Regional Workshop on Social Enterprises in CEE

and the CISBrussels, 11 and 12 December 2006

The Ukraine National Study of Social Enterprises

Structure of presentation

•Scope of the study

•Our approach

•Labor market situation

•Third sector as an employer

•Social Enterprises in Ukraine

•Key problems to solve

•Strategy to solve them

The scope of the study

•to analyze the current role of the third sector (the social economy), and in particular that of social enterprises, in employment generation,

•assess the reality of development potential of this new type of organizations in Ukraine

•and propose a strategic plan for their development.

Our approach

•first step - detailed desk research

•second step –consultation process - 78 experts, civil servants and people’s deputies in 4 regions of Ukraine (Zhitomirskaia Oblast, Donetsk and Lugansk Oblasts, and the Autonomous Republic of Crimea), as well as in the capital, Kiev.

•third step – a strategic plan containing concrete intervention plans, implementation responsibilities and budgets.

Labor situation in Ukraine

•recent upsurge in job growth mainly due to the expansion of the informal sector.

•increase in the number of small enterprises, but limited (and decreasing) job opportunities offering real employment security and social benefits (e.g. pensions)

•relatively low unemployment levels (7.2%) (compared to European levels) - slow and delayed enterprise restructuring in Ukraine.

Regional unemployment levels

Zhitomirskaia Oblast : 9.8% - urban population most affected

Lugansk Oblast: 7.8% - female rural population most affected

Autonomous Republic of Crimea: 6.9% - urban population most affected

Donetsk Oblast: 6.2% - rural population most affected

Vulnerable groups

Main groups facing serious constraints to

enter the labor market are:

•young people with complete or

unfinished education (in particular those

from rural areas, small mining towns and

ex-convicts),

•young women with small children,

• and disabled people.

The third sector in Ukraine

•10 % increase p.a. over last four years

• number of non governmental organizations and charity funds: about 55,000

•a number of NGOs developed into a lobbying force, able to form effective partnerships and have improved their organizational capacity.

•But NGOs have still weak capabilities and resources and are dependent exclusively on international donors’ funding

The third sector as an employment generator

•Ability of NGOs/CSOs to generate stable employment limited

•Average staffing level observed in NGOs at present does not exceed three persons

•No strong evidence that these organizations are specifically attracting representatives of vulnerable groups as paid members of staff.

•Vulnerable groups most likely to be drawn into activities of organizations as volunteers.

Existing SEs concept and models in Ukraine

•Perceptions:

•general low awareness of social enterprises

•currently seen as having dual aim: to create jobs and contribute to third sector’s financial sustainability and social missions (through profits redistribution)

•Reality:

•Social enterprises currently exist in the form of commercial enterprises attached to a CSO/NGO;

•conceived and developed outside concept of geographic community and related only to NGOs development.

•de facto, projects that can be delivered anywhere regardless of whether they can be embedded or not into local contexts

•Evolving concept:

•a Ukrainian social enterprise concept has not emerged yet.

•only when social enterprises start developing and capturing the attention and imagination of communities that it will naturally emerge.

Legislative context Civil Code of Ukraine:

•Articles 85 and 86 regulate activities of non entrepreneurial organizations set up with or without the goal of making profit which would be later on redistributed between its shareholders if those activities correspond to the goals according to which the organization was created and facilitate their implementation. •Articles 168-169 of the CCU : government and territorial communities can create a public legal entity (state, communal enterprises) and a private legal entity (entrepreneurial organization, etc.) Commercial Code of Ukraine:

•Articles 52-54 : subjects of state and communal sector of the economy can carry out non commercial economic activities in spheres where entrepreneurship is forbidden by the law. Law on Citizens’ Unions•Enterprises of citizens unions can be formed in accordance with Article 112 of the CCU and with Article 20 of the Law for the realization of economic activities with the purpose of fulfilling their statutory goals.

Legislative context

Recent changes possibly promoting development of SEs:

•Civil and Commercial Codes both give regulative

definition of non-entrepreneurial society.

