BUSINESS ATTITUDE SURVEY OF VERKHOVYNA DISTRICT OF IVANO-FRANKIVSK REGION (UKRAINE) AND RUSCOVA VALLEY OF MARAMURES COUNTY (ROMANIA)

Hungary-Slovakia-Romania-Ukraine ENPI Cross-border Cooperation Programme 2007-2013 BUSINESS ATTITUDE SURVEY OF VERKHOVYNA DISTRICT OF IVANO-FRANKIVSK REGION (UKRAINE) AND RUSCOVA VALLEY OF MARAMURES COUNTY (ROMANIA) This project is funded by The European Union A project implemented by Agency for Private Initiative Development

Project "Local development and preconditions for border pass opening and motorway construction across the Ukrainian-Romanian state border in Shybene Verkhovyna district Ivano-Frankivsk Oblast of Ukraine and Poenile-de-Sub-Munte Maramures County of Romania" is implemented by Agency for Private Initiative Development under the Hungary-Slovakia-Romania-Ukraine ENPI Cross-Border Cooperation Programme 2007-2013 and is co-financed by the European Union through the European Neighborhood and Partnership InstrumentOverall project objective is to strengthen the economic capacities and investment attractiveness of border communities in Ivano-Frankivsk Oblast in Ukraine and Maramureş County in Romania through the promotion of sustainable development, investment opportunities, and infrastructural changes to improve the accessibility of the regions (building a motorway and opening a border pass in the vicinity of Shybene village in Verkhovyna District, Ivano- Frankivsk Oblast (Ukraine) and the village of Poienile de sub Munte in Maramureş County (Romania). The European Union is made up of 27 Member States who have decided to gradually link together their know-how, resources and destinies. Together, during a period of enlargement of 50 years, they have built a zone of stability, democracy and sustainable development whilst maintaining cultural diversity, tolerance and individual freedoms. The European Union is committed to sharing its achievements and its values with countries and peoples beyond its borders. The European Commission is the EU s executive body

Contents І. INTRODUCTION... 4 II. METHODOLOGY AND GENERAL CONDITIONS... 4 III. MAIN FINDINGS... 5 IV. RESULTS OF THE SURVEY... 7 1. BUSINESS STATUS... 7 2. BUSINESS CLIMATE... 8 3. SALES MARKETS AND COMPANIES LOCATION... 10 4. LABOR FORCE AND EMPLOYMENT... 13 5. REAL ESTATE... 16 6. SERVICES BY LOCAL AUTHORITIES... 19 7. CRITICAL ISSUES... 23 8. PRIORITY SECTORS... 25 9. BORDER CROSSING POINT... 26 10. OVERALL IMPRESSIONS... 28 V. SUMMARY... 31 3

І. INTRODUCTION In September November 2012, business attitude survey among employers and entrepreneurs of Verkhovyna district of Ivano-Frankivsk region (Ukraine) and Maramures (Romania) within the project «Local Development and Preconditions for Border Pass Opening and Motorway Construction across the Ukrainian-Romanian State Border in Shybene Verkhovyna District Ivano-Frankivsk Oblast of Ukraine and Poenile-de-sub-Munte Maramures County of Romania» was conducted. The goal of the survey was to obtain credible information concerning the thoughts and attitudes of the most active part of the population residing on of border territories that invest and create jobs. Survey concerned the nature and status of respondents businesses, employment issues, geography of business, administrative services providing by the local authorities and overall relations with them, business environment, and prospects for border pass opening across the Ukrainian-Romanian state border in Shybene (Zelena village) and Poenile-de-Sub-Munte. II. METHODOLOGY AND GENERAL CONDITIONS During September-November 2012 102 respondents have filled in the questionnaires (50 from Ukraine 52 from Romania). The list of companies that were interviewed included the biggest employers of the regions, as well as small and medium enterprises of Verkhovyna district and Ruscova Valley. In order to obtain complete and unaffected responses the respondents were assured that this report would not contain any references to the specific businesses and the information from the questionnaires would remain confidential. It should be noted that only few respondents used this option. Multisectorial specifics and differences between big companies and small and medium-sized enterprises were taking into consideration while compilation of this survey. 102 questioned companies do not represent and reflect the attitudes of the entire business community of Verkhovyna region and Ruscova Valley, but the survey included traditional employers, as well as dynamic and growing sector of small and medium companies that represent the significant part of the local economy. Respondents are the employers for 1991 persons (1249 in Ukraine and 742 in Romania)while 70 respondents employ less than 50 people each. During the survey individual entrepreneurs, owners and managers were interviewed. Obviously, it could not be affirmed that the employees share the opinion of the respondents. 4

