New data available on legal problems and the impact of Covid-19 for mSMEs in Ukraine
In 2020, Centre for Democracy and Human Rights (CEDEM), in cooperation HiiL, conducted research among 815 Ukrainian micro, small and medium enterprises (mSMEs) to explore the legal challenges they experienced in the past two years, and how they expect Covid-19 to impact their legal problems.
mSMEs in Ukraine
mSMEs play a critical role in the Ukrainian economy. There are more than 1.5 million mSMEs in Ukraine, including micro-enterprises (0-9 employees), small enterprises (10-49 employees) and medium enterprises (50-250 employees). mSMEs employ 61% of the persons employed in business and constitute 99% of the country’s enterprises. Together, they contribute to 20% of the country’s GDP.
mSMEs most pressing legal problems
A relatively small proportion of the mSMEs from the Justice Need and Satisfaction (JNS) survey sample — 16% — say that in the past 2 years they had to deal with legal problems. But the reported legal problems are very serious, impactful, and costly. Findings suggest that the most common problems are related to disputes with suppliers and clients (23%), business premises (17%) or corporate fraud (15%).
Impact on daily business
The most common consequence of legal problems for all mSMEs is loss of market share (18%), followed by loss of clients (14%). Thirty-eight percent of mSMEs which report a problem, say that the most serious problem caused a considerable negative impact on the company’s finances.
OECD in its recent report highlights the impact of Covid-19 on mSMEs worldwide. It estimates that more than half of mSMEs world-wide suffer a fall in revenue and one third of the mSMEs anticipate being out of business without external assistance. In a study conducted by HiiL, thought leaders based in 20 countries across the world also predict that mSMEs are more likely to go bankrupt, and likely to face disputes with employees and suppliers as a result of the pandemic. They predicted an increase in disputes related to repayment of debt and regulatory compliance as well.
In Ukraine, mSMEs foresee primarily three types of problems to increase due to the pandemic: problems related to insolvency of clients or suppliers, compliance with health and safety requirements followed by their own insolvency.
Resolving legal problems
Many mSMEs try to solve the issue, but do not manage to receive closure. Only one in four legal problems has been assessed as resolved. Almost half of the reported problems are in a process of resolution.
Another quarter of the problems are deemed to be unresolved despite the pledged efforts. mSMEs try to negotiate, involve third parties and public institutions but rarely manage to reach a fair solution. Filing complaints with justice or administrative institutions often do not resolve the problem.
To resolve existing legal problems, mSMEs actively pursue negotiations, but it is difficult to convince the other party to cooperate. This indicates the need for services that bring the parties together to meet, talk, negotiate, decide, and implement fair solutions.
Justice innovation needed for user-friendly justice
Most of the legal problems of mSMEs remaining unresolved is a challenge but also an opportunity for the justice innovators in Ukraine. mSMEs are rather dissatisfied with the quality of procedures and results of justice processes. Justice workers, policy-makers, and innovators need to listen to the voices of mSMEs and focus their efforts on improving providing better access to justice.
The results of this survey suggest that justice services for mSMEs in Ukraine need to be further developed. Promising areas for innovation seems to be:
- Solutions that conclusively resolve legal problems
- Guided procedures that assist the parties in business disputes to meet, talk, negotiate, decide and implement fair solutions
- Accessible, fair and quick online or offline procedures involving third parties who decide on the issue and help to implement the decision
- One-stop shops for tailored advice, information and forms
- Solutions which help public authorities to provide better services to mSMEs
Ukraine has a thriving startup ecosystem. Kyiv, the country’s capital, ranks 32nd in the world and first in emerging Europe for having the best ecosystem for start-ups. It may be well placed to play a role in providing solutions for mSMEs.
Innovators providing solutions
In order to support justice startups from Ukraine, on 15 October 2020, a pitch event was held with the nine best innovators of the HiiL Innovating Justice Challenge 2020. These teams were showcasing their solutions for solving legal problems of mSMES and the Ukranian people. Please find here a video of the event.