Journal of Scientific Papers VUZF REVIEW Volume 6, Issue 4, December 2021

ISSN 2534-9228 (online)

VUZF University of Finance, Business and Entrepreneurship

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Journal of Scientific Papers

VUZF REVIEW Volume 6, Issue 4, December 2021

https://papersvuzf.net/index.php/VUZF/

VUZF review, № 6(4) – 2021 ISSN 2534-9228

Vol. 6, №4 December, 2021

Founded in 2016 by the VUZF University The editorial board Editor of the publication

Ivan TKACH

Prof, Dr. of Sciences, Ukraine;

Deputy Editor-in-Chief Radostin Vazov

Assoc. Prof. PhD, Bulgaria;

Igor Britchenko

Prof., Dr. of Sciences, Poland;

Members of the editorial board Mitko Atanasov Dimitrov

Prof., PhD, Chairman of the Academic Council of the Institute for Economic Research of the Bulgarian Academy of Sciences, Bulgaria;

Igor Britchenko

Prof., Dr. of Sciences, VUZF, Bulgaria;

Daniela Bobeva

Prof. Dr., Professor at the VUZF, Bulgaria;

Mariana M. Petrova

Assoc. Prof. PhD, St. Cyril and St. Methodius University of Veliko Turnovo, Bulgaria;

Stanislav Dimitrov

Assoc. Prof. PhD, VUZF, Bulgaria;

Julia Dobreva

Assoc. Prof. PhD, VUZF, Bulgaria;

Ali Veysel

Assoc. Prof. PhD, VUZF, Bulgaria;

Desislava Josifova

Assoc. Prof. PhD, VUZF, Bulgaria;

Manyu Moravenov

Assoc. Prof. PhD, VUZF, Bulgaria;

Marián Mesároš

Prof., DrSc, Rektor, University of Security Management in Košice, Slovakia;

Peter Lošonczi

PhD., Vice-rector for scientific work and educational process, University of Security Management in Košice, Slovakia;

Jozefína Drotárová

PhD., Vice-rector for Science and Research (Department of Science and Research), University of Security Management in Košice, Slovakia;

Marcin Jurgilewicz

PhD, DrSc in social sciences in the field of security science, professor at the Rzeszów University of Technology, Poland;

Bartosz Mickiewicz

Dr. of Sciences, Professor, Dean of Faculty of Economics, West Pomeranian University of Technology, Poland;

Petro Gudz

Dr. of Science in Economics, Professor, Kujawy and Pomorze University in Bydgoszcz, Poland;

Tomasz Wnuk-Pel

Poland;

Costas Siriopoulos

Ph.D., Professor of Finance, College of Business, Zayed University, United Arab Emirates;

Prem Lal Joshi Mir Abdul Sofique Dio Caisar Darma

Professor, Dr., Senior Fellow, Indian Council of Social Sciences Research (ICSSR), India; Dr., Associate Professor Department of Tourism Management University of Burdwan, India; Assist. Prof., Department of Management, Sekolah Tinggi Ilmu Ekonomi, Indonesia;

Omar Durrah

Dr., Associate Professor of Management in Dhofar University, Sultanate of Oman;

Ahmar Uddin Mohammed

Dr., Assistant Professor (Accounting and Finance), Dhofar University, Department of Finance and Economics, Salalah, Oman;

Iryna Yepifanova

Dr. of Science in Economics, Professor of Department of Finances and Innovative Management, Vinnytsia National Technical University, Ukraine;

Nataliya Tanklevska

Dr. of Sciences, Prof., State Higher Educational Institution "Kherson State Agrarian University", Ukraine;

VUZF review, № 6(4) – 2021 ISSN 2534-9228 Vitaliy Shapran Dr Richard Tomlins

Dr Vladimir Danykiv

Professor, Ph.D. in Economics, Member of the National bank of Ukraine Council, Ukraine; Associate Head of School, Faculty of Business and Law, Enterprise and Innovation, School of Marketing and Management, United Kingdom; Visiting Professor at the Early Childhood Department, Muhammadiyah University of Ponorogo, Indonesia; Ph.D. in Economics, Credit Risk Manager, Fly Now Pay Later, United Kingdom;

Roman Blizkyi

Dr. of Sciences, Prof. of the State University of Management, Member of the Institute of Professional Accountants of Russia (IPAR), Russia;

Maksym Bezpartochnyi

Dr. of Sciences, Prof. at the Department of Economics, Marketing and International Economic Relations Faculty of Soft Engineering and Business National Aerospace University named after N. Zhukovsky “Kharkiv Aviation Institute”, Ukraine;

Olena Chukurna

Dr. of Sciences, Professor of State University «Odessa Polytechnic», Ukraine;

Viktor Trynchuk

Ph.D., Assoc. Prof. of Department of Banking and Insurance National University of Life and Environmental Sciences of Ukraine, Ukraine;

Yaroslava (Iaroslava) Levchenko

Doctor of Economics, Professor of Kharkiv National Automobile and Highway University, Ukraine;

Jurgita Sekliuckiene Sudhanshu Rai Panagiotis Kontakos Sahure Gonca Telli

Professor of International Business, Kaunas University of Technology, Litva; Associate Professor, Phd, Copenhagen Business School, Copenhagen, Denmark; Assistant Professor in International Business & Entrepreneurship, UCLan Cyprus University, Cyprus; Prof. Dr., Dean Faculty of Economics and Administrative Sciences Dogus University, Turkey;

Mustafa Erdogdu

Professor of Department of Public Finance, Marmara University Faculty of Economics, Turkey;

Mariam Arpentieva

Grand Dr. of Psychological Sciences, Associate Prof., Professor of the department of development and education psychology, Tsiolkovskiy Kaluga State University, Russia;

Radmila Pidlypna

Doctor of Economic Sciences, Professor, chair of the Department of Finance UTEI Kyiv National University of Trade and Economics, Ukraine;

Andrii Nikitin

PhD in Economics, Associate Professor, Professor Kyiv National Economic University named after Vadym Hetman, Ukraine;

Yasheva Galina Liudmila Bagdonienė Hans van Meerten Reinhard Magenreuter

Doctor of Economics, Professor, Vitebsk State Technological University, Belarus; Professor at Kaunas University of Technology, Litva; Professor, Utrecht University - Utrecht Centre for Shared Regulation and Enforcement in Europe – RENFORCE, The Netherlands; Dr., Private investor MG GbR, Germany.

e-mail: vuzfreview@gmail.com; tkachivan9@gmail.com https://papersvuzf.net/index.php/VUZF/index, тел. +38(093) 752-81-56 The authors of articles are responsible for the authenticity of facts, quotes, their own names, geographical names, names of enterprises, organizations, institutions and other information. Opinions expressed in these articles may not coincide with the point of view of the editorial board and do not impose any obligations on it.

VUZF review, № 6(4) – 2021 ISSN 2534-9228

CONTENT 1

Optimization of the mechanism of financial incentives for the development of logistics activities in the polish construction industry Bohdan Cherniavskyi …………….….……………………..………………….…………………

2

6

The economic effects of the COVID-19 pandemic on the polish economy Iwona Dudzik, Irena Brukwicka …………….….……………………..………………….………. 15

3

Development of the taxation of retirement products in Bulgaria Stanislav Dimitrov …………….….……………………..………………….…………………….. 22

4

Economic and mathematical models for forecasting the development of the space industry Svitlana Koshova, Igor Britchenko, Maksym Bezpartochnyi …………….….…………………… 33

5

Economic assessment and forecast models for the development of the agrifood sector of the Republic of Belarus Bartosz Mickiewicz, Antonina Efimenko…………………………………………………………………………….

6

Theoretical basis of formation potential of agri-food enterprises

and

development

of

42

economic

Yekaterina Volkova ..…………………………………………………………………………………………………………. 49

7

Climate change as a challenge for the economy Georgi Momchilov ………………………………………………………......................................................... 58

8

Financial risk management in the accounting system Umantsiv Halyna, Novikov Vladyslav, Nikolaiets Oleksandra.................................................. 70

9

The influence of international offshore jurisdictions on the pricing strategy Оlena Chukurna, Larysa Radkevych, Liliya Rudyk………………………………………………………………… 79

10 Clusterization of the Republic of Belarus economy: results and prospects Galina Yasheva, Yulia Vailunova………………………………………………………………………………………….. 91

11 The role of innovative marketing in ensuring the competitiveness and economic security of the enterprise Olha Matviiets, Yuliia Krevnik…………………………………………………………………………………………….. 98

12 Financial security of enterprises from Poland, Germany, and Great Britain Jolanta Puacz-Olszewska……………………………………………………………………………………………………. 103

13 Formation of marketing strategies of enterprises in the market of logistics services in the context of world trends Natalia Solidor, Svetlana Verytelnyk, Heorhii Anikin………………………………………………………….

115

14 Risks of investing in the agricultural sector of Ukraine's economy in the context of modernization of the industry Alina Burliai, Oleksandr Burliai, Roman Zhuravel, Borys Okhrymenko……………………………….. 128

VUZF review, № 6(4) – 2021 ISSN 2534-9228

15 The analysis of the digital transformation trends in the Ukrainian economy Hanna Snopenko, Olga Balueva, Olena Tanchyk…………………………………………………………………. 136

16 Managerial competences in family firms from the service and production sectors Izabella Kęsy, Marcin Kęsy, Patrycja Ślusarczyk …………………………………………………………………. 145

17 The consequences of ageing for the Polish economy Iwona Dudzik, Irena Brukwicka …………………………………………………………………………………………… 157

Competitiveness of EU Member States Regarding the Implementation of the 18 Europe 2020 Strategy Alina Walenia …………………………………………………………………………………………………………………….. 164

Role of tax incentives for increase in personal pensions saving 19 Stanislav Dimitrov ………………………………………………………………………………………………………………

175 Selected financial indicators as a tool for optimizing local government units 20 management Marek Wolanin …………………………………………………………………………………………………………………. 185 Monetary incentives and fiscal policy mutual influence 21 Vitaliy Shapran ….……………………………………………………………………………………………………………….

198 Mathematical model in the banking on the ex ample of simple percentage 22 Anna Małgorzata Jatczak….…………………………………………………………………………………………………

205 Use of design methods in optimising the economic resources of an 23 enterprise Maciej Ślusarczyk, Izabella Kęsy, Patrycja Ślusarczyk…..…………………………………………………….. 213

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Optimization of the mechanism of financial incentives for the development of logistics activities in the polish construction industry Bohdan Cherniavskyi * А A VUZF

University, 1 Gusla Str., Sofia, 1618, Bulgaria

Received: October 21, 2021 | Revised: October 28, 2021 | Accepted: December 25, 2021 JEL Classification: C18, C8, E66, F43, G18, H21, H54, L91.

DOI: 10.38188/2534-9228.21.4.01 Abstract The article explores the role of various financial incentive instruments in optimizing the financial mechanism of logistics development in the construction sector of the economy. The author focuses on the necessary to use a synergistic approach in the study of efficiency issues of two related industries - logistic and construction sectors of the national economy. Positive factors such as convenient location, available transport potential, established logistics system, material and resource base and the potential of domestic producers determine the rapid development of the construction industry, which brings its significant contribution to the development of the national economy of Poland. At the same time, the main factor contributing to the development of construction business is domestic production of construction materials. In this context, it should be noted that the country has developed the potential of its own production of building materials, there is a sufficient fleet of construction machinery and construction equipment, innovative technologies are being introduced, highly qualified personnel, etc. Comprehensive assessment of financial-investment and transport-logistic potentials in the context of the regions, as well as differentiated approach allowed to offer a matrix of financial stimulation tools for the development of logistics in construction in a horizontal and vertical strategy. At a time of intensifying crisis phenomena, simultaneous stagnation of regional development and increasing competition in the globalized world, the issues of selecting effective instruments of financial support for the development of national transport and logistics system and construction sector of economy gain priority importance, as they can generate a significant increase in the gross domestic income of the state budget and become one of the main sources of ensuring Polish competitiveness.

Keywords: financial incentive mechanism, logistics in the construction business, financial incentive tools, financial and investment potential, transport and logistics potential.

Introduction As you know, logistics is a key unifying link, as well as one of the main factors in the development of practically all sectors of the national economy. Its development almost synchronously reflects changes in other areas of the economic system, for which it is an integral part of operations and business model (Yinping Gao, Daifang Chang, Ting Fang, Tian Luo, 2018).

The events of recent years related to the *

elimination of crisis phenomena during the pandemic motivate us to search for optimization of the logistics system, as well as effective financial incentive tools (Riccardo Aldrighetti, Daria Battini, Dmitry Ivanov, Ilenia Zennaro, 2021).

It should be noted that for any country in the world, including Poland, construction has always been an indicator and priority of socio-economic

Corresponding author: Master, aspirant VUZF, e-mail: office@vuzf.bg, ORCID: 0000-0001-9174-6139

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development. Being one of the most powerful levers of growth, the systematic and effective functioning of the construction sector determines the comprehensive development of both the economy of the regions and the country as a whole (Giang Dang & Pheng Low, 2011).

The process of development of the construction industry has a complex, composite and multidirectional character, which also needs state regulation and stimulation due to its strategic importance. As the basic conditions that determine the effectiveness of the

construction business, we consider it necessary to recognize the transport, logistics and financial and investment potentials (Jessop David, 1994).

Thus, the study of the current state and conditions of development of the domestic transport and logistics system, as well as the existing financial and investment regional opportunities create prerequisites for the development of methodological and practical recommendations of directions, mechanisms and tools for financial support of construction activities.

Material and methods One of the main methodological principles of the logistics concept is a systematic approach.

Logistics systems are included in the generally accepted concept of systems, since they consist of system-forming elements that are closely interrelated and interdependent with each other, which have ordered connections, and form a certain structure with predetermined features. These systems are distinguished by a high degree of consistency of incoming productive forces in order to control through material flows (Natalia Antczak, 2017).

The following research method we used an adaptive approach. A logistics system is an adaptive feedback system that performs certain logistical functions, consists of subsystems, and has developed intra-system connections and connections with the external environment. The logistics system constantly interacts with the external environment, thereby being an indicator of stability in various sectors of the economy, including in construction. In the context of our research, adaptability is the ability of a logistics system to change its structure and choose behaviors in accordance with new goals and under the influence of the environment.

Because of the numerous specific threats to safe development and their impact on the logistics processes in construction in general and on the implementation of a particular object in particular, the methodological model should include a situational approach. The situational

approach explores which methods and tools of financial incentives and in which operating conditions are considered effective in a specific period of time and in a specific situation.

It should be noted that the situational approach is considered one of the main ones in management, it complements the system approach and in the literature it is also often called a functional approach.

The fundamental approach in this study is the synergetic approach. A number of the author's publications describe the attributive properties of the logistics system as an artificial, complex, open, ergatic, technical-technological, ecological-socio-economic, spatial-temporal system of optimization modeling of the delivery of the right goods at the right time to a specific consumer. The formation of logistics systems and supply chains in construction unites all subjects into a single coordinated mechanism of relationships, allows you to organize coordinated management of technical and technological, economic and financial, material, information flows and processes, and also ensures their efficiency, synchronicity and high efficiency. Hence follows the correlative dependence of the efficiency of the construction business described by many authors on a successfully functioning transport and logistics system (Lavine Marc, 2018).

According to the synergetic approach, the complex structure of interdependent and mutually complementary systems (construction, 7

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as well as transport and logistics) accelerates the pace of development of the socio-economic system as a whole, that is, the established rate of development of the whole is higher than the rate of development that was the fastest developing structure that entered the whole (Hall Bronwyn & Howard Kirsten, 2008). In this context, we are talking about increasing the

level of socio-economic development of the territorial entity - the country and its constituent regions.

The importance of the synergetic approach in the development of the logistics system in the construction of Poland and its constituent regions is shown in Fig. 1.

➢ Improvement of financial and statistical indicators of the regions ➢ Optimization of operational expenses of activities ➢ Increase in entrepreneurial activity ➢ Growth of tax revenues to budgets of all levels

➢ Modernization of construction and related industries ➢ Strengthening transport security, minimizing transport costs in construction ➢ The growth of innovation activity, as well as the attraction of domestic and foreign technologies

Technical and technological aspect

Economic aspect

SYNERGISTIC EFFECT: - growth of competitiveness; - growth of investment attractiveness; - development of various forms of doing business; - development of interaction between government and business

Social aspect

Information aspect

➢ Increasing the level of employment, ➢ welfare and quality of life of the population ➢ Increasing the level of provision of infrastructure facilities, as well as residential and commercial real estate ➢ Increase in the level of business activity of the population

➢ Increasing the level of information availability and awareness of all participants in logistics and construction activities ➢ Expanding the boundaries of government communication with business entities ➢ Unified information, regulatory and consulting platform

Fig. 1. Synergetic effect of logistics interaction in the construction business of Poland

Results and discussion To determine the content of the mechanism of financial stimulation of logistics activities in any of the sectors of the economic system, consider the concept of the financial mechanism itself.

In the financial and credit encyclopedic dictionary, the financial mechanism is interpreted as a set of types and forms of organization of financial relations, instruments and levers of influence of public authorities on 8

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the economic and social development of society with the help of public finance (Gryaznova A. G., 2004).

A panoramic review of the literature on this subject indicates that the focus of the research of the first group of scientists is focused on the importance of the structure of the financial mechanism, the second – on a system of measures aimed at using objectively existing financial relations, the third – on a set of methods by which economic laws or a set of forms, methods and levers used in financial relations are put into effect (Tarakanov V.V., Kalashnikov A.A., 2016).

It should also be noted that the structure of the financial mechanism itself is complex due to the fact that financial relations are diverse and depend on a large number of multi-vector factors: regulatory, socio-economic, managerial and other nature (Aleksandra Łuczak, Agnieszka Kozera, 2021). The most common opinion of scientists in the economic literature is that the structure of the financial mechanism covers five interrelated elements: regulatory, legal, information support, financial methods and financial levers.

All structural elements of the financial mechanism are interdependent and interrelated, integrated into a single ensemble, and the combination of specific types, forms and methods of organizing financial relations forms the "architecture of the financial mechanism".

The subjects of the financial mechanism develop the most favorable instruments that meet the specifics of the activities of the main participants in the economic process, including prices and taxes, lending rates, duties and benefits, fines and sanctions, grants and grants, subventions and subsidies, interest and tariffs. These tools are used adequately to the methods of financing selected processes, their significance, level and scale of implementation. Due to the wealth of equipment with tools and methods, the financial mechanism acts as the most dynamic part of the financial policy formed by the country's leadership.

Based on the general understanding of the

financial mechanism, it is possible to clarify the content of the mechanism of financial incentives for logistics activities in construction, taking into account its specifics.

The mechanism of financial stimulation of logistics activities in the construction business, according to the author, expresses the diverse connections between the subjects of transport and logistics activities on the issue of creating favorable conditions for construction on a specific territory and stimulating its development through the use of special tools.

The elements of this financial mechanism include: directly the subjects of financial incentives for logistics activities in construction, the goals of enhancing the development of logistics in the construction business, a set of financial methods to achieve the goals and the appropriate tools for their implementation, sources of means to achieve the goals, regulatory and information support for the processes of financial incentives for the development of logistics activities (see Fig. 2).

The subject of the author's in-depth research is the study of the separation of effective tools for financial incentives for the development of the logistics system in construction from the whole variety of tools that exist today (Bohdan Cherniavskyi, Radostin Vazov, 2020). The analytical research is based on the materials of the analysis of financial, investment, transport and logistics potential in the context of the regions of Poland.

The overall assessment of the effectiveness of the tools of financial incentives for the development of logistics in the construction business can be calculated using an integral index. According to the formula (1), which is calculated by the author as the product of the geometric averages of the model.

I = n P1  P2  P3  P4  ...Pn Where - I is an integral index for evaluating the effectiveness of financial incentives for the development of logistics in construction; P n individual indices of individual development potentials.

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FINANCIAL INCENTIVE MECHANISM FOR LOGISTICS IN THE CONSTRUCTION BUSINESS

- EU Budget Cohesion Funds; - Polish National Road Construction Program for 2014-2023; - State program investments in the Polish railway industry 2023; - Financing of the EU ERTMS implementation program [European Railway Transportation Management System]; - Support of the Polish Information and Foreign Investment Agency (PIFIA);

SUBJECTS:

Purpose:

Result:

- the state represented by the authorized authorities;

- modernization of construction and related industries; - increase in entrepreneurial activity; - improvement of the investment climate; - growth of tax revenues to budgets of all levels; - improving the quality of life and increasing the welfare of the population; - improving the level of national competitiveness

- innovative development; - social effects; - commercial effects

Sources: - governmental; - non-governmental; - mixed

FORMS OF INCENTIVES: - direct; - indirect

DEVELOPMENT TOOLS:

- public and private domestic and foreign investors;

- financial and credit institutions; - customers and contractors; - subjects of economic activity;

FINANCIAL METHODS: - financing (budget, venture, mixed); - co-financing; - benefitment; - lending; - taxation; - donation; - subsidizing; - investing; - grant provision

FINANCIAL INSTRUMENTS: - subsidies, subventions, budget allocations, budgetary and private investments, loans and borrowings, investment tax credit, tax benefits and tax holidays, tax rates, special investment regime; special taxation regime, government contracts, financial assistance, grants, public-private partnership instruments

Regulatory and legal support: - regulatory and legislative acts of the EU and Poland; National Development Strategy of Poland; state development programs; budgets of the country and its regions

Information support: - information base on market conditions, investment climate; regulations and legislative acts, tenders, grants, FEZ (free economic zone) functioning

Fig. 2. Semantic content and structure of the mechanism of financial stimulation of logistics activities in construction Analytical evaluation of the investment The assessment of transport and logistics potential of logistics development in the context potential is shown in Fig. 5 and 6, respectively. It of provinces were carried out on the basis of should be noted that the generalized generalization of statistical information from 2009 characteristic of transport and logistics potential to 2019. The general trend line for all regions of contains both quantitative and qualitative Poland is shown in Fig. 3. The dynamics by regions indicators. In particular, Figure 6 shows the in the context of the reporting periods (sample cartographic characteristics of the logistics years) is shown in Fig. 4. potential in the context of the regions of Poland by the number of unloading and loading terminals and logistics centers.

Fig. 3. The trend of growth of the financial and investment potential of logistics development in the construction of Poland in 2009-2019

Fig. 5. Characteristics of Poland's transport potential for 2010-2019 10

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Diagram 7 clearly shows the comparison of financial-investment and transportationlogistics potential.

Fig. 4. Dynamics of changes in the financial and investment potential of logistics development in construction in the regions of Poland for 2009-2019

Fig. 6. Characteristics of the logistics potential of Poland, 2019

Fig. 7. The comparison of financial-investment and transportation-logistics potential of the regions of Poland Financial instruments that can be used to stimulate business activity in the construction sector are grouped depending on the nature of their impact on the construction business. In this study, the total set of all instruments was divided into: group I (instruments of direct financial incentives), group II (package of mixed instruments – combinations of direct and indirect financial incentives), group III (instruments of indirect financial support) As a result of the analysis of each financial incentive tool that is applicable to the logistics of the construction industry, it was possible to form a matrix of the use of financial instruments in the context of a vertical and horizontal strategy, which is presented below in table 1.

Table 1. - Matrix of the financial stimulation tools for horizontal and vertical logistics development strategy of the construction industry Incentives Adjustment tax rate

Horizontal strategy The solution to the problem of effective development transport and logistics enterprise is possible with regulation of the tax rate, seems to be effective with a horizontal strategy (+++)

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Vertical strategy Performance reduction because of the possibility of application of aggressive tax systems planning (+)

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Incentives Tax holidays

Beneficial loans

Benefits under investment agreements

Investment subsidies

Export-oriented incentives

Export processing zones

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Horizontal strategy Application as an effective tool to stimulate business in the context of negative dynamics of the macroeconomic indicators.

Providing market equilibrium (+++) Implementation as an effective tool for crisis management and business stimulation in regional development stagnation. Market equilibrium and anti-crisis regional development policy (+++) Reducing efficiency of benefits, provided within the framework of investment agreements under the horizontal strategy are associated with possible budget losses (++) Low level of usage associated with insufficient the effectiveness of this incentive in a horizontal strategy because of the overly strict (+) The lack of popularity of this tool is due to the existence of more effective tools of incentives

Effective in creating free economic zones (FEZ), industrial parks and clusters (+++)

Vertical strategy High risks of dumping in regarding functioning subjects are reduced efficiency of using this tool (++) With a vertical strategy the opportunity to boost the volume of domestic investment increases in a short-term perspective (++) Application of benefits in the framework of investment agreements in the vertical strategy is caused by opportunities to attract capital (+++) More effective with a vertical strategy, and encouraging targeted investment (++)

Within a vertical strategy, it is possible to intensify foreign economic activity and stimulate the growth of foreign direct investment (FDI) (+++) More effective in combined with horizontal strategy (++)

References 1 + - rarely used; 2++ - are used often, but inefficient use is possible; 3 +++ – active priority application.

In table 1, financial incentive instruments are divided into three groups, depending on the level of demand for stimulating the development of logistics in the construction sector of the economy: - weak usage; - active use; - priority use.

The selection of financial incentive instruments was carried out on the basis of the published results of the study "CONFIDENCE INDEX 2018/2019. Logistics and Supply Chain Optimism Index for Poland" and "Five factors influencing the development of the transport and logistics industry. Overview of trends in the development of transport and logistics in 2019".

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The effectiveness of the above tools in the vertical strategy of financial incentives is explained, first of all, by the possibility of achieving a variety of goals when applying specific financial incentives for development.

The main reason for using such preferences is mainly to stimulate investment activity, improve the investment climate and, especially, to attract foreign direct investment (FDI). The multiplicative effect of the inflow of FDI is not only to increase the level of employment of the population, as well as the increase in the number of high-paying jobs in the country, the introduction of advanced technologies, but also can have a positive impact on the growth of competition and increase the efficiency of domestic markets, thereby making a significant contribution to the overall economic development of the country.

The innovative-investment vector of development of the national economy as a whole and of the transport and logistics system in particular should become a national development priority. These processes are closely interlinked with issues of financial provision, which is the subject of scientific interest of many scientists. Blockchain technology (Britchenko I., Cherniavska T., 2019),

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automation and robotisation of processes (Lehmacher Wolfgang, 2021), optimization modeling and crowdsourcing are all becoming current realities (Lóránt A.Tavasszy, 2020).

At the same time, it should be taken into account that financial decentralization, being a vertical incentive, has a positive effect on tax revenues at the regional level, the activation of the activities of executive authorities in the context of maximizing the use of existing positive factors in order to increase business activity (Гореев Р.А., 2018).

The analysis of the advantages of using financial instruments as vectors of the policy of promoting the development of logistics in the construction industry of the Polish economy, first of all, allowed us to conclude about the possibilities of using various types of financial incentives and instruments, divided into three main groups depending on their priority in a particular region. Thus, it is of practical importance to select effective tools for improving financial incentives for industrial production, consisting of a matrix of using tools to stimulate the development of logistics activities with horizontal and vertical strategies (Qaiser F.H., Ahmed K., Sykora M. et al., 2017).

Conclusions Therefore, we can conclude that in the world, and in Poland in particular, the stimulation of logistics development through the use of effective financial instruments in all sectors of the economy, including construction, is a strategic decision. In the conditions of financial resources shortage and limited budget funds, it is recommended to use indirect and mixed instruments of financial stimulation.

Identification of strengths and weaknesses, parametric evaluation of actual financial-

investment and transport-logistic potentials allow to form an ensemble of effective instruments of financial stimulation of construction logistics development in the context of Polish regions, thereby optimizing the financial mechanism. In order to strengthen the position of Poland as a competitive state, a broad configuration of financial tools as incentives for the progressive development of the system of transport and cargo logistics is proposed.

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URL: https://www.pwc.ru/ru/publications/transp ort-and-logistics-trends-2019.html ONFIDENCE INDEX 2018/2019. Wskaźnik

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poziomu optymizmu w zakresie logistyki i łańcucha dostaw w Polsce.

URL: https://confidenceindex.industrialgo.pl/ Central Statistic Office (2019), GUS, Transport – wyniki działalności w 2019 roku. URL: https://stat.gov.pl/obszarytematyczne/transport-ilacznosc/transport/transport-wynikidzialalnosci-w-2019-roku,9,19.html Britchenko, I., Cherniavska, T. (2019). Blockchain Technology in the Fiscal Process of Ukraine. Списание «Икономически изследвания (Economic Studies)». – Институт за икономически изследвания при БАН, София (България). – Volume 28, Issue 5 – 2019. – P. 134-148.

Lehmacher, W. (2021). Digitizing and Automating Processes in Logistics.

10.1007/978-3-030-61093-7_2.

Lóránt A.Tavasszy (2020). Predicting the effects of logistics innovations on freight systems: Directions for research. Transport Policy Volume 86, February 2020, Pages A1-A6. Łuczak, A., Kozera, A. (2021). A model to assess the development priorities of local administrations through the hierarchy of strategic factors. Journal of Policy Modeling.

Volume 43, Issue 2, March–April 2021, Pages 474-492.

Cherniavskyi, B., Vazov, R. (2020). Innovative logistics as a tool to increase the competitiveness of the polish construction industry. VUZF review, 5(2). P. 3-10. Гореев, Р.А. (2018). Features of tax incentives for industrial production.

URL: https://cyberleninka.ru/article/n/osobennos ti-nalogovogo-stimulirovaniyapromyshlennogo-proizvodstva Qaiser, F.H., Ahmed, K., Sykora, M. et al. (2017).

Decision Support Systems for Sustainable Logistics: A Review and Bibliometric Analysis.

Industrial Management & Data Systems, 117 (7). pp. 1376-1388.

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The economic effects of the COVID-19 pandemic on the polish economy Iwona Dudzik* А; Irena Brukwicka B A, B

Bronisław Markiewicz State Higher School of Technology and Economics in Jarosław, Czarnieckiego str. 16, Jarosław, 37-500 Poland

Received: November 08, 2021 | Revised: November 11, 2021 | Accepted: December 26, 2021 JEL Classification: D24, D81, I38, J45, L83.

DOI: 10.38188/2534-9228.21.4.02 Abstract The date of the end of the COVID-19 pandemic is difficult to forecast. Apart from the undoubted humanitarian and social consequences, its development and spread will also contribute to changes in the economy. This paper describes the economic effects of the COVID-19 pandemic for the Polish economy. Depending on the way the pandemic will develop, the Organization for Cooperation and Economic Development predicts that the Gross Domestic Product in Poland will drop by -7.4%, and will rebound to 4.8% by the end of 2021. It is also assumed a broad-based recovery with GDP rebounding by 2.4% in 2021. The COVID-19 pandemic had a negative impact on the labor market in Poland. It is assumed that the Polish economy has been affected less by the effects of the pandemic than other European countries. The coronavirus pandemic contributed to significant changes in the organization of work, that is, an increase in the percentage of people doing a household work.

Humankind has already learned how to overcome global crises, but their burdens have never been evenly distributed. Losses and threats bring new chances and opportunities. In line with the Pareto principle, it is stated that even if 80 percent of people suffer losses due to the COVID-19 pandemic, the remaining 20 percent of them will ultimately benefit from it. The aim of this article is to analyze the economic effects of the coronavirus pandemic in Poland and to present the most affected industries. In the opinion of the authors of the study, this issue should be described in greater detail.

Keywords: COVID-19 pandemic, economy, financial crisis, financial reserves, anti-crisis shield, micro-enterprises, GDP.

Introduction The SARS-CoV-2 virus, which was recognized in the Chinese city of Wuhan at the end of 2019, became the most important problem in the entire globe within a few months. Its presence in our country was officially confirmed at the beginning of March 2020 (A. Matyja, 2020).

The outbreak of the COVID-19 pandemic has brought about the economic disorder which has never been the case before. This situation forced governments to take unprecedented measures.

The sudden occurrence of supply and demand shocks made the real threat of a permanent recession. Therefore, governments took a number *

of anti-crisis measures aimed at protecting jobs and reduction of the economic effects of the pandemic resulting from the need to introduce temporary lockdown (K. Bolestwa, B. Sobik, 2020).

When analyzing the effects of the coronavirus in Polish economy, it is worth noting that there has been a constant increase in the incidence (gov.pl, 2021), despite the fact that a year has passed since the pandemic began. It is also high time to present the impact of the coronavirus on the economic situation (biznestuba.pl, 2021). Poland, along with Greece and Romania, is among the European countries most affected by the crisis caused by the

Corresponding author: PhD, adjunct, The Bronisław Markiewicz State Higher School of Technology and Economics in Jarosław, e-mail: iwona.dudzik@op.pl B PhD, adjunct, The Bronisław Markiewicz State Higher School of Technology and Economics in Jarosław, e-mail: brukwicka.irena@op.pl А

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ISSN 2534-9228 pandemic. The date of the end of the COVID-19 pandemic is difficult to forecast. However, apart from the undoubted humanitarian and social

(2021) VUZF review, 6(4) consequences, its development and spread will also contribute to changes in the economy.

Material and methods The method of statistical analysis is used in the paper. Domestic and foreign data provided by banks and data from the Ministry of Justice are also used.

The closure of the economy caused by the coronavirus outbreak resulted in consumer and business confidence decline. The sectors that were most affected by the closure of the economy are the following ones (gov.pl, 2021): hotel industry, catering services and transport. It should be noted, however, that these sectors account for only a small share in the Gross Domestic Product (T. Rokicki, 2020).

In April 2020, a 23% decrease in retail sales was also observed, in comparison to 2019. Small enterprises and micro-enterprises with insignificant financial reserves face particular threats. In order to counteract the crisis, entrepreneurs began to reduce salaries in order to limit short-term losses and maintain financial liquidity to such an extent that there was no need to lay off employees (gov.pl, 2021).

Nevertheless, there was a decline in employment and its level has been the highest since 2009. In households and in enterprises, however, there is awareness of the possibility of an unemployment increase. In accordance with the recommendations of the Organization for Cooperation and Economic Development, the authorities of the world, including Poland, are obliged to provide funds that effectively support entrepreneurship in relation to small enterprises, micro-enterprises and large enterprises. In the Republic of Poland, there is a significant share of micro-enterprises in the economy, which are often characterized by a low level of productivity and are significantly vulnerable to threats in case of introduction of measures limiting the spread of the COVID-19 pandemic (T. Rokicki, 2020).

7 out of 10 respondents declared that they currently have less income, which has a direct impact on the enterprise. 1/2 of the respondents indicated that, in their opinion, an economic

collapse or recession can be expected in the nearest future. Consumers were trying to improve situation, as nearly ¾ of the respondents indicated that they didn’t buy the products with international brands, they preferred to buy local products in stores to support Poland (biznestuba.pl, 2021). It should be noted that Poland, as well as other European countries, have introduced restrictions concerning such issues (biznestuba.pl, 2021): travel, eating, exercising outside the house, shopping (A. Jarynowski, D. Płatek, K. Czopek, 2020).

The restrictions affected almost all sectors of the economy, however, such sectors as catering, recreation and hotel industry were affected the most. Even in the case of entrepreneurs who survived on the market in the era of the coronavirus, in most situations it is not possible to speak of a satisfactory financial situation (biznestuba.pl, 2021).

The economic effects of the outbreak of the COVID-19 pandemic also affect the consumers themselves, as a result of financial pressure there is a need of timely payment of invoices (forbes.pl/, 2021). Entrepreneurs and consumers show a significant relationship between them. It is especially noticeable during the economic crisis (D. Wnukowski, 2020). Undoubtedly, in case of of reopening, the businesses that were closed, expect support from consumers. At the same time, however, it should be emphasized that the economic crisis caused by the coronavirus pandemic in many cases results in greater awareness of spending money and managing personal budget (biznestuba.pl, 2021).

Among the biggest problems resulting from the economic crisis in Poland, enterprises struggle with the need to maintain financial liquidity (D. Wnukowski, M. Wąsiński, 2020). In addition, there is still a need to secure a steady cash flow by rebuilding demand for the services and products offered. The pandemic contributed to a reduction in purchasing power and sparked the desire to 16

ISSN 2534-9228 support domestic interests. All the more that making purchases is one of the most basic activities (biznestuba.pl, 2021).

People aged 22-37 have also been affected by the crisis caused by the COVID-19 pandemic. In this case, the largest decline in employment was recorded. It was noted the loss of employment and lower income than before the pandemic. The perception of the future has also changed, it has become uncertain; it has not guaranteed the possibility of putting away amounts that consumers had before the pandemic. This is especially terrible for people who are concerned about the cost of living in retirement. The COVID19 pandemic also results in radical restrictions in economic, social and tourist activities. Thus, consumption has decreased. Due to absence of employees in factories, disturbances in the functioning of global value chains appeared. There have been difficulties, therefore, in keeping production, even when restrictions have not yet been introduced. It resulted in the crisis in demand and supply (D. Wnukowski, M. Wąsiński, 2020).

Referring to the effects of a long-term nature, it should be noted that the COVID-19 pandemic will permanently change the image of the world economy, thus causing a partial retreat from the globalization process. The model that has been in use so far has made it possible to minimize production costs. In addition, in a situation where restrictions on the movement of goods or people are maintained, a further decline in international trade turnover and its share in the global Gross Domestic Product can be observed. The importance of digital services in the economy will also increase, as they are most often used for work and shopping during the introduced social restrictions.

Undoubtedly, the economic consequences of the COVID-19 pandemic include an increase in state spending on health care and the purchase of medical products. This, in turn, will lead to changes compared to other budget items.

Military spending is very likely to be reduced.

Allocating funds for combating the pandemic and introduction of stimulus packages will contribute to state interventionism and increase in private and public debt (D. Wnukowski, M. Wąsiński, 2020).

The chart below presents the revision of the

(2021) VUZF review, 6(4) estimates of the Gross Domestic Product and the potential product in Poland, in line with the opinion of the European Commission, taking into account: – potential product, as a forecast for 2020, - the output gap, as a forecast for 2020, - potential product, as a forecast from 2019, - the output gap, as a forecast from 2019, in the period 1995-2021.

Figure 1. Revision of the estimates of the Gross Domestic Product expressed in billions of Polish zlotys at constant prices from 2015 and the potential product in Poland expressed in % according to the European Commission

Source: www.obserwatorfinansowy.pl 17.05.2021.]

[Access:

It is difficult to estimate how long the economic effects of the coronavirus pandemic will last. It is also difficult to determine whether these effects will cease simultaneously with the end of the pandemic, or on the contrary, will be present many years after the end of the pandemic (J. Growiec, 2021). When analyzing the economic effects in Poland resulting from the COVID-19 pandemic, it should be noted that the Gross Domestic Product does not take into account intensity fluctuations in the short-term period. On the other hand, the level of potential product depends on the supply of production factors and their unit productivity (J. Growiec, 2021).

Negative impact caused by the COVID-19 pandemic is partially limited by the Anti-Crisis Shield. It is a counter-cyclical fiscal impulse, accounting for approximately 10% of the Gross Domestic Product. Provision of support services, 17

ISSN 2534-9228 for example in the labor market, made possible to reduce the scale of layoffs, as well as the negative impact of the pandemic on the long-term level of structural unemployment and overall labor productivity (M. Myck, M. Oczkowska, K. Trzciński, 2020). On the basis of the obtained support, it was possible for entrepreneurs to maintain financial liquidity, thus also reducing the number of enterprises bankruptcies and avoiding the risk of losing camouflaged physical capital and specific competences of employees. At the expense of these activities, accumulation of public debt is of great importance. At the beginning of the COVID19 pandemic, the European Commission predicted that the government sector debt would increase from 46% in 2019 to 58.5% of the Gross Domestic Product in 2020. However, the macroeconomic significance of this type of cost will be partially limited by the nature of the current slowdowns (J. Growiec, 2021).

In addition, proposals for anti-crisis measures have been formulated, which may contribute to mitigating the effects of the economic crisis caused by the COVID-19 pandemic in Poland.

Although the analysis was conducted during the pandemic phase in spring 2020, it is also possible

(2021) VUZF review, 6(4) now to indicate postulates related to the implementation of anti-crisis solutions, which are presented below.

1. Maximum simplification of administrative procedures when providing financial aid to entrepreneurs and shortening the waiting time for a decision.

2. Establishing a fund to help start-ups to complete the interrupted financing rounds.

3. Implementation of strategic infrastructure investments.

4. Support for young entrepreneurs up to 26 in the form of an interest-free loan in running a business.

5. Introduction of a preferential loan for innovative enterprises (by PDF or BGK).

6. Introduction of a voluntary option to obtain a grace period for working capital loans for enterprises, as well as loans for natural persons for a short period of time (for example, 3 months).

7. Introducing the possibility of re-employing people fired during the pandemic and sending them on vacation, during which they will receive remuneration co-financed by the state (K. Bolestwa, B. Sobik, 2020).

Results and discussion The COVID-19 pandemic is considered to be a kind of exogenous shock that has affected the global economies and their labor markets. There is no doubt that European countries have been subjected to external shocks in the past. However, they were usually of economic character (money.pl, 2020). In early 2020, economies around the world faced a fierce external shock. And that kind of shock was caused by other reasons than before.

After the World Health Organization declared a pandemic, most governments issued the administrative decisions focused on stopping economies. Such decisions also contributed to the emergence of disturbances in the functioning of the labor market. As a result of the above sudden decisions, the unemployment rate increased and economic inactivity rose. These decisions also referred to the relationship between the employee and the employer. In order to mitigate the negative

effects of the COVID-19 pandemic, they introduced cost-effective solutions for enterprises.

The mechanism of response to the exogenous shock that occurred in Poland was very similar to general mechanisms in the European Union.

However, the labor market in Poland is characterized by greater resilience, therefore, the effects of the crisis caused by the COVID-19 pandemic are not as severe as they could be (worldbank.org/pl/, 2021). It should be noted that the coronavirus pandemic influenced the situation of people taking up a job, among others there are those who: - had a job but could not perform it for various reasons, - worked shorter than usual due to the reasons related to the workplace.

The above situation is presented in the Figure 2 below.

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Figure 2. Situation on the labor market in Poland in the period from Q1 2009 to Q2 2020

(2021) VUZF review, 6(4)

Journals of the Faculty of Economic Sciences”, No 24, p. 113-126.

The COVID-19 pandemic resulted in a surge of working people, who were not working, but the most common reason was a break in the workplace due to the virus. In the second quarter of 2020, the number of people who worked shorter than usual increased by over 100% for reasons related to the workplace itself, as this number was 207,000 in the first quarter, and 513,000 in the second quarter (K. Radlińska, 2020).

Sourse: K. Radlińska, (2020), Pandemic COVID-19 implications for the Polish labor market, „ Scientific

Conclusions The COVID-19 pandemic has negatively affected the labor market in Poland. The negative effect caused the reduction in the number of people taking up a job in Poland. It was compensated however by the increase in the number of people who were not involved in job. In Poland, there is a tendency to increase the underutilization of labor resources in the labor market. The number of people who are not at work grows abruptly due to interruptions in the activities of the employing institutions during the COVID-19 pandemic. The coronavirus pandemic undoubtedly contributed to the significant changes in the organization of work, and thus to an increase in the percentage of people undertaking work in the household (K. Radlińska, 2020).

According to the estimates of the Federation of Polish Entrepreneurs, during the first year of the coronavirus pandemic, the Polish economy suffered losses of over PLN 185 billion. This amount corresponds to the estimated value of GDP that was not generated due to the spread of the COVID-19 pandemic (Magazynprzemyslowy.pl, 2021).

In addition, it should be emphasized that Poland found itself in a recession that we have not seen in our country for decades. While macroeconomic indicators, such as GDP or consumption, rebound and assuming that due

to vaccinations we will slowly return to the economic growth which was before the crisis, the pandemic has forced or accelerated the changes that will stay with us for years, and maybe forever. Some of the changes were unimaginable a year ago. If white-collar workers stay at home longer, taking over jobs by robots in factories and services will progress. There will be also more inequalities between and within countries, and governments will play a greater role in the lives of citizens. Moreover, in some industries as well as professions, remote work has suddenly become the norm. Last year showed and made us realize that many matters and important business meetings can be organized from house, sitting and working in front of a laptop. This can be problematic for those companies that provide service for old office infrastructure: from commercial real estate to transportation. On the other hand, big profits get those who build new infrastructure.

It should be emphasized that since the outbreak of the pandemic, the share prices of the Zoom videoconferencing platform on the New York Stock Exchange more than tripled.

In addition, less frequent business trips is another change that may exist for longer time.

This change is introduced not because of restrictions, but due to cost cutting. This in turn may change the business model of hotels and 19

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restaurants in many countries. More and more companies are going to build safety buffers for themselves and use, if possible, the electronic sales channels. It should be noted, that the pandemic has accelerated all these changes. A new risk has also been added to the entire business calculations, that is, the risk of a lockdown or limitation of activities due to restrictions. In addition, COVID-19 has triggered new concerns about physical contact in industries where social distancing is tough - like retail, hospitality or warehousing. One of the solutions, therefore, seems to replace humans with robots. It has been observed that during the pandemic, companies has accelerated the development of machines involving the hotel guest check- in procedure, cutting salads in restaurants or collection of fees. These innovations will probably increase the productivity of economies, however, some employees will have to change the profession (A. Unton, 2020).

It seems that the Polish economy should be less affected by the effects of the pandemic than

(2021) VUZF review, 6(4)

other European countries. Firstly, because in comparison for example, to the German economy, the Polish economy is less dependent on exports and less economically linked with China. Secondly, the tourism and entertainment sector accounts for a smaller percentage of GDP compared to the countries of southern Europe.

The Polish economy is also quite diversified.

Thirdly, the higher rate of economic growth in Poland compared to Germany or other Western countries creates more space before a potential recession appears. Nevertheless, a slowdown in economic growth is predicted (A. Sieroń, 2021).