III. MAIN FINDINGS 1. According to the profile of economic activity, respondents are involved in the food, telecommunication, construction and timber industries, as well as trade, consulting, tourism and services. 2. The local economy has low export orientation. Companies export only 15,24 % of their goods. Largest exporters are companies engaged in wood processing and construction that is conditioned to the geographical location of region. 3. The total number of employed people in all surveyed companies amounts to 1991 persons, additional 59 new jobs will be created next year transportation, consulting and road maintenance sectors. 4. Among respondents employees men dominate, and 20% are women; only 11% of the employees have higher education. 5. According to survey results, the satisfaction with the quality of labor force is as follows: 12% are excellent quality workers, 66% good, 20% satisfactory. 2% of workers (40 persons), in accordance with survey results, perform their job poorly. The average salary (as of 2012) is 231 EUR per month. The salary level at Ukrainian companies is lower (173 EUR) than salary level in Romania (277EUR). In 29 companies the respondent feels lack of such qualified workers as engineers, machine operators, drivers, mechanics, cookers, firefighters, barmen, postal workers. 6. Only four firms have departments engaged in scientific research (15 employees in general) and only one company is going to establish such department in the future. 7. 62 questioned companies consider the possibility to increase the amounts of production (services) in Verkhovyna district and Ruscova Valley of the Maramures county during 2013-2015. Thus, 1,2 million EUR will be invested to that increase that will create 182 jobs. 31 enterprises plan to expand their activity outside these regions. 8. During the survey the companies were asked what factors have the most negative impact on the business. The majority of respondents indicated such factors as: internal competition, general economic situation, costs for energy, materials and equipment, outdated means for production and remoteness to markets. 9. The average rate for the services provided by the local government bodies was 3,18 (where 1 is the excellent rate, and 4 poor ).Support to small and medium enterprises, roads maintenance, development of the infrastructure and education are were often mentioned as services that needed improvements. 10. Companies participated in the survey are satisfied with the cooperation with the head of regional administrations and his deputies, district council and its members, representatives of economics departments. Companies face lot of problems during cooperation with government authorities. The following were mentioned: bureaucracy, uncertainty in solving the current questions, complicated licensing and permit system, corruption, delays, big number of taxes. 11. Companies agree that the local economy will be improved with such positive changes at local level as: border-pass opening at Ukrainian Romanian border, tourism, infrastructure for business, small and medium enterprises development. 12. The interviewees identified the most important sectors of economy for the further development of Verkhovyna district and Ruscova valley. The leaders became: wood processing, hotel and restaurant business, ski resorts and agriculture. 5

13. 70 companies from 102 mentioned that opening of the international border pass at Ukrainian- Romanian border in Shybene is of vital importance and another 56 agreed that it will increase the efficiency of the companies operations. 10 respondents stated that they don t need the mentioned cross border point. 14. 21 companies are assured that opening of a new border pass will lead to business climate improvement in Verkhovyna district and Ruscova Valley. Other responds stated: 35 respondents said the situation would not be improved, 1 - it would grew worse, 14 no changes would occur and 11 difficult to judge. 15. Answering the questions about social impacts from the border pass opening (1 is least significant and 5 is the most significant impact) respondents gave the maximum rate to the point «district will not be considered as remote area of region» (3,92) and minimum rate to increasing of criminogenic situation (1,92). 6

IV. RESULTS OF THE SURVEY 1. BUSINESS STATUS Most of surveyed companies (71 of 102) were established after 1990. The majority of companies represent the wood processing industry, tourism, trade, construction, consulting and other services for population. Among the respondents there is one big employer (with 400 employees). This company is engaged in commerce, construction and transportation in Verkhovyna region. All businesses 3% 11% 3% 47% 34% 2% State Village / district Physical entities Legal entities Foreign entities Others Verkhovyna district Ruscova valley 17% State Village / district 0,04% 2,08% 0,23% 0,08% 0,04% State Village / district 4% 5% 17% 4% 53% Physical entities Legal entities Foreign entities Others 97,55% Physical entities Legal entities Foreign entities Others Figure 1. Structure of owners Most of the entities participated in the survey have state and private ownership (34% and 47%). The figures of Ukrainian and Romanian respondents show that the majority of Ukrainian entities are state-owned (53%) and in Romania (97,55%) private. The share of enterprises with foreign capital is small (it has only 2% of all employees). 7

2. BUSINESS CLIMATE Respondents from Verkhovyna district represent wood processing industry and respondents from Ruscova Valley are involved in consulting services and construction. According to the survey 57,76% of respondents goods is produced for local territory and only 15,24% is exported. For Ukrainian companies these figures are as follows: 54,07% of goods are sold within the region, 17,24% is exported; in Romania 74,51% and 6,69% accordingly. The biggest exporters among the respondents are representatives of wood processing and construction industries. Respondents were asked to name negative factors affecting the current and future development of the business. 70% 60% All businesses Verkhovyna district Ruscova valley 50% 40% 30% 20% 10% 0% General economic situation Energy costs Domestic competition Outdated means of production Costs of material, components, etc. Distance to markets Local administration attitude National legislation Shortage of skilled labor Labor costs Unavailability of financing Loss of former USSR markets Loan rates Foreign competition Environmental constraints Figure 2. Barriers for further development General economic situation was named as the most significant negative factor (59% of respondents). Also such factors as energy costs, internal competition, outdated equipment, costs for materials and distance to markets were listed in the survey. Restrictions related with the environmental protection, and foreign competition was rated of the least significance. In particular Ukrainian companies believe that negative impact may be caused by: general economic situation (56,67%), energy costs (50,00%), outdated equipment (36,67%), local competition (33,33%) and lack of qualified labor force (33,33%).It is interesting to note that none of the Ukrainian companies have indicated foreign competition as a barrier for further development. 8

