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 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 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 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 The issue. Target populations of business-surveys according to European norm LARGE BUSINESS LARGE ENTERPRISES – from 250 employees ENTERPRISE GROUPS 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 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 The issue. Share of business in total amount of business units 99,8% 99,8% 100,0% 80,0% 60,0% 40,0% 0,2% 0,2% 20,0% 0,0% SME (1 - 250) Large (>250) EU Ukraine Source: State Committee of Statistics of Ukraine; Eurostat; Observatory of European SMEs. 2003/7: SMEs in Europe, European Commission, Enterprise publications The issue. Share of business in total turnover 56,9% 56,6% 60% 50% 43,4% 42,6% 40% 30% 20% 10% 0% SME (1-250) Large (>250) EU Ukraine The issue. Share of employment by business size 69,7% 70% 60,6% 60% 50% 39,4% 40% 30,3% 30% 20% 10% 0% SME (1-250) Large (>250) EU Ukraine 1.New penetration into the Ukrainian economy. The main foreign vectors of impact on large business in Ukraine 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 1. New penetration into the Ukrainian Economy. Direct foreign investment in Ukraine as of 01.01.2007, mln. USD • Total 21186,0 100,0 of which • Germany 5620,7 26,5 • Cyprus 3011,7 14,2 • Austria 1600,8 7,6 • United Kingdom 1557,2 7,4 • The Netherlands 1493,0 7,0 • United States of America 1418,0 6,7 • Russian Federation 980,8 4,6 • France 826,8 3,9 • Virgin Islands, British 808,3 3,8 • Switzerland 504,9 2,4 • Poland 366,0 1,7 • Hungary 364,5 1,7 • Other countries 2633,3 12,5 1.New penetration into the Ukrainian economy. The principal enterprise groups acting in Ukraine Ukrainian Russian System Capital Management Lukoil (Oil production and trade, filiales of Petrocomertzbank, Aviatekbank, TV channel CTB, Russian Radio, Hit-FM, Radio Z) Donbass Industrial Union Russkiy Aluminum (Aluminia production, 2 filiales of commercial banks, UkrSibBank, TV channel ORT, Our Radio, Radio Ultra, Independent Newspaper, Publishing House “Commersant”) InterPipe Alfa-Group (Oil production and trade, Alfa-bank, KievInvestBank, Insuranse CompanyOstra Kiev TV channel) Privat Aliance (Oil production) Trade-Group ARS Norilsky Nickel (Nickel production) Insurance-Group TAC SurgutNefteGaz (Oil production) UkrPromInvest Energo UkrAuto Aval UkrSib 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 2. Group definition and statistical units. Scheme of Ukraine business-statistics Законодавче поле статистики підприємств Річна структурна Стандарти Короткотермінова статистика підприємств бухгалтерського обліку (місячна, квартальна) (за секціями КВЕД: від А статистика підприємств до К та від М до О без Обстеження сектору бюджетної сфери) База метаданих і система виробництва товарів: показників Промисловість (С, D, E) Річне обстеження Будівництво (F) База уніфікованих Сільське господарство (A, статистичних та Основні економічні та B) адміністративних адміністративні класифікації річних даних Обстеження сектору Перехідна система виробництва синтезу даних ринкових послуг: Статистичний реєстр підприємств для СНР Роздрібна та оптова підприємств Міжрегіональна база торгівля (G) Ведення реєстру, річних даних та Транспорт (I) демографія реєстрів підприємств Фінансові послуги (J) підприємств База метаданих Нефінансові послуги (H, Узгодження поля структурної K, M, N, O та 50.2, 50.4, різних обстежень статистики 52,7 секції G) підприємств підприємств Формування і ротація вибіркової сукупності Отримання інформації База даних по групах з адміністративних Тематичні обстеження підприємств реєстрів Інформаційне середовище та програмні засоби 3.Group definition and statistical units. Statistical units Enterprise Group Independent Physical person - Enterprise in the Group Enterprise Enterprise UA-1 UA-2 LU- LU-12 LU-2 11 LUA- LUA LU LUA-2 111 -121 A- 122 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 2. Group definition and statistical units. The group’ levels 1. An enterprise group is an association of enterprises bound together by legal Group Head and/or financial links. (The parent company) 2. An enterprise group can have more than one decision-making center, Group Core especially for policy on production, sales and profits. 3. A group constitutes an Other group economic entity which is members empowered to make choices, particularly concerning the units which it comprises. 