Summarizing the above mentioned, it can be noted that though, mankind has emerged victorious from every global crisis, the burdens have never been distributed evenly. In places of losses and threats, chances and new opportunities appear. According to the Pareto principle, it can be assumed that even if 80% of people affected by the coronavirus crisis suffer losses, the remaining 20% will ultimately benefit from it (M. Szczepański, 2021).

References Analysis of the impact of the Covid-19 pandemic on the Polish economy, Available from: https://biznestuba.pl/biznes-nazywo/analiza-skutkow-pandemii-covid-19dla-polskiej-gospodarki/ [Access: 23.03.2021.]

Bolestwa K., Sobik B., (2020), Analysis of crisis response during the COVID-19 pandemic in European countries, „ Scientific Journals of the Polish Economic Society in Zielona Góra”, No. 13, p. 18, p. 28-29.

Growiec J., Will the COVID-19 pandemic lower the potential product long-term? Available from: https://www.obserwatorfinansowy.pl/ tematyka/makroekonomia/trendygospodarcze/czy-pandemia-covid-19dlugotrwale-obnizy-produktpotencjalny/#fullimg0 [Access: 25.04. 2021.]

How much damage is done to the Polish economy by the coronavirus? Available from: https://www.magazynprzemyslowy.pl/artyk

uly/jak-duze-sa-straty-polskiej-gospodarkina-skutek-koronawirusa [Access: 20.06.2021.]

Jarynowski A., Płatek, D. Czopek, K., (2020), Attempt to understand public health relevant social dimensions of COVID-19 outbreak in Poland, 2020, No 4, p. 17.

Who is exposed to the financial impact of a coronavirus pandemic? Available from: https://www.forbes.pl/finanse/koronawirusw-polsce-komu-najbardziej spadnadochody/wze7t37 [Access: 323.03.2021.]

Matyja A., The pandemic has dramatically demonstrated that public health is a uniquely valuable asset that determines the strength of a nation's economy and security, w: CASUS, Quarterly, Autumn/Winter 2020, No. 98/99, p. 5.

Myck M., Oczkowska M., Trzciński K., (2020), The scale of financial risk to households: the first wave of economic consequences of the

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COVID-19 pandemic, „Center for Economic Analysis”, No. 3, p. 1-4.

Poland's economy will shrink in 2020 due to the epidemic and then begin to gradually recover, Available from: https://www.worldbank.org/pl/news/pressrelease/2020/10/07/polish-economy-toshrink-in-2020-due-to-pandemic-then-itmay-start- moderate-recovery [Access: 28.03.2021.]

Radlińska K., (2020), Pandemic COVID-19 implications for the Polish labor market, “Scientific Journals of the Faculty of Economic Sciences”, No 24, p. 113-126.

Rokicki T., (2020), Changes in Poland's economic prosperity as a result of the COVID-19 epidemic, “Legal and Economic Review”, No. 3, p. 105-126.

Sieroń A., Will the COVID-19 pandemic cause the global economy to collapse? Available from: https://uni.wroc.pl/czy-pandemia-covid-19spowoduje-zapasc-globalnej-gospodarki/ [Access: 20.06.2021].

The effects of Covid-19 on the Polish economy, Available from: https://www.gov.pl/web/ oecd/skutki-covid-19-dla-polskiej-gospodarki [Access: 23.03.2021.]

Szczepański M., (2021), Coronavirus outbreak as a black swan event, in: Pandemic – economic

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and social impacts, M. Dobska, M Mikulewicz, R. Kamiński red., „ Economic Review”, Journal of the Polish Economic Society Poznań Branch, Poznań 2021, p. 12.

The Crisis Shield. How Poland is fighting a pandemic compared to other countries, Available from: https://www.money.pl/ gospodarka/tarcza-antykryzysowa-jakpolska-walczy-zpandemia-na-tle-innychkrajow-6490349504362625a.html [Access: 25.03.2021.]

Unton A., A year with coronavirus. Six examples of how a pandemic changed the economy forever, Available from: https://www.money.pl/gospodarka/rok-zkoronawirusem-szesc-przykladow-jakpandemia-na-zawsze-zmienila-gospodarke6614161610320512a.html [Access: 20.06.2021.]

Wnukowski D., (2020), Consequences of the Coronavirus outbreak for the EU economy, “Bulletin of Writings”, Polish Institute of International Affairs, No 2, p. 3.

Wnukowski D., Wąsiński M., (2020), The impact of the COVID-19 pandemic on the global economy, “Bulletin of Writings”, Polish Institute of International Affairs, No. 84, p. 17. www.obserwatorfinansowy.pl [Access: 26.03.2021.].

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Development of the taxation of retirement products in Bulgaria Stanislav Dimitrov * А A VUZF

University (Higher School of Insurance and Finance), 1 Gusla Str., Sofia, 1618, Bulgaria

Received: November 10, 2021 | Revised: November 28, 2021 | Accepted: December 28, 2021 JEL Classification: H24, G51, G52.

DOI: 10.38188/2534-9228.21.4.03 Abstract Retirement products are long-term savings products. It is widespread government to encourage the saving via tax incentives. Bulgaria follows favourable taxation of saving in voluntary pension funds. The paper is searching answer whether the applied tax policy of personal retirement products in Bulgaria is efficient. The research is focused on three main areas: the nature of the tax incentives in the country; the development of the taxation of pensions across European Union and the areas for improvements of the tax policy taking into account the characteristics of the Bulgarian socio-economic environment.

The efficiency of the tax advantages often is under doubt in the literature. These studies omit the fact that without tax reliefs the coverage and the efficiency of saving in personal pension plans will be low.

One of the conclusions of the current research is that the tax incentives for personal retirement products have to be a part of the design of the plans and these reliefs need to be adapted to the changing economic environment. The paper reaches the conclusion that evolution of the taxation of pensions in the country is needed. The positive changes will increase the trust in the personal retirement products and will improve the adequacy and sustainability of the overall pension system in Bulgaria. This evolution can be done through set of measures that will encourage people to save and will be factor for improving the results from the saving in personal pension plans.

Keywords: personal retirement products, taxation of pensions, tax incentives for household savings.

Introduction Retirement products are long-term savings products. It is widespread government to encourage the saving via tax incentives. Bulgaria follows favourable taxation of saving in voluntary pension funds. The favourable tax treatment is expressed in EEE (tax Exempt) scheme on the three main flows of the saving. The insurance in voluntary pension funds in the country functions since 1994.

27 years is a period that gives opportunity to analyse the tendencies and the results of the voluntary pension insurance in the country, particularly the effect of the tax incentives and potential improvements in the fiscal policy of private pensions. 645 569 are the number of the individual accounts in the Voluntary pension funds (VPF). It represents 11.52% of the people above 19 years in the country. The number of voluntary

pension funds are nine that are managed by nine pension insurance companies (PIC). Tenth pension company is licensed in the middle of 2020 and tenth voluntary fund is supposed to start activity.

The accumulated assets in VPF are EUR 629 mln. as of the end of 2020. It is 1.04% of the GDP which is a very low penetration ratio. The annual in-payments in the funds stand at EUR 58.8 mln. for 2020. The annual out-payments from the funds are EUR 52.4 mln. (when analysing the numbers we need to have in mind that 2020 is the first year of the COVID-19 pandemia). The annually newly insured for the last three years are approximately 28 thousand (22 thousand for 2020). The in-payments are three types in terms of the person/entity that is paying the contribution: from employer; from the insured person and from third party. The contributions

*

Corresponding author: Ph.D, Associate Professor., Head of Pensions and Insurance research unit, VUZF Lab, e-mail: sdimitrov@vuzf.bg, dim_stanislav@yahoo.com

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ISSN 2534-9228 from the insured person stand at 69.93% of the total, those at the expense of the employer represent 29.76% and third-party payments are 0.31% of the total. The monthly contributions are close to 62% and 38% are in-payments of another periodicity. The number of people who are insured in VPF under employer’s contracts are 413 360. The average monthly contribution is approximately EUR 45 which is around 6.4% from the average monthly salary. In addition to VPFs there is Voluntary pension fund with occupational schemes (VPFOS). Because the saving in VPFOS is based on collective bargaining and employer’s contract it is not included in the current study. The average charge of a contribution in VPF is 3%. The average annual investment return of VPF is 4.36% (for period of 19 years, 2002-2020). It exceeds the inflation with 0.82% annually. Tax incentives are encouraging the saving in VPF since the very beginning of the activity - 1994. The taxation of private pensions in Bulgaria has undergone some

(2021) VUZF review, 6(4) changes during these 27 years. Very important to note is that taxation of personal pensions has not changed significantly during the last 15 years. This fact raises some questions as whether it is the right policy, whether could be implemented better decisions, is there “best practice” that can be followed and others.

The study is searching answer whether the applied tax policy in Bulgaria is efficient. The research is focused on three main areas: the nature of the tax incentives in the country; the development of the taxation of pensions across European Union and directions for improvements of the tax policy taking into account the characteristics of the Bulgarian socio-economic environment. The paper reaches the conclusion that evolution of the taxation of pensions is needed. The favourable tax treatment has to be embedded in the overall social security and fiscal policy. The positive changes of the taxation can be reached through set of measures.

Material and methods The aims of the research are reached through the following methodology: analysis of the literature on the nature, effect and changes in taxation of personal pensions; description of the development of the tax advantages for saving in Voluntary pension fund in Bulgaria; review of the tax treatment in the European Union (EU); discussion of the possible improvements in the taxation of saving in personal pension products.

Numerous authors examine the problem of adopting and sustaining fiscal incentives of saving in retirement products. Particularly the condition, the effect, the impact analysis and future development is focus of (Dieleman, 2020), (Butler, 2021), (Carbonnier et al., 2014) (Hinz, 2009), (Stevens, 2019), (Kuper et al., 2016), (Marcinkiewicz, 2017), (Rutecka-Góra et al., 2018) and others.

Retirement plans are long-term products. At the same time, people tend to be short-term orientated. As a consequence, governments have to stimulate by different policy measures people to save in personal retirement products. Favourable tax treatment is one of the fiscal stimuluses for participation in such insurance. Creating a “pension friendly environment” is a recommendation of the

High-Level group of experts on pensions (European Commission, 2019) including social, labour, tax law and appropriate prudential framework.

People tend to be short term orientated in their decisions. Their behavior is influenced by short term results and emotions. From the behavioral economics we know that people tend to save too little for pension because of procrastination, inertia and short-sightedness. That is why long-term decisions needs bigger effort for convincing the potential savers to buy certain retirement product.

In addition, pensions are not “sexy” topic. That is why personal pension products need some stimulus. This could be advice, advertisement, social nudge, fiscal stimulus or others. Tax reliefs are elements of the fiscal stimuluses. Others are in form of additional payment from the state to the contributed sum. In this chapter it is not the main aim to justify the saving in personal pension products through indicating the advantages of such saving but for the purposes of the supporting the tax advantages it is needed to say again that there are many positive effects from the saving in personal retirement products such as increased personal responsibility, improved financial 23

ISSN 2534-9228 discipline, better justice in social policy, improved financial literacy, developed financial markets, added value in the economic development of the country and others.

The European Commission (EC) pursue consistent policy for the taxation of the occupational pensions. As it is stated the EC is determined to remove any remaining tax obstacles to a Single Market for occupational pensions.

According to the EC most Member States tax occupational pensions according to the EET system (Exempt contributions, Exempt investment income and capital gains of the pension institution, Taxed benefits) or ETT principle (Exempt contributions, Taxed investment income and capital gains of the pension institution, Taxed benefits). This means that: the contributions by both employer and employee are tax deductible, the investment results of the pension fund are usually exempt (they are taxed only in Denmark, Italy and Sweden) and the benefits are taxed.

Different taxation is applied for saving in voluntary pension plans. Too costly for the budget would be if there is no limit of the tax advantages at any stage of the saving. We have to take into a mind that in fact there could be four sources of the voluntary contributions: the employer; the employee; the state and a third party. The personal pension insurance is retail based. It is retail based because the decision to start the saving is made by the physical person. Being retail products personal pension products are considered costly ones. Often these products are sold by intermediaries. Usually, the intermediaries are paid commissions. That is why positive effects, as tax advantages are treated as such, are an important milestone of the saving in personal retirement products.

The supported by the EC policy option is the system of deferred taxation. The stated arguments of the EC are three: the contributions to pension funds diminish a person's ability to pay taxes; it encourages citizens to save for their old age and it will help Member States to deal with the demographic time-bomb, as they will be collecting more tax revenues at a time when more elderly people may call on the State for care.

As a consequence of the fact that there is no common legislation on taxation of personal

(2021) VUZF review, 6(4) pensions in the EU double taxation agreements have to clarify some arising problems. Concerning the out-payments from personal pension products, especially the pan-European personal pension product (PEPP), (Dieleman, 2020) points out that “…PEPP retirement benefits is generally covered by tax treaties in case the saver has contributed to PEPP while residing in several Member States or if the saver does not reside in the state of residence of the provider”. However, he continues that “…the pension related provisions of tax treaties frequently deviate from the OECD Model Tax Convention”.

(Butler, 2021) also expresses opinion that “…it will fall to Member States to mitigate the burden of double-taxation through the conclusion of doubletaxation agreements”.

On the level of the expressed opinions in the EC is that of the High-Level group of experts on pensions (European Commission, 2019). The note is related with the taxation policy option to differentiate the tax reliefs in terms of income groups. According to the High-Level group of experts on pensions “fiscal incentives together with direct subsidies aimed at making personal pension savings attractive also to middle and lower-income groups resulted in the highest increases of coverage rates in the Czech Republic and Germany (though with rather limited savings amounts)”. If high earners are in position to benefit more than others it could lead to increased inequality (distributional consequences - Whitehouse E.). Some research papers (Carbonnier et al., 2014) come to the conclusion that “… the deduction scheme is effective in boosting the demand for annuity of the richest savers whose marginal tax rate is the highest, especially for the oldest savers (aged 45 and above). In most cases, it fails to raise contributions of younger and less wealthy savers”.

(Hinz, 2009) is searching answers to the three “most important questions” according to him, namely: “…does participation in voluntary pension system improve with the level of tax incentives; do they lead to an overall increase in savings on an individual or national level; and is the distribution of subsidies fair and desirable”.

It is interesting to see the expenditure for the tax reliefs. OECD is presenting figures (Pensions at a Glance 2017, p. 144). For the calculation is applied 24

ISSN 2534-9228 the concept of “tax expenditures”, developed in the 1960s. The tax expenditure measures the value of the preferential tax treatment relative to a benchmark tax treatment. The value is in % from the country GDP. For the majority part of the analysed countries (more than two-thirds out of 21 OECD countries) the expenditure for tax breaks for private pensions are 0.2% of GDP or less. Only in four countries (Australia, Canada, Germany and the United Kingdom) the figure is worth 1% of GDP or more. The average is 0.4% of the GDP. If the tax expenditure could be the perspective of the government from the view of the potential saver it is useful to measure the tax advantages.

Such value is calculated by the (OECD, 2018). The value is the overall tax advantage provided to an average earner. The meaning behind the “overall tax advantage” is that it is the present value of taxes saved over a lifetime, as a percentage of the present value of contributions. The value differs vastly among the countries with 8% for Sweden and up to around 50% for Israel, Mexico, Lithuania and

(2021) VUZF review, 6(4) Netherlands. The value is between 24% and 29% for the countries with the largest private pensions markets – USA, UK, Canada, Australia, Denmark and Switzerland. Various factors influence the value of the metric. The characteristics of the tax reliefs is one of them. The second is the applied tax system and income tax rate. On even conditions, the higher the income tax rate is the higher is the overall tax advantage. This explains why Bulgaria with EEE system holds value below 20% thanks to the lowincome tax rate – flat 10%.

There are different possible ways of taxation of contributions (in-payments, premiums) in personal pension plans. Three main categories of personal pension products can be formed in terms of tax treatment of contributions: taxed, partially exempt and partially exempt/taxed. For the visualization of the product categorisation we use the tree developed by a consultancy company mandated by the European Commission to perform a study on the feasibility of a European Personal Pensions Framework (E&Y, 2017).

Figure 1. Categorisation of personal pension products in light of the tax regime for in-payment Source: E&Y (2017). “Study of the feasibility of a European Personal Pension Framework”, p. 31

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ISSN 2534-9228 In the group “Taxed” are classified 7 products that do not have tax advantages for the contributions. These 7 products are from 6 member states (Denmark, Germany, Greece, Malta, Poland and Sweden). In such cases the contributions are made from the net income after taxes.

In the group “Partially exempt” are classified 39 products. In this group are the prevailing number of personal pension products. These products are from 24 member states. Products from four sub-groups are included in “Partially exempt” group. The subgroups represent four types of tax reliefs related to contributions: tax reduction; reduced tax base; tax credit or other. The group with the highest number of products is from the type “tax base reduction”. This form of tax relief means reduction of the taxable base subject to personal income tax. For example, if the primary tax base is EUR 3 000 and the contribution with right of tax relief is EUR 300 then the final taxable base is EUR 2 700. This form requires taxable income.

Bulgaria is part of “reduced tax base” subgroup. The applied tax relief is of “income limitation” type. Personal contribution up to 10% from tax base benefits tax advantage.

With this sum is reduced the initial tax base.

In countries with relatively high proportion of informal economy, the policy option using the base of taxable income, could be an element of the system of measures to stimulate official economy, “white” (formal) labour contracts and “white” labour income.

29 products from 19 Member States are included in the “Reduced tax base” subgroup.

Four options for appliance of this tax technique are seen in the “Reduced tax base” subgroup. 12 products are classified in “Income limitation and maximum amount”.

The products from this option are mainly from Member States from Western Europe – Ireland, Portugal, Spain, France. In this category are products also from Cyprus and Estonia. Another 12 products encompass the type “Maximum amount”. In this option are products from 11 Member States. So, the

(2021) VUZF review, 6(4) highest number of Member States apply the type “Maximum amount” as the preferred option within the “Reduced tax base” subgroup. 4 products are in the category “Income limitation” – from Bulgaria, Latvia and Lithuania. One product represents the option “No limitation”. This product is from Denmark – Alder product (local name Alderspension).

The reduction in the tax base can be limited. The limit can take the form of an amount of the contribution (EUR 300 per month as an example). Another form of the limit could be as a percentage of income (example of 10%). There could be combination – maximum amount of the contribution limited to a percentage of income (up to 10% from the income but no more than EUR 300 monthly). Also, there are variants from the base of the calculation – taxable income or tax base. Generally, tax base is formed after from the taxable income are deducted compulsory payments and some other deductions. So, when the tax relief is calculated from the taxable income it is higher in absolute terms compared to calculation from the tax base in equal terms.

“Tax reduction” is the second subgroup in “Partially exempt” group. This form of tax incentive represents a decrease of the amount of income tax due. 6 products from four states (Belgium, Germany, Hungary and UK) enter in the “Tax reduction” sub-group. There are two policy options in the sub-group. The first policy option is to apply combination between income limitation and maximum amount. Two products from the UK apply this policy option.

The second policy option is to define maximum amount. Four products from 3 states (Belgium, Germany and Hungary) apply this policy option.

“Tax credit” is the third sub-group in “Partially exempt” group. This form of tax incentive represents a tax amount deductible from the personal income tax due. Two products from two states (Malta and Portugal) enter in the “Tax credit” sub-group. For example, for the private pension contributions 26

ISSN 2534-9228 in Malta an individual who contributes to a qualifying personal retirement scheme is eligible for an annual tax credit equivalent to 25% of contributions made, capped at EUR 750 per annum (as of 2021). So, in the specified case, with the annual tax credit being equivalent to 25% of contributions made, or limit of EUR 750, the annual contributions which may be made into a qualifying scheme and which will be eligible for an annual tax credit stands at EUR 3 000. It is positive feature of this tax advantage that it can be carried forward. The policy option enables individuals who are not subject to income tax during a given year to benefit from the tax advantage in subsequent fiscal years.

“Other” is the fourth sub-group in “Partially exempt” group. This form of tax incentive represents other types of advantages such as financial contributions paid either by the State or the employer. Two products from two states (Austria and Croatia) enter in the “Other” sub-group. For these products the

(2021) VUZF review, 6(4) saver is not able to tax benefit directly from contributions. For example, there is a government subsidy for the members of third pillar voluntary pension funds in Croatia (Draženović, 2021). The incentive is equal to 15% of the total contribution paid over a calendar year. The maximum subsidy equals HRK 750 (approximately EUR 100) per year per fund member which is calculated from the maximum contribution base of HRK 5 000.

In the third main category “Partially exempt/taxed” are classified three products from Netherlands. The reason that is formed the category is that the tax relief is conditional. The tax benefit can be obtained under condition for certain maximum income.

As a consequence, the earners above the income ceiling cannot benefit from the tax incentive.

The taxation of the investment yield (investment return) of personal pension products can be divided in two main categories: taxed and exempt.

Figure 2. Categorisation of personal pension products with regard to the taxation applicable to the yield Source: E&Y (2017). “Study of the feasibility of a European Personal Pension Framework”, p. 35

Products that fall in the “Exempt” category are prevailing – 37 in number. Those products

are from 23 states. In the “Taxed” category are classified 12 products. These 12 products are 27

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(2021) VUZF review, 6(4)

from 6 states. In one country (Germany) there are personal products which have different taxation on the investment yield.

In the category “Exempt” there are two sub-groups. The first sub-group is “exemption with no conditions”. In that sub-group are classified 35 out of 37 products from the main category “Exempt”. These 35 products are in 23 states. Bulgarian VPF (in the figure Bulgaria_UVPF) is part of this sub-group. The tax relief in the country is applied no matter the time of receiving by the saver of the

investment return – before or after retirement. In the second sub-group there are conditions to qualify for exemption. In the second sub-group are classified two products from one country (Poland). Poland has products that are classified in both of the subgroups – “exemption with no conditions” and “exemption with conditions”.

The following figure presents information about the distribution of personal pension products with regard to the taxation of the outpayments.

Decumulation tax regime

Mandatory unique option for outpayments(annuities)

No mandatory unique option for outpayments

Taxed

Taxed or exempt

With default option

Without default option

France_MadelinTS France_MadelinAgr Denmark_RP Finland_IP Germany_Rürup Sweden_IPS

Netherlands_RAInsA Netherlands_RAInsD Netherlands_RBSA

Taxed

Taxed

Belgium_PP Croatia_OPF Denmark_Alder France_PERP Malta_PPPa Malta_PPPna

Belgium_LP Germany_Riester Germany_PP Ireland_RAC Ireland_PRSA Italy_PIP Italy_OPF Latvia_PPF Luxembourg_IPS Poland_IKZE Portugal_LifeInsR Portugal_PPR Romania_SPP Slovenia_VSP Spain_IPP Spain_MP Spain_PPA United Kingdom_SIPP United Kingdom_Stakeh19 Austria

Depends on decumulation option

Austria_PZV Cyprus_IIP

Exempt

Bulgaria_UVPF Bulgaria_PVPF Czech Republic_SSP Denmark_Aldersop Estonia_VSF Greece_PRSP Hungary_PRS Lithuania_VF Poland_IKE Poland_PPE Slovak Republic_PPF Portugal_LifeInsH Portugal_P

Figure 3. Categorisation of personal pension products with regard to the tax regime during the decumulation phase Source: E&Y (2017). “Study of the feasibility of a European Personal Pension Framework”, p. 36

The survey shows that the retirement payment is “Taxed” in 31 products. “Exempt” are the decumulation payments in 13 products. Another 5 products have payments that are “Taxed” or “Exempt” depending on certain conditions.

The decumulation payments are divided in two main categories based on the criterion whether there is or not mandatory option when the decumulation starts: “Mandatory option” category and “No mandatory option” category. The first category “Mandatory option” applies when there is only one payment option. In the second category “No

mandatory option” are included products in which there are at least two possible payments. Nine products have mandatory unique option for outpayments. The outpayment is annuity. The payments from 6 of these products (from 5 states – France, Denmark, Finland, Germany and Sweden) are taxed. Three products from one state (Netherlands) are taxed or exempt depending on the amount of the income – there is a tax exemption if the saver’s income is above certain ceiling.

40 products are in the second main category “No mandatory option”. In the 28

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(2021) VUZF review, 6(4)

category there are two sub-groups: with and without default option. The default option means that there is an outpayment which applies automatically when the saver does not choose another payment. Six products (from 5 states – Belgium, Croatia, Denmark, France and Malta) are with default option. The outpayment of these products are taxed.

Another 34 products are in the sub-group

“Without default option”. The “No default option” means that the saver has to choose the type of outpayment. In this sub-group, within the highest number of products, 19 from 12 states, are classified as “Taxed”. 13 products are “Exempt”. Bulgarian VPF is part of this group. That is why the taxation of VPF is designated as EEE.

Results and discussion Based on the analysis reached is the characteristics of the Bulgarian socio-economic conclusion that further development of the environment. taxation of pensions is needed and can be done The taxation of personal contributions in through set of measures. The set of measures voluntary pension fund in Bulgaria since the has to take into account the tendencies in the start of the saving is presented in the following taxation of pensions across the EU and the table.

Table 1. Taxation of personal contributions in voluntary pension fund in Bulgaria for the period 1994 – 2021 years

1994 - 1998

1998 - 2000

2000 - 2002

2002 - 2021

tax sum up to 20% of sum up to 30% of the full amount of deduction the minimum salary the minimum salary the contribution

sum up to 10% of the tax base

80,714

67,881

55,951

112,704

27,720

24,339

22,849

22,550

21,177

52,680

63,249

89,964

107,199

PERSONAL CONTRIBUTIONS IN VPF (IN BGN THOUS.)

108,463

The information from the table shows that tax reliefs exist since the very beginning of the activity of VPFs. The first six years the tax advantage has a limit calculated from the minimum monthly salary for the country.

Two years, 2000 – 2002, the tax advantage was generous – there was no limit of the sum that benefit the tax advantage. At the same time the personal income tax scheme was progressive, with highest tax rates up to 40%. The current tax regime was introduced 2002. It is very important to note that since 2008 the progressive taxation was substituted with flat tax of 10%. The flat tax decreases the tax that is reduced by a saver through contributions in VPF. The progressive taxation with higher tax rates than 10% leads to higher tax benefits for the savers.

The following figure represents information about the paid personal contributions in VPFs for the period 2006 – 2020.

99,023

Source: author’s analysis of the taxation of personal income

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Figure 4.

Source: Data by Financial Supervision Commission, www.fsc.bg

The information from the figure shows that there is steep decrease in the personal contributions after 2007. The main reason is the financial crisis from 2007-2008 but also very important factor is the introduction of flat tax on personal incomes since 2008. Ten years later in 2017 and 2018 there is increase in the paid personal contributions to the precrisis volumes.

The main drivers for this tendency are the increase in the households’ income, the good results from 29

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(2021) VUZF review, 6(4)

asset management for the previous years (5.25% and 7.46% for 2016 and 2017 respectively) and the more aggressive sales behaviour from the pension companies.

Regardless the increase in the personal contributions we can conclude that still the saving in VPF is not widespread. The following table displays the working people in income groups.

Table 2. Income groups in Bulgaria by annual tax base in BGN (BGN 1.95583=EUR 1)

annual tax base

number persons

≤ 6720

1,688,923

53.85%

579,836,000

5,798,360,000

6 720 - 12 000

695,261

22.17%

628,767,000

6,287,670,000

12 000 - 24 000

529,347

16.88%

860,431,000

8,604,310,000

24 000 - 36 000

111,304

3.55%

322,438,000

3,224,380,000

36 000 - 72 000

77,688

2.48%

381,236,000

3,812,360,000

72 000 - 108 000

16,237

0.52%

141,812,000

1,418,120,000

> 108 000

17,763

0.57%

506,420,000

5,064,200,000

total

3,136,523

100.00%

3,420,940,000

34,209,400,000

share persons due personal income sum of the annual tax income groups tax base

Source: Data by National Revenue Agency for 2018 and author’s calculations

The information from the figure shows that more than 50% of the people are in the group of the lowest income (around the minimum salary at that time) – more than 53%. Only 24% from the taxpayers receive more than EUR 500 monthly. The total annual tax base is BGN 34.2 billion (EUR 17.5 billion). Theoretically the maximum amount of tax benefitted contributions stands at EUR 1.3 billion (excluding the lowest income group). The paid personal contributions are around EUR 50 mln. annualy or 3.8% from the maximum tax benefits. Additionally, the paid contributions include sums for which is not applied tax advantage.

The information for the market shows another evidence for the low up-take of saving in VPFs. The people who switch VPF is very low – 0.20% compared to 5.62% and 5.08% for Universal pension funds (UPF) and Professional pension funds (PPF) respectively. The last two funds constitute the second pillar of the pension system in the country. Another problematic area is the very high inequality between men and women that are insured in VPF. Women are less than men covered with voluntary pension saving

– women are 43% of the insured in VPF. In addition, women have 22% lower accumulated assets in VPF compared to men. We have to point out that the average accumulated assets are very low as a whole – it is close to EUR 1 000.

This sum is even 50% lower than the average accumulated capital in UPF. This leads to the conclusion that saving in VPF not attract enough young people and the in-payments are not regular.

Based on the analysis we can draw a conclusion that the taxation policy of private pensions is not efficient. Nevertheless, the applied tax scheme is EEE which is favourable the advantages are not generous. Family incentives and higher advantages for low- and middle-income earners are possible directions for improvement of the taxation. Not only direct financial incentives can improve the efficiency of the taxation of pensions. Other measures are efforts to decrease the fees on contributions, to improve the disclosed information, to develop further the payment phase in VPF, to implement integrated analysis of the three pillars of the pension system, to construct pension rights tracking service, to calculate income 30

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replacement ratio by the three pillars. Carry forward tax incentives is another policy option taking account the uneven career path. In order to make the pension products more accessible it is logical to introduce insurance intermediaries like insurance brokers – to have the right to distribute products of more than one pension company. A measure towards improvement of

(2021) VUZF review, 6(4)

the trust in the retirement plans is to increase the tax advantage for employer’s contribution in VPF from the current 60 BGN to 200 BGN or around 30% from the minimum salary. When introduced it was more than 50% from the minimum monthly salary and now is below 10% of it.

Conclusions Bulgaria follows favourable taxation of saving in voluntary pension funds. The accumulated assets in VPF as percent of the GDP is very low 1.04%. The personal contributions are around 3.8% from the maximum tax benefits. The low coverage indicates problems in the social and fiscal policies. High inequality exists between men and women. Women are 43% of the insured in VPF and have 22% lower accumulated assets in VPF compared to men. Saving in VPF does not attract enough young people and the in-payments are not regular. The flat tax rate on personal incomes decreases the tax advantage that is benefitted by a saver through contributions in VPF. Tax incentives are encouraging the saving in VPF since the very beginning of the activity – 1994. The current tax scheme is not changed

during the last 15 years. The paper reaches the conclusion that evolution of the taxation of pensions is needed. Family incentives and higher advantages for low- and middle-income earners are possible directions for improvement of the taxation. Other measures are efforts to decrease the fees on contributions, to improve the disclosed information, to develop further the payment phase in VPF, to implement integrated analysis of the three pillars of the pension system, to construct pension rights tracking service, to calculate income replacement ratio by the three pillars. Carry forward tax incentives is another policy option taking account the uneven career path. The favourable tax treatment has to be embedded in the overall social security and fiscal policy.

References Butler, Gr., (2021). “Private Pensions and EU Internal Market Law: Enhancing Retirement Provision through Harmonisation”, European Business Law Review, vol. 32, issue 5, pp. 853 – 876 Carbonnier C., A.; Direr and I. Slimani Houti, (2014). “Do Savers Respond to Tax Incentives? The Case of Retirement Savings”, Available from: https://www.researchgate. net/publication/286527569 Chetty, R., J. Friedman, S. Leth-Petersen, T. Nielsen and T. Olsen, (2012). “Active vs. passive decisions and crowd-out in retirement savings accounts: evidence from Denmark”, Available from: https://www.nber.org/papers/w18565 Dieleman, B. (2020). “Tax Treatment of the

PEPP: The New Pan-European Personal Pension Product”. EC Tax Review, (2020/3) Dimitrov, St. (2020). “The Basic PEPP – safe, transparent and cost-efficient product”. pp. 5 - 17, in: “PEPP – Regulation and Technical Standards for Market Realization”.

Conference proceedings, VUZF Sofia, ISBN 978-954-8590-93-8, Available from: https://vuzflab.eu/en/collections/ Dimitrov, St. (2020). “The Average Values of Pension System Parameters in Bulgaria”, pp.

55 – 65, in: “PEPP – Regulation and Technical Standards for Market Realization”.

Conference proceedings, VUZF Sofia, ISBN 978-954-8590-93-8, Available from: https://vuzflab.eu/en/collections/ Draženović, B. (2021). “Voluntary pension funds

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in Croatia: Investment performance and Incentives”, https://www.researchgate.net/, DOI: 10.17818/DIEM/2021/1.13 European Commission (2019). High-level group of experts on pensions, Final report, Available from: https://ec.europa.eu/transparency/ regexpert/ European Commission, (2017).

“Recommendation on the tax treatment of personal pension products, including the pan-European Personal Pension Product”, Available from: https://ec.europa.eu/info/ sites/default/files/170629-personalpensions-recommendation_en.pdf European Parliament, “Regulation (EU) 2019/1238 of the European Parliament and of the Council of 20 June 2019 on a panEuropean Personal Pension Product (PEPP)”, Available from: https://eurlex.europa.eu/legal-content/EN/TXT/?uri= uriserv:OJ.L_.2019.198.01.0001.01.ENG E&Y (2017). “Study of the feasibility of a European Personal Pension Framework”, Available from: https://ec.europa.eu/info/ sites/info/files/170629-personal-pensionsstudy_en.pdf Hinz, R. (2009). “Voluntary Retirement Savings: Motivations, Incentives and Design”.

Available from: https://www.fiapinternacional.org/ Kuper, S. and Schmidt, T.-P. (2016), “Effects of Tax-Based Saving Incentives on Contribution Behavior: Lessons from the Introduction of the Riester Scheme in Germany”. Modern Economy, 7, 1198-1222. Available from: http://dx.doi.org/10.4236/me.2016.711117 Marcinkiewicz, E. (2017). “Factors Affecting the

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Development of Voluntary Pension Schemes in CEE Countries: A Panel Data Analysis”.

Central European Economic Journal, 3, 50, pp. 26−40. DOI: 10.1515/ceej-2017-0015 OECD (2020). “Financial incentives for funded private pension plans. OECD country profiles”, Available from: https://www.oecd.org/daf/fin/privatepensions OECD (2018). “Pensions Outlook 2018”, Available from: https://www.oecd-ilibrary. org/finance-and-investment/oecd-pensionsoutlook-2018_pens_outlook-2018-en OECD (2018). “OECD project on financial incentives and retirement savings”, Policy brief N°1, Available from: https://www.oecd.org/daf/fin/privatepensions Rutecka-Góra J., J. Vostatek and J. Turner (2018), “Extending Pension coverage: Tax versus non-tax incentives”, Available from: https://www.researchgate.net/publication, DOI: 10.33119/ACTA/2018.12.2 Stevens, Y., (2019), “The role of the government in creating or enhancing the access to funded or unfunded pensions in the modern welfare state”, In: “The future of pension plans in the EU internal market coping with trade-offs between social rights and capital markets”, Financial and Monetary Policy Studies, Volume 48, Available from: https://www.springer.com/series/5982 Whitehouse E., (2005) Taxation: The tax treatment of funded pensions, Available from: https://www.oecd.org/pensions/ private-pensions/2391559.pdf.

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Economic and mathematical models for forecasting the development of the space industry Svitlana Koshova* А; Igor Britchenko B; Maksym Bezpartochnyi C A

Shupyk National Healthcare University of Ukraine, 9 Dorohozhytska Str., Kyiv, 04112 Ukraine B VUZF University, 1, Gusla str., Sofia, 1618, Bulgaria C National Aerospace University N. Zhukovsky “Kharkiv Aviation Institute”, 17, Chkalov str., Kharkiv, 61000, Ukraine

Received: December 12, 2021 | Revised: December 20, 2021 | Accepted: December 28, 2021 JEL Classification: C50, L52.

DOI: 10.38188/2534-9228.21.4.04 Abstract The article examines a problem relevant to the national security of the state, the possibility of applying economic and mathematical models to predict the prospects for the development of the space industry. In modern conditions the, space industry is seen as the basis for innovative development and economic security of the state, which is the driving force of economic development.

After all, in order to sustainably develop the economy and achieve the indicators planned by the government, it is necessary to have a clear idea of the mechanisms and function of the system as a whole and its individual parts.

That is why competent forecasting of the main indicators of the development of the space industry with the identification of key factors influencing it is especially relevant at the present stage. Forecasting of indicators, based on the construction of economic and mathematical models of industry development.

It is determined that the construction of this model begins with the development of a specification of the model, which includes a verbal description of the study, followed by a presentation of the process of its operation in the form of mathematical formulas. It is important to clearly formulate and define the problem, as well as to identify all the factors and patterns that characterize the functioning of the system. Economic and mathematical models can increase the efficiency of the planning system of the industry and increase the accuracy of the process of forecasting its development.

The successful development of the space industry today becomes a necessary condition for preserving national sovereignty both in the military-political aspect and in the field of information security.

Keywords: economic-mathematical model, forecasting, space industry, space activity.

Introduction The main source of innovation and economic growth in the modern world is science and technology. In recent decades, the space industry has been the engine of research and advanced technology, widely used in other areas

of human activity. Nowadays, such common things as weather forecasting, global broadcasting and communication would be impossible without the satellite industry. In modern conditions, humanity is witnessing

*

Corresponding author: Candidate of Science in Public Administration, Associate Professor of the Department of Healthcare Management and Public Administration, e-mail: svet.lana.koshova@gmail.com, ORCID: 0000-0002-7637-4311 B Dr. of Sciences, Professor Higher School of Insurance and Finance, e-mail: ibritchenko@gmail.com, ORCID: 0000-0002-9196-8740 C Doctor of Economics, Professor at the Department of Economics, Marketing and International Economic Relations, e-mail: confer.piel@gmail.com, ORCID: 0000-0003-3765-7594 А

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ISSN 2534-9228 shifts in the technological paradigm both directly in the space industry and in related industries. Examples of this evolution are new phenomena such as space tourism, broadband networking, and private space companies.

Cosmonautics is the main product of world scientific and technological progress, a powerful engine of this progress, continuously providing other sectors of the world economy, with an invaluable and unprecedented flow of new materials, technologies and scientific developments, makes a significant contribution to sustainable development. At the present stage, space activities and its research and production base have already become a naturally functioning branch of the global economy, subject to universal laws and trends (Pajson, 2010).

The space industry occupies a special place among domestic strategic science-intensive industries. It forms the image of the state as a technologically advanced state and shows that

(2021) VUZF review, 6(4) the country has a developed intellectual, scientific and technical potential in the space sector, which, must be, effectively used to develop the economy and increase national security.

At the same time, the space sector of the global economy demonstrates dynamic stable development, which is associated with the processes of powerful transfer of space technology from the military to the public, and the development on this basis of a range of commercial services related to space industry and development. All this in general contributes to the commercialization of space activities and the rapid development of space industry, development and sale of space products, technologies and services, which, in turn, gives a powerful impetus to increased industry competition at various levels: global, interregional, interstate and national (Savіn, 2018).

Material and methods The function of forecasting is very important for the development of space assets and systems as elements of the global life support system of society, planning and forecasting can predict the possibility and consequences of all changes.

Forecasting and planning, along with coordination and control, are important elements in the formation of a holistic space management system. Real economic regulation of space development in general, is, expressed, in determining the degree and methods of influence on all subjects of economic relations. It is especially important to be able to reduce (or eliminate) the impact of negative factors on economic processes and stimulate the impact of positive factors. Forecasting itself can help identify such relationships.

Forecasting is one of the forms of indirect state influence on the creation of infrastructure in the space industry. Forecasting is a process of forecast development, the essence of which is to use certain methods to process the available information about the object of forecasting and to form an idea of its evolutionary trends based on

the analysis of trends in its development (Bendikov & Hrustalev, 2007).

Among the principles on which the forecasting process is based, we can highlight the following: • Scientific validity of the forecast (development with the help of scientific methods, taking into account the laws of development of the material world, society and thinking); • Continuity of forecasting (the forecast must be constantly adjusted to take into account changes in the situation in the country, the world economy); • A combination of long-term and current forecasting (these types of forecasting are carried out in conjunction, but the priority remains on long-term forecasting); • Consistency of forecasts (the developed forecast should correlate with related forecasts); • Multivariate, alternative forecast (it is worth making several forecast options) (Bendikov & Hrustalev, 2007).

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Results and discussion The development of the space industry makes a significant contribution to the processes of globalization of the world economy. In most developed countries, the level of development of the space industry sets important macroeconomic indicators, including influencing the value and growth rate of gross domestic product, determines the competitiveness of the national economy. In turn, the global space market is a large segment of the high-tech market, which is developing quite rapidly. One of the key engines of modern economic progress is innovative technologies in the field of microelectronics, digital and information systems, software, communications and telecommunications, etc.

Most of these developments originate in various areas of the space industry and have a significant impact on various areas of modern life. In general, space activities are an inexhaustible source of innovative technologies in virtually all areas of modern life. At the same time, most industries and services in the world economy are directly dependent on the development of space activities. As a result, space activities are attracting more and more attention not only from states and their associations, but also from large multinational corporations. The expansion of the market and the gradual increase of its participants have an impact on the growth of financial resources in the industry (Nyameshchuk, 2011).

The state's space industry should concentrate modern scientific and technical developments and be a driving force for the growth of the high-tech sector of the economy.

Therefore, forecasting the development of the space industry is a relevant and important issue to ensure the sustainable development of the sector, which is able to provide a basis for technological leadership and long-term strategic advantages in a globalized environment.

The space industry is part of the domestic defense-industrial potential and plays an important role in public policy, has a decisive influence on the military and economic security

of the state, the military, economic and scientific potential of the country. Space activities are among the most complex types of human activity, and its strong focus on broad international cooperation makes a significant contribution to world processes. Space industry forecasting occupies an important place among other types of space management (Sazonec, 2015).

The interest in the development of the space industry in modern conditions is due primarily to the fact that this industry is part of the defense industry of the country, which affects the defense of the state and its security.

At the present stage, the development of the space industry is, largely determined, by the efficiency of resource provision of enterprises in this industry.

Domestic enterprises of the space industry organize their research and production activities in a dynamically developing market, intensifying competition for access to resources, which requires conceptual scientific and practical solutions in the management of the industry and its structures. The implementation of state policy on the development of the space industry is possible under the condition of sustainable development of research and production activities, which, in turn, is determined, by its resource provision (Degtyarev, 2002).

The main specific features of the space industry are the following: • The complex nature of the activity, which necessitates the solution of many problems: from research and development to the creation of equipment and its subsequent operation; • The focus of promising research and development of fundamental purpose on the end result in the form of a science-intensive product; • Regular updating of fixed assets, development of the experimental base in connection with the need to change technology and maintain a high scientific and technical level of products; • Significant length of the life cycle of space 35

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industry products, which complicates the process of industry management and increases the responsibility for the selection and implementation of development strategies; • Intensive innovation and investment process as an important factor in achieving the goals of research and development that accompanies the implementation of projects; • High degree of uncertainty and the use of forecast estimates of future technologies; • The key role of the state in the support and development of the space industry (Degtyarev, 2002).

The purpose and main task of the analysis of forecasting objects is the formation of a forecast model. The analysis of the forecast object begins with its description. The description should contain information about the most key indicators, characteristics of the object, the structure of the object and the relationship between the elements of this structure.

Based on the relationship between industry and long-term forecasting and evaluation and qualitative content of forecasting elements, the structure of the forecast of scientific and technological development of the space industry will look like this (Fig. 1).

Modern economic and mathematical analysis of the national space industry is a single set of initial data and the only result is a set of methods for studying the patterns and trends of this activity, methods for studying the prospects of space development and research models for solving problems.

In turn, the methods of analysis of space activities include modern tools of scientific and technical forecasting, including the development of the concept of space activities, methods for determining the needs for space facilities and services, as well as methods for studying the prospects of space industry (Maksimov, 2005).

The structure of forecasting the development of the space industry Characteristics of the industry Priority tasks Risks and ways to mitigate them Threats and ways to overcome them Technologies Products Markets Resources (administrative, personnel, financial) The results of space activities

Fig. 1. The structure of forecasting the development of the space industry Source: (Pajson, 2010).

The study of the prospects for the development of the domestic space industry is based on the use of the model of space potential, from a systemic standpoint, which combines the processes of functioning of the whole set of objects and spacecraft. The

development of methods of scientific and technical forecasting, long-term and program macro-design, as well as the study of program implementation processes allows from a single standpoint to organize consideration of all stages of development of the industry.

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Characterizing the forecasting of the space industry. It is necessary to note a number of features: ● The production potential of the space industry is a complex hierarchical system, which is characterized by the development of cooperation, both horizontal and vertical links between them – using available capacity, common external and internal resources; ● The development of enterprises in the space industry is, endowed with alternatives.

One of the goals of their development is to increase the production capacity of enterprises through organizational and technical measures for technical re-equipment of production of different intensity (Bukhun, 2015).

Different types of models can be used in the development of forecasts for the development of the space industry: optimization, static, (using the time factor), dynamic, factorial, structural, combined and others. The most common methods of mathematical modeling of forecasts for the development of the space industry are the correlation-regression method, the model of Inter-sectoral balance, optimization models.

The essence of the correlation-regression method of modeling the forecast of the space industry is to determine the dependence of the indicator on various factors. To predict the development of the industry using the correlation-regression method, it is necessary to establish the correlation between the predicted indicator and the factors influencing it, determine the form of this relationship, derive a formula (equation) and predict the indicator based on them. The form of communication characterizes the change in the values of one feature from the change of another. It can be linear or nonlinear. The linear form of correlation is, expressed by, the following equations: Y(X) = A+BX (1) Y(X) = A+BX+CZ, (2) Where Y (X) is the value of the sign Y at a given value of the factor (X) or factors (X and Z); A, B, C – parameters of the equation; X, Z – values of factors (Fomina, et al., 2014).

