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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
                  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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