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ENTERPRISE GROUPS IN BUSINESS STATISTICS OF UKRAINE

Olga Vasechko, Scientific and Technical Complex for Statistical Research, Kyiv, Ukraine E-Mail : O.Vasechko@ukrstat.gov.ua. ENTERPRISE GROUPS IN BUSINESS STATISTICS OF UKRAINE. Contents. The issue New penetration into the Ukrainian economy Group definition and statistical units

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ENTERPRISE GROUPS IN BUSINESS STATISTICS OF UKRAINE

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  1. Olga Vasechko, Scientific and Technical Complex for Statistical Research, Kyiv, Ukraine E-Mail : O.Vasechko@ukrstat.gov.ua ENTERPRISE GROUPS IN BUSINESS STATISTICS OF UKRAINE

  2. Contents The issue • New penetration into the Ukrainian economy • Group definition and statistical units • Links in groups • Ukrainian legislative base for EG • Statistical register of EG and information sources Conclusion

  3. The issue • Globalization process • Difficulties of the measurement economies through the traditional statistical measures • The Ukraine is also facing a rapid globalization process, especially enterprise groups (EG) impact on employment, research and development, and political activities • We need to find new statistical and economic approach to EG study

  4. The issue.In developed countries Enterprise Groups • give work for more than 50% employees (without sector of finance and physical units) • represent more than 60% of total direct foreign investment into EU • mobilise near 89% of the capital

  5. The issue.Target populations of business-surveysaccording to European norm LARGE BUSINESS LARGE ENTERPRISES – from 250 employees ENTERPRISEGROUPS SMALL AND MIDDLE BUSINESS • MICRO ENTERPRISES – from one to nine employees • SMALL ENTERPRISES – from 10 to 49 employees • MEDIUM ENTERPRISES – from 50 to 249 employees

  6. The issue.Self-organizing of business in Ukraine • business - associations - for small and medium business and is enlarged on the West, the North and on the Center of the country • enterprises groups - for large business development and it is enlarged on the East and the South of the country

  7. The issue.Share of business in total amount of business units Source: State Committee of Statistics of Ukraine; Eurostat; Observatory of European SMEs. 2003/7: SMEs in Europe, European Commission, Enterprise publications

  8. The issue.Share of business in total turnover

  9. The issue.Share of employment by business size

  10. 1.New penetration into the Ukrainian economy. The main foreign vectors of impact on large business in Ukraine

  11. 1. New penetration into the Ukrainian Economy. Barriers on a way foreign groups penetration in Ukraine • The legislation illegibility for state enterprise privatization • Large practice of offshore companies activity (shadow economy) • Ukrainian and Russian business lobby in authority bodies

  12. 1. New penetration into the Ukrainian Economy. Direct foreign investment in Ukraine as of 01.01.2007, mln. USD • Total 21186,0100,0 of which • Germany 5620,726,5 • Cyprus 3011,714,2 • Austria 1600,87,6 • United Kingdom 1557,27,4 • The Netherlands 1493,07,0 • United States of America 1418,06,7 • Russian Federation 980,84,6 • France 826,83,9 • Virgin Islands, British 808,33,8 • Switzerland 504,92,4 • Poland 366,01,7 • Hungary 364,51,7 • Other countries 2633,312,5

  13. 1.New penetration into the Ukrainian economy. The principal enterprise groups acting in Ukraine

  14. 1. New penetration into the Ukrainian economy. Russian groups control such areas in Ukraine as: • Oil refining • Aircraft building • The chemical industry • The aluminums industry • Mobile communication

  15. 2. Group definition and statistical units. Scheme of Ukraine business-statistics

  16. 3.Group definition and statistical units. Statistical units

  17. 2. Group definition and statistical units. EU Statistical legal acts regarding Enterprise Group • Seventh Council Directive 83/349/ЕЕС (1983) - it came into force for the first time for consolidated accounts of the financial year which began in 1990 • Directive 90/605/ЕЕС (1990) extended the scope of application of the Seventh Directive • Council Regulation (EEC) 696/93 (1993)on the statistical units for the observation and analysis of the production system in the Community • Council Regulation (EEC) 2186/93 (1993) on Community coordination drawing up business registers for statistical purposes

  18. 2. Group definition and statistical units. The group’ levels • An enterprise group is an association of enterprises bound together by legal and/or financial links. • An enterprise group can have more than one decision-making center, especially for policy on production, sales and profits. • A group constitutes an economic entity which is empowered to make choices, particularly concerning the units which it comprises. Group Head (The parent company) Group Core Other group members

  19. 3. Links in groups.Horizontal and vertical integration of enterprises into a group

  20. 3. Links in groups.Diagonal integration of enterprises into a group

  21. 2. Group definition and statistical units. Eurostat’ amendments • To consider a unit, coming from the highest level of consolidation (head of group) + • To include in the group the units whose accounts are fully integrated in the accounts of consolidating company + • To add mainly integrated units but whose accounts are not consolidated because of application of one of the criteria of the Seventh directive + • To take not into account temporal links lasting less than one year.