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The static model of inter-sectoral balance is, designed for, forecasting macroeconomic calculations for the short term (year). In general, it has the following form: (i=1, n), (j=1, n), (3) Where aij – coefficients of direct costs (average industry standards of production costs of industry i, used as a means of production to produce a unit of production of industry j); xj – production volume j of the consumer industry; Xi – gross production of products (services) and industry; Yi is the volume of the final product and the manufacturing industry (Fomina et al., 2014).

Models for forecasting the development of the space industry should provide a calculation of the trajectories of this development for the entire forecast period. The state of the space industry in each year should be, characterized by a system of technical, economic indicators and the trajectory of its development – the estimated values of these indicators in the base year and the years of the forecast period. Based on these indicators, an analysis of the development option of the industry, given by its trajectory, and a comparison of different trajectories with each other (Maksimov, 2005).

Each trajectory of development reflects an alternative version of the forecast of the development of the industry, which determines the sequence of its state with a certain period of quantization.

In order to develop models for assessing the potential of the space industry, it is necessary to identify the main factors that determine its research and production capabilities and technical and economic indicators, fully characterizing their state and dynamics of development. One of the main such factors is the synchronization of intensity and achieving a balance of production and reproduction processes. The reproducible structure of capital investments should include technical reequipment, reconstruction or expansion of enterprises in the industry, construction of new facilities at existing enterprises, which is an integral part of technological support for the

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production of new products in the forecast period.

The system of technical and economic indicators that characterize the forecasting of the development of enterprises in the space industry should include: ⁻ Initial data on their scientific and technical condition; ⁻ Economic standards that meet the requirements of intensive and effective development of enterprises in the industry – the task of reducing production costs; ⁻ Indicators that reflect the goals of development of enterprises in the industry, the order for production, its cost, price, projected sales, profit; ⁻ Data on planned production development projects, introduction of new equipment or technologies, as well as data on possible means of production development in accordance with the expected scientific and technical achievements; ⁻ Data on the volume and sources of funding for the development of space industry enterprises (Fomina et al., 2014).

Models of development of the space industry, reflecting the different strategies of its operation, should contain for each of them the calculation of such a set of technical and economic indicators, which allows for various quantitative and qualitative assessments of alternatives to this development. The methodological basis for such calculation of indicators should be common to all enterprises in the industry methodological principles, rules and recommendations that reflect the specifics of production and planning in the industry, including the system of pricing and financing (Maksimov, 2005; Pajson, 2010).

Each version of the forecast for the development of the space industry should cover a long period (10-15 years) and include various measures to change production capabilities that are strategic for them.

The concepts of products, resources, production processes and circumstances play a key role in the development of tools for

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forecasting the development of the space industry. These concepts require priority definition in the process of formalization and modeling of innovative development of enterprises in the industry. Suppose there is a finite number of products created by the space industry.

The concept of product used to reflect different products of the same type, with different types of the same product represented as different products. This leads to the fact that the number of products studied in the model will exceed the number of actually existing products, but the final number, of products, will be, preserved.

The set of all products created by the enterprise, which are taken into, account in the development of innovation strategy, is the space of: , All products are, considered, measurable in the appropriate units (Fomina et al., 2014).

The industrial resources used by the enterprises of the space industry represent an element of the space of resources: x .

The notion of limiting factors that limit the possible values of sets of resources are formalized in the condition х Х, where х Х, де Х The set of sets of resources that are available to the enterprise and used as source resources. The boundaries of the resource set X are determined by natural, physical properties and can change over time: Х= Х(t) (Fomina et al., 2014).

Similarly, the products produced at the enterprise (or forecasted before release) products are an element of the product space y , the positive components of which show the volume of production of the corresponding type. The totality of all sets of products is the production set Y .

The structure and boundaries of the set Y depend both on the internal characteristics of the space industry enterprise (resource set X, 38

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technical and technological capabilities, structural and organizational features, etc.) and on external conditions, primarily market needs.

They change over time: Y= Y(t).

Accordingly, the production processes for the conversion of raw materials into finished products are determined by a set of technologies available to the enterprise – the technological set А = , each element which is one of the available technological processes and formally defines the mapping: :Х Y. Like the resource set X and the production set Y, the technological set A is not stationary, but time variable А= А(t), not only in composition but also in the number of its elements.

Any of the, technologies, can be used with different intensity or not used at all. The choice of a set of source resources, a list of technologies used, the, intensity of their use, range and volume of finished products are the content of the management decision u (t), which determines the production activities of the space industry. The metaset W(t) = is the identification module of the general model of development of the space industry enterprise, and the element w(t) = specifies its current state (Maksimov, 2005; Pajson, 2010).

According to the applied management decisions u (t) the dynamic forecast model of development of the enterprise of space branch defines finite or infinite sequence of its possible states or

, which can be determined using systems theory as trajectories of its development (Makarenko, 2006; Maksimov, 2005).

The profit of the space industry at time t is a

function of the parameters that characterize its internal state and external circumstances: f(t) = f(w(t), q(t)). Analyzing the development of the enterprise it is necessary not only to explore the possibility of making a profit at any time, but also the prospects for its receipt in the future. To do this, perform an analysis and forecast of the most appropriate trajectories of development of enterprises in the industry.

Given the peculiarities of the study of the processes of sustainable functioning and progressive development of the domestic space industry, forecasting needs to, be carried out, on, the basis of the cognitive models (Makarova et al., 2015). According to the general theory, cognitive analysis and modeling of space industry development consists of the following elements: 1. Cognitive structuring – at this stage the cognitive structuring of information about the functioning of the space industry and trends in its development (foreign and domestic policy, socio-economic, etc.), which affect the efficiency of scientific and industrial activities of the space industry. This stage consists of collecting, analyzing and synthesizing information and developing a cognitive map that conceptually reveals the conditions and mechanisms of the space industry.

The structuring of information is, performed, in order to create a set of basic factors: Х = and identify cause-and-effect relationships between them.

For each basic factor, its ‘trend’ is located and calculated – the rate of change of the indicator that characterizes the object that is associated with a particular factor. For the identified causal relationships between the underlying factors, the nature (negative or positive) and strength of these relationships are determined. The values of variables are measured on a linguistic scale and determined by a number from the interval [-1, +1].

The development of a cognitive map formally consists in constructing an oriented graph: G (X, A), where X is the set of vertices corresponding to the set of basic factors; A – many arcs showing the interaction of factors (Makarova et al., 39

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2015).

At this stage, subsets of control and target factors, as well as the vector of initial trends of basic factors are, distinguished from the, set of basic factors. Managers are, selected from a number of factors related to the external environment or the control object that may be affected by the control object. Targets are, selected from factors that characterize the state and objectives of the object of management.

2. Structural analysis of the cognitive map.

Effective management of a problem situation requires the study of its structural features, i.e. detailed characteristics of causal relationships between the underlying factors.

A comprehensive analysis of the map, designed to study such properties is to assess the objectives of management for consistency and consistency, the effectiveness of the total impact of control factors on the target.

3. Scenario modeling of the situation is to be, carried out in the modes of management development and self-development.

4. Evaluation of simulation results. To

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determine the degree of effectiveness of management decisions, a system of indicators is, proposed, that assess the degree of achievement of the goal – the coefficient of goal achievement.

5. Cognitive monitoring of the situation, which allows in case of change of the situation to perform modification of the cognitive map and to conduct additional analysis and modeling of the situation (Makarova et al., 2015).

The methodology of forecasting and analysis of the space industry as a whole allows us to take into account the requirements of new conditions.

However, for more complete and detailed research it is necessary to improve the methodology in the direction of expanding the number of factors, assessing the final results of service delivery, building a system of indicators to measure the degree of program implementation, strategic goals, tactical objectives and quantification of budget expenditures.

Conclusions The space industry provides the state with the opportunity to provide a qualitatively new level of solving defense and strategic tasks of international cooperation, stabilization of the domestic economy, strengthening its position on the world stage.

Prospects for the development of the space industry, are related to: • Meeting the growing needs of government agencies, regions and the population in space and services.

• Ensuring compliance with the world level of spacecraft • Development of international integration in solving vital problems of expansion of international cooperation.

• Expanding and improving the efficiency of the use of outer space in various sectors of activity to address the challenges facing the state.

The space industry is an important

component of sustainable socio-economic development and a guarantee of national security. The availability of its own rocket and space assets significantly contributes to the implementation of a balanced state policy in accordance with the adopted strategies, concepts and programs in the political, economic, social, military, scientific and technological, information and other areas.

The main problems of development of enterprises in the space industry include: • Insufficient funding of the industry; • Lack of effective state policy and legislative support; • Insufficient domestic demand for the results of the space industry; • Aging of fixed assets and material and technical base; • Lack of qualified personnel; • Weak professional management.

Appropriate tools for economic and

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mathematical modeling of forecast technical and economic indicators of space industry development allow us to form alternative options for industry development, and choose the best ones.

Creation of flexible, individually adapted

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models, on the basis, of the special economic and mathematical device helps to reduce an error during forecasting. This significantly increases the efficiency of forecasting and analysis systems used by space companies.

References Bendikov, M. A. & Hrustalev, O. E. (2007). “Some financial aspects of the implementation of scientific and industrial policy”, Finansy i kredit, vol. 15. pp. 2–8. [in Ukrainian] Bukhun, Yu.V. (2015). “Ways of forming of the mechanism of investment provision of reproduction processes in space industry”, Economic Bulletin of the National Technical University of Ukraine "Kyiv Polytechnic Institute", vol. 12, pp. 121–128. [in Ukrainian] Degtyarev, O. V. (2002). Fіnansovі dzherela rozvitku zovnіshnoekonomіchnoyi dіyalnostі RK galuzі Ukrayiny. Problemy razvitiya vnutriekonomicheskih svyazej i privlecheniya inostrannyh investicij: regionalnyj aspect [Financial sources of foreign economic activity of the Space industry of Ukraine.

Problems of development of internal economic relations and attraction of foreign investments: regional aspect], DonNU, Doneck, Ukraine. [in Ukrainian] Makarenko, D. I. (2006). Metody i modeli strategicheskogo upravleniya oboronnopromyshlennym kompleksom [Methods and models of strategic management of the defense-industrial complex], IPU RAN, Moscow, Russia. [in Russian] Makarova, D. Yu., Hrustalev, E. Yu. & Hrustalev, O. E. (2015). “Semantic methodology of analysis and forecasting of the rocket and space industry”, Audit i finansovyj analiz, vol.5, pp. 88‒93. [in Ukrainian]

Maksimov, V. I. (2005). “Structural and targeted analysis of the development of socioeconomic situations”, Problemy upravleniya, vol.3, pp. 30‒38. [in Ukrainian] Nyameshchuk, G. V. (2011). “Features of the transformation of the economic potential of the space industry of Ukraine in the implementation of international scientific and technical cooperation”, Vіsnik Dnіpropetrovskogo unіversitetu, vol. 10/2, pp. 63–70. [in Ukrainian] Pajson, D. B. (2010). Kosmicheskaya deyatelnost: evolyuciya, organizaciya, instituty [Space activities: evolution, organization, institutions], Librokom, Moscow, Russia. [in Russian] Savіn, S. A. (2018). “Analysis of current trends in the aviation industry”, Ekonomіka, fіnansi і parvo, vol.7, pp. 12–18. [in Ukrainian] Sazonec, І. L. (2015), Mіzhnarodnі standarti bezpeki pіdpriєmstv: navch. posіb.

[International standards of enterprise security: textbook], Volin. Oberіgi, Rіvne, Ukraine. [in Ukrainian] Fomina, A. V., Avdonin, B. N., Batkovskij, A. M. & Batkovskij, M. A. (2014). Upravlenie razvitiem vysokotekhnologichnyh predpriyatij naukoemkih otraslej promyshlennosti [Management of the development of hightech enterprises in knowledge-intensive industries], Kreativnaya ekonomika, Moscow, Russia. [in Russian]

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Economic assessment and forecast models for the development of the agri-food sector of the Republic of Belarus Bartosz Mickiewicz* А; Antonina Efimenko B A

West Pomeranian University of Technology, 17, Piastow str., Szczecin, 2009, Poland State University of Food and Chemical Technologies, 3, Shmidta str., Mogilev, 1973, Belarus

B Belarusian

Received: December 02, 2021 | Revised: December 12, 2021 | Accepted: December 28, 2021 JEL Classification: Q17, Q18.

DOI: 10.38188/2534-9228.21.4.05 Abstract Dialectical method of obtaining knowledge is the general methodological basis of economics and organization, like other sciences, which considers all phenomena in development and interrelated to each other. Guided by this provision, development in the economy of the agrifood sector is studied not on an individual basis, but integrally and in conjunction with the economy and primarily with industry. The use of this method excludes a one-sided approach to the analysis of economic phenomena occurring in the agri-food sector, the maximum economic effect is ensured on the basis of the integral use of factors and conditions of agro-industry. The scientific study is based on the materials (proceedings) of foreign and domestic authors, data from the National Statistical Committee of the Republic of Belarus, the content of national programs for the development of the agro-industrial complex of the Republic of Belarus, as well as materials posted on official electronic media. The methods of systemic and comparative analysis, EMM (economic and mathematical methods) were used in the course of the study.

Keywords: agri-food sector, industry, dialectical method, one-sided approach, economic phenomena, comparative analysis.

Introduction The global experience shows the use of various models for the effective functioning of the agri-food sector in order to ensure national food security and export potential increase. At the present stage, the economy of the Republic of Belarus adheres to a socially oriented model of economic development, in which the provision of the population with food and the improvement of the population quality of life and innovation are the fundamental factors (https://www.belstat.gov.by, 2021; Reading G.O, 2018; Efimenko A.G., 2017).

The agro-industrial sector is an important structural element in the system of ensuring national food security in the context of innovative development of the economy (Mickiewicz B., 2018; Economic Bulletin, 2015; https: // www pravo.by, 2021).

The relevance of ensuring food security necessitates a study on economic assessment and the development of forecast models for sustainable innovative development of the agrifood sector.

Material and methods The Republic of Belarus is located in the centre of Europe and belongs to the Eastern

European states, its territory is 207.6 thousand square kilometres. Agricultural industry is

*

Corresponding author: Doctor of Economics, Professor, West Pomeranian University of Technology, e-mail: bmickiewicz@zut.edu.pl, ORCID: 0000-0002-4787-2477 B Doctor of Economics, Professor, Belarusian State University of Food and Chemical Technologies, e-mail: efimenko_ag@mail.ru., ORCID: 0000-0002-8049-7971 A

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There are over 1,380 different organizations engaged in the agricultural production in the agro-industrial complex. The largest share in the overall structure of agricultural organizations by organizational legal forms in 2020 is occupied by joint stock companies (CJSC) – 45.8%, which is 10.9% less compared to 2017 and unitary enterprises (UE) – 32.4%, which is 14.5% less than in 2017. During the studied period, there was an increase in the number of limited liability companies (LLC) by 22.7%.

In the Republic of Belarus, the total area of agricultural land as of 01.01.2021 amounted to 8,283.9 thousand hectares, which is 217.7 thousand hectares less than in 2018. The largest share in the overall structure of agricultural land is occupied by the land of agricultural organizations – 88.1% in 2021, which is 0.7% less than in 2018.

In the model of agricultural production by categories of farms, the largest share was occupied by agricultural organizations – 80.9% in 2020, which is 1.8% higher than in 2016, household farms – 3.6% lower. During the studied period, there was an increase in the share of peasant (farmer) households by 0.9%.

Agriculture of Belarus specializes in the cultivation of crops traditional for middle latitudes. Crop and livestock production are the leading branches of agricultural industry. Grain crops predominate in crop production: mainly barley, rye, wheat, potatoes, fodder crops. The sown area of grain legumes and oil plants is expanding in the republic in connection with structural transformations and an orientation towards renewable energy sources. Grain crops are cultivated in all regions of the country and their share in the structure of farm land is 40-

(2021) VUZF review, 6(4) 45%. The need of the republic for grain is 9-10 million tons (taking into account the restoration of export potential). The overall yield of grain and grain legume crops increased by 5.4%, rye – by 11.4%, wheat – by 7.9% and barley – by 6.7% in 2020, compared to 2017.

Providing the population with food is a basic element of the country’s economic and social security. Analysis of the dynamics of agricultural production per capita showed that agricultural production per capita increased by 50.1% in 2020 compared to 2016. Grain production per capita increased during the studied period by 19.1%, milk – by 4.5%, and livestock and poultry – by 11.4% (carcass weight equivalent) (www.belstat.gov.by, 2021).

Forecasting economic development trends is closely related to economic and mathematical modelling of the functioning of the social and economic system. The dynamic processes taking place in the economy are manifested in the form of a series of chronologically arranged values of a certain indicator, which reflects the development of the economic phenomenon under study in real time. The values of the indicators are the basis for the development of trend models. A trend is a stable systematic change in a process over a long period of time. The construction of a trend model helps identify trends in the dynamics of a specific indicator and predict the development of the process under study for a strategic perspective. The construction of trend models is carried out on the basis of growth curves that express the qualitative properties of development: polynomial, exponential, logarithmic, power. Polynomial growth curves are used to approximate and predict economic processes in which subsequent development does not depend on the achieved level (http://www.gknt.gov.by,2021).

Results and discussion Let us carry out a forecast of agricultural production per capita for the period from 2021 to 2025. Let us construct a trend equation; in order to do that, we choose a polynomial

growth curve of the third degree, since it more accurately reflects the dynamics of the original time series (R-squared value = 0.9907) (Fig. 1).

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RUB/man

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5 000 4 500 4 000 3 500 3 000 2 500 2 000 1 500 1 000 500 0

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y = 1,4722x3 - 16,988x2 + 235,25x + 891,43 R² = 0,9907

1 097

1 632 1 361 1 425

2191 1900 1 987

2450

years

Figure 1 – Forecast of agricultural production per capita Source: suggested by the author

Let us calculate the predicted value using the

equation obtained on the diagram (Table 1).

Table 1 – Forecast of agricultural production per capita Name

2021

2022

2023

2024

2025

Agricultural production per capita, 2,705.86 3,017.13 3,383.08 3,820.83 4,313.11 RUB

Growth rate, 2025/2021, % 159.4

Source: build by the author

Calculations showed that the growth rate of agricultural production per capita by 2025 will be 59.4% compared to 2021, which reflects the positive dynamics of the indicator under study.

The dynamics of the main indicators of agricultural organizations operating efficiency is given in the Table 2.

Table 2 – Dynamics of the main indicators of agricultural organizations operating efficiency Indicators

2016

Revenue from product sales, million 9,723.9 RUB Cost of products sold, million RUB 8,533.1 Profit from product sales, million RUB Profit before tax, million RUB Net profit, million RUB Product profitability, % Return on sales, %

2017

2018

2019

Growth rate, 2019 / 2016, %

11,038.7

11,747.8 12,919

132.9

9,231.5

10,145.4 11,139

130.5

215.9

707.8

434.5

500.6

231.8

227.2

705.5

501.1

887.5

390.6

219.8 2.5 2.2

698.2 7.7 6.4

496.9 4.3 3.7

881.2 4.5 3.9

400.9 +2.0 p.p. +1.7 p.p.

Source: build by the author

The performed analysis of the data given in the Table 2 showed that there is an increase in

the agricultural organizations operating efficiency during the studied period: revenue 44

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from product sales increased by 32.9%, profit from product sales – by 131.8%, profit before tax – 3 times, net profit – 4 times. The profitability of sold products increased by 2 percentage points and return on sales increased by 1.7 percentage points.

At this stage, the processing industry of the Republic of Belarus is an integral part of the agro-industrial complex, which is closely related to trade and agriculture as a raw material base.

The strategic goal of the development of the processing industry is to provide the population with various foodstuffs sufficient for a balanced diet, healthy nutrition, and to ensure the country’s food security.

The main global trends typical for the food industry include the following: personalization of nutrition and creation of new products of various functional orientation, expansion of the production of products for children (with a high content of milk, probiotics, vitamins, etc.); increased attention of consumers and manufacturers to the proportion of ingredients in products; transition to sustainable production criteria, which include traceability of raw materials and manufacturing process, the use of certified palm oil and other ingredients, environmentally safe product packaging and transparency of information for consumers; transformation of food sales channels under the influence of digital technologies; sustainable preservation of the dominant position of world leaders in the field of foodstuffs production; strengthening the role of corporate and product brand names in the formation of added value of products and the innovative orientation of companies’ development as a key factor in competition in the world food markets. Analysis of global trends showed that the main competitors of the Republic of Belarus in the food market are increasing their export potential and competitive advantages (Pilipuk A.V., Kondratenko S.A., 2019).

The performed analysis showed that the volume of food production increased in 20162019 (the growth rate was 31.7% in 2019 compared to 2016) along with a decrease by 102

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units in the number of organizations of the processing industry. The average number of employees decreased in 2019 by 3.5 thousand people compared to 2016, the growth rate of the average monthly wage was 39.2%. The growth rate of profit from product sales amounted in 2019 to 97.2% compared to 2016.

The return on sales decreased by 2.1 percentage points during the studied period (Saiganov A.S., Panteleeva I.I., 2019).

In 2020, the largest share in the structure of volume of food production is occupied by the production of dairy products – 29.2%, meat and meat products – 23.3%, ready-made animal feeds – 11.9%, beverages – 7.4%. The production of food products increased during the studied period: meat and meat by-products – by 15.9%, meat and meat-containing semifinished products – by 53.2%, fish and seafood – by 39.1%, vegetable oil – 3 times, cheese – by 41.4%, ready-made products for child nutrition – by 34.9%, butter and dairy spread – by 1.3%.

At the same time, the production of sausage products decreased – by 0.7%, flour – by 32.7%, macaroni products – by 12.1% during the studied period.

In 2021, the largest share in the overall structure of consumer spending of the population of the Republic of Belarus is occupied by foodstuffs and non-alcoholic beverages (34.8%). In the Republic of Belarus, the growth rate of consumption of food products per capita increased in 2019 compared to 2016: meat and meat products – by 5.4%, fish and fish products – by 2.4%, sugar – by 3.7%, vegetables, melons and gourds – by 4.1%, fruits and berries – by 7.8%, potatoes – by 2.3%. There was a decrease in the consumption of milk and dairy products – by 0.4%, vegetable oil – by 1.6%, and bread products – by 7.3% during the studied period.

The development of the processing industry makes it possible to meet the public demand for food, to increase their export potential in a competitive environment. In 2019, the share of the Republic of Belarus in the structure of world trade for certain types of products was: animal oil – 4.2% (7th place), skimmed milk powder –

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3.2% (10th place), rapeseed oil – 3.0% (8th place), cheese and cottage cheese – 3.0% (10th place), sausage products – 1.6% (16th place).

The Republic of Belarus exported agricultural goods and food supplies to foreign markets in

the amount of USD 5,536.8 million in 2019 (an increase of 11.4% against the level of 2017).

The dynamics of the volume of foreign trade in agricultural products and foodstuffs is given in the Table 3.

Table 3 – Dynamics of the volume of foreign trade in agricultural products and foodstuffs, USD million Name

Years 2018

2017

Foreign trade in agricultural products and foodstuffs - export - import - balance

Growth rate, %, 2019 / 2017

2019

9,555.0

9,704.5

10,192.6

106.7

4,971.2 4,583.8 387.4

5,280.1 4,424.4 855.7

5,536.8 4,655.8 881.0

111.4 101.6 227.4

Source: build by the author

2021-2025. Let us construct a trend equation; in order to do that, we choose a polynomial growth curve of the second degree, since it more accurately reflects the dynamics of the original time series (R-squared value = 0.8323) (Figure 2).

The data in the Table 3 shows that the growth rate of the volume of foreign trade in agricultural products and food products in 2019 amounted to 6.7% compared to 2017.

Let us carry out the forecast for the export of agricultural products and food products for

y = 93.28x2 - 819.79x + 6,494.2 R² = 0.8323

14000,0

USD million

12000,0 10000,0 8000,0 6000,0

5782,6 5606,4

4453,0 4231,6 4971,2

5280,1 5536,8 5609,0

4000,0 2000,0 0,0 years

Figure 2 – Forecast of production of export agricultural products and foodstuffs Source: suggested by the author

Let us calculate the forecast for the export of agricultural products and foodstuffs using

the equation obtained on the diagram (Table 4).

Table 4 – Forecast for the export of agricultural products and foodstuffs Name

2021

2022

2023

2024

2025

Growth rate, 2025 / 2021, %

Export of agricultural products and foodstuffs

6,671.8

7,624.3

8,763.4

10,089

11,601.2

173.9

Source: build by the author

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Calculations showed that the growth rate of exports of agricultural products and food products by 2025 will be 73.9% compared to 2021.

The state regulation of export promotion, the creation of a favourable investment climate for investors, commodity producers and exporters are one of a number of the factors to increase the efficiency of the functioning of the agri-food sector.

At this stage, the transition to science-based innovative production of products with high added value is relevant and in demand in the agri-food sector.

The dynamics of the volume of shipped innovative products by industrial organizations of the Republic of Belarus is given in the Table 5.

Table 5 – Dynamics of the volume of shipped innovative products by industrial organizations of the Republic of Belarus 2017

2018

Growth rate, % 2019/2017

2019

Name RUB thousand 13,040,740

Industry of it: manufacturing 12,997,794 industry including the production of 564,307 foodstuffs, beverages and tobacco Source: build by the author

100

RUB thousand 16,170,970

96.9

4.3

%

100

RUB thousand 15,288,732

100

117.2

16,114,363

99.6

15,287,699

99.9

117.6

551,220

3.4

701,148

4.5

124.2

The data in the Table 5 shows that the growth rate of the volume of shipped innovative products in the industry as a whole was 17.2%, including in the processing industry – 24.2% during the studied period.

Let us carry out the forecast of shipped innovative products for 2021-2025. Let us construct a trend equation; in order to do that, we choose a polynomial growth curve of the third degree, since it more accurately reflects the dynamics of the original time series (R-squared value = 0.9447) (Figure 3).

%

%

Let us calculate the forecast for the share of shipped innovative products (foodstuffs, beverages and tobacco products) using the equation obtained in the diagram (Table 6).

Table 6 – Forecast for the share of shipped innovative products (foodstuffs, beverages and tobacco products)

Name

Growth rate, 20212022 2023 2024 2025 2025 / 2021, %

Share of shipped innovative 1.45 1.46 1.72 products, %

2.26

3.1

+1.65

Source: build by the author

Figure 3 – Forecast of shipped innovative products (foodstuffs, beverages and tobacco products) Source: suggested by the author

Calculations showed that the share of shipped innovative products will increase to 3.1% by 2025. The growth rate of this indicator will be 1.65% compared to 2021.

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Conclusions Based on the results of the assessment, it was established that a further increase in the volume of production and sales of products, exports of agricultural products and foodstuffs, and an increase in investment attractiveness are possible subject to the activation of the competitive advantages of organizations in the agri-food sector in the context of international economic integration. The processing industry of the Republic of Belarus belongs to the dynamically developing sectors of the economy.

This is due to demand factors, including population growth and growth in income, consumer orientation towards high-quality,

healthy, functional and specialized nutrition on the one hand, and by the potential of commodity producers on the other hand, which is characterized by the ability to transform under the influence of consumer preferences, the degree of concentration of investment resources, innovative activity and the formation of competitive strategies. In general, the identified trends indicate a production and economic potential of the processing industry of the Republic of Belarus, which is sufficient to ensure sustainable innovative development and expanded reproduction of food supplies.

References Agriculture of the Republic of Belarus: statistician. collection. National Statistical Committee of the Republic of Belarus (2020).

[Electronic resource]: Access mode: https://www.belstat.gov.by. – Date of treatment: 10.05. 2021.

Reading, G. and others (2018). Econometrics and economic-mathematical methods and models: textbook. Allowance. Minsk: BSEU, 511.

Efimenko, A. (2017). Innovative development of organizations of the processing and food industry: monograph. Mogilev: Ed. – ed.

Department of MGUP, 192.

Industry of the Republic of Belarus: statistician. collection. National Statistical Committee of the Republic of Belarus (2021). [Electronic resource].

– Access mode: https://www.belstat.gov.by. - Date of access: 16.09. 2021.

Mickiewicz, B. & Volkova, E. (2018).

Development of agribusiness on an innovative basis in the context of economic integration: monograph.

Smolensk: Magenta, 188.

National Strategy for Sustainable SocioEconomic Development of the Republic of

Belarus for the Period up to 2030 (2015).

Economic Bulletin. 4 (214). 93–95.

Pilipuk, A. & Kondratenko, S. (2019). Trends and factors of the competitive functioning of the food industry of the Republic of Belarus / Strategy for the development of the economy of Belarus: challenges, implementation tools and prospects: collection of scientific. articles. 2 volumes.

National Academy of Sciences of Belarus, Institute of Economics of the National Academy of Sciences of Belarus. Minsk: Law and Economics, 1. 33–41.

Sayganov, A. & Panteleeva, I. (2019). Theory and methodology of improving the economic mechanism of innovative development of agro-industrial complex processing organizations. Smolensk: Magenta, 256.

State program "Agricultural business" for 2021 – 2025 [Electronic resource]. – Access mode: https: // www pravo.by. – Date of access: 20.10.2021.

State program of innovative development of the Republic of Belarus for 2021 – 2025 [Electronic resource]. – Access mode: http://www.gknt.gov.by. – Date of access: 20.10.2021.

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Theoretical basis of formation and development of economic potential of agri-food enterprises Yekaterina Volkova * А A

Belarusian State University of Food and Chemical Technologies, 3, Shmidta str., Mogilev, 1973, Belarus

Received: December 02, 2021 | Revised: December 11, 2021 | Accepted: December 28, 2021 JEL Classification: Q17, Q18.

DOI: 10.38188/2534-9228.21.4.06 Abstract The article substantiates the theoretical basis of the formation of the economic potential of processing enterprises of the agri-food sector, including the clarification of the “economic potential of processing enterprises of the agri-food sector” concept as a set of maximum capabilities of enterprises, due to their available resources for the efficient production of products, goods, works, services in order to meet the market needs taking into account the internal and external environment factors. Unlike the existing ones, this definition includes not only capabilities and resources, but also a specific result, which requires a systematic approach to its assessment. The scientific novelty of theoretical developments lies in a systematic approach to the analysis of the formation of the economic potential of processing enterprises of the agro-industrial complex from the perspective of “resources, maximum capabilities, result, assessment”.

Keywords: economic potential, agri-food sector, environment factors, capabilities, resources, systematic approach, processing enterprises.

Introduction At the present stage, the rational use of the economic potential of business entities in various branches of the economy, including the processing industry companies, is the basis for ensuring sustainable social and economic development of the Republic of Belarus. The current situation requires a change in economic relations in the agri-food sector in order to increase the competitiveness and potential of the national food system of the Republic of Belarus. The accomplishment of these objectives requires the use of more advanced methods of managing the economic potential of processing enterprises in the agri-food sector.

The main areas of the structural change of

the manufacturing industry production should be developed based on external demand for domestic products and the domestic market needs, taking into account the possibilities of providing the necessary raw materials with a decrease in their imports, assessing production performance indicators and expanding the industry’s contribution to solving social and economic problems/challenges and accomplishment of the set objectives.

Accomplishing these objectives and increasing production performance is directly related to the formation, use and development of the economic potential of processing industry companies.

Material and methods The capacity (potential) is associated with a specific level (entity) of the economic system

(enterprise, industry, national economy, world economy) and thus, it can be studied at the

*

Corresponding author: Ph.D. in Economics, Associate Professor, Belarusian State University of Food and Chemical Technologies, e-mail: kate_ag@mail.ru., ORCID: 0000-0003-0735-5018

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micro-, meso- and macro levels. Understanding the essential nature of potential is a mandatory requirement for its reliable assessment and the basis for scientific management of its rational and effective use at the appropriate level.

Exploring the economic potential at various levels, the scientific literature pays attention to its structural elements, as this allows you to more clearly define the capabilities of organizations and develop promising areas for its effective use.

In the scientific literature, the term “potential” means the aggregate capabilities at the level of organizations to ensure their effective performance. When de-scribing and assessing the potential of an organization, the concepts of “resource potential”, “production capabilities” and “economic potential” are used, but analysis of literature sources indicates that, despite some differences in definitions, they can be considered as synonyms. The economic potential of organizations can be studied as “… the level of opportunities to ensure the production efficiency and sales of products, due to the available resources and the company’s ability to efficiently use and reproduce them” (Duvanova Y., 2009).

The economic potential of organizations is also considered as “… the set of an economic entity capabilities to carry out production operation based on the synergetic unity of its constituent potentials (production, labour, market, financial, innovation, informational, organizational potential), which determine the achievement of strategic development goals and increasing enterprise competitiveness in modern economic management conditions” (Gnatyuk S., 2016).

The main features of the economic potential of organizations: – it is characterized by a certain set of resources that must be involved in production and prepared for use as much as possible; – potential is realized only in the process of its use, it is a dynamic characteristic and the use of potential should be accompanied by its buildup; – the processes of using, building-up and

developing capacity (potential) are continuous and intercomplementary; – the economic potential is greatly influenced by industry affiliation (restrictions and conditions of a particular industry); – economic potential is a category that characterizes the ability, capabilities of the enterprise, which are associated with the features and nature of social and economic relations and cooperation of organizations and people. There is a need for the development of enterprises and the need for adaptation to constantly changing economic conditions (Gunina I., 2004; Kerzhentsev F., 2010; Marushkov R., 2000; Polyakova G., 2013).

With respect to organizations, it is necessary to study the economic potential as “… the capabilities of the internal and external environment for the production and sale of products, characterized by the availability, composition, quality of agroindustry resources which are balanced in a consistent manner on a techno-logical, innovative, investment, informational and organizational basis, allowing the most efficient implementation of certain internal goals and meet the requirements of the external social and economic environment…”

(Romanov A., Serebrennikov G. а. о., 2012).

The study of scientific literature on the essential nature of the “economic potential of the organization” category made it possible to identify the main conceptual approaches to its analysis, which are resource, efficient and complex approaches.

Studying the structure of the economic potential of organizations, scientists distinguish its various elements: managerial, material and technical, financial, property, resource, production, environmental, information technology, labour, information, natural resource, foreign economic, personnel, vocational and qualification, intellectual, economic, strategic, export, marketing, innovative, investment, scientific and technical elements, etc.

The following elements are distinguished in the structure of the economic potential of organizations: spatial (territory, location, 50

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communications, etc.); technical (production facilities, equipment, materials, etc.); technological (technologies, scientific developments, etc.); personnel (quantitative and qualitative composition of employees, human capital assets); informational (information about the internal and external environment, dissemination channels, the opportunities of its expansion, etc.); financial (availability of own and borrowed assets, liquidity, etc.); organizational (nature, mobility, management system flexibility, etc.) (Shaidaeva D., 2012).

Not only blocks and elements are distinguished when assessing the structure of economic potential, but also a “two-level system, including structural components, grouped taking into account the degree of influence on the industrial enterprise operation: the first level: resource, market and innovation potential; the second level: personnel, production and technological, marketing, competitive, financial, investment, environmental, information and scientific potential” (Tishchenko A., Kizim N., Kubakh A. & Davyskiba E., 2005).

The sources of the “points of development” of the regional economy can be the competitive advantages of the territories; innovations; effect of scale of pro-duction; involvement of unique or specific resources and factors; creation of infrastructural conditions for the entrepreneurship development; expansion of de-mand for goods and services in domestic and foreign markets; new management mechanisms; attracting investments; entrepreneurial activity; organizational and institutional innovations (Vinogradova V. & Sidorov T., 2003).

Based on the conducted study of literary sources, it can be stated that the “economic potential of organizations” is a complex, dynamic and multi-level denomination that takes into account the resources, goals and outcomes of the development of organizations.

It is reasonable to study the “economic potential of organizations” concept from the perspective of a systematic approach: “resources → maximum → capabilities result → assessment”.

Results and discussion The economic potential of processing enterprises in the agri-food sector is a complex, dynamic and multi-level denomination and it is studied as a set of maxi-mum capabilities of enterprises, due to available resources for the efficient pro-duction of products, goods, works, services in order to meet the market needs taking into account the internal and external environment factors.

The processing of agricultural products is the most important element in the agro-industrial sector. Features and specifics of the operating of processing enterprises are determined by the economic purpose of the manufactured products and their consumer value on the one hand, and by the origin of the raw materials consumed and the organizational and technological features of the production of products on the other hand.

The value of the resource potential of

processing enterprises in the agri-food sector is important both for internal (management, personnel) and external (shareholders, investors, banks, etc.) concerned parties, as it allows characterizing the capabilities of enterprises, their maximum ability to achieve their tactical and strategic goals. It is obvious that with the availability of sufficient resources, their rational structure, processing enterprises have the necessary conditions for con-ducting production and commercial activities, achieving the planned development parameters, generating economic benefits. The resource potential is characterized primarily by the volume of manufactured products, the size, composition and structure of fixed and floating assets, their qualitative characteristics, which are owned and managed by processing enterprises to achieve their goals.

Manufacturing of products requires not only 51

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capital, but also labour. There-fore, manpower resources are included in the resource potential of organizations. In present-day conditions, the leading role in production is transferred from capital to the worker. Considering the manpower resources of enterprises, it should be noted that at this stage the importance of human capital assets is increasing, including specific human capital assets, associated with knowledge of the features of a particular production and enterprise.

Therefore, enterprises make significant investments in employees: they pay for various advanced training courses and training sessions, stimulate the self-education of employees, etc. Therefore, man-power resources are an important element of economic potential in terms of not only quantitative, but also qualitative composition (professionalism, competence, ability to

embrace new technologies, etc.). Not only the outcomes of economic activity, the achieved competitive advantages in the production sector, organization and management, but also the capabilities of ensuring the constant and competitive development of processing enterprises largely depend on the quantitative and qualitative balance and the level of use of manpower resources. The effective use of manpower resources has a significant impact on the achievement of the enterprise’s goal, which must be taken into account when building a model for the formation and development of the economic potential of organizations and making management decisions.

A conceptual diagram for the formation and development of the economic potential of processing enterprises in the agri-food sector is shown in the figure.

Requirements

Principles

Priorities

Systematic approach, conditions and goals

Economic potential of processing enterprises of the agro-industrial complex managerial Information technology investment

Resource potential (fixed assets, floating assets, manpower resources)

export

marketing

innovative

Climate and Environmental environmental conditions conditions Tasks and objectives

External factors Scientific Social аnd Competitive Economic setting technical environment conditions factors

The level of use of Activity area of economic potential enterprises Management system and implementation mechanism

Regulatory provisions

Risks

Figure 1. Conceptual diagram for the formation and development of the economic potential of processing enterprises in the agri-food sector Source: suggested by the author 52

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When forming the economic potential of processing enterprises, one should take into account the peculiarities of various types of activity, which are shown in the following aspects: – the nature of the manufactured products – food, which belongs to a special group of products characterized by widespread consumption, regardless of the market characteristics; lack of analogues and substitute products; a change in the pattern of consumption of goods depending on the income level (transition to higher quality and more expensive food products with an increase in income); inelastic demand for food, depending on prices and household income flows; – features of the technological process.

Technology is an important factor influencing the formation and effective use of the economic potential of enterprises. At the present stage, the production of food products will develop on the basis of technical re-equipment and an increase in the depth of processing of agricultural raw materials. In this regard, the study and improvement of technological processes at enterprises helps to make clear their significance for increasing production performance and to form the resource element of the economic potential of processing enterprises; – industry-specific nature of calculating prices for products. There is a significant differentiation of technological processes at processing enterprises, which has an effect on the formation of prices for finished products; – availability of appropriate infrastructure.

Both perishable and transportable products are produced at enterprises of the processing industry; these products have various shelf life periods, which has an effect on the requirements for its transportation and sale.

This necessitates the location of the enterprise, depending on the transportability of raw materials and products and the development of market infrastructure (warehousing facilities, logistics, wholesale and specialized markets, etc.), corresponding to the level of development

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of the agri-food sector, which affects the composition, structure and level of the economic potential of processing enterprises.

The influence of external factors along with internal ones is taken into account in the proposed model of formation and development of the economic potential of organizations.

External factors are associated with the patterns of development of the national social and economic system, trends in the development of domestic and foreign sales markets, the population behaviour. These should include: – regulatory provisions governing the conduct of activities (consumer protection, antimonopoly regulation, product standardization and certification); legislative framework aimed at stimulating exports (tax incentives, customs “shield” in the form of excise taxes and quotas on imported products); implementation of state programs for the development of the processing industry; international agreements of leading suppliers of material resources on the priority right to meet the needs of specific markets. Regulatory provisions influence the formation and use of the economic potential of enterprises; – economic: taxes, inflation rates, national currency stability, loan interest rates, household income, etc. When forming economic potential, it is necessary to take into account the governmental actions to ensure price stability, attract foreign investment, improve the banking system, maintain the Belarusian ruble exchange rate, transform management methods to form adaptation mechanisms taking into account dynamic changes in the world economy, improve the balance of payments; – competitive environment (type of market, market capacity, industry barriers, competitive intensity, price, market situation, etc.). When forming the economic potential of enterprises, it is necessary to take into account the competitive environment, with allowances made for the influence of the above factors; – scientific and technical (a set of accumulated knowledge, scientific and technical personnel, etc.), ensuring the development and

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mastering new technologies, materials, products, forms of management of technological process and labour, methods of promoting goods on the market aimed to increase product competitiveness; – social (income level, number and rate of population increase, population makeup according to sex and age, consumption level, social protection system, etc.). More than thirty branches of the processing industry produce a wide range of food products, including socially significant ones – bread, milk, etc. – in everyday demand. The consumption of more expensive and high-quality products (meat products, oil, fish, fruits, etc.), semi-finished products, finished products increases with an increase in income, which creates additional opportunities for processing enterprises.

It is necessary to develop measures for the development of rational nutrition, the production of therapeutic food products and dietary products for different age groups of the population in order to improve the demographics and health of the population, which will affect the formation and use of the economic potential of processing enterprises.

– climatic and environmental, affecting the volume and regularity of the supply of raw materials to processing enterprises; – environmental. In the context of the transition of the Republic to the sustainable economic development, the requirements for the environmental aspects of production are increasing sharply; the task is to form a “green” economy based on energy conservation, implementation of environmental (“green”) technologies, renewable and alternative energy sources, efficient waste treatment technologies.

This poses certain tasks for the management of the enterprise in relation to forming the economic potential of the enterprise by choosing the optimal manufacturing technology, equipment, and range of products.

In a market economy, the management potential of an enterprise gains in importance, since the formation and use of the economic potential of processing enterprises, ensuring

sustainable development in conditions of uncertainty and risk, which are specific for the market, depend on the skills and abilities of the top management. Management potential is a set of knowledge, experience, organizational capabilities of management personnel aimed at the formation, development and use of the economic potential of an enterprise operating in a competitive environment. A comprehensive assessment of the available economic potential, formed as a result of the use of various resources, is a tool for making management decisions to increase it.

The management process is distinguished by the complexity of functions and elements.

Management functions can be implemented if the enterprise has the necessary potential to make management decisions that must be timely and reasonable. It is necessary to develop the Enterprise Potential (Capacity) Management System (EPMS) in order to achieve the main goal of managing the potential of organizations, which ensures their functioning and development in conditions of constant information uncertainty, market conditions, risk and constant intensive influence of external and internal factors. Therefore, it is important to use the opportunities and techniques that contribute to the achievement of the chosen strategy and the set tasks of developing the economic potential of processing enterprises.

The organization of sales of manufactured products is one of the elements of management activity.

Marketing departments were established at processing enterprises.

Therefore, it is advisable to distinguish the marketing potential as an independent element of the servicing level of economic potential; marketing potential is understood as the maximum ability of the marketing system to ensure the constant competitiveness of the enterprise. Features of the marketing potential of an enterprise are manifested in the ability to respond flexibly to changing tastes and preferences of consumers. Constant monitoring of the market situation allows us to timely organize the manufacturing of products that are

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in demand, competitive, and safe for human health. The following medium and long-term goals were identified as the main market benchmarks for the marketing department of processing enterprises: gaining a profit by meeting the needs of consumers in high-quality products; increasing production volumes, expanding the range of products, increasing sales and expanding new sales markets by improving product quality.

It is necessary to timely receive, process and analyse information on the state and trends of the domestic and foreign markets, to own stateof-the-art e-business technologies in order to improve the efficiency of management at processing enterprises. We defined the set of the maximum capabilities of organizations, due to the available information resources, automated information systems, technologies that improve production performance and competitiveness in the market, as information technology potential. It is actively developing at processing enterprises and is one of the essential factors in the formation of the economic potential of organizations. The automation of production processes as well as the introduction of computer and microprocessor technology are one of the priority areas of technical development.

Significant work was accomplished in recent years on the computerization of functions of management of organizations, accounting, control, analysis. Software for managing the sale of finished products, bookkeeping and accounting, planning and analysis, calculating the cost price, wages, accounting and movement of fixed assets, production operations scheduling and other technologies are widely used.

Development, modernization, expansion of activities of processing organizations of agroindustrial complex requires the implementation of investments. In this regard, the investment potential of processing organizations of the agro-industrial complex should be distinguished as a separate element in the structure of

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economic potential, by which we mean a set of capabilities of enterprises to use investments in order to ensure the process of modernization and development of production.

The dynamic development of market relations and increased competition require a constant search and implementation of innovations in production. The maximum capabilities of processing organizations of the agro-industrial complex to master innovations in order to increase the products competitiveness can be defined as innovation potential and considered as an independent element.

