Constructive Capital in Ukraine

Constructive Capital is a key determinant of the development of the Ukrainian national economy. Ukraine has embarked on a path of transition to a market economy, striving to become developed and integrated. Over the past 30 years, the country has undergone numerous reforms, and various enterprises have been established. Capital has transformed from corrosive to constructive and vice versa, and continues to do so today.

We have identified the following types of capital in Ukraine:

• Foreign Capital (constructive and corrosive);
• Public Domestic Capital (government and municipal);
• Oligarch Capital;
• Other Corrosive Capital;
• Private Constructive Capital.

For a number of companies, the type of capital remains to be determined.

The object and purpose of this research paper is Private Constructive Capital.

Ukrainian Constructive Capital, according to our estimates, accounts for at least 15%. In addition, some companies with capital type to be determined may also be Constructive Capital. Thus, the aggregate share of Constructive Capital in the Ukrainian economy may amount to 20-25%.

Currently in Ukraine, Corrosive Capital prevails over Constructive Capital, constituting about 46% of the total volume. This is a significant problem in the context of Ukraine’s sustainable development. An increase in Constructive Capital has the potential to exert a positive influence on both economic and social growth.

Oligarchic capital dominates in industrial sectors of the economy, such as metallurgy, coal mining, oil extraction, electricity and natural gas distribution, etc. These sectors are limitedly competitive and are therefore limited for access to Constructive Capital. Government accounts for more than half of the entire banking sector.

This research paper includes the insights of a number of interviews with Founders and/or CEOs of business, which we consider representatives of Constructive Capital, representatives of business associations, and policymakers to explore key barriers in the path of Constructive Capital development and identify tools to facilitate its establishment in Ukraine.

During the stakeholder interviews our interviewees shared information on the following topics: stimulus for starting a business and the main challenges of the past; competition with other types of capital; the impact of different types of capital on the business environment; supportive trends in responsible business and investment; the state of rule of law in Ukraine; transparency of Ukrainian businesses.

Subsequently, the following two recommendations were formulated based on the insights of the discussions, which can be determined that need to be implemented in Ukraine to increase the share and impact of Ukrainian Constructive Capital. Establishing uniform rules for all businesses is essential to ensure equal opportunities, and promote fair competition within the business landscape. Deregulation is essential for economic growth, entrepreneurship, investments, and enhanced competitiveness by simplifying processes and reducing bureaucratic obstacles, creating a favorable environment for business development.

In addition, the business emphasized such other postulates of the development of Ukrainian Constructive Capital: protection of property rights, judicial reform, comprehensive privatization, customs reform, military risk insurance, predictable tax policy, tariff liberalization, anti-corruption reform, EU and NATO integration, implementation of the tax on repatriated capital, adjustment of the education system to labor market requirements.

As this research marks the first of its kind in Ukraine, the matter of capital types, particularly Constructive Capital, may be subject to further investigation in subsequent researches, including but not limited to:

• Establishing a comprehensive methodology for determining capital types in Ukraine;
• Researching capital types in key industries of Ukrainian economy;
• Investigating the impact of Constructive Capital on the economy and society of Ukraine;
• Determining recommendations for transitioning Corrosive Capital into Constructive Capital.

This publication was created with support from the Center for International Private Enterprise (CIPE).