By answering this question the Romanian companies paid attention to: general economic situation (61,29%), local competition (35,48%), attitude of local authorities (35,80%), distance to markets (29,03%), costs for materials and equipment (25,81%) and national legislation (25,81%). Expectations of Ukrainian companies, related to the Ukraine s accession to EU, as well as factors for Romanian companies from Romania s accession to EU are rather positive, but businessmen observe also negative outcomes. (Figures 3 and 4). Verkhovyna district Ruscova valley 80,00% 70,00% 60,00% 50,00% 40,00% 30,00% 20,00% 10,00% 0,00% 66,67% 67,74% 56,67% 54,84% 54,84% 33,33% 50,00% 32,26% 29,03% 6,67% 30,00% 6,45% 16,67% 16,13% 16,13% 6,67% Stable business climate Access to large markets without customs and another barriers Participation in EU programs Better legal protection of entrepreneurs Better labor supply Stable capital market Single currency Better protection of economic competition Figure 3. Advantages from joining the EU As presented above Ukrainian and Romanian businessmen gave same estimates to such positive factors as stable business climate, access to large markets without customs and another barriers, single currency. Big companies believe that main positive factors are stable business climate, better legal protection and single currency. Small companies besides stable business climate (69%) underline such positive factor as access to large markets without customs (55%), participation in EU programs (43%) and better legal protection of entrepreneurs (41%). 9

70,00% 60,00% 50,00% 46,67% 61,29% 54,84% Verkhovyna district 48,39% 53,33% Ruscova valley 46,67% 40,00% 30,00% 20,00% 10,00% 10,00% 23,33% 32,26% 33,33% 29,03% 6,45% 16,67% 12,90% 6,67% 6,45% 0,00% Strong competitiveness Strict environmental legislation Higher labor costs Additional expanses to adapt to new conditions Stricter consumer protection Rise in labor, services and goods Strict rules in state business support Stricter ethics Figure 4. Disadvantages for Ukraine in joining the EU and for Romania EU member Among negative expectations related to the Ukraine s accession to EU and Romania presence in EU, companies indicated strong competition, additional expenses to adapt to new conditions, higher labor cost. At the same time the respondents don t consider severe rules concerning the business promotion from the state and higher strict ethics as serious threats. The following negative factors from the accession to EU are expected by Ukrainian companies (53,33%), strong competition (46,67%), growing costs for labor force, services and goods(46,67%). Romanians observe existence of strong competition (61,29%), strict legislation on environmental protection (54,84%)and higher costs for labor force(48,39%). 3. SALES MARKETS AND COMPANIES LOCATION All respondents provided information about the geographical distribution of their clients (Figure 5).17 companies stated that they export part of their products abroad (9 Ukrainian and 8 Romanian). One Ukrainian company exports 100% of its production to EU. 58% of production is sold in Verkhovyna district and Ruscova Valley and 16% in Ivano-Frankivsk region and Maramures county. The survey data indicate relatively low export orientation of respondents. 10

All businesses 0% 0% 0% 15% 11% 16% 58% Within district Within region Elsewhere in Ukraine Other CIS countries Elsewhere in Europe Elsewhere in the World Romania Verkhovyna district 0% 0% Within district Within region Ruscova valley 5% 0% 7% 0% 0% Within district Within region 1% 17% Elsewhere in Ukraine Elsewhere in Ukraine 12% 54% Other CIS countries Elsewhere in Europe 14% Other CIS countries Elsewhere in Europe 16% Elsewhere in the World Romania 74% Elsewhere in the World Romania Figure5.Regional sales The largest exporters are representatives of wood processing and construction industries. Three companies with foreign capital export more than a half of their production. 4% of surveyed companies production is sold in Verkhovyna region, almost 29% on the rest of Ukraine s territory and 18% to other countries. 74% of production Romanian respondents sell in Ruscova Valley and 7% of production is sold abroad. 11

Within district Within region Elsewhere in Ukraine Other CIS countries Elsewhere in Europe Elsewhere in the World Romania 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% All Production Trade and services Big Medium Small Figure6. Local economy markets - the level of export orientation More than a half of respondents expect the increase of sales in comparison with 2011to the year end.11 respondents (4 Ukrainian and 7 Romanian) expect 10-20% decrease in sales. Average annual sales per one employee is 3787 EUR (4947 EUR in Ukraine,1835 EUR in Romania).The biggest efficiency (sales volumes per one employee) show companies engaged in wood processing, tourism, maintenance and construction works, trade and agriculture (more than 5000 EUR).The least is observed with companies engaged in the sphere of consulting and commerce (less than 1000 EUR). The highest efficiency level in Verkhovyna region was recorded with the company involved in trade (19395 EUR per year), the lowest - postal services, (1112 EUR per year). The highest sales levels in Ruscova valley was recorded with the company engaged in wood processing industry (40000 EUR), the lowest - consulting and transport company(250 EUR). The respondents were asked about main reasons to allocate their businesses in Verkhovyna region and Ruscova valley (Figure 7). 12