At the present stage, the development of new markets for products is one of the priorities for increasing the sustainability and efficiency of the processing enterprises operation. Some of the products are sold in foreign markets considering that the volume of production of products of processing organizations of the country and the region exceeds the needs of the domestic market Expansion of foreign economic activity requires specific knowledge, experience, skills, organizational and other activities.

Therefore, it is advisable to distinguish the export potential as an independent element of the servicing level of economic potential; export potential is a set of maximum opportunities and resources for the production and sale of competitive products in foreign markets. The opportunities of increasing the export potential of processing enterprises are studied from the perspective of a complex of both internal and external factors. The situation on the world market, conditions for access to foreign markets and the presence of competitors are those external factors that determine the opportunity of developing the export potential of processing enterprises. This present time a number of measures are taken to increase the volume of export of products: technical and technological modernization of processing industries is carried out, an active policy is pursued at enterprises in order to introduce a quality and food safety management system.

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Conclusions Considering knowledge-based capital for the future as a determining factor in the development of the economic potential of processing enterprises, the following features are distinguished: the formation and development of knowledge-based capital is of paramount importance for the sustainable development of organizations; knowledge-based capital is increased through knowledge, skills, experience; the process of forming and using knowledgebased capital requires high costs; the use of knowledge-based capital is characterized by a high degree of un-certainty and risk on the one hand, and high profits on the other hand; knowledgebased capital is treated as an intangible asset.

Currently, there are a large number of methods for assessing knowledge based capital, which are grouped into the following approaches: a) methods of direct measurement, which are based on the determination and assessment of individual assets or components of knowledgebased capital, after which an integral assessment has to be performed. The advantage of this method is the availability of statistical information, however, factors that influence the value of the firm’s market capitalization are not taken into account; b) methods of market capitalization, which imply the determination of the difference between the company’s market capitalization and the equity capital of its shareholders, and the resulting value is considered as the value of its knowledge-based capital or intangible assets; c) methods of return on assets – in this case the ratio of the company’s average income before taxes for a certain period to the tangible assets of the company is compared with a similar indicator for the industry as a whole. The organization brand value is established using this method, however, it is impossible to use it in the absence of analogous organizations in the industry; d) scoring methods.

When applied, various components of intangible assets or knowledge-based capital are identified, indicators and indices are generated and reported in the form of scoring. The main ad-vantage of this

assessment is that the model assesses the state of knowledge based capital on the basis of a system of indices, differences, and can characterize the main contributions of the knowledge based capital parameters to the total cost. In terms of benefits, this method is applicable to any organization and it reflects the financial value of intangible assets more accurately. However, the above methods for assessing the knowledge-based capital of organizations are not versatile and unambiguously understandable for owners, investors, employees and others, which requires improving their methodological approaches. Therefore, both methods of measuring knowledge-based capital as a whole and methods that allow assessing each type of knowledge-based capital separately are important. The complex application of these methods will provide an objective result of the level of development of knowledge-based capital, determine its contribution to the formation of the value of organizations.

The features of the formation of the economic potential of processing enterprises of the agrifood sector as a whole and its structural elements are identified: resource, as a set of resources directly used for the manufacturing of products (fixed and floating assets, manpower resources), and serving – factors, conditions that ensure the effective use of resources of organizations used for the production of final products. Structural elements were identified in the study and assessment of the economic potential of processing enterprises, in accordance with their functions in production: resource and service.

Definitions are given for each of the proposed structural elements of the economic potential of processing enterprises of the agro-industrial complex. The proposed structure of elements of economic potential most fully characterizes the maximum capabilities of processing enterprises and creates conditions for assessing the actual and prospective level of their development, which predetermines the significance of the results obtained for application in practice.

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References Duvanova, Y. (2009). Management of the economic potential of an industrial enterprise on the basis of socially oriented innovations: author’s dissertation of economic degree. Sciences: 08.00.05; Voronezh state technological acad., 24.

Gnatyuk, S. (2016). Indicators of sustainable development of the region. Politics, Economics and Innovation. 5 (7), 20.

Gunina, I. (2004). Economic potential of the enterprise: essence, content, structure.

Mechanical Engineer, 11. 24–28.

Kerzhentsev, F. (2010). Development of methods for assessing the economic potential of industrial enterprises: author’s dissertation of economic degree. Sciences: 08.00.05; Samara State economy un-t. – Samara, 24.

Marushkov, R. (2000). Assessment of the use of the economic potential of the enterprise (on the example of enterprises in the printing industry): author’s dissertation of economic degree. Sciences: 08.00.05; Moscow state un-t print, 24.

Polyakova, G. (2013). The economic potential of

the region as a factor of sustainable development: measurement methods and diagnostics: author’s dissertation of economic degree. Sciences: 08.00.05; Nizhny Novgorod state un-t., 24.

Romanov A., Serebrennikov G., Bezuglaya V., Kirilina O. & Charykov (2012). Tambov M.K. Management of the economic potential of the organization. A.P.: Publishing house of FGBOU VPO TSTU, 88.

Shaidaeva, D. (2012). Economic potential of an agro-industrial enterprise: essence and structure. Problems of development of the agro-industrial complex of the region. 4 (12).

165-174.

Tishchenko A., Kizim N., Kubakh A. & Davyskiba E. (2005). The economic potential of the region: analysis, assessment, diagnostics: monograph. Kharkiv: Publishing House INZHEK, 176.

Vinogradov, V. (2003). Application of a balanced system of performance indicators in business innovation processes: interuniversity collection. SPb. Publishing house of SZGTU, 12. 105–109.

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Climate Change as a Challenge for the Economy Georgi Momchilov * А A VUZF

University, 1, Gusla str., Sofia, 1618, Bulgaria

Received: October 18, 2021 | Revised: November 08, 2021 | Accepted: December 28, 2021 JEL Classification: Q51, Q54, Q58.

DOI: 10.38188/2534-9228.21.4.07 Abstract According to historical climatology, climate and climate change have always had an impact on human society. Anthropological climate change is happening fast and will indisputably affect the global economy for decades to come. This paper provides a review of the expectations of leading economists and organisations on the magnitude of this effect. It clarifies the different approaches used to quantify the future economic loss attributed to climate change. Despite the different approaches used, all the authors examined in the paper foresee a negative impact of the climate change on the global economy. The different approaches result in different predictions about the magnitude of the impact. The authors express similar positions about the geography of the damages that will be caused by the climate change. The most affected countries will be most likely those in Sub-Saharan Africa and South Asia. A moral paradox arises that the least developed countries that are not at fault for anthropogenic climate change will have to carry the economic burden of its consequences. The paper also suggests and compares a variety of measures that could be taken in order to adopt to and mitigate the negative impacts of climate change on the economies.

Keywords: climate change, social changes, economic policies, mitigation, and adaptation.

Introduction Climate change has become an increasingly important issue in business and politics. This article has the goal to review and analyse the propositions of leading economists on the issue of climate change impacts on the economy and some of the measures that may be applied. The thesis of the paper is that the climate change will have a significant negative impact on the global economy and this was proved through a variety of research methods. It suggests that the cost of implementing mitigation and adaptation measures would be lower than the cost of the damages that climate change would cause.

According to the Encyclopedia Britannica, climate is defined as: “Conditions of the atmosphere at a particular location over a long period of time; it is the longterm summation of the atmospheric elements (and their variations) that, over short time *

periods, constitute weather. These elements are solar radiation, temperature, humidity, precipitation (type, frequency, and volume), atmospheric pressure and wind (speed and direction)” (Gentilli, 2020).

The emphasis of the definition is on the long period of astronomical time, which distinguishes climate from weather. The Earth's climate has changed many times, potential reasons for this being solar radiation cycles, Earth’s volcanic activity, changes in ocean flows, etc. The last ice age ended approximately 11,500 years ago, followed by the creation of the first settlements with developed agriculture that we know of, in Mesopotamia and the lands of the Fertile Crescent (nowadays Lebanon, Palestine, Israel and Iraq). For the past 2,500 years there is evidence of climate change, alternating between periods of warmer and colder climate,

Corresponding author: PhD student VUZF, e-mail: georgi.momchilov@etl.de

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(2021) VUZF review, 6(4) • Climate change will continue over the course of this century and thereafter.

Climate and climate change have always had strong impact over human activity. Historical climatology is a branch of science that studies climate change and its effect on human civilization. According to Brown (2001), the roots of historical climatology can be found in the works of Aristotle, Tit Lucretius Car and Pliny the Elder. In contemporary works, the existence of precise paleoclimate data has been the leading cause for diverse studies that examine the correlation between certain climate and social events. In an extensive study, Zhang et al (2007) analysed the history of Europe and China using high-resolution paleoclimate data and reached the conclusion of strong correlation existing between climate change and the frequency of fighting wars, as well as changes to the human population in preindustrial history.

The reason for this relationship is the adverse impact of climate change (predominantly cold spells in recent history) on agriculture and economy and the capacity to provide food to the population. With climate change, the options to adapt include migration, cultural and technological changes, innovations, trade, peaceful reallocation of resources, or war. In preindustrial societies, as the appropriate institutions for it did not exist, and as society was not ready for the rapid social change experienced, possibilities for peaceful adaptation often did not work, so the outcome of climate change had been war. War, in turn, contributed to reducing human population, which increased the output of agricultural produce per capita, resulting in lowering of prices for this produce, and once again this resulted in the increase of human population.

According to NASA (2021b) the current warming is taking place ten times faster than the ice-age-recovery warming. This unprecedented speed would limit the possibilities of the humankind to adopt. That is why the possible impact of the climate change on global and regional economies should be carefully examined.

such as: The Roman Climatic Optimum - from approximately 250 BC to approximately AD 400; The Medieval Climate Optimum – from approximately AD 950 to approximately SD 1250 and the Little Ice Age – from approximately AD 1550 to approximately AD 1850.

The industrial development of humanity since the start of the XIX century until now and the emission of large volumes of greenhouse gases related thereto has resulted in the gradual increase of the average temperature and accompanying changes in global climate.

Concentration of carbon dioxide in the atmosphere has increased, from approximately 280 ppm (parts per million) in the preindustrial age, to approximately 420 ppm in 2021, where it has reached its peak for the last 14 million years. Earth's geological history has periods with significantly higher atmospheric concentration of СО2. According to Mulhern (2020), the highest known levels of concentration ranging from 3,000 ppm to 9,000 ppm have been reached 450 million years ago during the Ordovician Period, with average temperatures being 10 degrees centigrade higher than current temperature levels. According to the author, the reason these concentrations had not resulted in a complete ecological disaster is the colder temperature of the Sun and the difference in the Earth’s orbital cycles during that period.

According to the National Aeronautics and Space Administration (2021a), human activity is the underlying reason for temperature rising by 1 degree centigrade compared to the preindustrial age, whereas the current rate of temperature rise is approximately 0.2 degrees centigrade per decade, which would lead to unprecedented anthropogenic climate change.

According to the NASA, rising temperatures will impact climate in the following manner: • More droughts and heat waves; • Changes in the precipitation model; • Hurricanes will be stronger and more intensive; • The expected global sea level rise by the year 2100 ranges from 0.3 m to 2.5 m; • The Arctic will most likely lose all of its glaciers; 59

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Material and methods Over the course of the last twenty years, the impact of climate change on the global economy has become an increasingly popular topic, with a number of scientists and organizations attempting to forecast this effect in varied climate scenarios and employing varying methods to do it. One of the most frequently used methods is the consensus method, wherein a certain number of scientists are interviewed, and they provide their forecasts for the effect, then calculating the average values and the median of their projections. Another method used is the enumerative method, wherein the expected material effect from climate change is determined first, an example

would be changes in precipitation and land productivity or global sea level rising, and subsequently value is assigned to each of these material effects. According to Tol, a third method is the statistical method: “It is based on direct estimates of the welfare impacts, using observed variations (across space within a single country) in prices and expenditures to discern the effect of climate” (Tol, 2012).

This article makes a literary overview of the opinions of some of the leading economists on the matter for impact of climate change on the global and regional economies.

Results and discussion One of the first attempts to forecast the impact of climate change on the global economy is the forecast of the Nobel Prize economist William Nordhaus. In the beginning of 1994, he published his article Expert opinion on climatic change (Nordhaus, 1994a), wherein he interviews 19 experts in the area of climate change, among which 10 economists, 4 social scientists, and 5 natural scientists. In the article, Nordhaus outlines the major differences in the opinions of the interviewed scientists, as well as various scenarios for climate developments. In the scenario where Earth's temperature is increased by 3 degrees centigrade until 2090, the median expected reduction in the Gross World Product is 1.9%, and the expected average value of the forecasted reduction in GWP is 3.6%.

In his book, Managing the global commons (Nordhaus, 1994b) published in October the same year, Nordhaus used a different approach, namely Dynamic Integrated Model of Climate and the Economy or DICE model, which is the first dynamic model that includes carbon emissions and their concentrations, expected climate change, as well as emissions damage and emissions control. The model represents a limited, non-linear, dynamic optimization model with an endless horizon. The basic structure of the model could be represented through the following diagram:

The economic growth ledas to CO2 emissions (driving, heating and cooking, airplane travel, ...)

Rising CO2 concentrations and other forces lead to climate change (temperature, precipitation, sea-level rise, …)

Climate change policies reduce emissions (cap-andtrade, carbon taxes, regulations...)

Climate-change imposes ecological and economic impacts (lower corn yields, coastal flooding, ocean acidification, …)

Figure – 1 DICE model Source: Nordhaus 1994b

Slightly simplified, the mathematical representation of the model looks like this: max c(t) W =

max c(t) [ ∫ 0 ∞ U [ c(t ) ] e −ρt dt]

subject to: c(t ) = M (y(t ); z(t); α; ε(t)), where c (t) means consumption; y (t) are other endogenous variables (such as global 60

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temperature); z (t) are exogenous variables (such as population); α means parameters (such as climate sensitivity); ρ is a pure rate of time preference; and ε (t) are random variables in stochastic versions (Nordhaus, 2019, p. 1995).

Using the DICE model, the author views various climate change scenarios, and for the scenario where Earth temperature is increased by 3 degrees, the expected decline of the world Gross Domestic Product is 1.3%.

In 1995, Frankhauser (1995) compared the costs for reducing greenhouse gas emissions with the costs that would have been caused by these emissions on a regional and global level.

His assessment, in case of a scenario where temperature has been increased by 2.5 degrees centigrade, is a decline of GDP by 1.4%.

The same year Tol (1995) uses cost functions and incorporates uncertainties in his analysis in order to assess damage caused by climate change. Square functions have been used predominantly for nine regions and nine categories of damage. According to the calculations of the author, if global temperature rises by 2.5 degrees centigrade, the decline of GDP would be 1.9%.

Mendelsohn, Morisson, Andronova and Sclesinger (2000) propose a Global Impact Model, attempting to use it to forecast the impact of climate change on the economies of different countries. They assume a temperature increase of 2 degrees by 2060 and examine the possible climate and precipitation changes in 184 countries. In their opinion, the net effect for the world as a whole would be a decline of GDP by about 0.3%.

In 2007, Nicholas Stern (2007) published his emblematic report Stern Review on Economics of Climate Change after an assignment of the government of the United Kingdom. In it, the former chief economist of the World Bank provided a thorough analysis of the expected effects on climate change. Stern used a production function that includes environmental status of the following type:

Y(t) - is the output of the economy for the year t; К – capital; L – labour; Е - environmental quality.

This function makes it clear that GDP is dependent on the environmental conditions, or as the author calls it - natural capital. One of the main conclusions of Stern's report is that the benefit of humanity's rapid response in reducing carbon emissions far exceed the costs we would have to pay, had such rapid actions not been taken. According to Stern, lack of action would result in decline of GDP by a minimum of 5% per year (and in case a wider range of risks is considered, the decline may reach 20%), while costs that would have been accrued, had humanity attempted to limit carbon emissions, would approximately be 1% of GDP per year.

According to the author, four methods exist for decreasing carbon dioxide emissions, namely: attempting to reduce the demand for goods and services involved in the intensive output of emissions; improving energy efficiency; transitioning to lower emission technologies; limiting non-fossil fuels emissions (Stern, 2007).

In his recent book How to Avoid a Climate Disaster Bill Gates identifies in a similar manner five major sources of greenhouse gas emissions, namely: how we plug in, make things, grow things, get around, and keep cool and warm (Gates, 2021, p. 158).

Expectations about the economic impact of climate change of Bosello, Eboli, and Pierfederici (2012) are more moderate. Assuming average global temperature by the year 2050 would increase by 1.92 degrees centigrade compared to preindustrial age, and using a recursive dynamic calculation model of total equilibrium, the authors have reached the conclusion that global GDP would decline by approximately 0.5%.

Maddison and Rehdanz (2011) have proposed an interesting study on the topic of the impacts of climate change on the level of life satisfaction in 79 countries. They measure climate as “degree-months”, which represents

Y(t) = F (K, L, E), where:

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cumulative monthly deviations from a base temperature of 18.3 degrees centigrade.

According to the conclusions of the study, in countries with high “degree-months” values, the life satisfaction level is relatively lower.

According to the global reinsurance company Swiss Re (2021), the expected impact on global GDP until 2050 for various scenarios, compared to a world without climate change, would be: A decrease by 18%, if no mitigation actions are taken, which would result in a temperature rise by 3.2°C. A decrease by 14%, if some mitigation actions are taken, which would result in a temperature rise by 2,6°C. A decrease by 11%, if additional mitigations actions are taken, which would result in a temperature rise by 2°C. A decrease by 4%, if the targets of the Paris Climate Agreement are reached, which would result in increase of temperature by a level below 2°C. In one of the most recent studies in 2021 by the University of New York (Howard & Sylvan, 2021), which includes the opinion of 738 leading climate change economists, economic damage caused by climate change would reach 1.7 trillion dollars per year until 2025, and 30 trillion dollars per year until 2050.

Regardless of the methodology used, the projected values for the reference studies are negative. According to Nordhaus, other main conclusions from the use of all Integrated Assessment Models (or models used for assessment of economic impact of climate change, integrating knowledge derived from various disciplines) are: • “One major finding of integrated assessment models is that policies to slow emissions should be introduced as soon as possible.

• A second finding is uniformity of price—that the most effective policies are ones that equalise the incremental or marginal costs of reducing emissions.

Equivalently, in a market context, that means that the carbon prices should be equalised in every sector and in every country.

• Effective policies should have the highest possible participation; that is, the maximum number of countries and sectors should be on board as soon as possible.

Free-riding should be discouraged.

• Finally, an effective policy is one that ramps up over time—both to give people time to adapt to a high-carbon-price world and to tighten the screws increasingly on carbon emissions“ (Nordhaus, 2019, p. 2002).

2. Regardless of the model used and the result for the global economy, all studies reach the conclusion that damage caused by climate change will not be evenly distributed between different world regions. Tol (2011) projects the effect of climate change for different countries around the world and reaches the conclusion that the countries which would suffer the worst economic impacts will be countries in Africa, Southern Asia, and Latin America, while for countries in Europe and North America, climate change could even have a positive effect. A similar proposition is also made by Gates (2021), who claims that it is the developing countries that will suffer most from climate change if greenhouse emissions are not reduced by 2050 and they are also the ones that will have to pay the highest Green Premiums in order to introduce innovations to achieve the 2050 emissions goals.

According to Mendelson at al. (2000) the countries in Africa, Asia, Latin America, and Oceania will be adversely affected by climate change, while countries in Europe and North America could benefit. Authors have found that the economies of OECD countries would add approximately 69 billion dollars to their GDP, while countries outside of OECD would lose approximately 348 billion dollars.

Stern reaches similar conclusions in the second part of his report. In his opinion, developing countries will suffer more adverse economic effects due to climate change compared to the developed countries, because of their geographic location, low-income levels that predicate reduced opportunities for realization of adaptation measures and higher

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level of dependency on the climate sensitive sectors of the economy, such as agriculture.

According to the author, the regions that would suffer the most would be Sub-Saharan Africa and South Asia. Unlike developing countries, some developed northern countries, such as Canada and the Nordic countries, would stand to gain economic benefits from climate change, but only if temperature rise is limited to up 2 to degrees centigrade compared to preindustrial age. In case of a temperature rise by 3 or more degrees – no region in the world would benefit.

Stern makes the conclusion that economic effects for states with larger territories, such as the USA or Russia, will be diverse, and the socially disadvantaged people in developed countries will have a harder time dealing with the effect of climate change.

Furthermore, climate change will have an uneven impact, not just on global regions, but also on the different economic sectors. The following sectors are expected to be among the affected ones: • Agriculture – agricultural production is directly dependent on temperature, sunshine, and precipitation. In many regions, climate change is expected to result in droughts, which will have an adverse effect over the output volume of production.

• Fishing – higher carbon emissions directly correlate with increased acidity of the oceans, which in turn has an adverse impact on biodiversity.

• Insurance – climate change results in increasing losses from natural disasters, which has a major impact on the bottom line of insurance companies. According to the reinsurance company Munich Re (2020), the number of catastrophic natural disasters has increased, from 249 in 1980 to 820 in 2019, with the growth rate steadily increasing over the whole period. According to the company's evaluation, losses caused by natural disasters between 1980 and 2019 amount to 5,200 billion dollars.

• Banks – banks have some serious credit exposure to sectors that would be directly

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affected by climate change. Turning these exposures into problematic exposures would have a serious effect over the financial results of the banking sector.

• Capital markets – the decrease of prices for shares of companies affected by climate change would have an adverse impact on the profitability of investments by institutional investors.

• Tourism – there are many reasons why the tourist sector would be one of the most affected sectors. According to the calculations of the organization Sustainable Travel International (2021), tourism is responsible for approximately 8% of the global carbon dioxide emissions.

Amelung, Nicholls and Viner (2011) consider that climate conditions are among the main motivators in the tourism sector, whereas global sea level rising has the potential of changing coastal areas in many regions.

• Infrastructure – global sea level rising, and the accompanying floods of coastal areas would have an adverse effect on streets, coastal highways, power lines, pipelines, and communication infrastructure, situated in these areas.

Climate change is expected to also cause global trends affecting the global economy, such as reduction of work productivity. According to a report of the International Labor Organization (2019), rise of global temperature by 1.5 degrees centigrade would result in a loss of 2.2%-3.8% of work hours globally in 2030, which is the equivalent of 80 - 130 million workplaces at full work hours. According to the same report at 33–34° C, a worker, who works at moderate labour intensity, loses 50 percent of his or her work capacity.

At the same time, climate change could have positive impact over certain sectors of the economy, such as: • Construction – global sea level rise would require construction of facilities protecting coastal areas from floods, as well as consolidation and maintenance of the existing infrastructure in multiple places all over the world.

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• Renewable energy output – because the energy sector is among the biggest carbon emission sources, the installation of renewable energy sources has gone through turbulent development over recent years, which is expected to continue in the future.

• Healthcare – climate change would result in expanding the areas of impact of various diseases, such as malaria, west Nile fever, or stem rust of wheat. On the other hand, the frequency of heat waves related to these changes would have an adverse impact over the health of babies, people with cardiology or other health issues. This would give an additional stimulus to the healthcare sector.

• Clean technologies – technologies of any kind, such as hydrogen fuel cells, capture and storage of carbon dioxide, etc., which could lower greenhouse gas emissions, would have a major economic success.

In addition, climate change is one of the most serious threats for medium term and long-term development of the global economy. The studies examining their regional economic benefit drive the conclusion and the accompanying moral paradox that the least developed countries, which are not at fault for anthropogenic climate change, will carry a heavier economic burden resulting from climate change, while developed industrial countries, which has mostly caused climate change through their development, would suffer less adverse, or in some cases even positive effects.

Climate change is a global problem that requires global response, but political attempts so far have shown the difficulty of finding a solution on an international level, because the aforementioned moral paradox disconnects the developed and the developing countries on the key question about who should carry the economic burden of climate change, and to what extent. Determining the degree to which developed countries have had to suffer this burden is one of the most difficult moments in time in the negotiation for signing agreements related to climate and environmental protection. Another similar point is the

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temptation of a country to take the position of a free rider, taking a decision not to burden that country's economy with climate protection measures, instead letting other countries carry that burden, but benefiting from measures taken by the other countries anyway. The insignificant political progress regarding climate change on an international scale is also related to the fact that changes are a relatively longterm process, which does not correspond to the shorter-term interests of the governments in power.

According to Stern (2007), only international efforts could solve the issue, and the main elements of future international framework should include: emissions trading, technology cooperation, action to reduce deforestation and adaptation.

Both in the past and in the present, climate change has had a significant impact over a series of public processes. The topics of climate change, environmental protection, and sustainable development of society and business have been the subject to active political and public discussion for just several decades. In 1920, in his work The Economics of Welfare, the British economist Pigou (1920) suggested the introduction of a tax that is used to balance adverse externalities created by certain business activities, which are not calculated in the price of the product but result in its overconsumption.

The first conference under the auspices of the UN with a focus on environmental protection was held in 1972. The human environment conference of the UN has been held in Stockholm. Despite serious disputes between developing and developed countries, which had come to light during that conference, it gave the start of a series of similar meetings, which have shaped environmental efforts in the area of environmental protection.

During that conference, the decision was taken for the establishment of the United Nations Environmental Program (UNEP).

The creation of the modern concept for sustainable development is related to the activity of the Brundtland commission, also

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known as the World Commission on Environment and Development (WCED) and the report published by it in 1987 - “Our Common Future”. Sustainable development is a concept appealing to a future based on economic development, environmental protection, and social justice. In its report, the Commission defines sustainable development as: “Development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (World Commission on Environment and Development, 1987, p. 43).

The Brundtland commission has stated the argument that environment is integral to the development of humanity. The UN conference on the environment and development, also known as the Rio de Janeiro Conference, was held in 1992. The purpose of the conference was to strengthen international efforts in the direction of sustainable development. A significant result from the Conference was the adoption of the Convention on Climate Change that appeared to be the foundation of the Kyoto Protocol, signed in 1997, and the Paris Agreement, signed in 2016. Ten years later, in 2002, again under the auspices of the UN, a World Summit has been held once again, the result of which is the Johannesburg Declaration.

In 2012, the UN Conference on sustainable development has been held again, and at that conference 192 heads of state and governments have signed the document, entitled The Future We Want.

Furthermore, circular economy is also a concept that would contribute to the fight against climate change. According to the popular definition of Geissdoerfer et. al, circular economy is: “Regenerative system in which resource input and waste, emission, and energy leakage are minimised by slowing, closing, and narrowing material and energy loops. This can be achieved through long-lasting design, maintenance, repair, reuse, remanufacturing, refurbishing, and recycling” (Geissdoerfer, Savaget, Bocken and Hultink, 2017, p. 760).

According to Ekins at al. (2019), the foundations of the circular economy concept may be found in industrial ecology of the 1940’s and 1950’s of the XX century, and in the article of Boulding (1966) ‘The economics of the coming spaceship Earth’. According to the advisory company PWC, in order to integrate the principles of the circular economy, a company should follow the following 10 strategies: • Circular orders; • Circular design; • Effectiveness of resources; • Product as a service; • Sharing / Virtualization; • Optimizing the use / Maintenance; • Repeated use / Reallocation; • Remediation / Processing; • Industrial Symbiosis / Recycling for manufacturing; • Recycling after consumption (Dinkel, 2020).

Two types of measures exist, which could be applied in combating climate change, each of them having its own economic effects: 1. Measures for mitigating climate change – they represent measures aiming at limiting global warming through the lowering of greenhouse gas emissions in the atmosphere.

Political measures for lowering emissions are directed toward cap-and-trade or carbon tax imposition. Both types of measures result in reaching a certain price of carbon emissions and respectively adjusting prices of products or services for the business activities involved in emissions generation. Due to their more flexible form, the currently preferred measures are of the cap-and-trade type. Through them, the market can find the most economically effective method to limit emissions. The largest system of this type is the Emissions Trading System of the European Union. Established in 2005, the system is currently in its fourth phase. It limits the volumes of greenhouse gas that companies from sectors polluting the environment could generate, and the companies receive or purchase permits for generating gases, which they can trade if needed/required. Despite 65

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criticisms toward the system referring to price volatility or number of allocated permits, according to the European Commission, that system is the foundation of decline by 35% of greenhouse gases generated by companies that participated in the system for the period between 2005 and 2019. Concurrently, many countries around the world have introduced carbon tax, with the carbon tax rate varying from 0.09 euro per ton in Poland to 90.53 euro per ton in Switzerland (Asen, 2020). According to Nordhaus, by for a policy having the objective of curbing climate change to be effective, it has to increase the price of carbon emissions, and by doing it: “First, it will provide signals to consumers about which goods and services are carbonintensive and should therefore be used more sparingly. Second, it will provide signals to producers about which inputs are carbonintensive (such as coal and oil) and which are low-carbon (such as natural gas or wind power), thereby inducing firms to move to low-carbon technologies. Third, it will give market incentives for inventors, innovators, and investment bankers to invent, fund, develop, and commercialize new low-carbon products and processes. Finally, a carbon price will economize on the information required to undertake all these tasks” (Nordhaus, 2019, p. 2003).

The computer model Nordhaus used defines optimal price of a ton of carbon dioxide emissions, being 36 USD/ton, but in case of more ambitious climate goals being set, such as preserving the temperature rise within 2 degrees centigrade, “the social cost of carbon” would increase to 158-279 USD/ton.

A significant incentive en route to decreasing emissions are the changes in the behaviour of consumers, which prefer more environmentally friendly products and services. In a large-scale opinion poll of clients, the US advisory company CGS (2019) has reached the following details: 68% of Americans consider that sustainability of a single product is an important factor for their decision to buy it; 35% of respondents are ready to pay 25% higher price for a sustainable

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product; representatives of the so-called generation Z (people born between 1997 – 2012) would be willing to pay 50% or even up to 100% higher price for such products.

The market of environmental, bio, socially responsible and sustainable products has grown seriously over the course of the last decade. In an article for Harvard Business Review, Whelan, and Kronthal-Sacco (2019) have established that 50% of the growth of consumer-packaged goods marketed in the USA for the period 2013 – 2018 has been caused by sustainable products. Using company data for processing of large data arrays IRI, obtained from bar code scanning in a large number of stores for fast-moving consumer goods, both authors have reached the conclusion that the share of the sustainable products has grown from 14.3% to 16.6% over the same period, reaching an absolute amount of 114 billion dollars. At the same time, sales of products branded as sustainable, have grown 5.6 times faster than the ones that do not have such a brand.

Decreasing carbon emissions depends on the economically effective imposition and use of low carbon emission technologies, such as: • Electric power output from renewable energy sources, such as wind, sun, rivers, high and low tides, and waves; • Capture and storage of carbon dioxide; • Use of hydrogen for heating and transportation fuels; • The use of smart networks in the production, transportation, and consumption of electric power; • Better insulation materials in construction • Technology for electric, hydrogen and hybrid motor vehicles.

2. Adaptive measures - Climate is an inert system, and despite undertaken climate change mitigation measures, humanity will need to adapt to the effects of rising temperatures.

There is a diversity of adaptive measures, and potential measures differ for each region, depending on the risks caused by climate change. The following are possible adaptive measures: 66

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• Building sea walls or other facilities which counteract rise of global sea level; • Improvement of pipelines for settlements endangered by floods due to the increasing precipitation volume; • Change in construction standards requiring taller building foundations in areas endangered by flooding; • Building rainwater storage facilities; • Transition to growing plant crops and animal species with higher sustainability to drought; • Using white and light-coloured materials for building roofs in large settlements, as a method for diminishing the effect of heat waves; • Insurance against potential damages as a method for risk transfer and risk mitigation.

According to an analysis of the Economics of Climate Adaptation Working Group (2009),

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which represents a partnership by and between McKinsey, SwissRe, Rockefeller Foundation, Climate Works Foundation, the European Commission, and Standard Chartered Bank, the investment in adaptive measures is significantly more economically profitable than dealing with the damage caused by climate change.

According to the expectations of the group for certain specifically reviewed towns, adaptive measures may prevent between 40% and 68% of economic losses that would arise by 2030, as the consequence of climate change caused events.

Due to the existing diversity of potential adaptive measures, each district/municipality should perform an analysis of the risks that climate change has created for the respective region, and subsequently analyse the costs and benefits, related to the particular adaptive measure.

Conclusions Anthropogenic climate change is a huge challenge to humanity and the ecosystems of the planet. They shall have an increasingly significant impact on multiple aspects of people’s lives. From the point of view of the economy, climate change will have an adverse impact on the global economy. The adverse impact would be profoundly expressed in the countries in Africa, South-East Asia and Latin America, and a moderate rise of temperatures (up to 1.5-2 degrees centigrade) could have a slightly positive impact over the economies of the countries in Northern Europe and Canada. A higher level of temperature rise would result in adverse impacts even for countries from the northern part of the Northern hemisphere.

Another significant conclusion from the analysis is that climate change is a global problem, one that requires a global solution.

The efforts of the international community in this area are stifled by the moral paradox that industrial countries, which are predominantly responsible for climate change, are the ones who would be the least affected by it. Two types of measures exist, which should be undertaken – climate change mitigation and adaptive measures. Concepts on the development of the society and the economy such as sustainable development and circular economy would support decreasing the hazardous impacts and overcoming the consequences of climate change.

References Asen, E. (2020). Carbon taxes in Europe, Retrieved from: <https://taxfoundation.org/ carbon-taxes-in-europe-2020> Amelung, B., Nicholls, S. & Viner, D. (2011).

Implications of global climate change for tourism flows and seasonality, Journal of Travel Research, 45, pp. 285-296 Bosello, F., Eboli, F. & Pierfederici, R. (2012).

Assessing the economic impacts of climate change, SSRN Electronic Journal, DOI: 10.2139/ssrn.2004966 Boulding, K. (1966). The economics of the coming spaceship Earth, in H. Jarrett (ed.)

Environmental Quality in a growing economy, resources for the future, Johns Hopkins University Press 67

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Brown, N. (2001). History and climate change, Londres-New York, Routledge CGS (2019). Retail and sustainability survey, Retrieved from: <https://www.cgsinc.com/ en/infographics/CGS-Survey-RevealsSustainability-Is-Driving-Demand-andCustomer-Loyalty> Dinkel., J. (2020) Wie Sie mit Kreislaufwirtschaft die Umwelt schützen und Kosten sparen, Retrieved from: <https://www.pwc.de/de/ nachhaltigkeit/circular-economy.html> Economics of Climate Adaptation Working Group (2009). Shaping climate-resilient development, Retrieved from: <http://ccsl.iccip.net/climate_resilient.pdf> Ekins, P. et al (2019). The circular economy: what, why, how and where, Background paper for an OECD/EC Workshop on 5 July 2019, Retrieved from https://www.oecd.org/cfe/regionaldevelop ment/Ekins-2019-Circular-Economy-WhatWhy-How-Where.pdf Frankhauser, S. (1995). Valuing climate change: The economics of the Greenhouse, London: Earthsacan Publications Gates, B. (2021). How to Avoid a Climate Disaster: The Solutions We Have and the Breakthroughs We Need, Alfred A. Knopf and Alfred A. Knopf Canada.

Geissdoerfer, M., Savaget, P., Bocken, N. & Hultink, E. (2017). The circular economy – a new sustainability paradigm?, Journal of Cleaner Production, 143, pp 757-768 Howard, P., Sylvan, D. (2021). Gauging economic consensus on climate change, Institute for policy integrity, New York University, Retrieved from: <https://policyintegrity.org/ publications/detail/gauging-economicconsensus-on-climate-change> International Labour Organization (2019).

Working on a warmer planet. The impact of heat stress on labour productivity and decent work, Retrieved from: <https://www.ilo.org/ wcmsp5/groups/public/---dgreports/--dcomm/---publ/documents/publication/ wcms_711919.pdf> Jentilli, J. (2020). Britannica, Retrieved from

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<https://www.britannica.com/science/clima te-meteorology> Maddison, D., Rehdanz, K. (2011). The impact of climate on life satisfaction, Ecological Economics, 70, pp 2437-2445 Mendelsohn, R., Morrison, W., Andronova, N. & Sclesinger, M. (2000). Country specific market impacts of climate change, Climatic Change, pp 553-569 Mulhern, O. (2020). А 4.5 Billion-Year History of CO2 in our Atmosphere, Retrieved from <www.earth.org> Munich, R. (2020). Risks posed by natural disasters, Retrieved from: <https://www.munichre.com/topicsonline/en/climate-change-and-naturaldisasters/natural-disasters/naturaldisasters-of-2019-in-figures-tropicalcyclones-cause-highest-losses.html> NASA (2021a). Overview: whether global warming and climate change, Retrieved from <www.nasa.gov> NASA (2021b) Climate change: how do we know, Retrieved from: <https://climate.nasa.gov/evidence/> Nordhaus W. (1994a), Expert opinion on climatic change, American Scientist, Vol. 82, pp 45-51 Nordhaus, W. (1994b). Managing the global commons, Cambridge, USA: MIT Press Nordhaus, W. (2019). Climate change: The ultimate challenge for economics, American Economic Review, Vol. 109, pp 1991-2014 Pigou, A. C. (1920). The Economics of Wealfare, London: Macmillan Stern, N. (2007). The Economics of Climate Change: The Stern Review, Cambridge: Cambridge University Press Tol, R. (1995). The damage costs of climate change toward more comprehensive calculations, Environmental and Resource Economics, 5, pp 353-374 STI (2021). Carbon footprint of tourism, Retrieved from: <https://sustainabletravel.org/issues/carbon -footprint-tourism/carbon-footprinttourism-chart-sti-web/> Tol R. (2011), Climate change: the economic 68

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impact of climate change in the 20th and 21st centuries, Copenhagen consensus on human challenges, Retrieved from: <https://www.copenhagenconsensus.com/si tes/default/files/climate_change.pdf> Tol, R. (2012). On the uncertainty about the total economic impact of climate change, Environmental and Resource Economics, 53, pp. 97-116 Swiss Re (2021), The economics of climate change, no action not an option, Retrieved from: <www.swissre.com> Whelan T., Kronthal-Sacco, R. (2019). Research:

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Actually consumers do buy sustainable products, Harvard Business Review, Retrieved from: <https://hbr.org/2019/06/research-actuallyconsumers-do-buy-sustainable-products> World Commission on Environment and Development (1987). Our common future, Oxford: Oxford University Press Zhang, D., Brecke, P., Lee H., He, Y. & Zhang, J. (2007). Global climate change, war and population decline in recent human history, PNAS, DOI:10.1073/pnas.0703073104.

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Financial risk management in the accounting system Umantsiv Halyna* А; Novikov Vladyslav B; Nikolaiets Oleksandra C A, B, C Kyiv

National University of Trade and Economics, Kioto 19 st., Kyiv, 02156, Ukraine

Received: November 13, 2021 | Revised: November 29, 2021 | Accepted: December 28, 2021 JEL Classification: F37, G10, G32, М41.

DOI: 10.38188/2534-9228.21.4.08 Abstract The article is devoted to the study of financial instruments in conditions of economic uncertainty.

Based on a study of national and international statistics and theoretical resources related to the restructuring of socio-economic and geopolitical ties, due to the rapid spread of the COVID-19 pandemic, its implications for accounting for financial instruments and disclosure of financial statements in accordance with International Financial Standards Reporting.

A combination of factors such as rising unemployment, falling demand for goods, bans and restrictions on doing business, severance of international ties, reorientation of markets to domestic consumption, rising risks of bankruptcy and default have led to the formation of economic uncertainty, which is most threatened by business initiative. Economic uncertainty, which gradually changes from sudden to prolonged, has a direct impact on the business activity of enterprises, in particular, on their financial instruments.

The pandemic caused by the COVID-19 virus has become a great challenge for participants in economic relations, who during the years of stability have managed to get used to stable market relations. The pandemic, which humanity has been struggling with for almost two years, has affected the entire system of social relations. At the beginning of the deployment of anti-epidemiological measures, the world economy was not ready to distance the production process. Economic indicators, which are an indicator of the development of individual states, demonstrate the vulnerability of sustainable socio-economic relations that existed before the COVID-19 pandemic.

The potential impact of the coronavirus outbreak on financial instruments has been assessed in such areas as increased expected credit losses, modification of financial assets and liabilities, losses under financial guarantee agreements accounted for in accordance with International Financial Reporting Standards, and reduced hedge effectiveness.

Keywords: financial instruments, economic uncertainty, pandemic, unemployment.

Introduction Since the beginning of the second millennium, the biggest challenge to the existence of human civilization has become the crown viral pandemic.

The fundamental principle of business continuity has recently been significantly affected by socioeconomic impacts due to quarantine restrictions imposed by governments to curb the spread of the COVID-19 pandemic. The article attempts to assess the effects of economic uncertainty on the

accounting of financial instruments and analyze the impact of the COVID-19 pandemic on the disclosure of financial statements.

Analysis of the recent research and publications has indicated that this topic is of great interest for scientists. We explain that economic uncertainty is gradually moving from the sudden stage to the prolonged scene. Currently, all world institutions are working to reformat international

*

Corresponding author: PhD, Associate Professor Department Accounting and Taxation, e-mail: h.umantsiv@knute.edu.ua, ORCID: https://orcid.org/0000-0002-5410-1363 B Bachelor's degree in the specialty "Accounting and Taxation", e-mail: v_novikov_foais_18_2_b_d@knute.edu.ua, ORCID: https://orcid.org/0000-0001-6265-2715 C Master's degree in the specialty "International Economics", e-mail: oleksandra.nikolaiets@umginvestments.com, ORCID: https://orcid.org/0000-0003-4832-0014 А

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and national economic and industrial relations to modern "quarantine" realities. Rogoznyi S. and Dyadyun O. made a significant contribution to the study of numerical aspects of the impact of COVID19 on the dynamics of economic processes, investigating the effects of quarantine and other features of 2020 on financial instruments in IFRS reporting. Stadnyk M. successfully studied the impact of COVID-19 on the world economy.

Vyhivska I., in her work, described in detail the process of risk management in accounting.

Umantsiv H. and Novikov V. explained the process of disclosing information about the impact of COVID-19 on accounting estimates in the financial statements. Ryabtsun O. studied the effect of the COVID-19 outbreak on the preparation of financial statements. Bykova G. assessed the application of IFRS 9 during the pandemic based on the explanations of the Ministry of Finance.

Berzin P., Shyshkina O., Kuzmenko O., Yarovenko H., investigated innovations in the risk

management of the business activity of economic agents. Dovhan Z., Kravchuk I., Karaś P., successfully described the financial instruments market as an institutional approach. Sakun O., Yevtushenko Y., explained the foreign experience of financial instruments of assistance to investment development in detail.

The scientific works present the dynamics of economic and statistical indicators of various spheres of social and industrial relations, both within individual countries and internationally.

The emergence of the coronavirus and its rapid spread has forced governments worldwide to declare quarantine restrictions, creating general economic uncertainty that directly impacts the accounting and financial reporting of many companies in Ukraine and around the world. The pandemic has created a new environment that creates significant difficulties for companies that prepare financial statements according to international standards.

Material and methods The information base of the article is the scientific works of foreign and domestic economists on financial risk management in the accounting system, as well as international and macroeconomic statistics of international and national institutions. In writing the article, the authors used traditional and modern scientific methods and approaches of economic research, such as induction and deduction, comparison, statistical and empirical, economic-mathematical

and economic-statistical analysis.

The latter was used to form a relationship between the pandemic and financial risks, based on advice on risk management in the accounting system.

We used methods of induction and deduction to understand the global nature of the problem, both at the transnational and macroeconomic levels, with the help of statistical trends in the world and national economic development.

Results and discussion The pandemic caused by the COVID-19 virus has become a significant challenge for participants in economic relations, who have become accustomed to traditional market relations over the years of stability. The pandemic, with which humanity has continued to struggle for more than two years, has struck at the most vulnerable part of its structure social and industrial relations. As a result, society is gradually entering a new stage of civilizational development. Unfortunately, at the beginning of the deployment of antiepidemiological measures, human civilization

was not ready to distance the work process from the workplace itself. Economic indicators, which are an indicator of the development of individual states, demonstrate the initial vulnerability of sustainable social and industrial relations that existed before the COVID-19 pandemic.

One of the most damaging factors in the spread of the pandemic is the unemployment rate, which has risen significantly due to quarantine restrictions. Thus, the number of unemployed in Ukraine in 2020, compared to the previous year, increased by 121 thousand 71

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2020

2019

2018

2017

2016

9,00 8,00 7,00 6,00 5,00 4,00 3,00 2,00 1,00 0,00

2015

8000 7000 6000 5000 4000 3000 2000 1000 0 -1000 -2000

2014

Unemployment has increased significantly, even in the most developed countries.

According to the U. S. Bureau of Labor Statistics, the average annual unemployment rate in the United States for 2013-2020 was determined.

Thus, in 2020, it experienced its apogee in the United States, reaching a record high of 8.06% in the last seven years.

2013

Source: Ministry of Finance of Ukraine, 2021

2012

Figure – 1 Unemployment rate in Ukraine for 2010-2020, thousand people

2011

2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

600 500 400 300 200 100 0

economic-industrial relations to stabilize the situation at the macro level in an era of economic uncertainty. There are historically developed grounds due to which the principles that foreign direct investments are desirable for national economies due to their scale and manufacturability.

Unfortunately, large, meddle, and small businesses of developing economies cannot offset the investment of external players, leading to an unfavourable economic situation at the macro level. The national economy, which primarily focuses on export-import relations, is experiencing considerable turbulence at the international economic level. Thus, according to the official data of the Ministry of Finance of Ukraine, the final balance of direct investment in Ukraine in 2020 reached an unprecedented low level, amounting to $950 million, a detailed description of which is shown in Fig. 3.

2010

people, the dynamics of the movement is shown in Fig. 1. This situation at the national labour market indicates a reduction in jobs in enterprises caused by the complex economic crisis due to quarantine restrictions.

