World Bank, Washington, DC.3 Students rom vocational schools and higher education institutions o levels o accreditation 1 and 2.

Figure 3.1 Higher education and training pillar and Gross Regional Product per capita of Ukraine's regions

3

4

5

6

0 1 000 2 000 3 000 4 000 5 000 6 000 7 000 8 000 9 000

GRP per capita 2009, USD

Higher education

and training pillar score, 2011

Kyiv

Kharkiv

Dnipropetrovsk

Kherson

Chernivtsi

Correlation coefficient = 0,76

Source: State Statistics Service of Ukraine, calculations of the Foundation for Effective Governance


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Chapter3.

Ukraine

shighereducationsystem:quantitydoesnotalwaysleadtoquality

70th in the global list o 142 countries - at the level oBenin, Zimbabwe and Kenya. Tis point is underlinedin the rends in International Mathematics and ScienceStudy 2007 (IMSS), where Ukrainian school childrenseducational achievements in these areas all below aver-age. Ukrainian ourth- and eighth- grade school childrenscored 469 (26th out o 36) and 462 (25th out o 45)

points, respectively, with the average international scorebeing 500 points. Te mathematics and science knowl-edge o Ukrainian school children are ar below most EUand CIS countries participating in the survey, and low-er than the levels o Singapore, China and Hong Kong.Sch

Documents

Competitiveness Ukraine Eng Report 2011