60 50 40 30 20 10 0 52 27 25 All businesses Verkhovyna district Ruscova valley 38 2018 32 22 17 10 10 7 6 6 3 0 1 1 1 1 0 1 2 3 4 5 6 7 1. Important market, consumers 2. Qualified labor force 3. Important suppliers of raw materials 4. Other 5. Cluster of industries related by a production profile 6. Important suppliers of components 7. Base for research and development Figure7.Factors effecting industries location For 52 companies one of the major reasons to locate businesses in Verkhovyna district and Ruscova Valley is a presence of the core consumers. Significant part of respondents stated that the most important factors are qualified labor force and suppliers of raw materials. Only one Ukrainian respondent underlined presence of R&D base as the core factor for company location. If to pay attention to differences in the responses of Ukrainian and Romanian respondents, the first three factors that influenced the decision to place the business in the target regions are the same. Nobody from Romanian respondents stated that cluster of industries related by a production profile or base for R&D are the factors to allocate companies in Ruscova Valley. The respondents also had an option to indicate own specific factor that influenced the business location in Verkhovyna district and Ruscova valley and as result they indicated the following: residence of the owner on the target territory; registration of the daughter-company that services specifically this target region. 4. LABOR FORCE AND EMPLOYMENT The total number of full-time employees is 1991 (1249in Ukraine, 742in Romania). Five years ago the number of employees was 1050 persons and in previous year -2178. Such a decrease in comparison with the previous year (by 262 employees) was registered in Romania (from 1004 to742). Ukrainian companies increased the number of employees during last year by 74 persons (from 1175 to1249). Next year the number of workers is expected to be increased up to 2049 persons. Romanian companies stated they plan to increase the number of employees by 20 persons (from 742 to 762 persons) and Ukrainian responders plan to provide new39 jobs. With investments involvement in the coming 2-3 years entrepreneurs plan to create 182 additional jobs (9% of increase): 122 in Verkhovyna region and 60 in Ruscova Valley. 13

Having analyzed the activity of small entrepreneurs the number of their employees was 431 persons in 2012. At the same time there is a trend of continuous increase of workplaces within last 5 years. The average number of employees per one employer in 2012 is 36 persons, in 2011 it was 43 (52 persons in Ukraine, 25 persons in Ukraine). Only 20% of women are the companies employees what is natural taking into account the man character of dominating industries (wood processing, construction, transport). At the same time the survey does not include main employers for traditionally woman jobs (education, health care). The number of working women in Ukrainian companies is bigger than in Romanian. In Verkhovyna district woman account 29,6% from all employees and in Ruscova Valley this figure is 3,77%. All businesses 2% 20% 12% 66% Exellent Good Fair Poor Figure 8.Quality of labor force The share of employees with higher education is 11% and five years ago it was 8%. The trend is quite stable and companies annually increase the percentage of highly educated workers. However the percentage of employees with higher education is not consistent with relatively small number of workers that are engaged in R&D directly at production (only 15 persons that is 0,77% from the questioned companies). R&D departments exist only at one enterprise; another two more companies consider the option of establishing one in the future. At Ukrainian companies the share of employees with higher education is 14,69%, which is twice more than at Romanians (6%). The satisfaction of employers with the quality of its staff (Figure 8) is relatively high. In general according to the respondents 12%of employees perform as «excellent»; 66% «good»; 20% «satisfactory» and only 2% poorly. The most demanding to labor force are the manager of the municipal sector, maintenance and construction works, tourism services and wood processing spheres. 14

Verkhovyna district Ruscova valley 2,75% 15,58% 0,96% 7,62% 31,80% Exellent Exellent 49,87% Good Fair Poor Good Fair Poor 91,41% Figure 9.Quality of labor force at Ukrainian and Romanian enterprises Figure 9 shows that that Ukrainian entrepreneurs gave more critical responses to the quality of the labor force. None of Romanian respondents rated its employees with poor mark. In Verkhovyna district four respondents are absolutely not satisfied with quality of labor force. Actual average monthly salary at the questioned companies is 231 EUR (200 EUR in 2011). The lowest salaries are recorded in production, trade and services sectors. (Figure10). 6000 5000 429 400 400 500 450 400 4000 3000 2000 1000 231 200 167 135 351 222 191 194 160 302 255 350 300 250 200 150 100 50 0 All businesses Production Building Trade and services Big Medium Small 0 Sales in 2012 Salary in 2011 Salary in 2012 Figure 10.Salary level and sales volumes per one employee. The lowest average salary was recorded at the company operating in the sales of electrical appliances (100 EUR), the highest salary - in maintenance and construction (1570 EUR).6 companies from 102 questioned showed the salary decreasing in comparison with 2011 that can be explained by the world finance crisis. These companies are from Romania and are in consulting and construction business. 15

In 2012 the salary level paid by Ukrainian respondents was 173 EUR per month and 277 EUR in Romania. During the last year the salary level increases by 28 EUR in Ukraine and by 22 EUR in Romania. 300 6000 250 5000 200 150 100 4000 3000 2000 Salary in 2011 Salary in 2012 Sales in 2012 50 1000 0 All businesses Verkhovyna district Ruscova valley 0 Figure11.Salary and sales per employee at Ukrainian and Romanian companies The issue labor force shortage is in the spot light. One third of respondents already face it (29out of102, namely 17Ukrainian and12romanian companies). Another 29 companies expect labor force problems in the nearest future (10 Ukrainian and 19 Romanian). The most often the following skills were mentioned deficit ones: engineers, drivers, mechanics, machine tool operators, cookers, firemen, barmen and postmen. The low salaries offered could be the reason for the situation. 5. REAL ESTATE 36 private businesses are the owners of buildings or land plots, 24 out of the mentioned ones are tenants and 25 use the combination of own and leased property for the business activity (17, 15, 10 in Ukraine and 20,8,15 in Romania). 16