Figure – 3 Final balance of foreign direct investment in Ukraine for 2010 - 2020, million USD Source: Ministry of Finance of Ukraine, 2021

2013 2014 2015 2016 2017 2018 2019 2020

Figure – 2 The average unemployment rate in the United States for 2013 - 2020, % Source: U. S. Bureau of Labor Statistics, 2021

Given the unpredictability of the situation with the COVID-19 virus, the rate of spread of which affects the macroeconomic turbulence, developed countries are trying to reorient the market from foreign to domestic markets. They desire to get out of the economic influence of external participants in geopolitical and

The COVID-19 pandemic caused a decline by almost $3 trillion in f the volume of the world GDP. It happened for the first time in the last five years. The dynamics are shown in Fig. 4.

As a result, global economic uncertainty has a multifaceted impact on the further development of geopolitical, economic, social and industrial relations, which affects the business activity of economic entities, particularly on their financial instruments.

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100 80 60 40

20 2020

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

0

Figure – 4 Dynamics of world GDP for 2010 - 2020, trillion. USD Source: The World Bank, 2021

In modern literature, you can find various interpretations of the concept of financial instruments. In our opinion, the most appropriate one is: “a financial instrument is a legal document that reflects certain contractual relationships, provides certain rights related to assets and liabilities that can be bought and sold on the market and through which the distribution and redistribution of

the created capital occur”. The distribution of financial instruments in accounting is shown in Fig. 5.

The spread of economic uncertainty significantly impacted financial instruments in the sphere of asset impairment and provisions. We believe that the potential result of the coronavirus outbreak on financial instruments is possible in various areas. As the increase in expected credit losses; modification of financial assets and liabilities; losses incurred under financial guarantee agreements that are accounted for by IFRS 9 financial instruments with third parties or related parties; impaired hedging efficiency, or the inability to continue hedge accounting due to the inability to predict future transactions.

Because all financial assets for which the expected loan losses are calculated to require an assessment of the possibility of default for the next twelve months, the impact of economic uncertainty will change significantly. This phenomenon is because economic uncertainty increases the chances of default. Which in turn entails an increase in potential default losses for financial assets.

financial liabilities

financial assets Financial instruments

derivative financial instruments

equity instruments

Figure – 5 Financial instruments in accounting Source: Pro zatverdzhennia Natsionalnoho polozhennia (standartu) bukhhalterskoho obliku 13 "Finansovi instrumenty", 2021

Given that no business entity can exist outside the social relations of production, separately from other market participants, the impact on one business entity entails a gradual effect on other commodities. Thus, the reduction in activity or bankruptcy of some market participants entails a significant increase in the credit risk of others, which in turn leads to the recognition of the

provision for expected credit losses for many financial assets. Alternatively, borrowers and lenders are invited to amend the terms of financial instruments agreements. Such changes should include a reduction in interest rates, changes in payment terms and grace periods for defaults. It is clear that the decrease in interest rates, for example, under a loan agreement with a bank, will 73

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lead to a loss of economic benefit to the lender.

Therefore, the National Bank of Ukraine has reduced the discount rate to a record 6% since the aggravation of the financial situation.

It enabled the reduction of the average annual accounting rate to 7.38%, and this number is the lowest in Ukraine since 2014, Fig. 6. Such actions of the regulator enabled to reduce the turbulence of financial and credit relations in the middle of the country, providing credit entities with an economic and legal instrument to lower interest rates.

30,00 25,00

20,00 15,00 10,00 5,00 0,00 2014 2015 2016 2017 2018 2019 2020

Figure – 6 Average annual discount rate of the NBU for 2014 - 2020, %

As for hedging, unfortunately, the situation with determining future prices for financial commodity assets remains unpredictable. It is because financial assets include currency, cash, securities, and goods, which are understood as certain types of resources such as gas, oil, metals, grain, electricity, etc. The prices for such goods have a significant impact on the formation of the value of consumer goods, which directly affects the volume of consumption of a particular group of goods, which now reflects the general state of the national economy. Although the prices of raw materials themselves have nothing to do with banking institutions, their indirect impact on the living standards of the population (bank customers and borrowers) is indisputable.

In conditions of economic uncertainty, the prices of financial commodity assets remain unpredictable, which creates the need for economic entities to take any action to limit or minimise price risks, Fig. 7.

Source: National Bank of Ukraine, 2021

managing the gap between sensitive assets and liabilities

structural balancing

managing the weighted average maturity

Hedging methods conducting insurance operations with options

concluding forward and futures agreements in order to create a compensatory position

exchange of payments in accordance with the balance sheet characteristics of the parties to the agreement

Figure – 7 Risk hedging methods.

Source: Buklib by Magistr.ua, 2021

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With the growing degree of risk activity in the space of economic uncertainty, the government should form an effective risk management policy during accounting. The governing party should establish preventive measures and an internal insurance system. At the same time, these preventative measures aimed at reducing accounting risks can significantly affect the likelihood of their occurrence but cannot completely neutralize them. Also, in the situation of unpredictability, it will be reasonable for business entities to resort to risk prevention in accounting in the areas shown in Fig. 8.

This standard requires companies to disclose qualitative and quantitative information about the level of risks and their nature arising from activities with financial instruments. This type of information is crucial because it provides an opportunity to assess the nature and level of risks inherent in economic entities arising from existing financial instruments.

credit risk

market risk

inimization Areas of risk prevention

liquidity risk

avoidance limiting

Figure – 9 Financial risk groups diversiication

Source: Potentsiinyi vplyv spalakhu coronavirusu na finansovu zvitnist. BDO Ukraina, 2021

Figure – 8 Areas of risk prevention

In our opinion, concerning credit risk, businesses in this sector should pay attention to the guidelines of the National Bank of Ukraine "On the reflection of financial instruments in accounting and financial reporting in conditions of uncertainty caused by the coronavirus". The importance of credit risk lies in the fact that the source of its occurrence is receivables. As a result of the non-fulfilment of financial obligations by the counterparty, companies are exposed to credit risk and a significant probability of loss. Thus, expected credit losses will increase due to the possibility of default and potential default losses for financial assets.

Firstly, entities that disclose credit risk by financial instrument class need to reflect better the maximum level of credit risk at the end of the reporting period. Secondly, it is reasonable to describe the collateral held as collateral.

Thirdly, to pay special attention to the credit quality of financial assets.

Source: Zbirnyk naukovykh prats Kirovohradskoho natsionalnoho tekhnichnoho universytetu, 2006

A particular element in the risk management system is the availability of reliable, timely and sufficient information for decision-making at each level of management, i.e. an information system that would meet specific criteria. With economic turbulence, numerous financial risks increase significantly, some not as significant in previous financial statements. In our view, businesses need to carefully examine the nature of the inherent risks to their business and to ensure that updated disclosures reflect current realities about existing risks and reflect their materiality.

The IFRS pays special attention to the issue of identification and disclosure of information on financial risks. Thus, the IFRS 7 describes three main groups of financial risks faced by most entities: credit, market and liquidity risk, Fig. 9.

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In contrast to credit, multifactorial influences represent a market risk, Fig. 10. Each factor does not pose a potential threat to the strategic activities of the enterprise. The situation with the pandemic is dangerous precisely because the elements begin to influence simultaneously, forming an external space of economic uncertainty. The synergetic influence of factors is potentially hazardous for the continuous operation of both national enterprises and transnational corporations. It will be appropriate for entities to disclose a sensitivity analysis for each type of market risk related to • change of accounting and market interest rates, identification of the impact of COVID19 on the discount rate

an entity's operations and monitor the information's representativeness.

Another quite important group of financial risks is liquidity risk. With the spread of the COVID-19 pandemic, this risk group has become particularly relevant because the risk is associated with the repayment of financial obligations by economic entities, leading to the transfer of cash or other financial assets.

Because the Coronavirus crisis has affected the solvency of market participants, this group of risks requires special attention when disclosing information about financial risks.

• the impact of changes in exchange rates on the activities of economic entities

interest rate risk

currency risk

inflation risk

political risk

• the impact of national and world inflation on the contractual relations of enterprises

• the impact of political and geopolitical decisions on the financial statements of economic entities

Figure – 10 Factor components of market risk Source: Rohoznyi S., Diadiun O., Finansovi instrumenty v MSFZ-zvitnosti. Vplyv karantynu ta inshi osoblyvosti 2020 roku. Upravlinnia finansamy, 2020

For liquidity risk, an entity shall disclose an analysis of non-derivative and derivative financial liabilities by maturity. Significant solvency problems Rogozny S. and Dyadyun. O., advise in addition to the necessary disclosures to

show what sources are used to minimize it; reflect the impact of COVID-19 on the processes of monitoring and managing the liquidity position.

Conclusions Economic uncertainty caused by the spread of the COVID-19 pandemic is a significant factor in the financial problems of enterprises. It is

primarily due to the rate of reach of the disease, which entails macro and microeconomic changes within the country and geopolitical 76

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ones outside the country. Falling world GDP, rapid unemployment, market reorientation, declining investment - all this leads to the formation of an unfavourable external environment of economic uncertainty, which, unfortunately, continues to increase nowadays.

Financial instruments, as a means of implementing the financial objectives of the enterprise, are a virtual object of attention at the stage of analysis of the continuous operation of the entity, at least in terms of cash adequacy and sources of short-term liabilities.

Economic uncertainty leads to an increase in the possibility of default, which questions the entity's activities as a full participant in market relations. As a result, one of the critical consequences for financial instruments and the formation of financial statements is a violation of the principle of continuing operations and impairment of assets, which directly affects the appearance of business activity of the entity.

The potential impact of the coronavirus outbreak on financial instruments has been

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assessed in the following areas: increase in expected credit losses; modification of financial assets and liabilities; losses incurred under financial guarantee agreements accounted for

by IFRS 9; reducing the effectiveness of hedging.

The study found out that it would be appropriate for businesses to pay special attention to the function of risk insurance in accounting, which in the long run does not level.

Still, it at least will reduce the impact of the external environment on the enterprise's activities.

Also, the article has analyzed information on financial risks by IFRS, based on which it describes three main groups of financial risks that most members of the group face.

In our opinion, financial accounting instruments in economic uncertainty are a tricky task, which does not have a specific approach.

But it is a multifaceted step-by-step process of making particular management decisions, for the implementation of which it is necessary to apply a multifactor synergistic approach.

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Investigated innovations in the risk management of the business activity of economic agents.

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Marketing and Management of Innovations, 4.

Available from: <http://nbuv.gov.ua/UJRN/Mimi_2018_4_2 2> (data zvernennia: 07.07.2021).

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Sakun, O. & Yevtushenko, Y. (2017). Described in detail foreign experience of financial instruments of assistance to investment development.

Visnyk Khmelnytskoho natsionalnoho universytetu. Ekonomichni nauky, 3(6).

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/article?art_id=123708&cat_id=123324> (data zvernennia: 22.07.2021).

Pro zatverdzhennia Natsionalnoho polozhennia (standartu) bukhhalterskoho obliku 13 "Finansovi instrumenty": Nakaz ministerstva finansiv Ukrainy vid 30 lyst. 2001 r. № 3559.

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Potentsiinyi vplyv spalakhu coronavirusu na finansovu zvitnist. BDO Ukraina: veb-sait.

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The influence of international offshore jurisdictions on the pricing strategy Оlena Chukurna* А; Larysa Radkevych B; Liliya Rudyk C A, B, C

State University «Odessa Polytechnic», marketing department, Odessa, Ukraine

Received: November 21, 2021 | Revised: November 27, 2021 | Accepted: December 28, 2021 JEL Classification: F68; G13.

DOI: 10.38188/2534-9228.21.4.09 Abstract The article analyzes the causes of offshore jurisdictions and identifies the effects of offshore on national economies. An analysis of the implementation of export-import operations carried out by offshore companies in order to influence the pricing process. The pricing mechanism with affiliates within offshore jurisdictions was presented. It was substantiated the role of offshore banks in the implementation of the pricing mechanism. It was presented the pricing mechanisms within offshore jurisdictions. It has been made an analysis of the impact of transfer pricing within offshore jurisdictions.

It was substantiated the economic mechanism of pricing. The international experience of regulation of offshore jurisdictions and the system of controlling the operations of affiliates was analyzed. It was substantiated the mechanisms of functioning of offshore zones and companies operating in offshore jurisdictions.

The relationship between agreements concluded within offshore jurisdictions in the following areas is established and substantiated: the agreement is concluded between two independent companies in case of underpricing; the agreement is concluded between the companies connected with the capital relations (affiliated companies) at understatement of the price; agreements between two independent companies in case of overpricing; agreements between affiliated companies in case of overpricing. It was justified the use of the transfer pricing mechanism within offshore jurisdictions. Transfer prices allow you to withdraw capital from the country, as well as hide the profits of companies from taxation.

The following ways of minimizing taxation are systematized: registration of a company that concentrates profits in a jurisdiction with lower taxation; concentration of profits in companies that are unprofitable according to management accounting; the use of front companies as sales companies in which profits are concentrated; non-payment of taxes as a result of illegal liquidation of the enterprise - the taxpayer, where the profit is concentrated. The basis of tax minimization is the use in the transaction of a price that deviates from the market.

Keywords: offshore zones, pricing mechanism, affiliates, transfer prices.

Introduction The strategic principles of pricing in the context of international relations depend on the tax jurisdictions of enterprises. The reduction of the tax base in the process of pricing in international activities and world trade is realized through the mechanisms of offshore zones. In this aspect, the strategic principles of pricing are implemented through a system of

transfer pricing.

The main purpose of transfer prices is to "transfer" the tax base to an affiliate who is in a more favorable tax regime. These include various tax preferences, including the status of a resident of an offshore zone, the provision of tax holidays, the application of preferential tax rates, the right to use other tax benefits. In this

*

Corresponding author: Doctor of Economics sciences, Professor of marketing department, e-mail: elenachukurna@gmail.com, ORCID: 0000-0001-9285-7068 B PhD, Associate Professor, Marketing Department, e-mail: larisa.radkevich@gmail.com, ORCID: 0000-0001-5974-9081 C Student, Marketing Department, e-mail: liliya.rudik@icloud.com, ORCID: 0000-0002-5842-0548 A

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case, such a transfer is usually carried out by manipulating the price of transactions. Another reason for using the transfer pricing mechanism is double taxation, which is distributed in favor of the foreign profit participant.

It should be noted that the emergence of the concept of transfer pricing is possible in the existence of international agreements on preferential tax zones, namely on offshore zones. The creation of offshore allows you to implement transfer pricing in practice. In this aspect, it is of scientific interest to study the mechanism of the impact of offshore and offshore zones on the strategic principles of

pricing in the context of the use of transfer pricing.

Problems of strategic pricing are reflected in the scientific works of leading foreign and domestic scientists, which include: F. Kotler (Kotler F., 2012), M. Porter (Porter M., 2001), P. Drucker (Drucker P., 2004), N. Revutska (Revutska N., 2013), M. Oklander (Oklander M., 2020), O. Сhukurna (Сhukurna O., 2015; 2020) and others. Despite the significant contribution of these scientists to the development of the concept of pricing, the problem of the impact of offshore jurisdictions on the strategic principles of pricing requires systematic research.

Material and methods The study uses economic and statistical research methods in the analysis of global trends in the offshore development; theoretical and methodological approaches in the

formation of forming the transfer price; grouping and classification - when analyzing various offshore zones and grouping them according to similar characteristics.

Results and discussion An offshore zone means a territory in which non-resident enterprises receive special tax benefits, are exempt from payments, the system of company registration, licensing, and accounting is facilitated for them. A feature of offshore zones is the predominance of investments by non-resident companies in the country's economy compared to domestic enterprises.

Offshore ("offshore") includes legal entities that are registered in a jurisdiction with preferential taxation, in the absence of currency control. It is a company that does not conduct business in the country of its registration, and the owners of these companies are nonresidents of these countries. The basis for the emergence of offshore companies is the legislation of countries that partially or completely exempts from taxation companies that do not do business in the country of registration. It is important to note that preferential taxation of offshore exists only in terms of carrying out activities outside the country of registration. For full-fledged offshore work in any country, it is necessary to conclude an international agreement on the avoidance of

double taxation of this country with the country of registration of the offshore. Otherwise, the offshore is subject to taxation of the country where it operates.

From the point of view of international law, an offshore company is an independent legal entity that operates in accordance with the laws of the country of registration. Currently, there are about 60 countries in the world that provide tax benefits for offshore companies. Offshore companies have the right to open an unlimited number of accounts in any bank in the world. In fact, their activities are not accountable to anyone, and in most offshore zones, annual reporting is reduced to a fixed fee.

Countries where offshore companies are registered can be divided into several categories: 1. Small states, islands with a low level of development of their own economy, but with a fairly high political stability (Bahamas, British Virgin Islands, Vanuatu, Seychelles, etc.).

Naturally, these states do not impose any reporting requirements, the only requirement is to make, typically, an annual fixed fee to the treasury. Usually in such countries there is no 80

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register of shareholders and directors, the confidentiality of ownership of such a company is very high.

2. States where, in addition to offshore companies, there are ordinary (onshore) territories, which may belong to non-residents, but if they conduct business within that country, they may lose preferential tax-free status. In order to prove that the company has not conducted such activities, these countries usually need to be audited and submitted annually. The governments of these states have tighter controls than in the previously mentioned ones, a register of directors and shareholders, but the prestige of companies must be much higher. These are Cyprus, Ireland, Gibraltar, Luxembourg, Switzerland, the Isle of Man and others.

3. The third group of countries includes the United States, Great Britain, and Canada. In these countries, everything is open, taxes and fees must be paid, and registers of directors and shareholders are maintained. However, there are organizational and legal forms that allow you to operate quietly, paying only a fixed fee. There are a total of 74 offshore states worldwide (as of October 21, 2021, according to the EU), which can be divided into groups depending on the prestige and level of cooperation with the EU and the International Monetary Fund, as well as with other organizations and reliability.

Offshore businesses are non-resident legal organizations that are registered in offshore zones and must conduct their activities outside of this territory. Ownership of offshore companies is carried out on an anonymous basis with high guarantees of confidentiality, offshore companies are exempt from the bulk of taxes, it is not necessary to maintain strict accounting records and documentation, there is no audit of companies by the state, tax services, and audit firms.

When it comes to commercial activities, offshoring is often referred to as outsourcing. It is the process or act of establishing certain business areas, such as manufacturing or specialized, highly specialized or functional

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centers, in a country other than the location of the company.

This is necessary in order to take advantage of more favorable and favorable conditions in another country, due to low wage requirements or simplified rules for maintaining records and records, which can lead to significant cost savings for the business. Companies with significant overseas sales, such as Apple and Microsoft, can take advantage of the opportunity to keep related profits in offshore accounts in countries with lower tax burdens.

The opening of offshore companies can be done both independently and with the involvement of consulting companies. There are a number of companies on the Ukrainian market that are ready to fully organize the registration and selection of a profitable offshore company for a certain fee. In addition, they quite often accompany the workflow and maintain accounting and management records.

The main negative side of using offshore zones as tax jurisdictions is avoiding paying taxes in one's own country, which leads to a loss of funds by the state and the withdrawal of significant amounts of finance from the resident country.

The state loses a significant part of taxpayers, in addition, illegal operations are carried out through offshore companies, which makes it impossible to arrest corrupt officials, makes it difficult to track the movement of funds and encourages the development and functioning of the shadow economy. In addition, the fight against economic crimes becomes more complicated, since they are of a long-term temporary nature and expand geographically, not being limited to one country and one legal entity. In the case of interregional offenses, they can be tracked within one state, but as offshore financial centers are attracted, with a high level of secrecy and anonymity of beneficiaries, most often the funds disappear without a trace. In this situation, it becomes extremely difficult to track all settlements to the final beneficiary, and in some cases, it is impossible.

The economies of the countries suffer

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significant damage from actions related to the use of false import contracts, grant outflow of capital abroad, embezzlement of public funds and illegal financial transactions. States lose about $ 427 million annually offshore, according to Tax Justice Network (Tax Justice Network, 2021): «An $21 to $32 trillion in financial assets are sitting offshore in tax havens. Due to the secrecy that pervades the tax haven system, precise numbers are hard to come by so estimates can vary. The Tax Justice Network estimates that $427 billion is tax is lost every year to tax havens» (Tax Justice Network, 2021).

In addition to the obvious financial losses, offshore zones also damage the employment of civilized countries. To save on labor, many large companies hire firms or directly recruit staff, where labor is cheaper or where it is possible to use labor of non-residents of the country on the basis of outsourcing agreements. Thus, offshoring understates the demand for local labor in the country where the company is physically located, which leads to an increase in unemployment among the local population.

Another major danger of creating offshore zones is the financing of terrorism. In connection with the latest events in Afghanistan, in the territories where there are military conflicts and terrorist groups, the interest in offshore zones will increase on the part of intelligence services, international organizations, the IMF and the European Union. The reason for this is the sponsorship of terrorism through financial transactions that travel through offshore zones.

It is for these reasons that there are a number of international organizations for the control and accounting of offshore zones, tax havens, zones with special economic conditions. Some organizations founded through the European Union (FATF), international foundations, such as the IMF, local UK organizations (Oxfam, Tax Justice Network), international economic organizations of developed countries (Organization for Economic Cooperation and Development). All of them keep records of offshore territories and divide them according to the level of cooperation and openness.

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In addition to international large organizations, each country has its own legislation in relation to such jurisdictions. The laws of various countries may prohibit cooperation with such companies or restrict their activities.

The Financial Action Task Force (FATF) is an organization for the control of money laundering and the financing of terrorism. An intergovernmental organization founded after the G7 summit in France in 1989 due to heightened concerns about money laundering, which greatly affects the global banking system and economic institutions. G-7 Heads of State and European Commission President Convene FATF of G7 Members, EU Commission and Eight Other Countries (FATF, 2021).

Their task was to study techniques and trends in the field of money laundering, to analyze the measures that have been taken or are being taken by states to counter illegal money transactions. Literally a year after the organization was founded in 1990, 40 recommendations on combating money laundering were presented, which provided a clear understanding of how to build measures to combat money laundering.

In 2001, 8 more recommendations on combating the financing of terrorism were added, in 2004, a ninth recommendation was added, and at the moment they are collected in one whole and are called "40 + 9 recommendations". In addition, the FATF provides a gray and black list of offshore countries (FATF, 2021).

High-risk countries have significant strategic flaws in their anti-money laundering, terrorist financing and proliferation financing regimes.

For all countries identified as high risk, the FATF encourages all members and strongly encourages all jurisdictions to apply the increased necessary caution, and in the most serious cases, it recommends the use of countermeasures to protect the international financial system from ongoing financial wrongdoing. This list is often referred to as a "black list". This list includes only two countries

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- the Democratic People's Republic of Korea and Iran (FATF, 2021).

The tightly controlled countries are actively working with the FATF to address strategic deficiencies in their anti-money laundering, terrorist financing and proliferation financing regimes. When the FATF subjects a jurisdiction to enhanced monitoring, it means that the country is committed to quickly addressing identified strategic deficiencies within an agreed time frame and is subject to enhanced monitoring. This list is often referred to as a “gray list”. There are 23 countries on the gray list and two countries left the list - Botswana and Mauritius (FATF, October 2021).

“The International Monetary Fund (IMF) instead of using the term “tax haven,” summarizes a quite corresponding list under the term “offshore financial centers,” especially since this list is intent to include those countries whose financial strength goes far beyond their own economic performance. The fact that the IMF also distinguishes between regional and offshore financial centers makes it possible for potential tax havens to be listed as offshore financial centers. In the capital market, it usually goes to whoever earned it, or where it gets the lowest tax” (The most popular tax havens worldwide, 2021).

Oxfam is a global movement of people who are fighting inequality to end poverty and injustice. Across regions, from the local to the global, they work with people to bring change that lasts.

Oxfam is a non-governmental organization situates itself in Oxford, England. It is an amalgamation of numerous aid and development organizations focused on development assistance and poverty reduction.

Oxfam constantly analyzes many countries and at the end of 2018, independently of other lists, places 35 countries on its own blacklist. The list of 35 countries also includes 4 EU states – Ireland, Luxembourg, Malta and the Netherlands. Oxfam's list is actually based on the exact same 92 states that also being studied by the European Commission. Oxfam also

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studied 28 EU countries and came up with excellent results from other organizations (The most popular tax havens worldwide, 2021).

The European Commission has created its own list, in cooperation with the FATF and other organizations, a list of non-EU countries, and divided them into three groups: - Cooperates with the EU and fulfills all its obligations (meets the criteria at the time of the last edition); - Cooperates with the EU and fulfills its obligations (the status will be regularly reviewed); - Listed: does not cooperate with the EU or has not fully fulfilled its obligations (the status will be regularly reviewed).

The Council adopted the first EU list on 5 December 2017. It has been updated several times since then. More significant changes took place in March 2019 and February 2020. They coincide with the late 2018 and late 2019 deadlines when jurisdictions must meet their initial commitments (Council of the European Union, 2021).

Analyzing the mechanisms of functioning of offshore zones, it can be argued that offshore zones constitute a special class of free economic zones. The main difference between them is that the enterprises registered in them do not have the right to carry out any production activities.

The main feature of offshore jurisdiction is the preferential nature of taxation. Tax benefits for companies registered in offshore areas are very significant and usually represent a complete exemption from all local taxes.

Offshore companies are required to pay only a one-time registration fee and pay an annual fee, the rates of which are usually fixed and do not depend on the commercial activity of the offshore company.

Another feature that distinguishes offshore zones is the ban on commercial transactions in the country of registration of the offshore company. By founding an offshore company, companies receive not only tax benefits, but also loyalty to government regulation, a high

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level of banking and commercial secrecy, anonymity of the real owners of companies.

Speaking of the last aspect, it is important to note that the disclosure of real names is possible only in extraordinary cases.

Preferential treatment in offshore zones is also determined by the absence of customs duties and fees for foreign investors, the absence of currency restrictions, free export of profits, a low level of minimum authorized capital. Another important factor offshore is the stability of this regime. Usually within 15-25 years from the moment of registration of the offshore company the investor is guaranteed from unfavorable for him changes in the offshore zone.

However, despite the existence of such a preferential regime, including registration, to register in the offshore zone is not so easy.

Another feature of the creation of offshore zones is that they are virtually distrustful of government agencies. At the same time, the benefit for the state is that by creating offshore zones on its territory, the country contributes to attracting foreign investment, increasing the number of new jobs, which contributes to economic development. Thus, offshore is beneficial to almost all parties involved in them and businesses, and the state and the population of the zone. At the same time, the creation of offshore promotes the outflow of capital from resident countries. In order to regulate this issue and counteract the outflow of capital from national economies to offshore zones, the Financial Stability Forum was established in 1999 and included representatives of central banks and treasuries, supervisors and regulators, organizations for the development and implementation of international standards, and experts in assessing the financial systems of different countries.

Depending on the purpose of the business, there are standard types of offshore companies, which are located in preferential tax jurisdictions. Their main types are: 1. Trade and intermediary firms: exportimport firms; purchasing and distribution

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companies.

2. Holding type companies: operational holding companies; investment companies; ship ownership companies; real estate companies; companies for the ownership of industrial property.

3. Financial companies: offshore banks; financial intermediary companies; enterprises of the insurance sector; general insurance companies; reinsurance companies.

Holding companies are created to control other trading and manufacturing companies through the ownership of their shares, to finance them and to accumulate their interest, dividends and royalties. The largest number of such holdings is located in Liechtenstein (about 20,000), Switzerland (about 10,000) and Luxembourg (about 2,000). There are some benefits for holdings in the Netherlands as well – dividends received by a local company from participation in the capital of other companies are not taxed here.

Investment companies are created in offshore centers usually in the form of funds and trusts, whose assets consist of securities, other property and cash. Based on these assets, they can issue their own shares. Investment companies in the form of funds are usually managed by specially created subsidiaries, the founders of which are the founders of the funds.

The status of a fund requires the presence of a trustee, who can be a local bank, and a financial advisor, whose functions can be performed by a brokerage firm or a commercial bank from any large international financial center.

Banks are established in offshore areas primarily to open and maintain bank accounts for depositors from countries with high taxes and tight currency controls, as well as to conduct operations in the Eurocurrency market.

Therefore, many such financial institutions are registered in the main centers of the Eurocurrency market - primarily in Luxembourg, Switzerland and Liechtenstein, as well as in Singapore, Bahrain, the Cayman Islands and the Bahamas. In total, there are several thousand offshore banks, through which, according to

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some estimates, passes up to half of the international capital movement. Thus, in most cases, offshore banks are created for specific projects and financial schemes.

The efficiency of offshore banks is much higher than that of ordinary banks, because, firstly, they operate in a preferential tax regime, and secondly, they do not incur representation costs. Insurance companies in these countries and territories are opened mainly by groups of companies for their needs. There are about one and a half thousand such companies in the world, mainly in Bermuda and the Bahamas, as well as in the Turks, Caicos Islands, Maine and Terns.

The use of offshore banks allows companies located in the tax jurisdiction of offshore zones to insure their finances from taxation of profits and other financial assets from unexpected losses in the event of a bank closing, liquidation or arrest in conditions of economic and political instability. An example of such a situation can be the Argentine crisis in 2001, when the Minister of Economy D. Cavayo took measures to suspend the use of bank accounts in order to prevent the cashing of bank funds (The Argentine Crisis 2001/2002).

Ensuring high secrecy and anonymity of clients of Swiss banks provokes frequent checks by international organizations such as the International Group on Combating Money Laundering (FATF) or by the IMF. At the same time, Switzerland is on the gray lists of offshore territories and belongs to the third type of zones with special economic conditions.

One of the types of formalization of an offshore jurisdiction is an offshore trust, which is a trust agreement or a company that is created in a jurisdiction outside the country of actual location. An offshore trust usually only holds assets outside the home country. Such a trust is one of the most famous planning tools for the protection of offshore assets. An offshore trust is most often a “self-governing trust” in which the trustee and the beneficiary are the same person. The trustee appoints a trustee who is either a foreign national or a trust

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company that does not have an office or affiliation in its actual location.

The activity of an offshore trust is the transfer of assets by the beneficiary to the trustee of the trust company for their safety, with the subsequent increase and issuance of payments to the beneficiary, in accordance with the terms of the contract.

A foreign offshore asset protection trust may have additional people acting as advisors to the trust or as defenders of the trust. Consultants and advocates help manage and protect the offshore trust and its assets without having any beneficial interest in the trust property. The defender may be given the right to change trustees, reallocate beneficial interests, or direct investments in trust assets.

Offshore trusts have the following characteristics: • the trust company is irrevocable; • the trust gives the trustee the discretion to withhold payment; • the grantor is not a trustee; • the trust grants the trustee the discretionary power to withhold payment from the beneficiary; • the trustee can be a foreign trust company or financial institution; • sometimes a partner or consultant can act as defenders of the trust if they are not located in the country of their actual location; • the trust explicitly states that the location of the trust (the so-called situs - the location of property or object for legal purposes) governs the terms of the trust; • the only asset of the trust is 100% ownership in a foreign limited liability company or other enterprise that can be controlled by the debtor when it is not under arrest by the creditor.

One of the participants in the creation of offshore jurisdictions is the Offshore Captive Company - a special purpose insurance company registered outside the country, which is the insurer of risks. Tax planning may be the motive for using Offshore Captive Company. As the Offshore Captive Company spreads, the 85

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regulatory differences between onshore and offshore companies become significantly smaller. Offshore domiciles (registered offices of firms) widely used for doing business in North America include Barbados, Bermuda, British Virgin Islands and Grand Caymans. Offshores for European source businesses include Dublin, Guernsey, Isle of Man and Luxembourg. An Asian origin business can use Hong Kong.

Thus, offshore companies of all types have the following characteristics in common: • are non-residents in relation to the country of legal registration, which means that the management office is located outside the country of registration; • do not have the right to conduct their activities in the territory of the country of registration; • are exempt from the bulk of taxes; • high level of confidentiality and anonymity of company managers; • facilitated currency control, absence or presence of nominal audits, simplified reporting system.

Manufacturing companies are established in those countries and territories where there are free economic zones. The Shannon Free Zone (Ireland) has the largest concentration of such companies. Offshore trading companies are based in those offshore centers that are geographically close to the main geographical regions of their activities.

However, such a large number of different types of offshore companies does not expand the list of their main activities. These are mainly various export-import operations. The general scheme of the export-import operation of an offshore company lays in the following statements. An offshore company enters into two contracts at once. One with a supplierexporter to supply the importing country with a consignment of goods at a minimum price.

Another contract is already concluded with the importing country for the supply of the same consignment of goods at a higher price. The difference in the price of the first and second contract remains with the offshore company.

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Export-import operations used by offshore companies can be realized at lower and inflated prices with both independent and affiliated companies. As a rule, these agreements are implemented in the following areas: • an agreement is concluded between two independent companies when the price is understated; • the agreement is concluded between the companies connected with the capital relations (affiliated companies) at understatement of the price; • agreements between two independent companies in case of overpricing; • agreements between affiliated companies in case of overpricing.

In order to identify the essence of the economic mechanism of transfer pricing, consider the schemes of implementation of all four agreements.

Let's analyze the situation when an agreement is concluded between two independent companies when the price is understated (табл.1).

Table 1 – Scheme of an agreement between two independent companies at a price reduction Exporter Country A Importer Country B (Company X) (Company Y) Export price, 150 Import 150 USD price, USD Production 100 Sale price, 180 costs, USD USD Profit before 50 Profit 30 tax, USD before tax, USD Corporate 20 Corporate 6 tax (40%) tax (20%) Profit after 30 Profit after 24 tax tax Total company profits = $ 54 Suppose the cost of producing goods in country A is $ 100, the export price is $ 150. So the profit will be $ 50. In this case, the corporate income tax in country A is 40%, and in the country of importer B 20%. Then in country A, company X must pay a tax 86

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of $ 20 on its income of $ 50. In this case, its net profit will be $ 30. In the country of the importer, company Y imports goods for $ 150 and sells them for $ 180, ie the profit will be $ 30, and after paying the tax (20%) - $ 24. The company's total profit will be $ 54.

If the agreement is concluded between companies related to capital relations (affiliated companies) when the price is understated, then the transfer pricing mechanism will be as follows (Table 2).

Table 2 – Scheme of the agreement between affiliated companies at price reduction Exporter Country A (Company X) Export price, 120 USD Production 100 costs, USD Profit before 20 tax, USD

Importer Country B (Company Y) Import 120 price, USD Sale price, 180 USD Profit 60 before tax, USD Corporate 8 Corporate 12 tax (40%) tax (20%) Profit after 12 Profit after 48 tax tax Total company profits = 60 USD Assuming that Company Y is a subsidiary of Company X. Parent Company X will sell its products at lower prices than in the first case, for example, for $ 120 and will receive a net profit of only $ 12.

However, the subsidiary will receive in this case a much higher profit of $ 60, which after tax (20%) will be $ 48. Thus, the profit of the two companies will be equal to $ 60, which exceeds the net profit obtained in the first case by $ 6. This additional profit is the result of the transfer pricing mechanism.

This total profit goes to the income management center, located in a low-tax country, where companies are reinvested in accordance with the strategic plan of international business of TNCs as a whole.

There may be a situation where the total profit of a multinational corporation will increase with

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inflated prices. The calculation of the profit that was obtained as a result of transfer pricing is presented in table 3.

Table 3 – Scheme of the agreement between two independent companies at the inflated price Exporter Country A (Company X) Export price, 150 USD Production 100 costs, USD Profit before 50 tax, USD

Importer Country B (Company Y) Import 150 price, USD Sale price, 180 USD Profit 30 before tax, USD Corporate 10 Corporate 12 tax (20%) tax (40%) Profit after 40 Profit after 18 tax tax Total company profits = 58 USD The situation when a company that exports products, it is more profitable to inflate prices in order to leave a large profit in their country, where more favorable tax conditions, are discussed in table 4.

Table 4 – Scheme of the agreement between affiliated companies at the overestimation of the price Exporter Country A Importer Country B (Company X) (Company Y) Export price, 180 Import price, 180 USD USD Production 100 Sale price, 200 costs, USD USD Profit before 80 Profit before 20 tax, USD tax, USD Corporate 16 Corporate 8 tax (20%) tax (40%) Profit after 64 Profit after 16 tax tax Total company profits = 80 USD

The calculation shows that in a country where the level of taxation is low, it is more profitable for an affiliate company to sell goods at a reduced price, and, on the contrary, in a country where the level of taxation is high, at an inflated price. The 87

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level of the transfer price is carefully calculated. The transfer price should not be too low to motivate the production unit, which could sell this product in the domestic market, selling it through the traditional distribution network.

In order to maintain the level of competitiveness of the unit in foreign markets, the transfer price should not be too high. On the other hand, the price in a foreign market should not be lower than the domestic price of a similar product in the exporting country, otherwise competitors in the importing country may accuse the company of dumping. In addition, the calculation of the transfer price takes into account the legal and administrative restrictions in the respective countries regarding the level of deviation of the foreign trade price from normal world prices. Any of the companies that are part of one TNC, in the implementation of the transfer pricing mechanism may incur losses, but not go bankrupt, because the total amount of cumulative profits is taken into account.

Thus, we can say that, in essence, offshore companies receive income from maneuvering the tax base. In offshore business, the center of tax

located in the offshore zone. In a broad sense, the business carried out in the offshore zone is based on operations to regulate intra-firm prices. It is the fact that an offshore firm is controlled by one investor that creates opportunities for profit in the form of tax minimization.

Transfer prices allow you to withdraw capital from the country, as well as hide the profits of companies from taxation. When selling goods to foreign subsidiaries or foreign subsidiaries, the company may set a minimum or understated selling price and reduce customs duties when crossing the border, or set a maximum or inflated price to minimize taxes, circumvent restrictions on dividend refunds or withdraw the largest amount of cash from partner. In general, the company is interested in using low transfer prices in countries where taxes are lower than in the domestic market, and vice versa. This causes serious damage to the national interests of the countries concerned and is sharply criticized by government and, above all, tax and customs authorities.

In Fig.1. the scheme of distribution of profit and taxes in the holding structure and the process of

Holding Production program

Low transfer price

A region with high taxes Minimum profit

A region with low taxes

Sales company Implementation at high prices

Minimum taxes

Maximum profit

Minimum taxes

Result: Maximum profit, Minimum taxes planning is the company's profit center, which is formation of the transfer price are shown.

Figure 1 – The scheme of distribution of profits and taxes in the holding structure and the process of forming the transfer price Source: compiled on the basis (Marushchak D.V., 2014:193).

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Based on this scheme, it can be displayed in which case the sales company using certain tax benefits or operating in the region with low taxation, reduces the tax burden due to the fact that the main profit is concentrated in the sales company.

Using transfer pricing in transactions between related (affiliated) persons, the following ways of minimizing taxation should be identified: registration of a company that concentrates profits in a jurisdiction with lower taxation; concentration of profits in companies that are unprofitable according to management accounting; the use of front companies as sales

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companies in which profits are concentrated; non-payment of taxes as a result of illegal liquidation of the enterprise - the taxpayer, where the profit is concentrated. The basis of tax minimization is the use in the transaction of a price that deviates from the market.

Thus, considering the economic mechanism of transfer pricing, it is necessary to generalize the methodology of transfer pricing taking into account the methods of its legislative regulation. In the field of transfer pricing, legislative regulation is a decisive factor influencing the pricing process.

Conclusions In such a rank, it is possible to say that, for their own sutta, offshore companies will receive a way of maneuvering as a tilt base. In the offshore business, the center of taxation is the center of the company’s arrival, which is used to move to the offshore zone. In the broadest sense of business, to go to offshore business is based on operations with the regulation of internal prices. The very fact that the offshore company is under the control of one investor, who has the opportunity to deny the arrival at the expense of minimizing taxes.

Transfer prices allow you to withdraw capital from the country, as well as hide the profits of companies from taxation. When selling goods to foreign subsidiaries or foreign subsidiaries, the company may set a minimum or undercut selling price and reduce customs duties when crossing

the border, or set a maximum or overpriced price to minimize taxes, circumvent dividend refund restrictions, or withdraw the largest amount of cash dependent partnerIn general, the company is interested in using low transfer prices in countries where taxes are lower than in the domestic market, and vice versa. This causes serious damage to the national interests of the countries concerned and is sharply criticized by government and, above all, tax and customs authorities.

Thus, considering the economic mechanism of transfer pricing, it is necessary to generalize the methodology of transfer pricing taking into account the methods of its legislative regulation. In the area of transfer pricing, legal regulation is a decisive factor influencing the pricing process.

References Kotler, F. (2012). Marketing. Management / F. Kotler, K. Keller; [trans. from English]. – [12th edition]. – SPb.: Piter, 816.

Porter, M.E. (1985). Competitive Advantage: Creating and Sustaining Superior Performance – N.Y.: The Free Press, 274.

Drucker, P. (2004). Encyclopedia of Management [trans. with English]. [10th ed.]. – Moscow: Williams Publishing House, 432.

Revutskaya, N.V. (2013). Formation of consumer value of products as the basis of enterprise

competitiveness. Theoretical and applied issues of economics, 28(1). 239-246.

Oklander, M.; Chukurna, О.; Oklander, T. & Yashkina, O. (2020). Methodical principles to calculation information value in pricing policy in supply chains. Estudios de Economía Aplicada, 38-3(1).

Available from: <http://ojs.ual.es/ojs/index.php/eea/article/vie w/4009/4263> Chukurna, O.; Tkacheva, N. & Baldyk D. (2020).

Strategic approaches to pricing in digital

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economy Zeszyty_naukowe, Katowice: Wyższa Szkoła Tehnichna w Katowicach, 12. 21-36.

Available from: <http://www.wydawnictwo.wst.pl/uploads/file s/1391b04fe816fdf4dfddb1b0bcfe4ec9.pdf> Chukurna, О. (2015). Transformation of the concept of pricing in the context of globalization of the economy. Economic Bulletin of the National Technical University of Ukraine "Kyiv Polytechnic Institute", 12. 395-401 Available from: <http://journals.uran.ua/index.php/ 2307-5651 or http://ev.fmm.kpi.ua/article/view/45719/4194 0> Taxation: EU list of non-cooperative jurisdictions.

Council of the European Union Available from: <https://www.consilium.europa.eu/en/policies /eu-list-of-non-cooperative-jurisdictions/> How much money is in tax havens? Available from: <https://taxjustice.net/faq/how-much-money-

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is-in-tax-havens/> Tax Justice Network.

Available from: <https://taxjustice.net/faq/how-much-moneyis-in-tax-havens> FATF. Available from: <https://www.fatfgafi.org/about> The most popular tax havens worldwide Available from: <https://www.worlddata.info/taxhavens.php> The Argentine Crisis 2001/2002. RaboResearch – Economic Research.

Available from: <https://economics.rabobank.com/publication s/2013/august/the-argentine-crisis-20012002> Marushchak, D.V. (2014). Analysis of transfer pricing and its application in international practice. Eurasian international scientific and analytical journal "Problems of the modern economy", 3 (51). 192-196 – [Electronic resource]. Available from: <http://www.meconomy.ru/art.php?nArtId=5080>

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Clusterization of the Republic of Belarus economy: results and prospects Galina Yasheva* А; Yulia Vailunova B A, B

Vitebsk State Technological University, Moscow Av., 72, Vitebsk, 210038, Republic of Belarus

Received: November 23, 2021 | Revised: November 29, 2021 | Accepted: December 28, 2021 JEL Classification: M11, O32, P13.

DOI: 10.38188/2534-9228.21.4.10 Abstract Clusters are the primary vehicle for smart specialization strategies, as they can make the greatest contribution to economic development by supporting research, development and innovation within the identified areas of specialization. This determines the relevance of the research topic.

The theoretical foundations of clusters as network structures are considered in the article: the definition of the concept of «cluster» is given, the signs of a cluster are indicated, the significance of cluster structures for the economy is substantiated. An analysis of the experience of the Republic of Belarus in the creation and functioning of clusters is carried out. Active, emerging and potential clusters are considered. Their models are built. Conclusions about cluster processes in the Republic of Belarus are made. Clustering directions in the context of digitalization of the economy of the Republic of Belarus are proposed. These are the following directions: education and training for public sector and business representatives; creation of a cluster infrastructure to manage the clustering process; providing cluster initiatives and cooperation through organizational and economic methods; digitalization of training for cluster members; communication support for cooperation; digitalization of communications between the subjects of the cluster; digitalization of production in the subjects of the cluster.

Keywords: clusters, network structure, network cooperation, digital economy.

Introduction In the context of globalization, clusters have become a consolidating force that directs enterprises to achieve maximum production efficiency and gain significant competitive advantages, which, in turn, leads to an increase in the country's competitiveness. Thanks to the cluster approach, the narrow-branch vision of the enterprise and the regional economy has changed to the integrated use of the potential of a group of interconnected enterprises.

Clusters have demonstrated their capabilities in optimizing limited resources and forming network cooperation with stakeholders in the context of digitalization of economies.

Clusters are the primary vehicle for smart specialization strategies, as they can make the greatest contribution to economic development by supporting research, development and innovation within the identified areas of specialization. This determines the relevance of the research topic.

The purpose of the article is to examine the experience of the Republic of Belarus in the clustering of the economy.

Based on the purpose of the article, the following research objectives are determined: • to consider the theoretical foundations of clusters as network structures;

*

Corresponding author: Doctor of Economics, Professor, Faculty of Economics and Business Management, Department of Economic Theory and Marketing, e-mail: gala-ya@list.ru, ORCID: 0000-0002-4142-8041 B PhD in Economics, associate professor, Faculty of Economics and Business Management, Department of Economic Theory and Marketing, e-mail: Yulia_KG@tut.by, ORCID: 0000-0002-1999-6923 A

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• to analyze the experience of the Republic of Belarus in the creation and functioning of clusters; • to develop the main directions for the development of clusters in the digital economy of

the Republic of Belarus.

The following general scientific methods were used: cognition, analysis and synthesis, comparative analysis, analogy method, etc.

