Unjust lockdown

16 May 2020
Unjust lockdown
Home > Analysis > Unjust lockdown

Taisiia Alieksieieva, journalist of the Centre of United Actions, for LB.UA

Ukrainian entrepreneurs are a fantastically adaptive part of Ukrainian people that manage to get through any situation. This overoptimistic appraisal, though, could be crashed by the official statistics: because of the lockdown, every fifth business in Ukraine could close.

This information was published by the European Business Association after the poll conducted among the participants of the Unlimit Ukraine project in April — representatives of small and micro businesses.

According to the poll, 18% of respondents were thinking about closing their businesses, 78% reported that they had lost over 75% of their income, and only 4% answered that their income increased.

Each week of the lockdown inflict losses both on businesses and people. Several hundred thousand Ukrainians have registered at the unemployment exchange during this time. According to rough estimates by Ukrainian analytical centers, each month of the lockdown costs the state near 0.7% of its GDP, i.e. over ₴27 bln.

The Centre of United Actions analyzed whether it is possible to avoid potential and actual financial losses, if the Cabinet and the Parliament took the lockdown restrictions too far, what will happen to entrepreneurs that closed their businesses, and, most of all, what Ukrainian government should do to prevent further damage to the business.

Lockdown, but not for everyone

The lockdown was a necessary measure to prevent the surge of COVID-19 cases in Ukraine. The majority of entrepreneurs after spending 2 months under the lockdown and without profits have developed a different sentiment: it is bad to die, but it is even worse to die from hunger. Especially this is true about those who have not managed, at least to some extent, to switch to online or remote work.

The Ukrainian Government introduced a number of privileges and canceled some of the taxes — for example, the single social payment, — and launched programs to aid small businesses, in some cities entrepreneurs also received municipal extra privileges. Still, entrepreneurs throughout the country have not changed their plans to start protesting.

Since the start of the lockdown, representatives of small and medium-sized businesses have gathered near the Government building three times. Representatives of creative businesses decided not to gather a rally but instead to remind about themselves in a different way: on May 12, hundreds of searchlights brightened the sky over Ukrainian cities as a part of a performance Stop cultural lockdown.

Protests against the lockdown were held in Lviv, Kharkiv, Dnipro, and many other cities. The demands were similar: to ease the lockdown restrictions, ensure equal conditions for all businesses, and provide state aid to compensate losses caused by forced idle hours.

Serhii Dorotych, an entrepreneur from Kyiv and a member of SaveFOP Movement, thinks that people decided to rally not just because of money. Other triggers, according to him, are total distrust in government and unequal treatment. Recent stories about the restaurant owned by the MP Mykola Tyshchenko and a chain of home improvement and gardening retailer Epicenter K have called into question whether every business is equal in the eyes of law.

“Article 52 of the Constitution clearly states that no business can have preferences. Unequal treatment is what outrages our entrepreneurs the most. The ill-reputed Epicenter chain was selling and is still selling construction materials even now, on the 58th day of the lockdown. Small home improvement and gardening markets were allowed to open, but big markets are still closed. In Kyiv, for example, a lot of businesses work at the Yunist market. The state now allows a de facto monopolist to get excess profits. The situation is the same in practically every sphere. Tyshchenko’s restaurant is a prominent example,” — explains Serhii Dorotych.

According to the entrepreneur, the Government violated the basic principle of equal opportunities. Restrictions apply to common citizens but not to an MP that owns a large supermarket chain.

The Deputy Head of the Presidential Administration of Ukraine Kyrylo Tymoshenko answered the question of why not all stores work like Epicenter K thus: “Companies themselves make a decision whether they work or not”.

Serhii Dorotych emphasizes: such decisions and actions send a powerful and dangerous signal to the society that the state despises both people and entrepreneurs. Society returns the attitude and starts to despise not just Poroshenko or Zelensky but the whole system of state power.

How to save Ukrainian business

Although the Cabinet started to ease the lockdown restrictions on May 11, public transportation will continue to work in a restricted mode until May 22. The subway will be relaunched much later — during the fourth phase of lifting the restrictions.

Oleh Hetman from the Economic expert platform emphasizes the importance of getting public transportation, the subway in particular, back to regular schedule:

“Business will not be able to work properly without public transportation. Of course, the safety measures have to be preserved: vehicles have to be filled only to 50% of their capacity; the subway should ensure the mask regime and disinfection, control the number of passengers; travel privileges for risk groups should be temporarily lifted to prevent the overflow of people. Thus, the reopening of public transportation — with all necessary safety measures — is the most important task for the Government starting from May 22. I think the Cabinet will go for that and the cities that have subway will decide how and when to reopen it.”

His prognosis was later confirmed: on the second day after the restrictions were eased, transportation in Kyiv collapsed. Businesses have got their long-waited permission to work but still need from the Government to allow their employees to get to their workplaces.

Another matter that Oleh Hetman addresses is that regulations on commerce and trade during the lockdown are defined poorly:

“The Government has not noticed that the wording is quite weird. It looks like the Cabinet just forgot that an enormous number of people work at non-food markets. Lawyers wrecked their brains trying to understand whether non-food markets are allowed to work. As a result, local governments gave up and opened them. It is still unclear, though, what hardware stores and auto markets should do. Before May 22, these questions should get clear answers in the new version of resolution #221.”

Another necessary step the Government should make in order to help Ukrainian businesses — to abolish taxes not just until the lockdown ends but even for some time after that. In other words, the state has to give business as much fiscal freedom as possible until business will get back on track:

“Taxation should be significantly reduced until the end of the lockdown and for at least three months after. That can seriously help small and medium-sized businesses. For those who managed to keep their employees — make the single social payment voluntary: who wants to pay it — can pay, who does not want — does not pay. That will also be a significant help. This 22% of the payroll tax is the largest tax burden,” — emphasizes Hetman.

According to the expert, the budget deficit has to be covered in some other way — by cuts of inefficient budget spendings and/or additional inexpensive credits. Not by printing more hryvnias, though, because that will cause inflation and only deal more damage.

Another thing that troubles Ukrainian businesses — inspections of all kinds, because after the lockdown they can be abused by corrupt officials.

“If we want to save small businesses, we have to stop interfering with their work,” — says Svitlana Moroz, lawyer and co-managing partner in Dictum Law Firm. — “For example, we should introduce a moratorium on all inspections during 2020 or prohibit to apply sanctions if a violation was committed for the first time (start with a warning, and apply fines only if the entrepreneur has not acted upon it)”.

To fight the coronacrisis, we need cooperation between Kyiv and local governments. Not everywhere local governments implement an effective policy to protect small businesses, but the root cause is still in Kyiv: local governments’ powers in this sphere are limited.

The Cabinet has to ensure complex aid for small businesses. Foremost, to ensure that restrictions are reasonable and sanitary requirements for the business are intelligible and transparent.

Rules currently in place are dangerous because the mechanisms of their implementation in practice create corruption risks and can block the procedure of lifting the lockdown restrictions.