•draft Law “On non-entrepreneurial societies”

submitted to Parliament meant to determine the legal status

and conditions for creating non-entrepreneurial societies.

•Law “On citizens’ unions” allows NGO to establish

commercial enterprises in the form of “social” ones;

•Law “On social services” defines the main organizational

and legal foundations for providing social services

Legislative context

Despite positive developments, important legal constraints :

•absence of a special law on or at least legal definition of a “social enterprise”, its organizational and legal forms, aims and tasks, spheres of activity, order of creation and functioning etc.

•absence of legally stipulated state support: benefits on state taxes and duties, provision of soft (preferential) bank credits, advantageous rights to take part in tenders on budget funds purchasing (exception: NGO of the disabled).

SEs numbers and forms

•Current size of SE sector unknown (claims of about 200 enterprises in Ukraine).

•Main legal form of social enterprises: commercial enterprise attached to a citizens’ union or NGO.

•In general, SEs created to fulfill one purpose: to ensure financial sustainability of founders (NGOs).

•Commercial activities of enterprises range from providing consulting services/advice to running cafes, stationery shops, and hairdressing salons.

Social enterprises as employers

•No information available on precise number and dynamics of job creation by social enterprises •Counterpart International’s case studies: in 2002 job creation amounted to between 5 and 15 paid at or slightly below market wage •Eurasia Foundation’s research: details of known social enterprises across the country but no analysis of job creation impact. •Main types of jobs offered by social enterprises to employees: from enterprise manager to waiter, including sales persons, trainers and teachers, software programmers, etc. •Social enterprises tend to employ clients of their social activities.

The social side of SEs• Profits made by enterprises redistributed to the NGOs for social mission•Counterpart Alliance’s case studies: in 2002 social enterprises redistributed on average $10,000 per year to NGOs •Redistributed profits used to provide wide range of social services to vulnerable groups of the population:

•medical supplies to disabled at lower prices•free of charge meals to homeless and low income people•rehabilitation of women suffering from violence or oppression•provision of vocational training and rehabilitation to former drug addicts and alcoholics

•etc.

Main problems to tackleDistinct potential for employment generation

recognized by all, BUT

Strong recognition that key issues need to be

addressed:

•lack of enabling legislative and regulatory

environment, associated with lack of national

and regional champions;

•lack of effective business support

structures and strong partnerships with private

sector

•undeveloped state of third sector to

generate and manage more innovative

community projects, risk adverse nature and

limited resource base.

Proposed measuresMain goal: within the next five years, to lay down sound foundations for the development of a dynamic social enterprises sector in Ukraine able to contribute to employment generation (in

particular of vulnerable groups of the population) and provide a sustainable financing base for the NGO sector development and social goals implementation

Operational goal no 3.2: To enhance the resources of the NGO sector for its self development and motivation to engage into more risky and innovative projects

Priority Goal no 1 : To develop an enabling legislative and regulatory framework for the NGO sector and that of social enterprises

Priority Goal no 2: To develop effective business support structures for social enterprises and the third sector in general and promote the development of strong partnerships with the private sector

Operational goal no 1.2: To make the Ukrainian legislation more apt at facilitating the development of the Social Enterprises and NGO sector

Operational goal no 1.1: To create conditions for the development of a lobbying force (champions) at national and regional levels

Priority Goal no 3: To create conditions for the NGO sector to develop and manage innovative community development projects (in particular social enterprises)

Operational goal no 2.1: To develop a system of credit and financial support adapted to the needs of social enterprises.

Operational goal no 2.2 : To promote conditions for the creation of regional business support services targeted to the needs of the third sector organizations and social enterprises (resource centers)

Operational goal no 3.1: To raise public awareness of the role of social enterprises at national and regional levels among organizations of the third sector and the population at large

Operational goal no 2.3 : To create conditions for medium and large companies to become part of the business support system for NGOs and social enterprises

8 isolated small villages of Lukovskiy district (1600 people). Before social enterprise was established, they did not have transportation at all. .