Material and methods The issues of formation and development of cluster structures are reflected in the works of Belarusian researchers (V. F. Baynev, N. I. Bogdan, V. I. Borisevich, L. V. Kozlovskaya, P. G. Nikitenko, I. V. Novikova, N. G. Sinyak, A.V. Tomashevich, V. S. Fateev, T. S. Vertinskaya and others) and foreign researchers (G. B. Kleiner, K. A. Barinovsky, I. Ansoff, E. V. Dementiev, B. C. Katkalo, B. Z. Milner, M. Porter, V. V. Radaev, O. A. Tretyak, V. A. Tsvetkov, P. Sieber, R. Coase, R. Miles, C. Snow, R. Paturel, M. Reiss, J. Ruegg-

Sturm, O. Williamson, A. Chandler, K. Arrow, and others).

The study used modern scientific domestic and foreign literature on the digital ecosystem and clusterization, statistical and analytical materials found on thematic Internet sites and in print media. The main methods of study are empirical and theoretical: observation, comparison, graphical, statistical and econometric analysis.

Results and discussion Theoretical foundations of clusters as network structures A cluster is a network structure of complementary, territorially interconnected cooperation relations of enterprises and organizations (including specialized suppliers, including services, as well as manufacturers and

buyers), united around a research and educational center, which is linked by partnership relations with local institutions and government bodies in order to increase the competitiveness of enterprises, regions and the national economy (Yasheva, Kunin, 2014). The composition of the cluster is shown in general in Figure 1.

Figure 1 – The composition of the cluster in general Source: suggested by the author.

Research and educational organizations that are called upon to create innovations and information for the cluster are assigned an important role in the innovative development of the cluster. Such a research and educational center can be an industry research institute, a

higher educational institution or a regional research center and other organizations carrying out research and development, as well as training specialists for the cluster. A cluster of commodity producers should be formed around the scientific and educational center.

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Cluster signs: − localization in one geographic area; − agglomeration of enterprises, organizations and public institutions united by horizontal and vertical communications; − complementarity of subjects, creation of a production chain; − production of a «key» product; − unified infrastructure and institutional environment; − unification of enterprises around the scientific and educational center on the basis of the creation of an association (union); − the presence of relations of competition and cooperation; − development of relations of network cooperation between the subjects of the cluster, as well as partnerships between the subjects of the cluster and government bodies - publicprivate partnership (PPP) (Yasheva, 2010).

The importance and significance of cluster structures is confirmed by the following figures: − about 40 % of jobs in the world are formed in clusters; − more than 90 % of industry in Denmark, Finland, Norway and Sweden is covered by clustering; − about 25 % of the total number of jobs are in strong clusters, i.e. regional clusters with significant critical mass; − almost 38 % of the workforce in the European Union is formed in more than 2.0 thousand clusters and related organizations registered with the European Cluster Observatory; − more than 60 % of the USA gross domestic product is formed in clusters and more than 50 % of industrial companies in the USA are located in them (Eurasian Economic Commission).

Experience of the Republic of Belarus in the creation and functioning of clusters Interest in the cluster form of organization of production and management among many countries of the world has increased significantly in connection with the process of globalization of the world economy at the present stage. The

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world practice of developed countries, members of the Organization for Economic Cooperation and Development shows that the rate of investment in private commercial organizations based on the principles of network and corporate governance is rapidly increasing.

The state program of innovative Development of the Republic of Belarus at 2021-2025 operates in the Republic of Belarus at the moment, the purpose of which is to assess the existing potential and determine the prospects and organizational and economic mechanism for stimulating the cluster development of the national economy for the period until 2025 (Decree of the President of the Republic of Belarus September 15, 2021 № 348).

The Council for the Development of Entrepreneurship in the Republic of Belarus and the Ministry of Economy of the Republic of Belarus jointly prepared and published a guide on the creation and organization of clusters in the Republic of Belarus. The manual contains a description of the algorithm of actions for the formation of a cluster, as well as a complete set of forms of documents necessary for the organization and implementation of its activities (Ministry of Economy of the Republic of Belarus).

In the Republic of Belarus, the organization of clusters has been done: the Concept of the formation and development of innovative and industrial clusters in the Republic of Belarus was adopted, approved by the Resolution of the Council of Ministers of the Republic of Belarus dated January 16, 2014 № 27; The Ministry of Economy of the Republic of Belarus held a seminar on clusters for business entities and authorities (2013); cluster research in the scientific community is underway; the Law of the Republic of Belarus «On Public-Private Partnership» (2015) was adopted; The Ministry of Economy of the Republic of Belarus compiled a map of clusters (2019); website created − CLUSTERLAND: a comprehensive information resource dedicated to the development of clusters in Belarus https://clusterland.by.

The classification of clusters, based on the degree of maturity (the level of interaction based

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on the cluster model of development), subdivided into three categories, is used in the Republic of Belarus. The Ministry of Economy of the Republic of Belarus has drawn up a map of clusters of the Republic of Belarus, based on which the following types of clusters are currently distinguished.

1. Existing clusters are clusters that have formed as a legal entity, have taken shape organizationally, elected the Cluster Council, implement a formalized cluster development strategy (cluster project), and regularly carry out activities in agreed areas of activity.

There are 4 active clusters in the Republic of Belarus (the Union of Legal Entities «Medicine and Pharmaceuticals-Innovative Projects», the Association «Innovative Instrumentation», the Association «Infopark», the High-Tech Park, Polesie State University, «Technopark Polesie»).

For example, the pharmaceutical cluster in the Vitebsk region (active) includes participants:

− Scientific and educational block: VSMU, VSU named after P.M. Masherova; − Production block: Nativita, Aconitfarma, Akademfarm, Sivital, Technopark «Vitebsk Silicon Valley»; − Service companies: Vitebsk Regional Marketing Center, Vitvar, Union of Pharmaceutical and Biomedical Clusters of Russia (The first medical and pharmaceutical cluster of the Republic of Belarus).

2. Emerging clusters are the localization of legal entities that have initiative groups for their creation, have formed Cluster Councils, and have taken the first steps to cooperate on the basis of the cluster development model.

There are 4 emerging clusters in the Republic of Belarus (NGO «Minsk Capital Union of Entrepreneurs and Employers»; JSC «Polimir», JSC «Naftan»; JSC «Polotsk-Steklovolokno»; LLC «Technopark «Gorki», Belarusian State Agricultural Academy).

Figure 2 – Petrochemical cluster model in the Vitebsk region (emerging) Source: suggested by (Yasheva, Kostyuchenko, 2016).

3. Potential clusters are an agglomeration of legal entities that are localized in one territory, create a production chain, produce a key product, are linked by formal relations, 15 clusters in the Republic of Belarus (Map of clusters of the Republic of Belarus, Ministry of Economy of the Republic of Belarus).

Following conclusions about cluster

processes made in the Republic of Belarus: − The clustering process in the Republic of Belarus is slow; − State Programs for the creation of clusters are not fully implemented; − The Republic of Belarus has the majority of potential and emerging clusters; − Many entrepreneurs do not understand 94

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the role of clusters in improving the efficiency of their activities; − More than half of entrepreneurs agree to cooperate in principle.

The main directions of cluster development in the digital economy of the Republic of Belarus Taking into account the cluster concept

developed by the authors (Yasheva, 2010; Vailunova, Yasheva, 2017; Vailunova, Yasheva, 2019), as well as the trend of digitalization of the economy and the features of the digital economy and Industry 4.0, the following clustering directions are proposed in the Republic of Belarus (table 1).

Table 1 − Recommended clustering directions in the context of digitalization of the Republic of Belarus economy Clustering directions Education and training for public sector and business representatives Creation of a cluster infrastructure to manage the clustering process

The essence − Conducting seminars and trainings; − development of teaching materials for entrepreneurs and officials; − selection and training of specialists who are designed to spread the ideas of clusters − Creature: − virtual Cluster Development Centers; − Non-profit partnerships; − Business incubators; − Cluster development institutes; − Agencies for Cluster Policy Issues under the Government of the Republic of Belarus; − Regional Development Agency; − Special institutions for development, building network structures and their internationalization; − Grant funds − Organizational support of cluster initiatives by: providing premises and equipment for joint activities of cluster members; organization of interaction of cluster enterprises with subjects of innovation infrastructure, educational and scientific institutions

Providing cluster initiatives and cooperation through organizational and economic methods Digitalization of − Creation of Knowledge Hubs in the form of virtual organizations on training for cluster the basis of industry research and / or educational organizations of the members cluster; − opening of a distance learning business school for cluster entities under the Entrepreneurship Support Center Communication − Creation of: databases on subjects of clusters, business platforms support for (technological, procurement, etc.), information systems for searching cooperation and classifying clusters; Internet portals and Internet platforms (Internet platforms for training, networking and cooperation; distance education business schools for cluster entities, virtual business incubators, the Cluster social business network) Digitalization of − Creation of: a database on subjects of clusters within the framework communications of the regional statistical office; business platforms (technological, between the subjects procurement, digital, etc.); development of architecture of «living of the cluster laboratories» for «smart-cooperation» of stakeholders in the production of innovative products.

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− Creation of Internet portals: Internet platforms for training, networking and cooperation; creation of a virtual Subcontracting Center; virtual business incubators; social business network «Cluster» Digitalization of − Development of the smart-industry based on the principles of production in the «smart-cooperation»; introduction of artificial intelligence technology; subjects of the cluster − introduction of block-chain technologies; cloud technologies; − implementation of: ERP, CRM software to automate strategies of interaction with customers; BPM (business process management) for managing the system's business processes.

Source: suggested by the author.

Conclusions Thus, in the context of digitalization, clusters play a significant role in the country's economy.

There are 3 types of clusters in the Republic of Belarus: active, emerging, potential. Cluster processes are slow compared to foreign countries. To accelerate them and use the resource of digitalization of the economy, the following areas are proposed: Education and training for public sector and business representatives; creation of a cluster infrastructure to manage the clustering process;

provision of cluster initiatives and cooperation through organizational and economic methods; digitalization of training for cluster members; communication support of cooperation; digitalization of communications between the subjects of the cluster; digitalization of production in the subjects of the cluster. The proposed clustering measures will improve the competitiveness and efficiency of the economy of the Republic of Belarus.

References Clusterland: a comprehensive information resource dedicated to the development of clusters in Belarus. Available from: <https://clusterland.by.> Guidelines for the creation and organization of clusters in the Republic of Belarus // Ministry of Economy of the Republic of Belarus, Council for the Development of Entrepreneurship.

Available from: <http://www.economy.gov.by/ru/newsru/view/Minekonomiki-podgotoviloRukovodstvo-po-sozdaniju-i-organizatsiidejatelnosti-klasterov-v-Belarusi-33882015/.> Law of the Republic of Belarus «On publicprivate partnership» 30.12.2015 г. № 345-З.

Available from: <http://www.economy.gov.by/uploads/files /G4P/Zakon-o-gosudarsvenno-chastnompartnerstve-red.pdf.> Map of clusters of the Republic of Belarus // Ministry of Economy of the Republic of

Belarus.

Available from: <http://www.economy.gov.by/uploads/files /Karta-Klasterov/karta-klasterov.pdf.> Review of the best world practices, international standards and experience in creating advanced (model) national objects of industrial and innovative infrastructure of the EAEU member states / Eurasian Economic Commission.

Available from: <http://www.eurasiancommission.org/ru/ac t/prom_i_agroprom/dep_prom/SiteAssets/ Nailu4shie%20praktiki%202018.pdf.> The concept of formation and development of innovative and industrial clusters in the Republic of Belarus and measures for its implementation // Resolution of the Council of Ministers of the Republic of Belarus 16.01.2014 № 27. Available from: <https://pravo.by/upload/docs/op/C214000 27_1390424400.pdf.> The first medical and pharmaceutical cluster of the Republic of Belarus. Available from: 96

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<https://pharm-cluster.by.> The state program of innovative Development of the Republic of Belarus at 2021-2025 (Decree of the President of the Republic of Belarus September 15, 2021 № 348).

Available from: <https://pravo.by/upload/docs/op/P321003 48_1632171600.pdf.> Vailunova, Y.G.; Yasheva, G.A. (2017). «Hybrid» textile holding as a type of cluster structure: identification and directions of creation in Belarus / Y. G. Vailunova, G. A. Yasheva // Belarusian Economic Journal, 2. 144–158.

Vailunova, Y.G.; Yasheva, G.A. (2017). Formation of network structures as a direction of increasing the competitiveness of organizations in the Republic of Belarus.

Manager. USUE, 4 (68). 96–105.

Vailunova, Y.G.; Yasheva, G.A. (2019).

Methodological aspects of assessing the level and prospects for the development of

integration ties of an organization in the context of creating cluster structures.

Bulletin of the Vitebsk State Technological University, 1 (36). 187–203.

Yasheva, G.A. (2010). Cluster concept of increasing the competitiveness of enterprises in the context of network cooperation and public-private partnership: monograph.

Vitebsk: UO «VSTU», 373.

Yasheva, G.A.; Kostyuchenko, E.A. (2016).

Methodological aspects of the cluster approach to innovative development and increasing the competitiveness of the national economy. Bulletin of Vitebsk State Technological University, 1(30). 188-208.

Yasheva, G.A.; Kunin, V.A. (2014). Theoretical and methodological foundations of clusters and their role in increasing the sustainability of national.

Regional Economics and Management: electronic scientific journal, 1 (37). Available from: <http://region.mcnip.ru.>

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The role of innovative marketing in ensuring the competitiveness and economic security of the enterprise Olha Matviiets* А; Yuliia Krevnik B A, B

Khmelnytskyi National University, Institutskaya str. 11, Khmelnytsky, 29016, Ukraine

Received: October 05, 2021 | Revised: November 11, 2021 | Accepted: December 28, 2021 JEL Classification: M31, O35, P42.

DOI: 10.38188/2534-9228.21.4.11 Abstract In modern conditions the role of innovation as a leading tool for ensuring the competitiveness of the enterprise and its products is constantly growing. Enterprises are looking for new ways to ensure economic security in the market, so it was decided to consider and describe the role of innovative marketing strategy in the management of an enterprise engaged in innovative activities. Innovation marketing contributes to the identification of the real, future and new market opportunities and research into customer needs. Properly constructed scheme for concept of innovative marketing implementation in the enterprise and it execute allows the company to rise to a higher level, especially in a market where innovation can be a commodity.

The role and place of marketing in the innovation sphere is analyzed in the article. Peculiarities of using the marketing approach to innovative activity of enterprises are revealed. The marketing of innovations complex is considered and described. The main stages of its introduction are given. In constantly changing economic conditions, the use of traditional methods does not always give decisive advantages to enterprises. That is why it is necessary to try new approaches and apply innovation marketing to reasonable reorganization. This is the relevance of this paper.

Keywords: innovation, innovation competitiveness, enterprise.

marketing,

complex

of

innovation

marketing,

Introduction In the context of globalization and constant changes taking place in the world market the basis for the competitiveness of the enterprise is constant innovation. Their presence provides a competitive advantage and helps to take a stable place in the market. This situation allows innovation to become a factor in enterprise development. The increased degree of business uncertainty that arises from constant change requires adaptive action by organizations.

Failure to meet these challenges causes decline and hinders innovation. On the other hand, companies that do not conduct such activities are also at risk. This is the connection with

marketing, the service of which is aimed at studying market conditions, identifying threats, analyzing them, as well as finding opportunities to innovate that would meet the company's strategies and realize its real potential in relevant market segments.

Continuous implementation of innovations is the only way to maintain a high rate of development of the organization, its competitiveness in the market, as well as the profitability level. The issue of new product development and innovation is an important element of the organization's strategic plan. The implementation of innovation strategies

*

Corresponding author: Candidate of Economic Sciences, Associate Professor at the International Economic Relations Department, e-mail: olrebak@ukr.net, ORCID: 0000-00015991-2491 A Student at the International Economic Relations Department, Khmelnitsky National University, e-mail: krevniku@gmail.com, ORCID: 0000-0001-8945-2887 A

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(2021) VUZF review, 6(4) because in addition to knowledge of the theoretical basis of marketing and awareness of the world economy, new approaches and advanced methods are needed.

Material and methods The application of innovations and the introduction of constant innovation is the key to the company's success in times of constant change in the global economic market. Under such conditions, company to develop and increase its competitiveness needs to implement innovations and marketing activities that will help meet existing demand and commercialize these innovations.

Scientists such as J. Schumpert, F. Kotler and P. Drucker spoke about this in the last century.

The concept of "innovation" is derived from Latin word "innovatio", which translates as "update" or "change". Thus, this concept was introduced by the economist of Austrian origin J. Schumpeter in the early twentieth century. In his work «Theory of economic development» (1911), the author considered the issue of innovation, as

well as considered the innovation process, where he identified the main provisions of the theory of innovation. Schumpeter's research was the impulse for subsequent work by other foreign and local authors. So, in the literature you can find many definitions of innovation. For example, M. Huchek (1995) interprets innovation as changes in technology, organizational technology, ecology, economics, as well as in the social life of the enterprise.

Many local and foreign authors have studied the impact of innovation on the state of the enterprise, as well as the use of innovative marketing, including Starytska O., Starutskyi T. (2014), Shevchuk A. (2014), Illiashenko N. (2011), Hengsberger A. (2019).

Results and discussion In a general sense the essence of innovation processes is a set of progressive changes that arise and contribute to the qualitative development of society through the development of new production methods, development of new raw materials sources, development production of new products, market innovation and restructuring of management methods.

Effective implementation of innovations creates the basis for significant benefits for the business unit in the most competitive industries. Enterprises achieve competitive advantages using both new technologies and those that need continuous improvement, therefore constant innovation.

Thus, the ability to systematically develop, update and change in economic activity based on the absorption of innovations is a factor of the competitiveness and economic security of the enterprise.

One of the main roles in ensuring the success of the market activity of an enterprise that uses innovative activities is played by marketing.

Marketing of innovations makes it possible to identify market opportunities and threats, identify areas of innovation that will help realize the potential of the enterprise and avoid or prevent adverse tendencies. Innovative marketing and marketing innovations should be considered together as innovative marketing (Ilyashenko N. S., 2011). Thus, the category of "innovative marketing" should be understood as the concept of doing business, which involves the creation of improved or new products (products, technologies, services, management solutions), as well as the use of improved or fundamentally new - innovative tools, forms and methods of marketing to meet more effectively the needs of both consumers and producers (Ilyashenko N. S., 2011).

Innovation marketing has a very comprehensive role. These include the famous 4P, market research and strategic task. 4P is the marketing mix for marketing products. Four levers are available for this purpose: product design, pricing policy, communication and the type of distribution and 99

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sales (Hengsberger A., 2019). Taking into account the essence of innovative marketing, its components and methods, we can identify the

following scheme and specify the objectives for such activities. (Fig.1).

The Innovation Marketing Innovation

Innovation in Marketing

Innovation product Innovation service Innovation technology

Innovation in place Innovation in product Innovation in price Innovation in promotion

Protection or increase the enterprise market share Development of new positions in the new market Creating a new market or market segment Figure 1 – The objectives of Innovation Marketing activities The concept of innovative marketing can reach a point where the interests of producers, consumers and society as a whole meet. Today, the goods and services that exist in the market do not fully meet the demands of society, so we need new ones - innovative, in the production of which these needs will be taken into account. It also should be noted that in order to promote the importance of innovation for society, companies must convey this idea to a wide range of consumers. The best way to achieve this is marketing communications tools.

Spreading such innovations, it is necessary to use new and sometimes non-traditional methods and tools of communication policy. The production and dissemination of innovations needed by consumers brings large profits to producers, which is the purpose of introducing economic activity. It is advisable to decide on changes in the organizational structure of management as a result of the decision to move the company to the concept of innovative marketing. The implementation of this concept involves intensifying marketing research and stimulating creative and scientific staff. Thus, the concept of innovative marketing involves the development and implementation of new methods for conducting research, as well as new methods of motivating employees (Shevchuk, 2014).

The concept of innovative marketing is already actively used by companies seeking to become leaders in their field. Data on the world's 50 most innovative companies in 2021 were collected by Fast Company. The top ten most innovative companies in the world include companies such as: Moderna, Pfizer, Shopify, SpaceX, SpringHill Company, Epic Games, Netflix, Tock, Microsoft, Graphics. All of them are leaders among other companies in a certain industry, and all of them actively produce innovative products, services or technologies, as well as use innovative approaches to the implementation of the marketing complex.

This is a clear example of the fact that all the most famous companies in the world have made a rapid breakthrough in their activities through daily innovation guided by the concept of innovative marketing.

In many countries, the marketing concept of the company's development has been important for decades. The complex of innovative marketing includes the development of innovation strategy, market analysis and operational marketing, where the most important types of innovative marketing are strategic and operational components. The main goal of strategic innovation marketing is to develop a strategy for introducing innovations to the market. The basis of strategic marketing 100

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research is the analysis of market conditions, development of market segments, organization and formation of demand, modeling of consumer behavior. An important element of marketing strategy is the study and forecasting of demand for a new product, based on a thorough study of consumer perception of innovation. Another component is operational innovation marketing.

This is the final stage of the marketing system, where specific forms of implementation of innovative marketing concepts are developed.

Operational marketing is aimed at maximizing profits and sales, maintaining the company's reputation, increasing market share (Starytska O.P., Starystkiy T.M., 2014). Operational marketing management at the enterprise includes: − drawing up a marketing plan that structures the course of further action; − preparation of financial documents; − control of marketing activities of the enterprise (control of annual plans; control of profitability and efficiency; strategic control).

Acting in the field of innovative marketing, enterprises need to take into account the perception of new products by consumers. The company must have a plan for the time during

which the company will maintain an innovative product on the market and when to decide to close the project or continue to improve. According to the analytical work, as well as the existing theoretical basis, we can name the following stages of the process of perception of the buyer of a new product: 1. Initial awareness (the consumer does not have enough information about innovations).

2. Product recognition (consumer begins to show interest in innovation).

3. Identification of a new product (the consumer equates innovation to their existing needs).

4. Evaluation of the possibilities of using innovation (the consumer decides on the approbation of the innovation).

5. Approbation of the innovation (the consumer receives the necessary information about the innovation and faces the opportunity to purchase / use it).

6. Making a decision to acquire or invest in innovation.

So, summarizing all the above, we propose a scheme for implementing the concept of innovative marketing complex in the enterprise, which is presented in the Figure 2.

DECISION MAKING CREATING A PROJECT MANAGEMENT STRUCTURE Encouraging creative and scientific activities involved staff

Activation of marketing research

DETERMINATION OF STRATEGIC DIRECTIONS OF ENTERPRISE ACTIVITY DEVELOPMENT AND IMPLEMENTATION OF INNOVATIVE PROJECTS Strategic Innovative Marketing

Operational Innovation Marketing Implementation of measures to maximize profits and production volumes Implementation of measures to maintain the company's reputation, Implementation of measures to increase market share

Analysis of market conditions Demand formation Modeling the behavior of market participants

Figure 2 – Scheme of introduction of a complex of innovative marketing at the enterprise 101

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The complex of marketing innovations at the enterprise includes a wide range of activities.

This process includes essentially different, but united by one purpose actions. This set of tools, methods and actions is a process of implementing a set of innovative marketing.

Thus, in generalized form, the essence of innovative marketing can be defined as a systematic activity to develop and promote new

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products, services and technologies to meet the needs and demands of consumers in a more efficient way by increasing the capacity of the enterprise, finding new directions and means of its use in order to ensure the conditions of longterm survival of the enterprise in a competitive market and the development of this enterprise in the same market.

Conclusions Based on the previous study, the relationship between the categories of "marketing" and "innovation" was analyzed. Having the obtained data, it was proposed to define the categories of "innovative marketing". Based on the study of approaches to the order and content of the interaction of marketing and innovation a complex of innovative marketing is described. It is substantiated that innovative marketing is a separate concept that can be adopted by the enterprise. According to this consept the creation of improved or fundamentally new products and use in the process of its creation

and dissemination of improved or new innovative tools, forms and methods of marketing that would more effectively satisfy needs of consumers and producers. This is due to the fact that a lot of businesses are turning to more technological and innovative forms. The number of innovative developments is constantly growing and innovative marketing acts as a transfer of this innovations between the enterprise and the consumer. As practice shows, the innovative companies in the vast majority become leaders in their fields.

References Hengsberger, A. (2019). What is innovation marketing? Lead innovation blog. Available from: <https://www.lead-innovation.com/ english-blog/innovation-marketing> Huczek M. (1995) Socyalno-ekonomicheskoe soderzhanie innovacyj na predpriyatii.

Vestnik moskovskogo universiteta. 1. 62-71. (in Russian).

Ilyashenko, N. S. (2011). Organizational and economic principles of innovative marketing of industrial enterprises. Sumy: Sumy State University Publishing House. 192 p.

Schumpeter, J. A. (1982).

Teoria ekonomicheskogo rozvitia (isledovania predprenimatilskoi pribili, kapitala i tsykla

konuktury). Progress. 453 p. (in Russian).

Shevchuk, A. Y. (2014). Osoblyvosti kontseptsii innovatsiinogo marketynhu suchasnoho pidpruiemstva. Upravlinia rozvytkom. 7(170).

104-106. (in Ukrainian).

Starytska, O.P. & Starystkiy T.M. (2014).

Innovatsiinyi marketynh yak instrument pidvyshchenia efektyvnosti functsionuvannia pidpryiemstv. Innovatsiina ekonomika. 4(53).

244-249. (in Ukrainian).

The Word`s Most Innovative Companies 2021.

Fast Company.

Available from: <https://www.fastcompany.com/90603436/ the-worlds-most-innovative-companies2021.>

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Financial security of enterprises from Poland, Germany, and Great Britain Jolanta Puacz-Olszewska * А A

Rzeszow University of Technology, 12, Powstańców Warszawy Ave., Rzeszow, 35-959, Poland

Received: December 08, 2021 | Revised: December 18, 2021 | Accepted: December 28, 2021 JEL Classification: G23, L32.

DOI: 10.38188/2534-9228.21.4.12 Abstract Pandemics are caused by the negative impact of global threats, we put you at risk in one global world. An effective and efficient mortality tool, bringing also economic and economic successes.

The world is currently struggling with the coronavirus (COVID-19) caused by SARS-CoV-2, which unfortunately already has pandemic status. Blow it off on yourself, concerned about how it will affect the global recession The aim of the article is to present and compare how governments of countries such as Poland, Germany, and the United Kingdom provide entrepreneurs with financial security in connection with the negative effects caused by COVID-19. At the beginning of the article, it is briefly presented what financial security is, and several measures are distinguished to measure the financial security of enterprises. Then, the financial assistance for entrepreneurs selected to the countries is described. Countries such as Poland, Germany, and Great Britain were selected for the analysis. The most attention was devoted to describing the aid for Polish entrepreneurs. The information used in the article was obtained from the Polish and British GOV portal and from the German ministry responsible for economic policy (BMWi). In the end, support from the government in the analysed countries was compared, and the country is indicated, where entrepreneurs would cope best in the current situation and have the best chance for development. It is also indicated what impact the financial aid of the government has on the development of enterprises.

Keywords: financial security, enterprise, pandemic.

Introduction Security considered in the aspect of the field of knowledge contains a wide range of problems that cannot be confined to one unchanging scheme.

Security is a value which importance is appreciated by every person and the whole society every day (Puacz-Olszewska J., 2017). It is an object of concern, efforts and aspirations, treatments, and also desires of people. The need for security is one

of the most essential, most basic mental needs (Niewczas M., Puacz-Olszewska J., 2017).

To discuss the legal foundations of international security, it is necessary to define the essence of this concept and the scope it covers. In the most general sense, the term security should be equated with the absence of risk or protection against threats (Puacz-Olszewska J., Zagórska A., 2018).

Material and methods In terms of the subject, financial security refers to goods (or lack of goods) essential for ensuring economic security in the financial

dimension. The basic good that is to serve to satisfy the needs of the financial dimension of economic security is the possession of sufficient

*

Corresponding author: Lecturer, Department of Project Management and Security Policy, e-mail: jolantapuaczolszewska@gmail.com, ORCID: 0000-0002-8034-4502

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ISSN 2534-9228 financial resources to fulfil the basic functions of the state (Puacz-Olszewska J., Niewczas M., Zagórska A., 2018).

There is no single, general definition of a state's financial security, similar to the lack of an unambiguous definition of the term security itself. Currently, researchers increasingly indicate that state security should be viewed in two categories. The first is the value threats that the state protects, so it is an approach based on setting goals. The second category is possible countermeasures allowing for the reduction of threats or limitation of their unfavourable effects. This approach is based on the pursuit of a certain state through the implementation of appropriate actions (Puacz-Olszewska J., 2020).

With the advent of COVID-19, national governments introduced restrictions to protect against the disease. Initially, in February, LOT suspended connections with Beijing, and after the appearance of COVID 19 in Poland, all flights were suspended. Citizens had to adjust to the new normality. The obligation to wear masks was introduced. Their task was to protect others from a sick person who has the disease asymptomatically. A limit of people in the store was introduced, the obligation to wear disposable gloves in stores, hours for seniors.

Initially, it was informed that there is no need to wear masks, but then such an obligation was introduced. From May 30, this obligation is to be partially lifted, masks will have to be put on, for example, in offices. Access to forests and cemeteries was forbidden, and recreational travel was forbidden, and later the ban was lifted.

In other countries of the world, more or less strict rules were introduced.

Enterprises from selected industries had to suspend their activities for some time. The gastronomy, hairdressing and beauty salons, and tattoo studios were suspended. Galleries, massage and physiotherapy salons, hotels and night shelters, as well as cultural centres such as theatres, museums, centres of entertainment and recreation, had been closed. Restrictions on the transport of passengers have been introduced.

(2021) VUZF review, 6(4) The freezing of the economy, i.e. the so-called lockdown, brings about a decline in GDP in Poland by over PLN 2 billion every day. Losses will be suffered by industrial, commercial, service, and construction companies, and even banks where the sale of credits and loans has decreased. Ordinary Kowalski will also experience a decline in GDP, as employers in many companies do not extend their contracts for a specified period and the employee's market passes into the employer's market. Defrosting the economy is important in order not to suffer even greater losses, and also to have the resources to fight the coronavirus (CieślakWróblewska Ekonomia Gospodarka, 2020).

In Poland, from April 20, subsequent stages of defrosting the economy are introduced. There are four stages. On May 4, shopping centres, hotels, accommodation places, libraries, furniture and construction stores, rehabilitation, nurseries, and kindergartens were opened. From May 18, beauty salons, hairdressing salons, gastronomy, sports events, education are open, the number of places in public transport is increased. Currently, enterprises, for example in the catering industry, are obliged to provide their customers with disinfecting liquids, which imposes additional costs on them. Despite the defrosting of the economy, companies have already incurred costs related to maintaining their business at a time when they were not generating income from their operations. Some companies have changed their activities a bit. For example, companies supplying sweets to vending machines began selling masks, disinfectants, and disposable gloves in them. Such machines were also to be installed in Rzeszów in several places.

The Marcel transport company had to reduce the number of trips due to the reduction the passenger's number. This company, however, decided to transport parcels together with the InPost company in order not to lay off employees, and courier companies developed as a result of the development of the e-commerce industry. To assure financial assistance to entrepreneurs, a special act was developed under the name of the Anti-Crisis Shield.

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Results and discussion Financial security of enterprises Security is a state when any danger does not exist. The safety of an enterprise is a state in which the enterprise is steady to survive and has a guarantee to keep it, and has an opportunity for development. Enterprises can stay financially secure by having financial resources. They protect against external and internal threats, provide conditions for the development of the enterprise and ensure the continuation of operations. The enterprise's financial security is a financial guarantee for the enterprise to exist and develop.

When building financial independence, three phases are distinguished. The first phase is "financial cover" allowing to run a business in a short period. The second phase, i.e. financial security, allows for the continuation of operations and the development of the enterprise. In turn, the third phase - "financial freedom" allows to ensures financial security even when there are unplanned investments.

Enterprises obtain funds from the sale of products, goods, materials, or services. For the company's survival on the market financial liquidity is important. Failure to meet this condition leads to the company's elimination from the economic process. Owning financial reserves allows the company to develop by shaping its creditworthiness, especially profitability, liquidity, and the ability to gain external capital. The creation of financial reserves allows for the perception that the enterprise follows the principles of prudence, accrual, going concern, and the commensurability of revenues and costs. Financial reserves can be the tools by which a business is protected from disruptions (Karbownik L., 2012).

Measurement of the financial security of enterprises should be considered from the management perspective. In times of economic slowdown, e.g. caused by a crisis, it is better to examine current flow accounts, what is more measurable (cash - money flow) than profit verification. The measures used to assess the financial security of enterprises include, among others: • Short-term receivables * 365 / net sales revenues;

• Total liabilities / total assets (fortune); • Cash / current assets (fortune); • Current assets (fortune) / short-term liabilities.

State control is necessary for financial markets because it is the state that decides about the financial security of enterprises through information, supervision, and educational activities. In Poland, financial security is perceived based on factors such as: the amount of public debt, the financial safety net, the banking sector, the degree of economic development, and the economy's competitiveness. The public institutions that affect financial security in Poland are the National Bank of Poland, the Council of Ministers, the Ministry of Finance, the Polish Financial Supervision Authority, and the Bank Guarantee Fund (Raczkowski K. 2014).

Polish aid for entrepreneurs The anti-crisis shield is a special act prepared by the government, which is to help Polish entrepreneurs to survive the crisis caused by COVID19 and to protect them from the negative effects of the crisis. It is planned to allocate PLN 312 billion to fight the pandemic as part of the AntiCrisis Shield. It is based on five pillars: • Protection of workplaces and worker safety, • Financing of entrepreneurs, • Health protection, • Strengthening the financial system, • Public investments (Biznes 29.06.2021).

Below are the benefits for an entrepreneur from the Anti-Crisis Shield.

1. Exemption from ZUS An entrepreneur may suspend the payment of contributions to ZUS. Previously, it was possible for three months (March, April, May), provided that the appropriate conditions were met. After introducing the changes, contributions can be suspended for April and May. In this case, the state pays ZUS contributions for the entrepreneur. The conditions that an entrepreneur must meet are as follows. The employer is to have up to 9 people registered for insurance. Economic activity must be started before February 1, so an entrepreneur who set up business on February 1 or after February 1 cannot be exempt from paying contributions. This date was changed to April 1, 2020. If only the 105

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employer is registered for insurance, the entrepreneur has an income limit of 300% of the average remuneration in 2020, which is PLN 15 681.

The income is the amount earned as a result of running a business, it does not include costs. A micro-loan, PFR subsidy from the Financial Shield, co-financing of salaries from the Poviat Labour Office, downtime benefit, and exemption from ZUS contributions are not the incomes (Rada Ministrów 2020).

If an employer has reported at least one insured person, the limit of 300% does not apply to him. An income from activity obtained in the first month for which an application for exemption from paying contributions is submitted cannot exceed PLN 7,000. Before the change, this relief did not apply to entrepreneurs who took advantage of the Start Relief. Currently, people using the Start Relief may also suspend ZUS contributions for April and May. An entrepreneur who takes advantage of the Start Relief pays only health insurance contributions and is exempt from paying social security contributions (retirement, disability, accident), contributions to the Labour Fund, and Solidarity Fund for Support of Disabled Persons for 6 months (Matela -Marszałek W., 2020) In the case of Big and Small ZUS, entrepreneurs can take advantage of the exemption from paying contributions. If an employer has already paid contributions for April earlier, he can count on the reimbursement of these contributions. Paid premiums will be reimbursed (Matela -Marszałek W., 2020).

2. Monthly downtime benefit It is a benefit addressed to self-employed entrepreneurs for persons under a contract of mandate and specific work. This can be obtained up to three times if the entrepreneur can show that his material situation has not improved or has changed little. The benefit is granted upon an application submitted to ZUS. It amounts to 80% of the minimum wage, i.e. PLN 2,080. In the case of people settling their taxes on the Tax Card, it is 50% i.e. the amount is PLN 1,300. When the contractor earns less than the national minimum, this amount will result from his contract. An entrepreneur, i.e. a self-employed person, will be subject to an income limit of 300%, as in the case of exemption from

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paying ZUS contributions. Incomes must be 15% lower than in the previous month. The benefit may be obtained not only by the self-employed but also by employers hiring employees. This benefit is available to entrepreneurs who suspended their activities after January 31, 2020 (Ministerstwo Rodziny I Polityki Społecznej 2020).

3. Care allowance The additional care allowance is granted to people who may not provide care by institutions, such as nurseries and kindergartens, and people who will decide to take care of a child personally.

The allowance will be paid regardless of whether the school, kindergarten, or nursery is open. The period of receiving additional care allowance has been extended until June 14, 2020. The child for whose care allowance is paid must be under the age of 8 or a child with a moderate or severe disability under 18. The statement must be submitted to ZUS, there is no specific form to be submitted. The declaration should indicate that it is not possible to work in connection with the care of a child under 8 or a disabled child and that the other parent is also unable to do so (Ministerstwo Rodziny I Polityki Społecznej 2020).

4. Co-financing for employees Co-financing applies to the Guaranteed Employee Benefits Fund. It is intended for companies that want to keep their jobs. These grants can be used in two situations. Firstly, when there is an economic downtime in the plant, the salary for employees can be reduced by 50%, and the remaining 50% of the minimum wage will be financed by the state i.e. PLN 1,300. The second situation is when an entrepreneur reduces the value of a full-time job by 20%. The employer has to choose only one option and has to conclude an agreement with an employee representative, e.g. with a trade union or with a representative of the crew. The employer is obliged to notify the District Labour Inspector of such notification. Co-financing applies to all employees, including contractors, agency employees, and employees contracted for specific work. In the case of enterprises without employees, you can apply for funding from the Poviat Labour Office. Co-financing is calculated based on the decrease in incomes. In the event of a

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30% decrease in turnover, entrepreneurs will receive monthly co-financing of 50% of the minimum wage, if a decrease is 50% - a co-financing of 70%, and a decrease of 80% - a co-financing of 90%, of a minimum wage. To receive co-financing, an entrepreneur must maintain the enterprise for the period for which it receives funding. This grant is monthly (Markowicz W., 2020).

5. Loan for micro-entrepreneurs A loan for micro-entrepreneurs is a means of covering the current costs of running a business, such as the costs of renting premises. An entrepreneur will be able to obtain up to PLN 5,000.

The loan is intended for micro-entrepreneurs who started running a business by April 1, 2020. An application for the loan may also be submitted by an employer who does not employ any employees.

The loan is paid out once. A repayment period will start after three months, thus enterprises will have the so-called credit holidays. The loan repayment period may not exceed 12 months. An entrepreneur can count on the loan cancellation.

For a loan to be repealed, a business must be conducted for three months from the loan was granted. The application for remission of the loan should be submitted within 14 days from the lapse of 3 months, after which the entrepreneur received the loan (Markowicz W., 2020).

This benefit can also be obtained by using other benefits under the Anti-Crisis Shield. The application should be submitted on the website of the employment office and on the website praca.gov.pl. Before that, the ePUAP Trusted Profile should be created (PFR Grupa Polskiego Funduszu Rozwoju 6 maj 2021).

6. Credit holidays for 3 months A person who took out a consumer or mortgage loan before March 13, may apply for the loan suspension for a maximum of 3 months. In such a case, the contract is extended by another three months. Only a person who has lost the main source of income after March 13, 2020, can suspend a loan. In the case where the borrowers are spouses, it is enough for only one of the spouses to lose their source of income. If the borrowers previously suspended the loan because this option was in force at banks before the introduction of the

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Shield, they may apply for a further suspension of the loan. To suspend the loan, an application must be submitted to the bank where the loan was taken (Bank Polski 2020).

7. Overdue vacation An employer may send an employee on overdue annual leave without his consent. The employer has until September 30 to make such a decision. He can send an employee for a maximum of 30 days of vacation. Overdue vacation is the unused leave from the previous year. In the current situation, applications and declarations should only be submitted electronically through PUE ZUS. This is due to the Anti-Crisis Shield 4.0. It is required to create a trusted ePUAP profile first, to submit an application on the PUE ZUS website. This can be done via electronic banking, where an electronic identity is assumed. The 4.0 shield also introduces that an entrepreneur who has submitted an application for exemption from ZUS contributions will not have to submit a certificate of non-payment of contributions. Submitting such an application is treated as not being in arrears in paying contributions (Bank ING 2020).

8. PFR Financial Shield The PFR Financial Shield is part of the Anti-Crisis Shield program. The Polish Development Fund launched the Financial Shield. It is addressed to micro, small, medium, and large entrepreneurs.

From June 9, it is possible to submit applications for subsidies also for large enterprises.

The aim of the PFR Financial Shield is to protect the labour market, improve the financial liquidity of companies in times of serious disturbances in the economy, support the operation of sectors most severely affected by the pandemic, as well as compensate for the damages suffered as a result of the pandemic. The program is designed to help unfreeze the Polish economy. The value of the Financial Shield is to amounts to PLN 100 billion.

This amount was distributed over 3 areas. The first area covers micro-enterprises with up to 9 employees, and their turnover or balance sheet total less than EUR 2 million. The second area consists of small and medium-sized enterprises with up to 249 employees, and their annual turnover is less than EUR 50 million, or their balance

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sheet total is less than EUR 43 million. In turn, the third area includes large companies with over 249 employees. PLN 25 billion has been allocated to each of the first and third areas, and PLN 50 billion for the second area (PFR Grupa Polskiego Funduszu Rozwoju 6 maj 2021).

Firms can receive up to 75% of the nonreturnable subsidy under the condition they continue their business activities and maintain the average level of employment within 12 months of receiving it. The received amount can be used only for expenses related to running a business or for loan repayment. The financial shield can be used by entrepreneurs who have experienced a decrease in economic turnover related to sales revenues by at least 25%. The decrease in turnover is considered after February 1, 2020, compared to the previous month or the same month last year. The business must be started before December 31, 2019, to take advantage of the subsidy. The decline in turnover is to be caused by economic disruptions caused by the emergence of COVID-19. An entrepreneur who had a suspended activity as of December 31, 2019, cannot receive a subsidy. The subsidy will also not be used by an entrepreneur whose company is in bankruptcy, liquidation, or restructuring proceedings and by who has no tax residence in Poland. The subsidy should be repaid one year after it is paid. The repayment is made in 24 equal instalments. The amount that can be obtained is calculated based on the number of employees, turnover in 2019, and based on an indication of a decrease in turnover. For example, on the website of the PKO BP bank, the estimated maximum amount of the subsidy can be calculated (Agencja Rozwoju Przemysłu S.A 2021). An application for a subsidy can be submitted on the website of the bank where the entrepreneur has an account.

Before submitting the application, you must open an account to which the subsidy amount will be sent. He will be exempt from enforcement activities. If the amount was sent to an account charged with enforcement seizure, it would have to be transferred to the bank as it would be difficult to use. The application must be signed with an authorization tool, it may be, depending on the bank: SMS codes, code card, application, token. The

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application submitted to the bank will be redirected to the Polish Development Fund, which grants or rejects the application. After the rejection of the application, it is possible to file an appeal after meeting the conditions, e.g. after payments have been made. In the event of a lower amount being awarded, the entrepreneur may file an appeal application (Bank ING 2020).

Companies that cannot apply for assistance under the Anti-Crisis Shield include those that operate in the field of products or services that may result in the restriction or violation of individual freedoms and/or human rights. Credit institutions, credit unions, investment firms, loan institutions, insurance companies, reinsurance companies, pension funds, investment funds, and other collective investment undertakings, asset managers, payment service providers, rating agencies, and other financial institutions cannot benefit from the aid. Companies from areas of doubtful ethical and moral grounds are also not eligible for aid.

The maximum aid threshold under the Shield is PLN 324,000 for a micro-company and PLN 3.5 million for small and medium-sized enterprises. The minimum amount that an entrepreneur can receive is PLN 1,200. In agriculture, there are limits to the maximum amount. For fishery and aquaculture, the maximum amount is 120,000.

EUR, and for enterprises producing base agricultural products - EUR 100,000.

As of June 2, 227,549 companies benefited from the Program, employing 2,202,759 people, and funds were paid out through banks in the amount of PLN 42,925,600,422. On the website of the Polish Development Fund, on the interactive map of subsidies, the distribution of funds under the PFR Financial Shield with a division into districts can be checked (Bundesministerium fur Wirtschaft und Energie 2020). There, information on the allocated amount, the number of companies that benefited from the subsidy, and the number of employees they employed in individual districts can be found.

The information about the Financial Shield can be read on the Polish Development Fund website and banks' websites. There is information on, inter alia, how the application can be made. You can also

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contact the hotline of the selected bank, where consultants will answer questions about the PFR Financial Shield. The application for a subsidy should be filled in very carefully, and it should be carefully thought about which month the turnover should be entered to prove a 25% decrease in turnover.

9. Support for transport companies – the ARP program.

Polish transport companies constitute a large percentage of the European market, so it is worth investing in this sector of the economy. Although freight transport, and especially e-commercerelated courier transport, is growing during the pandemic, passenger transport has lost a lot. The Agencja Rozwoju Przemysł S.A. will take part as part of the Anti-Crisis Shield in supporting the transport industry. The ARP will grant operating leases on favourable terms with a 12-month grace period and working capital loans. ARP will receive PLN 1.7 billion for the implementation of these tasks. The amount of the lease can reach up to PLN 5 billion net. The financing period will be up to 6 years. The grace period, i.e. a delay in repayment, may last up to 1 year. In the case of a working capital loan, salaries will be transferred directly to the employee's account, the period may be up to 2 years, and the grace period may be up to 12 months. Entrepreneurs who have transport companies will also be able to take advantage of a loan to finance a deficit in working capital. It will be from 0.8 million to 5 million PLN. It will be financed for 6 years, and the grace period will be up to 15 months. An application for support should be submitted on the ARP website. To submit the application, it is necessary to create a Trusted Profile (Bank aus Verantwortung 2021).

