IFC Helps Identify Opportunities for Growth in Ukraine’s Leasing Industry
IFC, the private sector arm of the World Bank Group, today released the results of a survey on Ukraine’s leasing industry that highlight growth in the sector and indicate expansion of the nation’s financial markets. The survey reveals that challenges remain, including the relatively high cost of leasing, which prevents some businesses from accessing this option to upgrade equipment or expand production.
This study is the third annual survey conducted by the IFC Ukraine Leasing Development Project, with support from the Agency for International Business and Cooperation, part of the Dutch Ministry of Economic Affairs. The results, which assessed performance during the year 2005-2006, are based on responses from 60 leasing companies.
Findings indicate that demand for leasing services as an alternative financial instrument has grown significantly in Ukraine: the total value of the leasing portfolio expanded by more than 108 percent, while the number of leasing companies in operation increased by 20 percent. The leasing industry is stabilizing and supporting an increasing number of jobs, long-term contracts are on the rise, and industry employment grew 50 percent during the period.
Several factors are contributing to this growth, such as increased interest in leasing from foreign-owned banks entering the market, growing public awareness, rapid development of Ukraine’s financial markets, and improved access to credit.
While the potential for growth remains high, the survey finds that there are still many obstacles. Issues to be addressed include changes in the tax code to make leasing a more viable option for businesses, and the absence of credit bureaus and a well-developed secondary asset market.
At a roundtable discussion to present the findings, Ernst Mehrengs, IFC Project Manager, said, “Leasing is an effective mechanism for the replacement of equipment, increasing sales volumes of equipment producers, encouraging technological progress in the design of equipment, and creating new employment opportunities.”
Mehrengs noted that the government’s recent effort to amend the national tax code with incentives for leasing is an additional step in the right direction. “If the draft of the amended tax code is approved, leasing will become less expensive for the lessee, thus increasing overall demand for leasing products and benefiting the overall economy,” he said.
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