Property for expansion Property owned or leased No 45% Own and lease 29% Own 43% Yes 55% Lease 28% Figure 12. Information about opportunities to expand business operations In Verkhovyna district and Ruscova valley 46 respondents have the opportunity for expansion (32 Ukrainian and 14 Romanian companies). Lack of property for expansion was indicated by 38 respondents. It was noticed especially in Ruscova valley, where 29 respondents stated that there is not enough property for operations expansion (8 in Verkhovyna district). Only six companies are ready to lease or sell the part of their premises (3 Ukrainian and 3 Romanian entities). It shows private sector s small potential for the improvement of current situation. Expantion in Verkhovyna district and Ruscova valley Expantion in other district Business liquidation 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Yes Consider No Figure 13.Business development plans Currently about one third of all surveyed companies are seeking opportunities to expand their operations on their territory (15 Ukrainian and 15 Romanian companies). Only ten entrepreneurs plann (2013-2015 ) to expand the production in the future with creation of the additional capacities in other localities and also 27 enterprises consider such possibility (in Verkhovyna district 4 and 10 enterprises respectively, 6 and 17 in Ruscova valley respectively). The reasons for this are lack of business opportunities and small demand for products and services. 17

Verkhovyna district Expantion in Verkhovyna district and Ruscova valley Expantion in other district Expantion Ruscova in valley Verkhovyna district and Ruscova valley Expantion in other district Business liquidation Business liquidation 0% 20% 40% 60% 80%100% Yes Consider No 0% 20% 40% 60% 80% 100% Yes Consider No Figure 14.Business development plans in Verkhovyna district and Ruscova valley 2 companies out of the 102 respondents is ready to move their activities outside the target regions (1 Ukrainian and 1 Romanian). The reasons are as follows: lack of land plots for expansion, crime, environmental restrictions, depressiveness of the regions, low purchasing power of population. The current condition of buildings and technological level is not considered as the optimal so financial sound companies plan to make significant investment to the production capacities improvement (Figure 15). 3 500 3 000 2 500 2 000 1 500 1 000 500 0 612 Investment per employee 3 108 0 644 All Production Building Trade and businesses services New workplaces 2 014 344 0 Big Medium Small 180% 160% 140% 120% 100% 80% 60% 40% 20% 0% Figure 15. Investments per employee and new jobs 31 entities from all the respondents (and another 31 plan to do so) intend to improve existing facilities and/or technologies in the next 2 or 3 years. They plan to invest 1,2 million EUR and create approximately 182 new jobs (according to specific indicators it is 612 EUR per one employee that will provide 9% of jobs increasing).the amount of investments is quite large in comparison with other regions but the number of jobs - not. The biggest part of new jobs relates to goods production sector (164%). Ukrainian businessmen intent to invest 820 thousand EUR in modernization and improvement of buildings and technologies (400 thousand EUR for the Romanian companies) that will allow 18

creating122 new jobs (60 in Romania). So the Romanian companies have less enthusiasm as for the improvement of their activities. 700 Investment per employee New workplaces 12% 600 10% 500 400 300 200 8% 6% 4% 100 2% 0 All businesses Verkhovyna district Ruscova valley 0% Figure 16.Companies upgrading investments Investments per one employee in Verkhovyna region are 657 EUR and 538 EUR in Ruscova valley (Figure 16). The more companies will invest the more new jobs will be created. 6. SERVICES BY LOCAL AUTHORITIES Respondents were asked to rate 11 types of municipal services with the scale from 1 to 4 (1 = excellent, 4 = not satisfactory). The average rate was 3,18. Evaluations obtained from the Ukrainian companies (average rate is 3,09) as for the services provided by local authorities were higher than Romanian figures (average rate 3,26). The lowest rate for the municipal services was given by the companies with foreign capital (3,90). 4,00 3,50 3,00 2,50 2,00 1,50 1,00 0,50 0,00 3,58 3,51 3,38 3,32 3,31 3,13 3,07 3,05 2,89 2,88 2,86 2 1 3 5 4 6 7 10 11 9 8 1. Provision of sites and buildings for business 2. Roads maintenance 3. SME support 4. Infrastructure development (gas, water, sewerage, electricity) 5. Civil construction 6. Wastes utilization 7. Public transport 8. Education 9. Law enforcement 10. Legislation for construction works 11. Legislation for business activity All businesses Verkhovyna district Ruscova valley Figure 17.Services provided by authorities 19

According to 43(28Ukrainian and 15Romanian) respondents the issue of road maintenance improvement is of vital importance. Respondents would also like to see improvements in infrastructure (21answers),support to small and medium enterprises (14feedbacks), education (8votes)and provision of premises and lands for business (3answers).Responses of Ukrainian and Romanian companies go inline that is why the same demands to authorities are observed. Companies were also asked about the services provided by the local government for businesses. Figure 18 demonstrates that companies actively support almost all services provided. The most popular are: actions on infrastructure development (support from 55 respondents), labor force training (48), establishment of business support centers (45), preferences provision to local companies (42), implementation of tax incentives (39), investments attraction (38), creation of business-incubators (38), direct support management (35), financial support for companies (35). Infrastructure Workforce development Business Support Centers Preferences provision to local companies Tax incentives Active investment attraction Business incubators Direct management support Financial support to businesses Economic development professionals Free sites 0% 20% 40% 60% 80% 100% I strongly agree I somewhat disagree I somewhat agree I strongly disagree Figure18.Services provided by government / local authorities Comparison of the Ukrainian and Romanian responses (Figures 19-20) shows that Ukrainian companies require more support from the authorities. They consider that local governments should actively support business development that could be possible through the infrastructure development, labor force, investments, tax incentives, creation of business support centers and other services. Romanian respondents do not see the need in government interference into business. Approximately five companies believe that local authorities do not have to play any important role in economic development and business support. 20