In addition to the solutions presented above, to help entrepreneurs, assistance was developed in the form of, among others, increased co-financing for the remuneration of a disabled employee, the possibility of partial remission of tax arrears, exemption from subscription and audio-visual fees, deduction of R&D costs from incomes, deduction of losses for 2020 from incomes for 2019, lower PIT / CIT advances, exemption from downtime benefit tax, exemption from retail sales tax, exemption

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from the fee for postponing the tax payment, changing the rules of repayment and relief for "bad debts", facilitating e-receipts, delaying the tax for buildings payment, spreading the overdue tax into instalments, the possibility of paying the tax later, the possibility to pay the PIT tax for employees later, change of the deadline of the CIT-8 submission and payment of the tax.

German aid for entrepreneurs On the website of the German ministry responsible for economic policy, BundesministeriumfürWirtschaftund Energie (BMWi), there is information about what aid German entrepreneurs can receive from the state as part of aid against the effects of COVID-19.

German entrepreneurs may receive as part of the aid: 1. Loans for small, medium and large entrepreneurs The German bank Kreditanstaltfür Wiederaufbau (KfW) provides loans to individuals, self-employed, and freelancers. Loans are granted to cover current costs and to improve financial liquidity.

• KfW-Sonderprogramm 2020.

The loan is intended for small, medium, and large enterprises. Companies can apply for a loan from KfW for investments and to cover running costs. The loan is fully secured. KfW took over 100% of the banking risk. Companies with more than 10 employees are eligible for this loan.

Enterprises must operate from at least January 2019. Entrepreneurs can receive a maximum of 25% of the annual turnover of 2019. The maximum amount that can be obtained by entrepreneurs depending on the number of employees has been defined. In the case of employing from 10 to 50 employees inclusive, such an enterprise may receive a maximum of EUR 500,000. If more than 50 employees are employed, such a company may receive a maximum of EUR 800,000. The loan repayment period is up to 10 years, with the loan repayment period starting two years after receiving the loan. The funds available for loans to entrepreneurs are unlimited. Firms that may receive financial support are trading companies (those trading companies which are mostly

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private), commercial thus profit-oriented social enterprises, profit-oriented housing cooperatives, cooperatives subject to corporate tax, leasing companies operating for their own profit, and the companies in which foreign state funds hold shares.

Whereas, companies that do not qualify for financial aid are public companies, non-profit social enterprises, agricultural enterprises, non-profit companies, and enterprises in which banks hold more than 25%.

To apply for the loan, an application on two levels on the KfW website must be completed. In the first level, basic information on the date of establishing the enterprise, the enterprise size, and the number of employees should be provided.

After entering this data, the system will indicate the maximum loan amount. In the second step, additional information should be provided.

• KfW-Schnellkredit 2020.

The purpose of the KfW-Schnellkredit 2020 loan is to provide quick support to medium-sized enterprises. The loan is intended for entrepreneurs employing over 10 employees and operating on the market from the shortest January 1, 2019. An entrepreneur may receive a maximum of 25% of the annual sales considering 2019. Entrepreneurs can receive up to 500,000 or 800,000 euros as above, depending on the number of employees.

The loan can also be repaid in this case for up to 10 years in equal instalments, and the grace period may last up to two years. The loan is granted without an additional credit risk assessment by the bank or KfW. This allows to quickly approve the loan. The loan application cannot be submitted at the same time as other KfW loans. This does not apply to grants awarded under the emergency aid programs of the federal government and individual Länder.

• Economic Stabilization Fund – Wirtschaftsstabilisierungsfonds.

This fund was created to help newly established and long-standing entrepreneurs. The value of the fund to help entrepreneurs is EUR 600 billion. The fund was established to eliminate liquidity bottlenecks and strengthen the capital base of enterprises (Bundesministerium fur Wirtschaft und Energie 2020).

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• KfW investment loan for municipal and social enterprises.

Until December 31, 20 municipal and social enterprises can now raise operational funds (Bundesministerium fur Wirtschaft und Energie2021).

2. Support for entrepreneurs who started their businesses during the crisis.

Germany also supports companies that started operating during the crisis. Such entrepreneurs have access to all support measures to help against the crisis caused by COVID-19. A EUR 2 billion package for new entrepreneurs has been developed. The package was based on two pillars.

The first, called CoronaMatchingFacility, provides investors during the COVID 19 crisis with the possibility to continue investing in highly innovative products and also allows them for start-ups financing. The second pillar is intended for new enterprises as well as small and medium-sized enterprises. The funds are to be donated by the Landesförderinstitut (Bundesministerium fur Wirtschaft und Energie2021).

3. Extraordinary financial aid for small businesses and sole traders, including farmers.

The aid was targeted at small enterprises, the self-employed, and representatives of liberal professions. It is intended for entrepreneurs employing up to 10 employees. The project was carried out until May 31, 2020. The help that can be obtained depends on the number of employees. In the case of employing up to 5 employees, it is possible to receive one-time aid for 3 months up to EUR 9,000. If the number of employees exceeds five, but up to a maximum of 10 people, it is possible to receive one-time assistance for 3 months up to EUR 15,000. The funds that the enterprise will receive will allow it to cover the running costs for 3 months of running a business.

This will let companies maintain their financial liquidity. The funds obtained under the aid may only be used to meet the needs resulting from running a business. Entrepreneurs who want to receive aid must run their business from Germany and be registered with the German tax office.

Private costs cannot be covered by such means. In the case of farmers, he may employ up to 10

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employees converted to full-time equivalents. A farmer is considered to be a person who runs an enterprise engaged in agricultural or forestry production, fishing and aquaculture, agricultural stalls and shops, and agricultural enterprises renting out rooms, for example for holidays (Bundesministerium fur Wirtschaft und Energie2021).

The aid program was designed by the German state, but it is the individual Länder that implements and spend the funds under the program. The Länder have set uniform data requirements for the applications, but the applications may differ from state to state. This is because the Länder may require additional, complementary information in the application (Bundesministerium fur Wirtschaft und Energie2021).

To help against the negative effects caused by COVID 19, the German government also provided assistance in the form of deferred tax due until December 31, 2020. If it turns out that the entrepreneur's income will be lower than in the previous year, tax advances will be reduced.

Entrepreneurs will be able to apply for the reimbursement of already paid advances.

Entrepreneurs will be able to get an allowance for part-time work. In this case, the number of employees that may be covered by the program may vary from 10%. The aid also concerns the protection of export activities. The coverage of short-term export transactions (up to 24 months) covers the countries of the European Union and selected OECD countries. Actions that are also intended to help businesses include the suspension of insolvency notification obligations and of payment bans until 09/30/2020 if the insolvency is caused by the consequences of the COVID 19 pandemic (AGAportal.de 2021).

Great Britain's aid for entrepreneurs In Great Britain, an Aid Package was created with the main goal of protecting jobs. The gov.uk website presents which forms of financial assistance entrepreneurs can take advantage of, who can submit an application, when and how.

British entrepreneurs, as part of financial aid, can count on:

1. Co-financing of employees' salaries under the job positions protection program (Coronavirus Job RetentionScheme).

The state will fund 80 percent of the wage bill for workers who are not working due to COVID-19.

The program was launched on April 20. To receive funding, an entrepreneur must be registered with PAYE by February 28, 2020, at the latest, must have an online PAYE account, and must have a bank account in the UK. From July 1, employers can reinstate employees who have not performed their tasks due to the pandemic. The program will close to new participants from June 30 (Bundesministerium fur Wirtschaft und Energie2021).

2. Co-financing of statutory Sick-Pay payments.

Entrepreneurs employing less than 250 employees (the employment status as of February 28, 2020, is taken into account) will be able to apply for subsidized sick pay. Illness Benefit is subsidized by the government if you contract the coronavirus.

The maximum period for which the sick pay may be subsidized is 2 weeks. The employer should have a PAYE account. A maximum enterprise can receive up to EUR 800,000, agriculture up to EUR 100,000, and aquaculture and fisheries up to EUR 120,000.

3. Deferred payment of VAT and Income Tax. Every enterprise is entitled to deferment of VAT payment. It is not required to submit an application for deferred payment of VAT. The deferral is valid for the obligations from March 20th to June 30th this year. Payment may be deferred until 2021. It is similar to the case of Income Tax, where the deferral of tax payment is available to every enterprise. This applies to people who have to pay

by July 31st. Also, in this case, payment may be deferred even until 2021 (Dąbek W., Biznes Outsouring 2020).

4. Co-financing the salaries of self-employed persons.

Self-employed people can apply for payments of up to 80% of average monthly earnings for the last three years, i.e. a maximum of £ 2,500 per month.

A self-employed person should meet several conditions to receive funding. Such a person must had run a commercial activity in the 2018-2019 tax

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year and filed a tax return by April 23, 2020, or in the previous year; operated in 2019-2020, intends to operate in 2020-2021 and suffered a loss due to the effects of COVID-19.

5. Subsidizing the remuneration of company directors.

Entrepreneurs can also apply for financial support for company directors who cannot perform their tasks due to the coronavirus. Cofinancing - as in the case of an employee - may amount to 80 percent of a salary, up to a maximum of £ 2,500 per month. While applying for and receiving funding, the director should only perform the necessary activities that will allow the company's survival and not generate profit.

6. Aid for small and medium-sized enterprises.

Entrepreneurs who own small and mediumsized companies can apply for a loan. It is helpful for entrepreneurs that the state guarantees 80% of the lender's financing. The government pays interest and fees for the first 12 months of taking the loan.

To take advantage of the loan, you must have a seat in the UK, and the annual turnover may not exceed 45 million pounds. It must be shown the pandemic has had an impact on the company's financial

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condition. When the entrepreneur wishes to borrow £ 30,000 or more, he must show that his business was not in financial distress as of December 30, 2019. This solution cannot be used by banks, insurers, public sector companies, as well as state-funded primary and secondary schools.

The application must be accompanied by, among others, cash flow forecast, business plan, account history, asset details.

7. Aid for large enterprises.

Entrepreneurs who run large companies can apply for a loan where the state guarantees 80% of the lender's financing. To apply for the loan, as above, a company headquarters must be in Great Britain, and the annual turnover must not exceed 45 million pounds and the company cannot benefit from the support of the Bank of England's (CCFF).

Companies such as those mentioned in the point above, as well as building societies, cannot apply for the loan. These companies can apply for loans, revolving credit lines, invoice financing, and asset financing. A maximum of £ 200m can be borrowed.

The loan period may be from 3 months to 3 years.

The documents to be attached are the same as in the previous point on small and medium-sized enterprises.

Conclusions Overall, the economic impact of the outbreak is two-fold. Consumer spending is falling, people are sick or try to avoid disease. They themselves quarantine and stay home instead of traveling or going to shopping malls. The tourism, transport and entertainment industries will therefore be hard hit by the epidemic.

An equally important, if not even more important, effect of the epidemic is a negative supply shock. Above all, epidemics reduce labor supply. In most cases, temporarily because some employees become ill or remain in quarantine.

When production declines and fixed costs, but also wages, must still be covered, when debts have to be settled, trouble arises and the risk of bankruptcy increases. Moreover, during a pandemic, all sectors of the economy suffer disruptions, which can lead to a shortage of goods and the resulting higher prices for them. Limited economic activity also

generates lower tax revenues. Because it is precisely when the government increases spending, it results in larger fiscal deficits and greater public debt.

Each from the analysed countries has prepared a program to protect enterprises against the negative effects caused by the coronavirus pandemics. The goals of each of the programs are very similar, i.e. protecting the employee and ensuring financial liquidity for enterprises. In Great Britain, the main focus has been on job protection.

However, there are also differences between individual aid projects. In Poland, the implementation program took a long time, it was modified many times, so Polish entrepreneurs certainly did not feel safe. The German and British governments paid out funds to their entrepreneurs much earlier than the Polish government. As a result, German and British entrepreneurs could

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settle their payments much earlier, when their companies were not making profits. It allowed for liquidity to be maintained, even during a pandemic.

In Poland, the Financial Shield for large companies was introduced only on June 9, so much later than in other countries. Such activities may result in that entrepreneurs running large companies did not have a certain financial situation. For sure, it affected financial security decrease. Large enterprises could not afford to invest in such uncertain times, which did not develop the economy.

The German government helps young entrepreneurs who set up their businesses during the already prevailing pandemic. The Polish and British governments do not envisage any aid for young entrepreneurs. It is important to provide help also to those entrepreneurs who are just taking their first steps on the market because helping new entrepreneurs motivates starting new businesses. It will allow economic development to remain unhampered.

In each of the analysed countries, the financial aid may be used by micro-entrepreneurs, small, medium, and large enterprises, the self-employed, and also farmers. In each of the analysed countries, companies from the financial sector cannot apply for financial aid as help against the negative effects of a pandemic.

In each of the countries, funds from the government under the aid can only be used to cover obligations related to running a business. The grace period and repayment period are the longest in Germany and amount to a grace period of 2 years, and a repayment period of 10 years. This will allow dealing with the difficult financial situation and then paying off the loan. In Poland and in the United Kingdom, the repayment of the loan with the help of the Government is up to 3 years. The grace period in Poland is 12 months.

Countries in which the Government will provide good conditions for the development of enterprises, even in the face of the economy, and will introduce beneficial and actually very helpful solutions, the economy will be able to develop, and entrepreneurs will have financial security ensured.

Properly selected solutions aimed at providing

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financial assistance to entrepreneurs may lead to the development or limitation of the development of the economy and to ensure a high or low level of financial security. Government solutions have a very large impact on the development of enterprises and their financial security.

On the example of the analysed countries, entrepreneurs in Germany will have the greatest financial security. This state supports every enterprise, even those established in the era of a pandemic, and offers loans on very good terms in terms of the repayment period and grace period. In Germany, the economy will certainly develop efficiently, new companies will be established, and entrepreneurs will be able to develop their activities thanks to financial liquidity and financial security. It will allow fewer losses associated with freezing the economy to be incurred. The better financial situation of German companies will contribute to the development of the German economy. On the other hand, in the United Kingdom, assistance is mainly aimed at employee protection. Support solutions are also prepared for enterprises and the self-employed in the form of, among others, loans. Every UK company is entitled to deferred payment of VAT. There are also many solutions for entrepreneurs in Poland. Subsequent amendments to the Anti-Crisis Shield were introduced over a long period of time, which meant that Polish entrepreneurs might not feel financially secure. Many workplaces were closed overnight, and the funds under the shield were disbursed much later than in Germany or Great Britain.

Companies that did not have enough resources to cover employee salaries and company maintenance costs, such as renting costs, lost their sense of financial security. The application submitted by the bank under the Financial Shield was difficult for many entrepreneurs, therefore these applications could be rejected. In such a situation, the entrepreneur had to submit an appeal application, which extended the waiting time for funds.

The Polish economy should be less affected by the pandemic than other European countries.

Firstly, because compared to, for example, the German economy, the Polish economy is less

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dependent on exports and less tied economically with China. Secondly, the tourism and entertainment sector accounts for a smaller percentage of GDP compared to European countries. The Polish economy is also quite

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diversified. Third, the higher rate of economic growth in Poland compared to Germany or other Western countries creates more space before a possible recession.

References Agencja Rozwoju Przemysłu S.A 2021. Available from: <https://www.pkobp.pl/klienciindywidualni/e-urzad/tarcza-finansowa-pfr/> AGAportal.de 2021.

Available from: <https://www.agaportal.de/exportkreditgaranti en/praxis/marktfaehige-risiken> Bank aus Verantwortung 2021. Available from: <https://www.kfw.de/inlandsfoerderung/Unter nehmen/KfW-Corona-Hilfe/> Bank aus Verantwortung 2021. Available from: <https://corona.kfw.de/> Biznes 29.06.2021.

Available from: <https://www.biznes.gov.pl/pl/firma/zus/chcerozliczac-zus/co-powinienes-wiedziec-zanimzaczniesz-placic-zus/ulga-na-start-wlasna-firmaprzez-6-miesiecy-bez-zus> Bundesministerium fur Wirtschaft und Energie2021 Maßnahmenpaket für Unternehmen gegen die Folgen des Coronavirus.

BundesministeriumfürWirtschaft und Energie.

Available from: <https://www.bmwi.de/Redaktion/DE/Coronavi rus/kleine-mittlere-grosse-unternehmen.html> Cieślak-Wróblewska (2020). Ekonomia Gospodarka.

Available from: <https://www.rp.pl/ Gospodarka/304219870-Zamrozenie-powodujeaz-22-mld-zl-strat-dziennie.html> Karbownik, L. (2012). Pojęcie I Obszary Kreowania Oraz Zapewniania Bezpieczeństwa Finansowego Przedsiębiorstwa, Acta Universitatis Lodziensis.

Folia Oeconomica, 267.

Markowicz, W. (2020). Available from: <https://kadry.infor.pl/kadry/wynagrodzenia/oc hrona_wynagrodzenia/3649518,Dofinansowani e-wynagrodzen-pracownikow-z-FGSPkoronawirus-i-tarcza-antykryzysowa.html> Matela-Marszałek, W. (2020). Available from: <https://www.infakt.pl/blog/czy-pomoc-

otrzymana-z-tarczy-antykryzysowej-jestprzychodem/> Ministerstwo Rodziny I Polityki Społecznej 2020.

Available from: <https://www.gov.pl/web/tarczaantykryzysowa /tarcza-antykryzysowa--najwazniejsze-zmiany> Niewczas, M. & Puacz-Olszewska, J. (2017).

Bezpieczeństwo edukacyjne w Polsce–aspekty prawne, Rocznik Bezpieczeństwa Międzynarodowego, 11. Dolnośląska Szkoła Wyższa.

PFR Grupa Polskiego Funduszu Rozwoju 6 maj 2021.

Available from: <https://www.infakt.pl/blog/mikropozyczka5000-dla-kogo-jak-zlozyc-wniosek/> Puacz-Olszewska, J. (2017). The assessment of the administrative division of the Slovak republic and its reforms taking economy and social matters into account, reflexie praxe na otázky verejnej politiky a ekonomiky, práva a verejnej správy Slovenska.

Puacz-Olszewska, J.; Niewczas, M.; Zagórska, A. (2018) Bezpieczeństwo współczesnego państwa na przykładzie polski. Zarys problematyki, 273.

Warszawa.

Puacz-Olszewska, J. (2020) Bezpieczeństwo gospodarcze w Polsce, 17-25. Rzeszów.

Puacz-Olszewska, J. & Zagórska, A. (2018) Prawne uwarunkowania współczesnego bezpieczeństwa. Wybrane zagadnienia, 13.

Warszawa.

Raczkowski, K. (2014) Bezpieczeństwo finansowe, [w:] J. Płaczek (red.), Ekonomika bezpieczeństwa państwa w zarysie, Difin. Warszawa.

Rada Ministrów (2020). Available from: <https://www.gov.pl/web/tarczaantykryzysowa /tarcza-antykryzysowa-najwazniejsze-zmiany>.

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Formation of marketing strategies of enterprises in the market of logistics services in the context of world trends Natalia Solidor* А; Svetlana Verytelnyk B; Heorhii Anikin C A

Pryazovskyi state technical university, 7, vul. Universytets’ka, Mariupol 87555, Ukraine State University of Management, 58 Karpinskogo street, Mariupol, 87513, Ukraine C Kherson National Technical University, 24, Berislavske shosse, Kherson, 73008, Ukraine

B Donetsk

Received: October 29, 2021 | Revised: November 18, 2021 | Accepted: December 28, 2021 JEL Classification: М31; R40.

DOI: 10.38188/2534-9228.21.4.13 Abstract The article considers the problems of formation of marketing strategies of enterprises in the market of logistics services in the context of global trends. It was carried out the analysis of global trends and the market of transport and logistics services of Ukraine. It was determined the contribution of the transport and logistics services sector to the economy of Ukraine. The volumes of the market of logistics services in Ukraine are analyzed and their dependence on tendencies of change of business activity in the industry, a situation in the field of foreign trade that is reflected in indicators of change of volume of the rendered transport services is introduced. It was divided the Ukrainian market of transport and logistics services into segments.

It was determined the necessity of transformation of institutional support of its functioning in the direction of harmonization with European norms Drivers of European integration for the Ukrainian logistics sector have been identified, which include the rapid development of e-commerce, the use of production technology "just in time" (JIT – just-in-time manufacturing) and migration.

The study analyzes the global trends in the development of logistics services and their impact on the principles of marketing strategies in the market of logistics services. It was substantiated the basic theoretical and methodical approaches to the formation of marketing strategies taking into account the specifics of the logistics services market. It was revealed the aspects and directions of realization of strategic development of logistics activity in the context of formation of marketing strategies in the field of logistics.

Keywords: logistics, marketing strategies, logistics services market.

Introduction The using of strategic approaches and methods in the practice of managing domestic enterprises is becoming increasingly common.

Strategic management, as an integral part of international standards of quality management, corporate, municipal and public administration, internal control, risk management are implemented in enterprises of various forms of ownership and scale of activities operating in

various sectors of the economy.

Of particular importance is the need to substantiate ways to implement strategic management methods in the practice of enterprises operating in the market of logistics services. This is due to the high level of uncertainty and peculiarities of the development of the domestic market of logistics services in Ukraine.

*

Corresponding author: of science (Engineering), Ph.D., Associate Professor of the Department of Innovation and Management, e-mail: natalysolidor@gmail.com, ORCID: 0000-0002-3861-7933 B Ph.D., Associate Professor, Department Public Management and Administration, e-mail: verytelnyk.s@inbox.dsum.edu.ua, ORCID: 0000-0002-6960-3737 C Postgraduate student, Department of Management, Marketing and Tourism, e-mail: giorgio.anikin@gmail.com, ORCID: 0000-0001-1253-5024 A Candidate

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ISSN 2534-9228 The situation of general reduction of the internal market, high level of competition, especially on the part of the international logistics companies encourages the enterprises to search for effective methods and management tools which will provide opportunities for further development. Such methods and tools include strategic, in particular the development and implementation of marketing strategy of the enterprise in the market of logistics services.

There are a lot of scientists have been studied the problems of strategic development of logistics companies, such as: Oklander M. (Oklander M., 2004), Krykavsky E. (Krykavsky E., 2004; 2014), Kontsevich G. (Kontsevich G., 2019), Chukurna O. (Chukurna O., 2017; 2019).

For example, Oklander M. (2004) was proposed and substantiated the theoretical and applied provisions of logistics mechanisms of adaptation of enterprises to the external environment and introduced the principles and structure of the logistics system of the enterprise. Krykavsky E. pays special attention to the study of problems of optimization of logistics costs and their evaluation system (Krykavsky E., 2004). In addition, the problems of logistics systems of different levels and areas of activity have been studied by such foreign scientists as: Ronald L.Lewis (Ronald L.Lewis, 1993), Michael C.O`Guin (Michael C.O`Guin, 1991), Robert S. Kaplan and H. Thomas Johnson (Robert S. Kaplan and H. Thomas Johnson, 1987).

To justify the need for the formation and implementation of marketing strategy of enterprises operating in the market of logistics

(2021) VUZF review, 6(4) services, based on the research of Vyshnevsky O., who is the founder of the general theory of strategy, emphasizing the value of strategic management in any activity. According to him, «strategic management is a powerful tool for overcoming existential fear at the individual level» (Vyshnevsky O., 2018:5). Of course, the presence of the company's strategy in the market provides an opportunity to predict the future state. Having a strategy, an entity with a certain level of probability can predict a change in its state, coordinate their own actions, reactions to the behavior of other entities. The presence of a strategy, guaranteeing to some extent future income and level of well-being, provides an opportunity to solve the «problem of existence through self-realization» (Vyshnevsky O., 2018:5): for a person - in the professional sphere, for an enterprise - in the market.

Thus, the problem of formation of marketing strategies in the activity of logistics services enterprises has been studied by many scientists.

However, the rapid development of international trade, the spread of globalization in the field of transport and logistics services have led to increased competition, business consolidation and redistribution of the logistics services market in a global context. The coronavirus pandemic also affected global trends in the market of transport and logistics services and contributed to the intensification of the introduction of marketing tools in this type of market. That is why the issue of forming marketing strategies of enterprises in the market of logistics services in the context of global trends is becoming relevant.

Material and methods The study uses economic and statistical research methods in the analysis of global trends in the market of logistics services; forecasting methods - when calculating the forecast when calculating the volume of the world market of logistics services; theoretical

and methodological approaches in the formation of marketing strategies of enterprises in the market of logistics services; grouping and classification – when substantiating marketing strategies in the market of logistics services.

Results and discussion Strategic guidelines for the development of

the logistics services market depend on general 116

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global trends. Transport and logistics services are one of the most dynamically developing areas, which has contributed to the spread of globalization and the revival of international trade. According to the statistics of the World Trade Organization (Official website of the World Trade Organization; Report 2019), more than 100 billion tons of cargo and more than 1 trillion passengers move annually worldwide.

According to experts from Armsrtong & Associates (Market overview of transport and logistics services in the Republic of Belarus, 2020), the global logistics market is estimated at $ 9.6 trillion and accounts for about 12% of world GDP, while the global transport market is $ 6.2 trillion, equivalent to 8% of world GDP. At the same time, the share of the transport and logistics sector in world GDP, as well as in the GDP of the EU countries, is about 20%, and in the GDP of the EAEU countries - about 12%. The transport sector also provides about 8% of global employment.

In 2019, the growth rate of world trade decreased slightly and amounted to 2.9%. The main reason for the decline in world trade was the trade war between the United States and China. In 2020, there is a decrease in international trade by about 13-22% due to the coronavirus pandemic. Today's trends show a further decline in the global market for

transport and logistics services and its introduction into a state of recession caused by the crisis in the world economy and the escalation of the COVID-19 pandemic. In general, the market for transport and logistics services is one of the most affected sectors of the economy as a result of sanitary and epidemiological measures implemented during the COVID-19 pandemic.

According to McKinsey & Company experts, in 2020 the volume of world trade decreased by about 13-22%, which occurred in the global demand for transport and logistics services.

According to M.A. Research, the most significant drop in demand is observed in the field of international freight (air and sea). Revenues in the freight and forwarding segment decreased by almost 15% compared to 2019. Declining demand in the United States, Europe and other countries has contributed to a reduction in container traffic by more than 6% in 2020. The full recovery of the transport and logistics services market is possible not earlier than the second half of 2023 (Market overview of transport and logistics services in the Republic of Belarus, 2020).

In the context of global trends, the market of transport and logistics services in Ukraine also shows a decline, the beginning of which has been observed since 2012 (Fig. 1).

Figure1 – Cargo turnover by all modes of transport in Ukraine (t / km) Source: compiled on the basis (State Statistics Service of Ukraine)

Undoubtedly, the COVID-19 pandemic has contributed to an even more significant reduction in freight traffic in the market of transport and logistics services in the Ukrainian economy. Analysis of the share of

value added created in the field of transport, warehousing, postal and courier services - in fact, enterprises operating in the logistics market of Ukraine - in the gross domestic product also shows a slow decline (Fig.2).

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Figure2 – The share of transport, warehousing, postal and courier activities in GDP,% Source: compiled on the basis (State Statistics Service of Ukraine)

The market of transport and logistics services added about 6% -8% to the GDP of Ukraine for the period under study.

However, starting from 2018, the market of transport and logistics services has been stagnant, which is confirmed by the fact that more than 90% of logistics services in Ukraine are in the transportation sector. This trend intensified during the coronary virus pandemic.

The Ukrainian market of transport and logistics services can be divided into the following segments, which are grouped according to the types of services: − transportation and freight forwarding.

This market segment is the most developed in Ukraine and is characterized by a high level of competition from international logistics companies. The most well-known providers of this market segment are the following domestic logistics companies: Ukrainian Freight Couriers, Ukrtrans, Transport Logistics Center, Ost-West Express, and Exim Logistics Ukraine.

Competitors of domestic companies from among international logistics operators are «Kuehne and Nagel» (Germany), «Raben» (Netherlands), «FM-Logistic» (France) and others; − professional warehousing services. This

type of logistics services is provided by companies with localization in Kyiv, Odesa and Kharkiv agglomerations; − express shipping. This type of service is one of the fastest growing. The companies «Nova Poshta», «Mist Express», «Intime», «Delivery» and others are actively developing their own networks, striving to achieve the highest level of coverage of the territory of Ukraine. The reform of the oldest player in this market segment, UkrPoshta, has given impetus to the growth of the national provider of public postal services, increasing its competitiveness in the logistics services market; − integrated logistics solutions and supply chain management - a relatively new market segment, the main consumers of which are industrial enterprises.

In fig. 3 presents the relationship of the main segments of the market of transport and logistics services and the characteristics of the types of providers operating in the modern market of logistics services. This approach demonstrates the current configuration of the market of transport and logistics services, which was determined in the context of the latest trends in world development.

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Logistics services market is a set of economic and property relations for the organization and purchase and sale of logistics services The object of the logistics services market are material, information and service flows

− − − − −

Logistics services market segments: transportation and forwarding of goods; professional warehousing services; express delivery; complex logistics solutions; supply chain management.

Types of logistics providers: − First Party Logistics (1 PL) is an autonomous enterprise logistics. − Second Party Logistics (2 PL) - these are companies that provide traditional transportation and warehouse management services. The main activities of logistics intermediaries type 2 PL are: transport logistics, freight forwarding, logistics service, warehousing logistics, customs and documentation of goods and information services. − Third Party Logistics (3PL) provide traditional and additional services. It is a multimodal transportation operator that provides a full range of warehousing, customs, insurance and information services. The main difference between the 3PL logistics operator and the previous ones is the delegation of logistics outsourcing services to other logistics intermediaries, namely 2PL intermediaries. − Fourth Party Logistics (4PL), which is the integrator of all companies involved in the supply chain. 4PL provider provides tasks related to the planning, management and control of all logistics processes of the client company, taking into account long-term strategic goals.

4PL - providers operate in the global economy, forming global logistics chains. − Fifth Party Logistics (5PL) - online logistics. This type of logistics operator is inherent in the conditions of operation in the global economy.

Fifth Party Logistics (5PL) - it is a system that is the planning, preparation, management and control of all stages of the logistics process using electronic media. This type of intermediaries, unlike the previous ones, does not deal at all with the physical distribution of goods to the final consumer. He organizes all logistics intermediaries within the logistics chain and manages information and material flows.

Figure3 – The essence, segments and types of providers in the market of logistics services Source: compiled on the basis (Chukurna O.P., Bilmak A.V., Ishchenko Yu. S., 2017; Shimko O.V., 2011)

Listed in fig. 3 classification of types of logistics service providers covers their aggregates, grouped by the degree of integration with the business that is a consumer of services, the specifics of logistics functions, the level of access to international and regional markets.

European integration processes in the economy, which have been taking place in Ukraine for a long time and intensified in connection with the signing

of the Association Agreement in 2014 (Association Agreement between Ukraine, of the one part, and the European Union, the European Atomic Energy Community and their Member States, of the other part, 2014), its entry into force in 2017 contribute to the development of trade relations between Ukraine and the European Union. Export opportunities for domestic producers of various types of products are expanding. According to the 119

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Ministry of Economic Development, Trade and Agriculture of Ukraine, in particular, the volumes of exports to the EU of agro-industrial and food, metallurgical and machine-building products, mineral products, wood and paper pulp, as well as chemical and light industry products have increased (AgroPolit.com., 2020).

As a result of the expansion of the free trade zone and the operation of the EU-Ukraine Association Agreement, domestic producers received the right to export their own products to the territory of the European Union. It has been significantly increased the number of companies exporting products to the EU from among food producers - milk and dairy products, meat and meat products, fish, eggs, honey, snails and delicacies (for example, frog legs). At the same time, opportunities for importing products from 28 EU countries to Ukraine are expanding.

This leads to positive expectations for the growth of the market of logistics services in Ukraine and at the same time necessitates the transformation of institutional support for its functioning in the direction of harmonization with European standards. Thus, according to the Ministry of Infrastructure of Ukraine, in order to fulfill the obligations on the implementation of European norms in the field of transport in Ukraine, amendments to 11 basic laws and bylaws in the field of transport must be adopted.

This primarily concerns the regulation of rail and water transport, as well as multimodal transport.

Trends in the market of logistics services economic relations between consumers and suppliers of services for transportation and forwarding of goods, warehousing services and services for integration and management of supply chains (Shimko O.V., 2011: 427) - largely depend on the dynamics of industrial production and the intensity of foreign trade.

The world market of logistics services is in a stage of moderate growth (Fig. 4). According to forecasts, the growth rate by 2024 will be 6.5 7% annually and its value will reach $ 236 billion in value (Business Technology Center, 2020).

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20000 15000 10000

9396 10067 8183 8769

10787

1155812385

13270

14219

15236

5000 0

Figure4 – The volume of the world market of logistics services, billion dollars. USA Source: improved on the basis (Portal of top managers of wholesale and retail trade, 2017)

It should be noted that the market share of transport and logistics services in the structure of world GDP is 20%, and the share of employees in the logistics services sector in the global context is 8% (Market overview of transport and logistics services in the Republic of Belarus, 2020).

Ukraine's share in the world logistics market is less than 1%. It should be noted that the local market of logistics services in Ukraine is integrated with the international one, but is at the stage of formation and consolidation. As noted by G.M. Filyuk and M.O. Kuznetsova, «significantly inferior to Western countries» both in quality of services and in their complexity (Filyuk G.M., Kuznetsova M.O., 2015:13).

This is due to a number of features of the domestic market of logistics services, among which experts include the following: − absence of 4-PL and 5-PL providers in the domestic market due to the disorder of the current legislation on the activities of virtual organizations; − a short list of logistics services; − availability of small companies that serve local markets with small volumes of freight traffic; − large organizations oriented to international routes; − duration of the export operation (Ukraine - up to 30 days, Shanghai - up to 20 days, Berlin - 6 days, Amsterdam - 5 days); − difference from the European and world structure of the market of logistics services with the dominance of the transport segment: up to 90% of the market of logistics services in Ukraine is the

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market of transportation by different modes of transport; − non-uniform territorial distribution of logistics centers.

The vast majority of providers of logistics services, as well as warehousing infrastructure are located in Kyiv, Odesa and Kharkiv agglomerations. Prior to the conflict in the east of the country, the Donetsk agglomeration was considered one of such regional logistics centers, and its logistics capacity is currently lost. There is a low level of satisfaction of demand for warehouses, accompanied by a high level of rental prices with a simultaneous low vacancy in the rental market of warehouse real estate. The reason for this

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is the institutional disorder of land and lease relations in the country.

When analyzing the trends of the logistics services market, it is advisable to answer the question of change: volumes and structure of transportations – geographical and by types of transport; the level of wages, meeting the need for qualified personnel; capital investment in the logistics segment of services.

The volume of the market of logistics services in Ukraine depends on the trends of business activity in industry, the situation in the field of foreign trade, which is reflected in the indicators of change in the volume of transport services provided (Table 1).

Table 1 – Indices of indicators characterizing the trends of physical volume of logistics services in Ukraine (in% to the previous year) Indicator 2013 2014 2015 2016 Industrial production index 95,7 89,9 87,7 104,0 Index of physical volume of exports 92,2 92,1 86 99,1 Index of physical volume of imports 89,6 74,4 76,7 108,6 Index of the volume of transported 99,1 88,4 90,8 104,6 goods Source: compiled on the basis (State Statistics Service of Ukraine)

Analysis of the dynamics of industrial production confirms the intensification of domestic producers in 2016-2018, which is largely due to the low comparative base of previous years, when domestic production decreased significantly in response to the socio-political crisis that caused the armed conflict in the east. The volumes of foreign trade and transportation changed synchronously during this period. The stagnation of industrial production has

2017 101,1 102,7 110,6

2018 103,0 97,9 102,6

2019 99,5 105,7 106,1

2020 92,6 97,7 85,4

102,6

103,9

96,1

94,7

led to a slowdown in the development of the logistics services market in Ukraine, which has significant potential for growth.

Analysis of the structure of the transport market (Table 2), which in the structure of the market of logistics services in Ukraine is almost 90%, indicates the leading role of road transport, the share of which in the total volume of transported goods is 68.672.7%.

Table 2 – The structure of traffic by mode of transport in Ukraine in 2013-2019 Type of transport 2013 2014 2015 2016 Railway 24,20% 23,80% 23,70% 22,30% Marine 0,20% 0,20% 0,20% 0,20% River 0,20% 0,20% 0,20% 0,20% Vehicular 68,60% 69,70% 69,20% 70,40% Air 0,01% 0,00% 0,00% 0,00% Pipeline 6,90% 6,10% 6,60% 6,90% Total 100 % 100 % 100 % 100 % Source: compiled on the basis (State Statistics Service of Ukraine)

The share of rail and sea transport is declining, which, due to their higher (compared to road) efficiency and environmental friendliness, indicates the presence of untapped opportunities for their

2017 21,50% 0,10% 0,20% 70,90% 0,01% 7,30% 100 %

2018 19,60% 0,10% 0,20% 73,40% 0,01% 6,70% 100 %

2019 19,80% 0,10% 0,30% 72,70% 0,01% 7,10% 100 %

development.

Analysis of the geographical structure of foreign trade characterizes the areas of transportation, which determine the features of the provision of 121

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logistics services. The geographical structure of foreign trade has changed after the signing of the EU-Ukraine Association Agreement.

The leading direction of foreign trade were the CIS countries in 2013. The exports to the CIS countries amounted to almost 35%, and imports – 36.3%. The State Statistics Service of Ukraine stopped publishing data on foreign trade activities with the CIS countries in 2019, but according to trends of previous years, we can say that exports to countries in this group are now less than 15% and imports - less than 23%.

Instead, the share of exports / imports to EU countries in total foreign trade turnover increased.

In 2013, the share of exports to EU countries was 26,5%, imports – 35,1%. In 2019, these indicators were at the level of 41,5% and 41,2%, respectively.

The analysis of labor relations in the field of logistics services indicates that enterprises-providers of logistics services have a significant unmet need for 13,30%

3,40%

1%

15%

67% around 6200 UAH

around12400 UAH

around 18600 UAH

around 24800 UAH

qualified personnel (Fig. 5). Thus, according to the analytical company Pro-Consalting, 35% of logistics providers note the dependence of future development prospects on the provision of highly qualified employees. The most acute problem is in the field of motor transport – most (up to 75%) vacancies of freight forwarders are concentrated here (Portal of top managers of wholesale and retail trade, 2018).

Experts call the migration of qualified personnel from Ukraine to other countries the reasons for the lack of qualified personnel. Motivation - a high level of wages. For example, the average salary of a freight forwarder in Poland is 1.3 thousand euros, and in Ukraine – about 0.4 thousand euros. The shortage of qualified personnel in the field of logistics according to the State Employment Service is about 20 thousand people, and there is a tendency to increase.

13 21

Supply department Manager Transport Manager Logistics Dispatcher Logistic Manager Storekeeper-accessories Loader-storekeeper Assistant storekeeper Foreign Economic Activity Manager Storekeeper Forwarding driver

1036 0

24800+ UAH а) The share of vacancies in the field of logistics by salary ranges in Ukraine, %

67 69 86 108 116 152 194 200

400

600

800

1000

1200

b) Ranking of the most popular professions in the field of Logistics

Figure 5 – The level of wages and the demand for professions in the market of logistics services Source: compiled on the basis: (Portal of top managers of wholesale and retail trade, 2018).

Investments in technological innovations are a source of quality development of the logistics services market in the world and in Ukraine. The direction of their implementation is the automation of the logistics cycle - from the automation of the processes of physical movement of goods to the intellectualization of management logistics processes.

In the global context, the main trends in the development of the market of transport and logistics services are clearly defined, which are in the following areas: 1) Digitalization.

According to experts, digitalization will have the greatest impact on the logistics business in the

coming years, creating conditions for increased revenue through enhanced interaction with customers through digital channels and reduce costs in the customer service process. Digitalization expands opportunities for online marketing, reduces business risks through online payments and reduces the negative effects of lack of qualified professionals.

2) Growth in trade between the EU and China.

3) Today, the Chinese leadership is actively cooperating in the framework of the "One Belt – One Road" initiative with other countries, creating international transport corridors. Within the "One Belt – One Road" project, new transport corridors between the EU and China are being designed.

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Thereby increasing interest in new areas of business that were not previously used due to high logistics costs.

4) Introduction of the latest technologies "Industry 4.0" and software in the field of logistics Automation and implementation of the latest technologies, such as cloud storage and blockchain use, significantly increase production efficiency, preserve supply chains, reduce the risk of errors or fraud. In modern logistics is becoming a popular way to enable the customer in real time tracking the movement of its goods, which increases the transparency of transportation. Automation and robotics in the field of warehousing logistics has led to the emergence of fully automated warehouses.

The use of unmanned aerial vehicles in logistics significantly increases the efficiency of the enterprise and reduces costs. According to experts, the introduction of the latest technologies can reduce freight costs by 10-15% (Market overview of transport and logistics services in the Republic of Belarus, 2020).

These trends determine the directions of further development of the market of transport and logistics services and demonstrate the integration of material, information and service flows. This approach changes the configuration of logistics processes, which allows you to optimize them and make them more efficient.

Global trends in logistics development open up promising areas for their implementation in Ukraine based on the use of Blockchain technologies, 3D-visualization, robots and drones, the use of unmanned vehicles and electric vehicles, 3D printing.

In general, we can note the following trends in the market of logistics services in Ukraine in the context of global trends: − active development of segments of small (up to 30 kg) and groupage cargoes; − reduction of full-time transportation; − increase in the share of manufacturers of furniture, auto parts, textiles; − expansion of the network of domestic providers of logistics services, their entry into the international market; − growth of the trucking segment.

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Drivers of growth of the logistics services market in Ukraine in the context of European integration are the rapid development of e-commerce (ecommerce), the use of production technology "just in time" (JIT - just-in-time manufacturing) and migration. The largest is currently observed in the postal segment of logistics services.

All the above aspects and the implementation of the development of logistics activities contributes to the active application of marketing strategies in the field of logistics. This approach contributes to the need to substantiate the theoretical and methodological foundations of the formation of marketing strategies of enterprises in the market of logistics services. We will conduct a theoretical substantiation of approaches to the formation of marketing strategies in the logistics sector. It must be substantiated to achieve this goal, the relationship between marketing and logistics.

The use of marketing and logistics in the production process helps to get the maximum benefits. Marketing is aimed at identifying demand, logistics - to ensure the functioning of material, information flow to the final consumer. Thus, both functions are interconnected in a single and indivisible process, which operates on an ongoing basis to ensure the efficient operation of enterprises.

Within individual enterprises, logistics can be separated as one of the parts of marketing. In most cases, the connection between marketing and logistics can be seen in the process of marketing and distribution of goods or at the stage of supply of raw materials and materials for production. In this case, logistics is responsible for the process of physical placement of finished products and is an important element in the formation of distribution channels. In some enterprises, physical distribution and sales become the main part of marketing activities and the formation of trading strategy.

The functional relationship between marketing and logistics is a necessary element in the production process. However, marketing plays a major role as it provides communication with consumers and logistics increases its efficiency. In the logistics process there is communication with customers, as they are supplied with the necessary goods and services.

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Substantiating the marketing strategy should determine its characteristics in the implementation of logistics activities. General approaches to the interpretation of marketing strategy are based on its definition as an element of the company's marketing plan, which determines the long-term direction of its development to achieve the maximum level of profitability using available limited resources.

A specific feature of the marketing strategy in logistics is a systematic analysis of the needs of potential consumers in the market. In the course of research, the analysis of sale of production, the analysis of sales on the basis of volume of the order, the analysis of sale to buyers, the analysis of factors of size of sales is carried out.

Analysis of scientific sources on the problems of formation of marketing strategies, allowed to generalize marketing strategies used in the market of logistics services (Fig. 6).

According to G. Kontsevich, the most common types of marketing strategies used in logistics at the enterprise are the following (Kontsevich G.E., 2019: 203): 1. Concentrated growth: transformation of the sales market or its improvement with the use of technology. This strategy involves the fight against competing companies for a significant market share.

2. Integrated growth: the most important task is to increase the company's divisions through the manufacture of new products. The strategy provides for the management of warehouses of enterprises.

3. Diversified growth: the application of this strategy is possible only if the company cannot focus on development in these conditions. Diversified growth implies that the company will be engaged in the production of new goods and services, through which it will be able to enter the trading market.

Types of marketing strategies in the market of logistics services Strategies of a manufacturing enterprise The growth strategies: − Concentrated growth − Integrated growth − Diversified growth The cost strategies: − Logistics cost strategy − Strategy for expanding logistics services The distribution strategies: − Intensive distribution strategy − Selective distribution strategy − Exclusive distribution strategy The strategies of the logistics company The market coverage strategies: − Differentiated or segmented markets − Concentrated or niche markets − Individual markets

Figure6 – Marketing strategies in the logistics services market Source: compiled on the basis (Gurzhiy N.G.,2017; Frolova L.V., 2002; Filyuk G.M., Kuznetsova M.O., 2015; Ramirez A.C., Lombana Coy J.E., Velasquez M.O., 2015) 124

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Noted by Frolova L.V. (Frolova L.V., 2002:203), logistics aims to optimize logistics flows that operate in different systems of micro, meta-, meso- or mega levels, and is based on the combination and coherence of flow processes, achieving a synergistic effect, and this goal is achieved by minimizing total costs, maximizing the profits of participants and ensuring the social effect. Therefore, on the basis of this statement we can distinguish two marketing strategies in the field of logistics activities of the enterprise: 1) The strategy aimed at reducing overall logistics costs in the sales system. This strategy is characterized by the fact that the management of sales activities of the enterprise is aimed at optimizing the current costs of logistics. In particular, transport and warehousing, reduction of production and inventories, the formation of optimal cost and distance schemes for the movement of goods, minimizing investment costs for the formation and maintenance of logistics infrastructure.

Unfortunately, the effect of reducing logistics costs is often offset by a decrease in the quality of logistics services in the sales system of the enterprise and leads to losses due to failure of supply schedules, damage to products on the road, reducing the network of warehouses. This leads to the breakdown of partnerships with customers, reduced demand for products, reduced activity and financial losses.