  22. The key business of SCM includes the following areas: Mining and metallurgical area Power energy area Financial area Additional areas The largest companies of SCM: Metallurgical Company Azovstal Еnakievо Metallurgical Works Joint Enterprise LLC Metalen Ferriera Valsider S.P.A. (Italy) Khartsyzskiy Pipe Plant OJSC Avdeevskiy coke-processing works Krasnodonugol Northern Mining and Ore Processing Plant Central Mining and Ore Processing Plant Pavlogradugol “Komsomolets Donbassa” Mine Vostokenergo Tekhrempostavka Druzhkovskiy Machine Building Plant Dongorbank First Ukrainian International Bank Ukrainian Joint Stock Insurance Company ASKA Ukrainian Joint Stock Insurance Company ASKA – LIFE Mobile operator Life:) LLC Astelit Optima Telecom Fixed-communications operator PJSC Farlep-Invest Druzhkovka ore management - refractory and fire-clays Vesco - refractory and fire-clays Gefest – chain of gas stations Brewing Group “Sarmat” “Donbass Palace” Hotel Publishing Group “Segodnya” TV and radio company “Ukraine” Football club “Shakhter” (Donetsk) 3. Links in groups.System Capital Management Group Structure, the head of group is in Donetsk. SCM has a controlling interest over than 90 enterprises, for which 160 000 employers work.

  23. All-resident Enterprise Group 3.Links in group Financial links Buying/sale Head Enterprise 70% 100% 50% 100% 100% Sub-group 100% Group 60%

  24. Trans-national Enterprise Group (TEG) 3. Links in group Head 100% 70% Sub- group 1 100% 100% 100% 50% Sub- group 2 Group 60%

  25. 3. Links in groups. Truncated Enterprise Group Group Sub-group 2 Head 100% Sub-group 1 70% 100% 100% 55% National Territory 100% 100% 65% 60%

  26. 4. Legislative base regarding to enterprise groups in Ukraine • Law of Ukraine “On economic societies” • Law of Ukraine “On holding companies in Ukraine” • Law of Ukraine “On state registration of legal and physical business-units” • Law of Ukraine “On a record-keeping and financial accounts in Ukraine” (articles 1, 12 and 14) • Position (standard) of record-keeping is a 20 “Consolidated financial accounts”

  27. 4. Legislative base regarding to enterprise groups in UkraineGroup’s definitions • As a base - company, which is a corporation • Different types of company, including joint stock company • Association of companies • Filial of company • Legal unit and its associated companies as an economic unit • Holding company • State holding company

  28. 4. Legislative base regarding to enterprise groups in Ukraine. Base for group’s creation • The group of enterprises can be created only on the base of joint-stock company. • The presence of branches does not ground to talk about the group of enterprises. • A group arises out of association of joint-stock companies among which after the different levels of hierarchy there are the parent and subsidiary companies.

  29. 4. Legislative base regarding to enterprise groups in Ukraine. Holding. • A holding company must be the open corporation. Legal unit, which is not the open corporation can not be a holding. • The open corporation can be a holding company only in case that it controls the interests (shares) of a few economic societies. • In case if the open corporation carries out the control above the legal units, which are not economic societies, it is not a holding company.

  30. Europe Union 20 % of share (voting right) of one enterprise belong (control by) to other one Ukraine Holding share is more than50% State holding - 100%of shares belong to the State Law on a record-keeping, article 20 on the consolidate accounts says nothing about the control rate. 4. Legislative base regarding to enterprise groups in Ukraine. Control in EG

  31. Unified Administrative Register State Business Register Register of State Corporate Rights Statistical Business Register Register of Legal Persons Register of Physical Persons Register of Groups of Enterprises Tax Register Unified Administrative Register of Physical persons Unified Administrative Register of Legal persons Administrative Register of Holdings 5. Statistical register of EG and information sources. System of business-registers of Ukraine

  32. 5. Statistical register of EG and information sources.

  33. In summary. Share of the factors which impact on ROA index formation in Ukraine, 2004-2005 Source: State Statistics Committee of Ukraine; Enterprises publications, 2005-2006; web-publications of Ukrainian enterprise groups

  34. In summary. • Creation of enterprise group statistics is actual, but a challenge. The basic methodological problems are connected to complexity of definition of statistical unit and conducting the time series. Open for Ukraine there are the questions of a degree of the control that is a part of a share holding which the supervising enterprise owns, and degrees of integration of subsidiaries in the group. • There are economic and legislative problems which decision leaves for the competence of statisticians. • The economic aspect of the analysis testifies about similar between Ukraine and EU’ counties incentive motives of group activity which however differ from the common economic ones. That is growing impact of groups, obviously, can lead to displacement of priorities and factors of economic development. • In the Ukrainian economy of 2004-2005 the greatest impact on the net profit – assets ratio change had such factors as changes of the total assets profitableness and labour productivity. Negative influence was rendered with growth of tax burden. • At the enterprise group level the most important was change of the net profit - gross revenue ratio that confirms a conclusion for the EU. By virtue of wide practice of the incomplete taxation of large firms ostensibly because of their essential contribution to various socially significant public areas the negative influence on scales and changes of GDP is possible as well.

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