Infrastructure Preferences provision to local companies Business Support Centers Tax incentives Active investment attraction Workforce development Financial support to businesses Business incubators Direct management support Economic development professionals Free sites Verkhovyna district 0% 20% 40% 60% 80% 100% I strongly agree I somewhat agree I somewhat disagree I strongly disagree Figure19.Services provided by local authorities in Verkhovyna district Workforce development Infrastructure Direct management support Business Support Centers Business incubators Financial support to businesses Preferences provision to local companies Free sites Active investment attraction Tax incentives Economic development professionals Ruscova valley 0% 20% 40% 60% 80% 100% I strongly agree I somewhat agree I somewhat disagree I strongly disagree Figure20.Services provided by local authorities in Ruscova valley The respondents stated the following proposals to the local authorities: keep with the Constitution of Ukraine and do not violate the law of Ukraine On local self-government, make suggestions to improve Ukraine s legislation, keep with the laws of Ukraine and support business and attract loans and investments, do not interfere, reduce land taxes, reduces taxes for water and electricity, create recreational infrastructure (ski-lifts, attractions) in the form of pilot projects, motivate direct long-term purchases of raw materials from the state wood supply, protection from the 21

control departments, organize shows, exchange of experience and technologies, build bus stations, establish informational point for tourists. Respondents also rated contacts with local authorities and officials. Results (Figure21) demonstrate relatively positive feedback on entrepreneurs communications with local authorities. The most positively were rated contacts with the head of district council and administration, their deputies, members of village/district councils, economic departments, tax office and fire protection office. Head of district council and his deputies Head of the district state administration and his deputies Rayon council, committees Economic departments Fire Department Tax office Employment Center One-stop-shop Sanitary-Epidemiologic Station Villages authorities Permit center Police Department Financial Department Oblast authorities Carpathian National Nature Park Capital construction department Customs Business association Chamber of Commerce and Industry Other relevant institutions Satisfactory collaboration Unsatisfactory collaboration No opinion 0% 20% 40% 60% 80% 100% Partly satisfactory collaboration No contact Figure 21.Contacts with local authorities The negative communication balance was received by regional (village) authorities, capital construction management department, infrastructure and utilities department, police department and employment center. Many respondents stated that they had never had contacts with Chamber of Commerce, business association, customs office, Carpathian National Nature Park. If to consider the cooperation satisfaction level with local departments the difference between Romanian and Ukrainian can be notified. Ukrainian respondents consider their cooperation with the majority of local authorities as satisfactory, namely with the head of district regional administration and district council, their deputies, village/distract councils, economic department, tax office and fire protection service. 22

40 35 30 25 20 15 10 5 0 All businesses Verkhovyna district Ruscova valley 35 35 31 31 28 25 24 22 21 21 20 20 18 18 17 17 17 17 15 14 14 15 14 14 13 11 11 10 10 10 10 8 8 8 6 3 3 3 4 4 3 4 3 1 1 1 1 1 1 0 0 0 0 Head of district council and his deputies Head of the district state administration and his deputies Rayon council, committees Economic departments Tax office Fire Department Employment Center One-stop-shop Permit center Villages authorities Sanitary-Epidemiologic Station Financial Department Police Department Oblast authorities Capital construction department Carpathian National Nature Park Business association Customs 4 3 1 Chamber of Commerce and Industry Figure 22. Evaluation of cooperation with local authorities The entrepreneurs also had the opportunity to indicate the major problems that they faced during communications with above mentioned institutions and representatives of local authorities: - Bureaucracy of officials at all levels; - No confidence in solving the addressed issue; - Very complicated permit system; - Delays; - Preoccupation with paperwork; - Lack of communication, attention, motivation; - Big number of taxes. 7. CRITICAL ISSUES 23

Respondents were proposed to indicate three most important directions that should be described in strategic plan of economic development (Figure 23). 70,00% 60,00% 54,10% 50,00% 40,00% 30,00% 20,00% 10,00% 0,00% Opening International cross-border point All businesses Verkhovyna district Ruscova valley 42,62% 39,34% 39,34% 31,15% 27,87% 24,59% 18,03% 16,39% 11,48% Transport infrastructure Infrastructure for business Tourism SME development Communal infrastructure Foreign direct investment Agriculture / rural development Education Environment 8,20% Housing construction 4,92% Social services Figure 23.Critical issues to: Having an option to select from the 14 proposed only 3 main problems, respondents paid attention Border pass opening - 54,10%; Technical infrastructure 42,62%; Infrastructure for business 39,34%; Tourism 39,34%; SME development 31,15%; Municipal infrastructure 27,87%; Foreign direct investments 24,59%; Agriculture / rural development 18.03%; Education, training and retraining of workforce 16,39%; Environment 11,48%; Housing construction 8,20%; Social services 4,92%. Ukrainian businesspersons named border pass opening (63.33%), development of transport infrastructure (36.67%) and development of tourism (60.00%) as the most important issues that should be described in economic development of Verkhovyna district. Romanian entrepreneurs paid attention to infrastructure for business (58.06%), transport infrastructure (48.39%) and border pass opening (4516%). Nobody of Romanian respondents stated the 24