3. Links in groups. Horizontal and vertical integration of enterprises into a group NACE – DN PRODCOM Manufacturing of furniture NACE – chairs and office and kitchen other Technology seats - shop furniture – furniture – 36.11 furniture – 36.13 36.14 cycle 36.12 A 02 Logging and tree felling DD 20 Manufacturing of wood and wood products DN 36 Manufacturing of furniture G 51, 52 Wholesale and retail trade 3. Links in groups. Diagonal integration of enterprises into a group CB 13 DF 23 DJ 27 Basic DK DA 15.96 G 51.51 H J 65, 66 NACE Mining of Coke oven metals and Machinery and Manufacture of Wholesale of Hotels and Financial metals ores products metal products equipment beer solid, liquid restaurants intermediation and gaseous fuels CB 13 Mining of metals ores DF 23 Coke oven products DJ 27 Basic metals and metal products DK Machinery and equipment DA 15.96 Manufacture of beer G 51.51 Wholesale of solid, liquid and gaseous fuels H Hotels and restaurants J 65, 66 Financial intermediation 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. 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. • Ukrainian Joint Stock Insurance The key business of SCM includes the Company ASKA following areas: • Ukrainian Joint Stock Insurance • Mining and metallurgical area Company ASKA – LIFE • Power energy area • Financial area • Mobile operator Life:) LLC Astelit • Additional areas • Optima Telecom • Fixed-communications operator The largest companies of SCM: PJSC Farlep-Invest • Metallurgical Company Azovstal • Еnakievо Metallurgical Works • Druzhkovka ore management - • Joint Enterprise LLC Metalen refractory and fire-clays • Ferriera Valsider S.P.A. (Italy) • Vesco - refractory and fire-clays • Khartsyzskiy Pipe Plant • Gefest – chain of gas stations • OJSC Avdeevskiy coke-processing works • Krasnodonugol • Northern Mining and Ore Processing Plant • Brewing Group “Sarmat” • Central Mining and Ore Processing Plant • Pavlogradugol • “Donbass Palace” Hotel • “Komsomolets Donbassa” Mine • Vostokenergo • Publishing Group “Segodnya” • Tekhrempostavka • Druzhkovskiy Machine Building Plant • TV and radio company “Ukraine” • Dongorbank • Football club “Shakhter” (Donetsk) • First Ukrainian International Bank 3.Links in group Financial links • All-resident Buying/sale Enterprise Group Head Enterprise 70% 100% 50% 100% 100% Sub-group 100% Group 60% 3. Links in group • Trans-national Enterprise Group (TEG) Head 100% 70% Sub- 100% group 1 100% 100% 50% 60% Sub- Group group 2 3. Links in groups. Truncated Enterprise Group Group Sub-group 2 Head 100% 70% Sub-group 1 100% 100% 55% National 100% 100% 65% Territory 60% 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” 4. Legislative base regarding to enterprise groups in Ukraine Group’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 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. 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. 4. Legislative base regarding to enterprise groups in Ukraine. Control in EG Europe Union Ukraine • 20 % of share (voting right) of one enterprise belong • Holding share is more than (control by) to other one 50% • 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. 5. Statistical register of EG and information sources. System of business-registers of Ukraine Unified Administrative Register State Register of State Business Register Corporate Rights Statistical Business Register Register of Legal Register of Physical Persons Persons Register of Groups of Enterprises Tax Register Unified Administrative Register of Physical persons Unified Administrative Register of Legal persons Administrative Register of Holdings presence of information it is present it is absent State business register of Identification Actual legal and physical persons, characteristics, basic information on including the State register of links in a group under a structure and holding companies of Ukraine the registration links in a group Consolidated financial Information on the Information on accounts (including on financial state of financial state holdings) group of every member of group Structural business statistics Structural and Complete production structural information on every information 5. Statistical enterprise about a group Special surveys of financial Complete information Complete register of EG links in group about the structure of economic group, identification information and and information characteristics and working out in participation in a detail of links in sources. capital a group Information of web sites of Data on activity, Irregular data groups of enterprises structure, source consolidated accounting – can be used as auxiliary information generator In summary. Share of the factors which impact on ROA index formation in Ukraine, 2004-2005 Factors Total economy, % Enterprise groups impact, % total assets profitableness 156,79 2,59 net profit - gross revenue ratio 63,93 91,86 ability to pay taxes from working 5,04 3,50 assets labour productivity 279,56 -22,14 tax burden on one employee -408,32 24,19 ∑ 100 100 Source: State Statistics Committee of Ukraine; Enterprises publications, 2005-2006; web-publications of Ukrainian enterprise groups 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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