construction of housing, social services and industrial restructuring as important components of Ruscova Valley economic development. 8. PRIORITY SECTORS Respondents were asked to indicate three sectors of economy that will play the most important role in the strategic perspectives for Verkhovyna region and Ruscova valley (Figure 17). 80,00% 70,00% All businesses Verkhovyna district Ruscova valley 60,00% 50,00% 40,00% 30,00% 20,00% 10,00% 0,00% Wood processing Hotel and restaurant business Forest and wood manufacturing complex Ski Resorts Agriculture Household services Traditional crafts Alternative sources of energy Development of resorts on the basis of mineral springs Herbs harvesting and processing Food processing industry Mineral springs extraction and production Forestry, Environmental activities Medicine Greenhouse farming Figure 24. Important areas for strategic development of regions Being able to select from the fifteen possible sectors of economy only three most important in strategic perspective the respondents ranked them as follows: Woodworking 59,02%; Hotel and restaurant business 39,34%; Harvesting and processing of the forest products 36,07%; Ski resorts 36,07%; Agriculture (cattle breeding) 32,79%; Consumer services 16,39%; Traditional crafts and trades 13,11%; Alternative energy sources 13,11%; Spa resorts development 9,84%; Herbs harvesting 8,20%; Food processing industry 8,20%; 25

Bottling of mineral waters 8,20%; Forestry, environmental protection 8,20%; Alternative and traditional medicine 3,28%; Greenhouse farming 1,64%. Among types of economic activities necessary for the development of Verkhovyna region Ukrainian the respondents named the following: ski resorts (73,33%), hotel and restaurant business (46,67%) wood processing (43,33%). Romanian entrepreneurs indicated: wood processing (74,19%) as the most important industry, than harvesting and processing of forest products (41,94%) and agriculture (38,71%). In contrast to the Ukrainian companies nobody from Romanian respondents indicated spa and ski resorts development, bottling of mineral water as important businesses for region development. 9. BORDER CROSSING POINT Within the survey the respondents gave answers to the questions considering the perspectives of border pass opening at Ukrainian-Romanian border in Shybene (Zelene village). 70 out of 102 entrepreneurs stated that border pass opening is necessary for Verkhovyna region and Ruscova Valley (35 Ukrainian and 35 Romanian respondents). Another 10 respondents (4 Ukrainian and 6 Romanian) stated they do not see the need in such kind of pass. Such answers could be explained by absence of relationships with partners, relatives or friends across the border. Only four Ukrainian respondents cooperate with Romanian partners and in Ruscova Valley ten surveyed companies cooperate with Ukrainian partners. So, presently the cooperation between companies of Verkhovyna region and Ruscova Valley is quite active and border pass opening will contribute to the further improvement of the current situation. Twenty one respondents are sure that border pass opening will lead to a significant improvement of business climate in Verkhovyna region and Ruscova Valley (8 Ukrainian and 13 Romanian respondents). 35 respondents (18 and 17 respectively) consider that border pass opening will lead to moderate improvement of business climate, 1 Ukrainian respondent considered that it would become worse, 14 (4 and 10) considered that nothing would be changed and for 11 respondents (10 and 1) it was difficult to answer this question. Respondents had the possibility to rate the impact of border pass opening on economic situation in Verkhovyna district and Ruscova valley (Figure 25, 1 point nothing will be changed, 5 points significant changes are expected). 26

5,00 4,50 4,00 3,50 3,00 2,50 2,00 1,50 1,00 0,50 0,00 4,13 4,02 The number of visitors will increase Tourism sector will increase All businesses Verkhovyna district Ruscova valley 3,67 3,64 3,57 3,49 3,44 New markets will be opened Business start up opportunities will expand New opportunities for new types of businesses will appear Additional jobs will be created New investments 3,08 Number of competitors will grow 2,92 2,89 Unemployment will decrease Wages will increase Figure 25. Border pass opening impact on the economic situation As could be seen in the survey findings the companies associate significant changes connected with border pass opening. According to the respondents point of view it would have significant impact on the number of visitors to the regions, tourism sector, new markets, opportunities to start and develop business, preconditions for the development of new business types. The positive factor was recorded that rates by Ukrainian and Romanian respondents are similar, so the companies have similar viewpoint concerning the changes after the border pass opening. In response to the question about social impacts of the border pass opening (Figure 26: 1 point the least significant, 5 points the most significant) respondents supported the thesis that border pass opening will help their regions to become more visited (3,92 points) and the least score got the thesis that border pass opening would contribute to the criminality level increase (1,92 points). The other effects of border pass opening for Verkhovyna district and Ruscova valley are: development of tourism and other types of businesses, reducing of the unemployment level, social support and increase of communication level. According to the respondents point of view the most significant social effect from the border pass opening for Verkhovyna region will be the revival of the people movement across the border (4,13 points) and for Ruscova valley it is overcoming of the peripheral status of the territory (4,19 points). 27

4,50 4,00 3,50 3,92 3,70 All businesses Verkhovyna district Ruscova valley 3,44 3,41 3,30 3,26 3,00 2,50 2,00 2,31 2,23 1,92 1,50 1,00 0,50 0,00 District will cease to be periphery of the region Service sector will improve The number of cross-border contacts will increase It will be a development of housing and utilities Cross-border movement will increase Local communities culture will be easy accessible Environment will suffer The identity of the district will be lost Criminal situation will increase Figure 26. Social impacts of border pass opening Respondents consider that border pass opening will have such economic impacts: - jobs creation; - development of trade, hotel and restaurant business, construction of gas stations; - cooperation between cross-border territories; - international tourism development; - shipment of goods and tourists; - agriculture products processing and deep wood processing; - hotels and recreation facilities construction; - ski resorts construction; - number of animals increase; - natural sources processing; - location of plants close to the border; - new technologies development; - cross-border trade. 10. OVERALL IMPRESSIONS Respondents were asked to share their overall impressions about local authorities. The results of their answers indicated medium quality level of local authorities services 2,7 points on 4-point scale (4 is the least rate). 28

6 from 102 respondents rated the local government services the excellent score. 32 respondents rated the services of local authorities as good. 29 respondents rated satisfactory. 18 from 102 respondents rated village/district council (village/district council, executive committee, village head, and executive departments) as bad. District as place for business 4 38 25 14 Local government 6 32 29 18 0% 20% 40% 60% 80% 100% Excellent Good Fair Poor Figure 27. General impressions of local authorities services and business-climate Verkhovyna region and Ruscova valley as the territories for business activity received 2,60 rate which is a bit lower than the score given to authorities services 2,60; «1» is the highest rate. There are 4 «Excellent» rates, 38 «good», 25 «fair» and 14 «unsatisfactory». Romanian respondents rates of village councils services were significantly worse than Ukrainian ones. None of entrepreneurs rated the work of local authorities as excellent and only 11 respondents gave good rate. Ukrainian entrepreneurs in contrast to the Romanian participants didn t provide unsatisfactory rate to Verkhovyna local authorities services. Evaluation of the environment for business activity by Ukrainian and Romanian respondents was also different. Neither Verkhovyna district nor Ruscova valley are considered as ideal place for doing business. At the same time Romanian companies gave lower scores to their region and provided none of the excellent rates. 29

Verkhovyna district District as place for business 4 18 17 5 Local government 6 21 11 0 0% 20% 40% 60% 80% 100% Excellent Good Fair Poor Figure 28. General impressions of the local authorities and business climate in Verkhovyna region Ruscova valley District as place for business 0 20 8 9 Local government 0 11 18 18 Figure 29. General impressions of the local authorities and business climate in Ruscova Valley During filling in the questionnaire the respondents had the possibility to name advantages and disadvantages of local business climate. The positive elements of business climate in Verkhovyna district and Ruscova Valley were named: Natural resources; Tourism; Cooperation with authorities; Government support in issues solving; Geographical location; Cultural heritage; Big number of employees; Low level of competition; Population. 0% 20% 40% 60% 80% 100% Excellent Good Fair Poor 30

The negative elements of business climate in Verkhovyna region and Ruscova valley were named: Lack of real support for business; Lack of roads close to European standards; No guaranteed access to raw materials; Drawbacks in legislation; Remoteness to customers; Low purchasing power of consumers; Remoteness to big cities; Lack of financial sources and investments; Lack of job places; Lack of new technologies. The respondents at the end of the interview provided some comments and suggestions, namely: border pass opening is an important impact for the development of the target territories in trade and tourism spheres, municipal and road maintenance services. for the entrepreneurs involved in tourism services opening the border pass will contribute to cooperation promotion. there is no need for the new border pass, but if it will be opened good! border pass should be opened as soon as possible. V. SUMMARY This business attitude survey describes the summary opinion of business representative of Verkhovyna district and Ruscova valley. Their common attitude towards local authorities, necessity of border pass opening at Ukrainian-Romanian border in Shybene (Zelene village) to great extend will form the economic future of the regions. This report will be useful for local authorities in development for the business climate of the regions. The project «Local Development and Preconditions for Border Pass Opening and Motorway Construction across the Ukrainian-Romanian State Border in Shybene Verkhovyna District Ivano- Frankivsk oblast of Ukraine and Poenile-de-sub-Munte Maramures county of Romania» expresses acknowledgment to all respondents who shared their opinions and provided useful information and also to those who devoted time for making this survey. 31

The Hungary-Slovakia-Romania-Ukraine ENPI Cross-border Cooperation Programme is to be implemented in the period of 2007-2013 on the external border of the participating EU Member States with Ukraine. The European Neighbourhood and Partnership Instrument supports cross-border cooperations on the external borders of the EU. The overall objective of the Programme is to intensify and deepen cooperation in an environmentally, socially and economically sustainable way between Zakarpatska, Ivano-Frankivska and Chernivetska regions of Ukraine and eligible and adjacent areas of Hungary, Romania and Slovakia. The Joint Managing Authority of the Programme is the National Development Agency, Hungary. The website of the Programme is www.huskroua-cbc.net This document has been produced with the assistance of the European Union. The contents of this document are the sole responsibility of Agency for Private Initiative Development and can in no way be taken to reflect the views of the European Union. 32