2) The strategy of expanding logistics services includes the following areas: improving the quality of logistics operations, increasing logistics costs, introduction and improvement of customer and customer service and its logistics, the use of logistics tools to support and update the product life cycle, quality management of logistics services based on national and international standards.

In the process of forming and substantiating the marketing strategy for the provision of logistics services should take into account the functional integration of marketing and logistics elements. The success of such a combination depends on the competitive strategy and tactics

within the enterprise, in particular, cooperation, supply and distribution, the movement of information flows, warehousing and more. It is also necessary to form external strategies for market coverage at the corporate and functional levels of sales management. These are market coverage strategies that depend on the product specialization and competitive strategy of the manufacturer: 1) Intensive distribution strategy. It consists in the maximum possible use of the external sales network - wholesale warehouses and retail outlets. Due to the wide coverage, the company achieves competitive advantages even when its products are not specific or unique compared to the products of competitors. The disadvantages of this strategy are the high logistics costs for the formation and delivery of small orders, reduced control over the implementation of the marketing strategy of the enterprise, possible problems with maintaining the image and quality of the brand.

2) Selective distribution strategy. According to this strategy, the number of trade intermediaries is low. It is used if the product has special characteristics. Sales costs are reduced by restricting access to the product. Closer cooperation with intermediaries is ensured. The disadvantage of the strategy is the scarcity of expanding market coverage.

3) Exclusive distribution strategy. There is only one retailer (or network) that distributes the manufacturer's product with a commitment not to sell competing brands. Products are aimed at a narrow segment of consumers, usually with specific activities or high sociocultural status. The advantages are keeping the company's image at a high level. In this case, logistics costs are high due to the remoteness of the intermediary or end user.

To ensure competitiveness, which forces organizations and countries to be different and better than competitors in the market, it is necessary to know how to use logistics platforms as differentiating and, consequently, competitive elements. In this sense, the development of logistics platforms must be

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based on the needs of markets. Therefore, a consumer-based marketing approach is used that improves the competitiveness of the organization, city, region or country by creating added value in the market. According to Kotler F. and Keller K., «the key to achieving organizational goals is the effectiveness of competition by creating, providing and transmitting added value to the target market» (Kotler F. and Keller K.,2016:18). This mission of every organization, and in particular the goal of logistics companies, is to be able to create value for their customers by reducing costs, procedures and time.

Any marketing strategy should be adopted by logistics companies, provided they know who will be provided with their services, because the conditions and requirements of each consumer are usually different. Logistics platforms need to decide how they will cover different levels of target markets through differentiated, concentrated and individual marketing.

However, undifferentiated marketing is not considered strategically, because it makes no sense to try to meet the needs of the target market with a single service, when the requirements of members of the logistics chains to be served are too specific.

Differentiated or segmented markets. It is a market coverage strategy by which a logistics company decides to fill different market segments with different services; for example: warehousing, general services, logistics services.

Concentrated or niche markets. This is a market coverage strategy in which a logistics company prefers to cover a significant chpstki of

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a particular market in exchange for targeting a small share of a large market, for example, devoting itself to servicing only bulk carriers.

Individual markets. It is a market reach strategy in which marketing services and programs are developed based on the needs and preferences of each client; in this case, the logistics company has to develop and adapt the services it provides to the needs of individual demand.

The specificity of the market of logistics services is that marketing plans are developed by enterprises after determining the overall logistics strategy and indicators of capacity and market coverage. Marketing plans, in this case, are mostly aimed at increasing the profitability of the enterprise.

Logistics companies need to identify opportunities to ensure their market presence in the long run by adapting services to selected markets or creating service innovations for different actors in the logistics chain. Having a system of marketing information to achieve prospects is critical. Such a system is designed to facilitate the logistics platform, monitoring the behavior of agents and market factors, in particular, social, economic, technological, cultural, legal, demographic and political (Kontsevich G.E., 2019: 107).

In terms of customer relations, logistics companies will seek to establish long-term relationships in which cost generation is the main axis of interaction with demand and will allow them to clearly and precisely establish the services to be provided according to the needs of the various logistics chains.

Conclusions Thus, in the conditions of the specified world trends which occur on logistic activity of the enterprises working in the market of logistic services the problem of formation of marketing strategies is actualized. Global trends in the development of logistics processes and the impact on them of digitalization and technology "Industry 4.0" has exacerbated the formation of strategic directions. Moreover, the corona virus

pandemic has negatively affected the development of the logistics services market, while e-commerce has revived. In these conditions, the transformation of logistics processes towards the use of modern dropshipping technologies. Which in turn also affects the current configuration of the market of transport and logistics services. The general trend of development of the logistics market in 126

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the world and in the Ukrainian economy is to reduce the volume of freight transport, increase China's presence and dominance in the

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transport segment, increase the share of road transport in transport in the EU and Ukraine.

References Analysis of the market of logistics services in Ukraine: trends, complexities and opportunities (2017). Portal of top managers of wholesale and retail trade. December 9, 2017 Available from: <https://trademaster. ua/dir_logistik/312595> Association Agreement between Ukraine, of the one part, and the European Union, the European Atomic Energy Community and their Member States, of the other part. Available from: <https://www.kmu.gov.ua/ diyalnist / yevropejska-integraciya / ugoda-proasociacyu> Chukurna, O.; Pylchenko, A.; Dobrovolskyi, V. (2019). Ecological logistics: problems of formations of green supply chain.

Zeszyty_naukowe, Katowice: Wyższa Szkoła Tehnichna w Katowicach. 11, 103-118.

Available from: <http://www.wydawnictwo. wst.pl/uploads/files/5108153e88d4e75756fa6 dbc3e2e5929.pdf> Chukurna, O.P.; Nitsenko, V.S.; Ganzhurenko, I.V.; Goncharuk, N.R. (2019). Directions of innovative development of transport logistics in Ukraine. Economic innovations. VOL. 21. 1 (70), 170-181. Available from: <http://eijournal.com/index.php/journal/article/view/6 14/243> Chukurna, O.P.; Bilmak, A.V.; Ishchenko, Yu. S. (2017). Logistic outsourcing in the context of globalization. Young scientist. 1, 727-731 Available from: <http://molodyvcheny.in.ua/ files/journal/2017/1/174.pdf> European integration – to slow down or accelerate: the impact on the agricultural market of further trade rapprochement with the EU. AgroPolit.com. February 4, 2020.

Available from: <https://agropolit.com/ spetsproekty/687-yevrointegratsiya-zagalmuvati-chi-priskoriti-vpliv-na-agrarniyrinok-podalshogo-torgovelnogo-zblijennya-z-

yes> Gurzhiy, N.G. (2017). Integration interaction of marketing and logistics as a basis for strategic management of business activities in the international market. Scientific Herald of Uzhhorod National University. 11, 28-32.

Frolova, L.V. (2002). Logistic economy: concept and methodology. Trade and market of Ukraine: topic. zb. Science. etc. Donetsk: Don DUET. Vip. 14. Vol. 1., 192–197.

Filyuk, G.M. & Kuznetsova, M.O. (2015).

Comparative analysis of the development of domestic and foreign markets for logistics services. Formation of market relations in Ukraine. 6 (169), 10-15. Available from: <https://cyberleninka.ru/article/n/komparativ niy-analiz-rozvitku-vitchiznyanogo-tazarubizhnogo-rinkiv-logistichnihposlug/viewer> Kotler, P. & Keller, K. (2016). Marketing management. Pearson. 2016. 714 p.

Kontsevich, G.E. (2019). Marketing strategies in logistics. Bulletin of PNIPU. Socio-economic sciences. 3, 194-207.

Krykavsky, E.V.; Dovbakh, N.A.; Kostyuk A.S. and Shevtsiv, L.Y. (2004). Do teorii optymizatsii logistychnych vytrat [The theory of optimization of logistics costs]. Visnyk Sumskogo derzhovnogo universytetu. Seria Ekonomika. 5 (64), 142-154.

Krykavsky, E.V. (2014). Nova paradygma logistyky: strategichnyi status [The new paradigm logistics: strategic status]. Naukovi pratsi DonNTU. Seria Ekonomichna. 4(48), 240-247.

Krikliy, V. (2020). 11 laws in the field of transport are awaiting adoption as soon as possible under the Association Agreement with the EU. Official site of the Ministry of Infrastructure of Ukraine. October 21, 2020 Available from: https://mtu.gov.ua/ news/32293.html.

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Risks of investing in the agricultural sector of Ukraine's economy in the context of modernization of the industry Alina Burliai* А; Oleksandr Burliai B; Roman Zhuravel C; Borys Okhrymenko D A, B, C, D

Uman National University of Horticulture, Institutska street, 1, Uman, 20305, Ukraine

Received: November 13, 2021 | Revised: November 28, 2021 | Accepted: December 28, 2021 JEL Classification: O13, O16, Q10.

DOI: 10.38188/2534-9228.21.4.14 Abstract Investment is an important element in modernizing agriculture. However, the studied industry is characterized by features that lead to risky activities. The purpose of the article is to study the problem of investing in the agricultural sector of Ukraine's economy and determine the degree of risks of this process in the context of modernization.

Studies show that investment is a necessary part of modernizing the agricultural sector of the economy. The specifics of investment in the agricultural sector of the economy, primarily due to the characteristics of the industry, ie depends on a variety of climatic, social, economic, financial and other factors. A key component of the investment process is to identify effective sources of funding. The analysis shows that 90% of the total investment in agriculture in Ukraine is the own funds of enterprises and organizations. In second place - loans in the form of loans and other loans (8.6%). Investment resources of the state and local budgets are extremely low – 0, 3 and 0.1%, respectively. All risk factors of the industry can be divided into internal and external.

Agriculture is an important sector of the economy, on the development of which depends the food security of the population. Economic analysis of the industry has shown the need for its modernization. One of the directions of modernization of agricultural production is the intensification of investment activity, which is at a low level of development due to the riskiness of the industry.

Keywords: investment, modernization, risks, agriculture.

Introduction Investment is an extremely important factor in the development of any sector of the economy. They are of particular importance for agriculture, whose tasks are not only the economic development of the industry, but also food security of the population, rural development and more. Over the past five years, agriculture has ranked third among all sectors of the economy in total GDP (about 10%), more than 70,000 enterprises of various forms of ownership operate in agricultural activities and more than 18% of the country's

labor force is involved. However, the degree of development of the industry is quite low, the level of profitability varies significantly by year, type of product and region. The agricultural sector needs significant investment for its renewal and modernization.

However, investments are often expensive and require equity or foreign capital. An extremely important and difficult stage for investors is to choose an investment that will bring a profit in the future. Given the peculiarities of the industry, it can be argued that there are risks of

*

Corresponding author: Doctor of Economic Sciences, Associate Professor, Department of Economics, e-mail: aburlyay@gmail.com, ORCID: 0000-0003-4179-8138 B Candidate of Economic Sciences, Professor of the Department of Entrepreneurship, Trade and Exchange Activities, e-mail: burliai-ekonomika@ukr.net, ORCID: 0000-0002-3654-0602 C Postgraduate student of the Department of Economics, e-mail: Rzhrzh2015@gmail.com, ORCID: 0000-0002-9606-883X D Postgraduate student of the Department of Economics, e-mail: borisohrim@gmail.com, ORCID: 0000-0003-3452-3187 A

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(2021) VUZF review, 6(4) became the purpose of the article.

Material and methods The degree of provision of the agricultural sector of the economy with material and technical means has a significant impact on the level of development of the industry, and the structure of production assets determines its production potential. The use of modern machines and innovative technical means of production contributes to the application of new technologies in agriculture, increase efficiency, increase the scale of production and improve its quality (Gołębiewska B., 2010).

Investments in general can be described as all activities related to the expenditure of funds of an economic unit in order to create new and restore existing fixed assets (Sharp V., 2001).

According to R. Sternberg (1991), an investment is usually understood as either a monetary expense that should bring income to the person making the investment, ie the investor (financial aspect), or a process in which cash is converted into other goods (material aspect). An investment is an expense in which: - there is a long-term creation of funds, - the scale of costs incurred is much larger than in the daily activities of the company, - the impact of investments on future activities, their efficiency and competitiveness of the enterprise is usually longer.

Investments can be classified according to different criteria, in general they can be divided according to purpose and volume. Summarizing the work of scientists (Loginov D., 2019; Knudsen E., 2014; Shpinev I., 2020; Yunusovna U., 2021), we can identify three main approaches to investment: Tangible investments that create tangible assets, which may include land, buildings, structures, machinery, tangible current assets, etc.

Financial (equity) investments that reflect the movement of money, i.e. financial assets. These include buying foreign currency, which forms

financial assets, investing capital in the form of savings in bank accounts and purchasing securities such as stocks and bonds.

Intangible and legal investments related to the acquisition of assets, such as licenses or trademarks, the cost of purchasing goods for research, advertising and development, as well as meeting social and social needs and promoting the protection and improvement of the environment. Intangible investments also include the cost of training and retraining, improving the quality of products and services, increasing productivity, as well as streamlining and improving the efficiency of economic processes.

In the context of modernization of the agricultural sector of the economy, investment can be divided into investment replacement, modernization and development: - replacement investments (restitution) - are to replace worn-out fixed assets with new ones and are used to maintain production capacity at the same level. At present, due to rapid technical progress, the replacement of used funds is limited, very often impossible, and in some cases economically unjustified; - investments in modernization are investments that lead to the reconstruction of production facilities in order to modernize them.

They are implemented in an existing facility, with the same infrastructure and buildings. This makes them unique. They relate to the assets of the enterprise and are an effective way to increase its production capacity, as they improve working conditions, improve production, improve product quality, reduce production costs and promote economic and financial results; - development investments - are to increase the value of fixed assets, and thus directly contribute to increasing the production capacity of the economic entity.

Results and discussion Investment activity is evidence of market

activity, modernization of the industry and 129

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increasing the scale of production. The invested production investments determine the opportunities for economic development. They point out that the agricultural producer increases the resources of fixed assets or improves their quality, which should help increase the potential of the enterprise in the future. Improvement of technical means of labor, as well as the introduction of modern machines and devices in agricultural production lead to increased productivity in both crop production and animal husbandry (Gotra V., 2015).

The specifics of investment in the agricultural sector of the economy, primarily due to the characteristics of the industry, ie depends on a variety of climatic, social, economic, financial and other factors. They determine the main areas of investment: - renewal and modernization of fixed assets; - attracting investment to increase production and increase productivity; - restoration and increase of soil fertility; - support of biological potential of plants and animals; - financing of the social sphere and infrastructure; - financial recovery of enterprises; - creation of associations of agricultural enterprises, etc. (Kucherenko Yu., 2018).

The direction and purpose of investment activities in the agricultural sector are often

determined by the natural conditions in which the enterprise operates and production is carried out.

This is due to the need to equip the farm with appropriate machines and devices necessary for production under certain conditions. To a large extent, the investment activity of farmers may also depend on the areas of production or the desired area of specialization. The purpose of investment activities may be the introduction of new technologies and improving product quality (eg, environmental specialization), diversification of agricultural activities, for example, in the direction of non-agricultural activities or adaptation of agricultural production to environmental requirements (Gołębiewska, 2010).

The volume of investment in agriculture of Ukraine over the past ten years has increased more than 4.4 times - from UAH 11,568 million in 2010 to UAH 50,679.7 million in 2020, which significantly exceeds the growth rate of investment in the economy as a whole (Fig. 1).

However, as rightly noted by M. Kryshtanovich (2020) "taking into account the devaluation of the national currency, investment growth in the period from 2013 to 2015 can be considered as purely conditional, because if you index such growth to the rate of fall of the national currency, in fact we can get a negative increase in investment".

700000

UAH million

600000 448462

500000 359216

400000 300000 200000 100000

623979y = 67097x + 157439 R² = 0,8198 508217,0

578726

273116 189061 11568

64243

50484

30155

66104

y = 6818x + 20208 R² = 0,5486 59130 50679,7

0 2 010

total

2015

2016

аgriculture

2017

Year

Liniowa (total)

2018

2019

2020

Liniowa (аgriculture)

Figure 1 – Dynamics of change in the volume of investment in agriculture of Ukraine in 2010 2020, UAH million (built by the authors according to the State Statistics Service of Ukraine)

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It should be noted that nominally the volume of investment in the agricultural sector increases by an average of UAH 6,818 million annually - a linear trend of y = 6818x + 20208.

However, in 2019-2020 there is an inverse situation associated with the action of limiting factors during a pandemic, which shows a slowdown investment.

In the structure of capital investment by type of economic activity for the period under study, agricultural production occupies about 10%.

Regarding the capital investment indices

compared to the previous year, we can conclude that the unevenness of investment in the study industry by year - from 86% in 2020 to 150% in 2016.

The unfavorable situation with investment in the agricultural sector of Ukraine is evidenced by the low level of investment in the gross output of the industry (Table 1). Thus, until 2017, this figure was low, but had a steady upward trend, but in 2018-2020 the share of investment in gross output of the industry is declining and in 2020 amounted to 8.3%.

Table 1 – Indicators of attracting investment in the agricultural sector of Ukraine's economy Indicator Volumes of investments in agriculture, UAH million Gross agricultural output at constant prices, UAH million Share of investments in agriculture in gross output, % Volumes of investments per one agricultural worker enterprise, UAH million Volumes of investments per 1 ha of agricultural land lands, UAH Volumes of investments per 1 average annual employee, thousand UAH

2010 Year

2015 Year

2016 Year

2017 Year

2018 Year

2019 Year

2020 Year

11568

30155

50484

64243

66104

59130

50680

467474.7

596832.8

634433.1

620475.6

671294.0

680982.4

612121.5

2.5

5.1

8.0

10.4

9.8

8.7

8.3

0.205

0.665

1.058

1.410

1.343

1.219

1.066

278.24

726.49

1216.36

1548.43

1599.46

1431.72

1224.15

15.960

52.959

87.327

115.110

121.136

110.523

101.380

Calculated by the authors according to the State Statistics Service of Ukraine Similar trends are inherent in the volume of investment per enterprise, unit of area and employees - growth until 2017, and from 2018 reduction. In our opinion, this is due to a combination of financial, economic, political and pandemic factors of the country's development.

It should be noted about the uneven investment in agriculture in terms of regions

(Fig. 2). Thus, the largest volumes of investments are attracted in Kyiv (9.9%), Poltava (6.8%), Vinnytsia (6.6%), Kirovohrad (6.6%), Cherkasy (6.5%) and Chernihiv (6 , 3%) areas.

Less than one percent of total investment in agriculture is attracted in Chernivtsi, Lviv and Zakarpattia regions. That is, the level of investment in the agricultural sector of the economy directly correlates with the level of development of the industry in the region.

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Zakarpattia Lviv Chernivtsi Ivano-Frankivsk m. Kyiv Volyn Luhansk Rivne Donetsk Odessa Mykolayivska Ternopil

Kharkiv Zhytomyr Zaporozhye Kherson Sumy Dnepropetrovsk Khmelnytsky Chernihiv Cherkasy Kirovograd Vinnytsia

Poltava Kyiv

0

500000

1000000

1500000

2000000

2500000

3000000

3500000

4000000

UAH million

Figure 2 – Ranking of regions of Ukraine by the volume of investment in agriculture of Ukraine on average for 2015 - 2020, UAH million (built by the authors according to the State Statistics Service of Ukraine) The capital investments of the industry in 19%, vehicles – 13% and long-term biological tangible assets are about 98% and only 2% are assets of crop and livestock production 10%. investments in intangible assets, namely in All other investments are around 1%. software and in patents, licenses, copyrights, The distribution of investment costs mainly etc. on these two types of tangible fixed assets is According to official statistics, the structure the result of the fact that they are an of investment costs for the acquisition of important element of the production potential tangible assets over the past ten years was of agricultural enterprises, without which the dominated by two components: investment in production process is impossible in most units. buildings and structures as a basis for Thus, the data in Fig. 3 show a tendency to modernization, as well as in machinery and increase the value of fixed assets in technical devices. Thus, in 2020, investments agriculture, which is formed as a result of the in machinery, equipment and inventory predominance of fixed assets over disposal accounted for 50%, buildings and structures – over the past three years almost four times.

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500000 450000 400000

UAH million

350000 300000 250000 200000 150000 77740

100000 50000

25061 8371

26670 10748

40217 10460

16700

91376 28828

82722 23530

0 2013 2014 The cost of fixed assets at the end of the year

2015 2017 Received fixed assets

Year

2018 2019 Fixed assets were disposed of

Figure 3 – Dynamics of change in the value of fixed assets in agriculture of Ukraine, UAH million (built by the authors according to the State Statistics Service of Ukraine) According to research, a significant part of the means of production in agriculture of Ukraine are physically and morally worn out.

Therefore, attention should be paid to the need to replace obsolete equipment with more modern, and first of all farmers should invest in technical means that ensure high quality and price of commercial products and contribute to the modernization of the industry.

Another important area of investment activity in agricultural production is vehicles, the share of expenditures for which is systematically increasing. In addition, according to our research, the importance of investments related to the need to adapt agricultural production to the concept of sustainable development, digitalization of production and take into account the environmental consequences of economic activity has increased significantly.

Summarizing the above, we can conclude that investment is a necessary part of modernizing the agricultural sector of the economy. This is confirmed by an analysis using Pearson's linear correlation coefficient to identify the relationship between the amount of investment and the volume of gross output at constant prices. Thus, the obtained coefficient R2 = 0.8061 confirms the presence of a close relationship between the given values (Fig. 4).

The main factors influencing investment activity

are the demand for the industry's products; changing consumer preferences; the level of prices for agricultural products and products of related industries; provision of production potential and production costs; market conditions; economic condition of the industry; economic, monetary and fiscal policy of the state; innovative development of the country and industry in particular; development of financial institutions; the degree of openness of the country's economy in international markets; legislative support, etc.

Figure 4 – The relationship between the volume of gross agricultural output and the volume of investment (built by the authors according to the State Statistics Service of Ukraine)

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A key component of the investment process is to identify effective sources of funding.

According to the Law of Ukraine "On Investment Activity" (as amended on 01.07.2021), the main sources of investment can be own (savings, savings, profits, depreciation), loans (credit resources, bonds) and borrowed (sale of shares, shares) contributions of individuals and legal entities) funds of investors; budget funds of different levels; state support (grants, subsidies, etc.), foreign investment, etc. Studies show that 90% of total investment in agriculture in Ukraine is the own funds of enterprises and organizations. In second place - loans in the form of loans and other loans (8.6%). Investment resources of the state and local budgets are extremely low - 0, 3 and 0.1%, respectively.

These data indicate a critical situation with the sources of investment in the industry. That is, the activity of agricultural enterprises, their modernization and development depends entirely on the resources of the owner, in Ukraine there are no proper conditions for attracting credit funds, there is almost no state support and foreign investment.

One of the reasons for this situation is the riskiness of agricultural activities compared to other sectors of the economy. According to the

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research of S. Titova (2009), I. Shkuratova (2008), A. Burliai (2021) and O. Kobylyanska (2008), all risk factors of the industry can be divided into internal and external. Among the external factors it is expedient to highlight the level of development of the country, its sociopolitical and financial-credit policy, institutional support; the state of development of the infrastructure of the agricultural market, natural, climatic and environmental factors; force majeure situations (wars, pandemics), etc.

Internal factors are directly related to the activities of enterprises, the degree of their provision (wear) of production potential, the use of innovative technologies of agricultural production, underdeveloped infrastructure and logistics, insufficient skills of staff at all levels, etc.

In addition, as rightly noted by O. Petrov (2013), significant risks of agricultural production are the degradation of land, long production period and its seasonal nature, climate change, biological characteristics of the industry. Taken together, this turns agriculture into a high-risk sector of the economy, which restrains the inflow of investment and requires government intervention.

Conclusions Agriculture is an important sector of the economy, on the development of which depends the food security of the population.

Economic analysis of the industry has shown the need for its modernization. One of the

directions of modernization of agricultural production is the intensification of investment activity, which is at a low level of development due to the riskiness of the industry.

References Burliai, A.; Burliai, O.; Revutska, А.; Smolii, L. & Klymenko, L. (2021). Organizational and economic risks of ecologization of agriculture. Agricultural and Resource Economics: International Scientific E-Journal, 7(1), 96-114.

DOI: 10.51599/are.2021.07.01.06 Gołębiewska, B. (2010).

Kierunki podejmowanych działań inwestycyjnych w gospodarstwach rolniczych o zróżnicowanych

powiązaniach z otoczeniem, „Roczniki Nauk Rolniczych, Seria G – Ekonomika rolnictwa”, t.

97, z. 4.

Gotra, V.V. (2015). Current state, factors of provision and directions of intensification of investment activity in the field of agriculture.

Knudsen, E. S. & Lien, L. B. (2014). Investments in recessions. In Finance and Strategy.

Emerald Group Publishing Limited.

Kobylyanska O.M. (2008). Risk as an economic 134

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category and its features in agricultural production. Economics of agro-industrial complex. № 1, 140–145.

Kryshtanovych, M. (2020). Peculiarities of development of investment activity in agriculture of Ukraine. Public Administration and Regional Development, (8), 584-595.

DOI: 10.34132/pard2020.08.11 Kucherenko, Yu. A. (2018). Features of investment activity of agricultural enterprises. Investments: Practice and Experience, (7), 82-86.

Law of Ukraine "On Investment Activity".

Availale from: https://zakon.rada.gov.ua/ laws/show/1560-12#Text.

Loginov, D. & Karanina, E. (2019). Investment as a factor of economic security of the region. In E3S Web of Conferences (Vol. 110, p. 02021).

EDP Sciences.

Petrova O.O. (2013). Risk factors for agricultural production. Collection of scientific works "Tavrian Scientific Bulletin", № 83. 336–342.

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Sharpe, W., Alexander, G.D. & Bailey, D.W. (2001). Investments (p. 1028). Infra-M. Shkuratova, I.I. (2008). Features of uncertainty and risk in the development of the regional agricultural sector. Agrosvit, № 10. 32-34.

Shpinev, I. S. (2020). CLASSIFICATION OF INVESTMENTS. Modern Science, (6-1), 251256.

Sternberg, R. J. & Lubart, T. I. (1991). An investment theory of creativity and its development. Human development, 34(1). 131.

Titova, S.P. (2009). Features of risk in the activities of agricultural enterprises. Agrosvit, (14). 33-36.

Yunusovna, U. N. (2021). Classification Characteristics of Financial Investments, Factors and Methods of Influence On Investment Activity. CENTRAL ASIAN JOURNAL OF THEORETICAL & APPLIED SCIENCES, 2(2). 90-94.

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The analysis of the digital transformation trends in the Ukrainian economy Hanna Snopenko * А; Olga Balueva B; Olena Tanchyk C A, B, C

Donetsk State University of Management, 58 Karpinskogo street, Mariupol, 87513, Ukraine

Received: November 29, 2021 | Revised: December 07, 2021 | Accepted: December 28, 2021 JEL Classification: O15, O57, M15.

DOI: 10.38188/2534-9228.21.4.15 Abstract The consistent evolution of technology around the world creates new production tools and opportunities for different economic agents. As a result, new economic structures are emerging as a result of industrial revolutions. Today, the digital economy is seen as the backbone of the fourth industrial revolution, as there is a clear shift in the underlying technology and signs of a technological and economic paradigm shift. The current stage of the industrial revolution is associated with the Internet communication technologies development, which has significantly changed the technology of business processes and has been called "digitalisation". Thus, the fourth industrial revolution and the third wave of globalisation are based on the digital economy. The article explores trends in the development of the Ukrainian economy under the influence of ubiquitous digitalisation. Digital transformation changes traditional business models of organisations, allowing them to occupy profitable niches in global markets, raising the prestige of business and the state as a whole. In today's environment, the level of digitalisation illustrates the degree of companies' competitiveness and is a determining factor in development strategy. To analyse the processes of digitalisation and determine the place of Ukraine in the digital world, the article identifies and describes four zones of digital transformation, which are particular to the world economies. It is determined that Ukraine has fallen into a zone of prospective economies, where digital infrastructure is limited. Still, digital development is accelerating, indicating the potential for digitalisation to flourish, which will benefit economic recovery from the COVID-19 pandemic and long-term transformation. Ukraine's integral digital transformation index score is placed at 2.81 out of a possible 5 in 2021. It was determined that the main barriers to the digital transformation development in Ukrainian business include ineffective legislation, insufficient funding and low digital literacy of the population. However, the highest score among the index components was given to companies' overall level of digital transformation. A positive result of the survey is confirmation of increased investment in the digital technologies development in Ukraine: priority investments in this area include customer interaction, data analytics and HR management.

Keywords: digitalisation, digital economy, digital transformation, digital transformation index, HR management, digitalisation of the HR function.

Introduction Digital transformation is one of the most important trends of our time. In the context of pandemic business transformation at all levels, readiness to switch to new modern technologies is becoming the basis for survival in the market.

Previously, a priority for individual innovative companies was supported; however, digital transformation has become a mass phenomenon, and related projects have become key challenges for success. It is true not only for individual

*

Corresponding author: PhD Student, Donetsk State University of Management, e-mail: snopenkoann@gmail.com, ORCID: 0000-0002-5736-3609 B Doctor of Science in Economics, Full Professor, Vice-Rector for Research, e-mail: balueva@ukr.net, ORCID: 0000-0003-3091-3137 C PhD (Economics), Associate Professor, e-mail: tanchyk.olena@gmail.com, ORCID: 0000-0002-3632-7422 A

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companies but also for regions and countries. In essence, a digital revolution is gradually bridging the distance and creating optimal combinations between people and technology.

The digital economy focuses on socio-economic systems at micro-, meso- and macrolevels which

will be developed in the long term. This direction calls for research and comprehensive analysis of digital transformation trends and processes and their impact on personnel management and business process renewal.

Material and methods The article is based on the papers of Ukrainian and foreign scientists who study current issues of transformation processes in the economy under the influence of digital technology development (Blix M., 2015; Elding C., Morris R., 2018; Krysovaty A., Sokhatska O.,

2018; Pyschulina O., 2020; Strohmeier S., 2020; Solokha D., Tanchyk O., Bieliakova O., 2021).

During the study, general scientific and unique methods were used: analysis, comparative analysis, dialectical, abstract-logical.

Results and discussion Scholars call the Fourth Industrial Revolution (Schwab K.,2015), characterised by a fundamental transformation of business, the economy and society. However, the main characteristic of the new time is not the change, but accelerated transformation, which results in new rules of doing business and working with personnel (Deloitte, 2017).

In the context of the Fourth Industrial Revolution, the concept of industrial development "Industry 4.0", which concerns the digitalisation of production processes in the industry, energy, transport, infrastructure and logistics, is taking place. In the sphere of human resource

management in the conditions of the fourth industrial revolution, there are changes in requirements for key personnel competencies; implementation of the concept of digital jobs; radical changes in the professional structure of hired personnel; modification of HR departments' activities, technologies and tools for personnel selection and performance assessment; transition to flexible team-building (Shevchenko L., 2020).

In general, the fourth technological paradigm significantly impacts the relationship between society, human biological existence, and surrounding technologies (figure 1).

Figure 1 – The main components of the fourth industrial revolution *Compiled according to data World Economic Forum

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In turn, the transformation of digital economies has been undeniably affected by the COVID-19 pandemic. The rapid spread of the delta strain and the threat of new variants of the virus have increased uncertainty, and policy choices have become more difficult due to significant challenges in a number of areas: slowed job growth, rising inflation, food insecurity, delays in human capital formation and climate change.

Currently, in the context of the global pandemic, countries are declaring lockdowns, closing educational institutions and entire industries. On the other hand, digital sectors such as distance education, online commerce or services ensuring teleworking are becoming especially important, which entails analysing the manifestation of this trend in different countries, including Ukraine.

Based on the results of the Fletcher School at Tufts University research, it is necessary to consider Ukraine in the scope of the Digital Evolution Scorecard. The rating assessed economies according to two indicators: the current state of digitalisation and its speed (measured as the increase in rating scores over

12 years - from 2008 to 2019). The ranking of the world's 90 economies is based on 160 indicators tracking four main factors: supply, demand, institutions and innovation.

1. Proposal: How developed is the digital environment and physical infrastructure to accommodate the digital ecosystem?

2. Demand: Are consumers willing and able to participate in the digital economy? Do they have the necessary tools and skills to connect to it?

3. Institutions: Do a country's laws (and government actions) facilitate or hinder digital development? Are the authorities investing in digitalisation? Government regulations: Are they pushing or impeding the use and storage of data?

4. innovation: How developed are the main components of the innovation ecosystem: a) access to talent and capital, b) processes (e.g., university-business cooperation), and c) access to the consumer (new digital, scalable products and services)?

The graph below demonstrates (Figure 2), the resulting "map" divides economies into four zones: leaders, slow-movers, up-and-comers and challengers.

Figure 2 – A comprehensive picture of the digital world *Compiled according to data Digital Intelligence Index

To further analyse the digitalisation processes and Ukraine's place in the digital world, it is necessary to describe these zones.

1. Leaders. This zone includes economies distinguished by both a high initial level of digitalisation and a strong pace of

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development in this area. Three countries, in particular, stand out here: South Korea, Singapore and Hong Kong. Along with several other economies, such as Estonia, Taiwan and the UAE, they have consistently been among the leaders in these indexes, demonstrating both adaptability and institutional support for innovation. Interestingly, the US ranks second in digital evolution after Singapore. The latter has demonstrated an outstanding growth rate for an economy of this size and complexity.

Some peculiarities distinguish every country. Of course, each case is unique, but this analysis suggests that the most successful ones have chosen the following priorities: - supporting the adoption of digital consumer tools (e-commerce, digital payments, entertainment, etc.)

- attracting, training and retaining IT talent; - encouraging digital start-ups; - providing fast and universally accessible access to the Internet, both terrestrial (e.g., fibre-optic) and mobile; - specialisation in the export of digital goods, services or media; - a coordinated innovation process: universities, businesses and ministries responsible for digital development.

2. Slow-movers. This zone includes countries with mature digital systems but a low rate of further development and is part of the European Union. This is partly due to the natural slowdown that comes with progress.

Moreover, many countries in the area have deliberately chosen to sacrifice growth rates for responsible and inclusive development. To regain the growth momentum (while at the same time not abandoning their values), these countries ought to focus on: - protecting against digital plateaus: further investing in sustainable institutional supports, regulatory environments and capital markets to support further innovation; - continuing to use policy instruments and regulation to ensure equitable access to digital opportunities and to protect all consumers from privacy breaches, cyberattacks and other

threats (while at the same time maintaining data availability for new digital applications); - attracting, training and retaining professionals with digital skills often through immigration policy reforms; - identifying new technology niches and creating ecosystems that foster innovation in these areas.

3.

Up-and-comers.

This zone is characterised by economies that still have the limited digital infrastructure but are rapidly digitalising. China stands out as it is well ahead of all other countries in its digital evolution, primarily due to a combination of fast-growing demand and innovation. Indonesia and India are the other two notable group members, with the world's third- and fourth-fastest growing economies. In addition to these large developing countries, several mid-sized economies - such as Ukraine, Kenya, Vietnam, Bangladesh, Rwanda and Argentina - are also experiencing accelerated digital development, pointing to the potential for digitalisation to flourish, which will benefit both economic recoveries from the COVID-19 pandemic and long-term transformation.

The results of the authors' analysis indicate that the successful breakthrough economies focus on the following challenges: - improving mobile internet access, accessibility and quality, for a wider diffusion of innovation; strengthening the institutional environment and developing digital legislation; - promoting investment in digital enterprises, financing digital R&D, training IT personnel and using applications to create jobs; - measures to reduce inequalities in access to digital tools across gender, class, ethnicity and geography (although access remains largely unequal).

4. Challengers. Finally, the last zone, which includes countries from Africa, Asia, Latin America and Southern Europe, is characterised by problems in the existing digital ecosystem

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and low growth rates. Therefore, countries in this zone have to look to prospective economies to use digital growth as a tool for economic sustainability.

Given that Ukraine has fallen into the prospective zone and the digital trajectory of the Ukrainian economy depends on two factors, such as the current state and the pace of digitalisation over time, it is essential to refer to the study of the European Business Association. It was first conducted in April 2021 as an expert study of the current state of digital transformation in the private and public sectors of Ukraine to assess the effectiveness of digital processes at various levels and identify key drivers and barriers to digital transformation. The result of the study was

the calculated index of the digital transformation of Ukraine. The integral index indicator consists of five equally important components: - the overall level of digital transformation of companies; - the overall level of digital transformation of industries; - the overall level of digital infrastructure development; - the overall level of digital inclusion; - volume and quality of public e-services.

Unfortunately, the integral indicator of Ukraine's digital transformation index in 2021 was 2.81 points out of a possible five and was in the opposing plane (Figure 3).

Volume and quality of state electronic services

2,63

The overall level of digital inclusion development in Ukraine

2,46

The overall level of digital infrastructure development in Ukraine

2,6

The overall level of digital transformation of industries

2,97

The overall level of digital transformation of companies

3,4 0

0,5

1

1,5

2

2,5

3

3,5

4

Figure 3 – Components of the Digital Transformation Index in Ukraine *Compiled according to data European business association

It is worth noting that the highest value among the index components was the overall level of digital transformation of companies.

Thus, 47% of directors rated the level of digital development of their business as moderate, 39% said it was high, and another 5% said it was very high. Only 9% of respondents believe that their companies' level of digital transformation is low. At the same time, the vast majority, namely 89%, admitted that their company's corporate strategy contains digital transformation goals. 41% of directors rate their employees' level of digital literacy as moderate, 13% rate it as low, and 46% rate it as high.

140

At a slightly slower pace, digital transformation is occurring in the industries in which they are involved. 55% of respondents consider the level of digital transformation of their industries to be moderate, 16% consider it high, and another 6% as very high. At the same time, 23% consider it low or very low.

The main barriers to the digital transformation development in Ukrainian business include ineffective legislation, insufficient funding and low digital literacy. For example, 41% of company directors assess their employees' level of digital literacy as moderate, while 13% consider it inadequate. The remaining 46% rated their team's digital literacy as high (Figure 4).

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Excessive regimentation and ineffective legislation

45%

Insufficient funding

31%

Lack of digital literacy

31%

Outdated IT-infrastructure

28%

Issues with cybersecurity and privacy

25% 0%

5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Figure 4 – Barriers to digital transformation development in Ukrainian business *Compiled according to data European business association

The authors conclude that a positive result of the survey is confirmation of increased investment in the digital technologies development in Ukraine.

According to the survey results, the priority investments in this area are customer interaction

(CRM, e-commerce, marketing automation) - 85% of companies, data analysis - 55%, employee interaction management (basic HR processes, talent management, digital workplace) - 48% (Figure 5).

Interaction with customers Data analysis Management of employees'interaction Management of economic processes Supply chain automation Cybersecurity Industrial solutions in the cloud Automation and robotics

75% 55% 48% 44%

38% 35% 31% 26% 0%

10%

20%

30%

40%

50%

60%

70%

80%

Figure 5 – Priority investments in digital technologies *Compiled according to data European business association.

It is worth noting that the positive effects of digital transformation are evident at all levels of

the socio-economic system, from the individual consumer to the country as a whole (Table 1).

Table 1 – Positive effects and benefits of digital transformation in socio-economic systems THE EFFECTS OF DIGITAL TRANSFORMATION ON THE COUNTRY AS A WHOLE A new source of GDP growth Positive net impact on jobs Increased efficiency in the exploitation of the resources

EFFECTS ON THE PUBLIC SECTOR

EFFECTS ON BUSINESSES AND COMPANIES

EFFECTS ON CONSUMER

Increased efficiency of processes

Easier expansion into other markets, higher revenues

The opportunity to buy the best products and services at the best prices

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Reduced opportunities for fraud and abuse in obtaining public services Better communication with citizens and private sector

Increased efficiency of internal processes (e.g., supply chain management) Internal processes (e.g., supply chain management)

Identification and analysis of social trends using big data

Access to a better workforce through the use of digital tools

The possibility of using previously unavailable products Getting information about the most interesting employment opportunities Easier access to public services through digital portals

*Compiled by (Gribanov Yu, 2019).

Thus, the study results prove that the digitalisation of processes is not only relevant at the level of individual companies because industries are choosing this path of development as the only opportunity to meet the rapidly changing conditions of the world around them. As a result, the digital transformation of industry, retail, public, and other sectors is already changing companies' business strategies. Therefore, it necessitates

the study of digital transformation issues from a systemic approach to all socio-economic structures and social areas.

In line with this trend, HR departments are also affected by digitalisation. Thus, it is worth focusing on the digital transformation of the HR function, especially on the HR components necessary for a successful digital transformation (Table 2).

Table 2 – Components of the digital transformation of the HR function Components

Description

Strategy and guidance

An overarching digital (HR) strategy has to help guide the organisation into the digital realm. This strategy is necessary because it helps to link all HR digital activities with an integral vision embedded in leadership. HR leaders should regularly emphasise the importance of digitalisation, and lead by example and encourage innovation.

HR Technology

The extent to which HR technology supports business priorities is directly related to HR digital transformation. It's much more effective to achieve goals by working together.

Innovation

A culture of innovation is a significant part of digital transformation. It includes a flexible HR function, a thoughtful plan for acquiring and developing digital solutions, and a culture that fosters innovation.

HR processes

An essential part of the digitalisation of HR is the automatization of standard processes. This means that all processes are digitally supported, peopleoriented, integrated, aimed at reducing complexity and improving employee experience.

People

Even during automation through machine learning, the most crucial component of HR is people. They can help or hinder digital maturity. Therefore, the team must be made up of the right people capable of interacting effectively under strong leadership.

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Data & analytics

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A key element in the success of a digital HR strategy is using data for reporting and advanced analytics. Using HR data to deliver information is essential to making informed decisions about the company and its employees.

* Compiled by (Rob van Dijk, 2021).

Thus, as organisations transform from survival to prosperity models, they emphasise the creation of teams and super-teams that use modern technology complementing traditional human work methods. The deliberate application of high technology is changing the very nature of work, making it possible to

perform activities previously the people's responsibility. From creating collaborative mechanisms to strengthen bonds within teams to applying artificial intelligence to help people make decisions, integrating high technology into human teams can help them get very different and better results faster and to a greater extent.

Conclusions According to the study, the development of the digital economy and society is unquestionable, and the experience of the world's leading countries and companies is proof of the global digital transformation.

Furthermore, regulation, infrastructure, cybersecurity, skilled professionals and established partnerships create technology platforms that perform as the main components of the digital economy development. It stipulates the next stage in forming a modern model of the production, technological and social system of society based on the results of the Fourth Industrial Revolution.

In Ukraine, the processes mentioned above are progressing rather slowly, as evidenced by studies of the current state of digital transformation development in the private and

public sectors in Ukraine.

For a qualitative breakthrough in the direction of the Ukrainian economy digitalisation, it is necessary to use the best practices of leading countries and focus on the following tasks: - improve mobile Internet access, its accessibility and quality, for a wider diffusion of innovations; - strengthen the institutional environment and development of digital legislation; - encourage investment in digital enterprises, finance digital R&D, train IT personnel and use corresponding applications to create jobs.

By addressing these priorities, the digital transformation of the Ukrainian economy will be an essential source of long-term economic growth.

References Solokha, D.; Tanchyk, O. & Bieliakova, O. (2021).

Organization of the Economic and Business Activities Results of Multilevel Production Systems in the Context of a Digitized Economy, Advances in Economics, Business and Management Research, Atlantis Press, volume 171. 56-63 Krysovaty, A.I. & Sokhatska, O.M. (2018). Fourth industrial revolution: change of directions of international investment flows. Ternopil: TNEU, 2018. 480 p.

Pyschulina, O. (2020). Digital economy: trends, risks and social determinants. Razumkov

Center, Zapovit Publishing House, 274 p.

Strohmeier, S. (2020). Digital human resource management: A conceptual clarification, German Journal of Human Resource Management, 34 (3). 345-365.

Elding, C. and Morris, R. (2018). Digitalisation and its impact on the economy: insights from a survey of large companies. Economic Bulletin, Issue 7.

Available from: <https://www.ecb.europa.eu/pub/economic -bulletin/focus/2018/html/ecb.ebbox2018 07_04.en.html> Blix, M. The economy and digitalization-

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opportunities and challenges Available from: <https://www.svensktnaringsliv.se/bilder_o ch_dokument/sb3rq3_digitalizationpdf_100 7020.html/BINARY/Digitalization.pdf> Schwab, K. (2015). The Fourth Industrial Revolution. Foreign affairs. December 12.

Available from: <https://www.foreignaffairs.com/archive> New rules of the game in the digital age / Deloitte's 2017 "Deloitte International Human Resources Trends Study." Available from: <https://www2.deloitte.com/content/ dam/Deloitte/global/Documents/HumanCap ital/hc-2017-global-human-capital-trendsgx.pdf> Shevchenko, L. S. (2020). HR 4.0: the revolution in the sphere of human resources. Economic Theory and Law, 4 (43), 26–45. DOI: 10.31359/2411‑5584‑2020‑43‑4‑26.

Fourth Industrial Revolution Global Issue World Economic Forum Available from: <https://intelligence.weforum.org/topics/a1 Gb0000001RIhBEAW>

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Recovery During a Pandemic Digital Intelligence Index Available from: <https://digitalintelligence.fletcher.tufts.edu /trajectory> Tufts University Available from: <https://fletcher.tufts.edu/> Digital Intelligence Index Available from: <https://digitalintelligence.fletcher.tufts.edu /trajectory> European business association. Index of digital transformation of 2021. Available from: <https://eba.com.ua/wpcontent/uploads/2021/05/digitalindex_ukr1.pdf> Gribanov, Yu. (2019). Digital transformation of social and economic systems based on institute of service integration development.

Saint Petersburg, 355 p.

Rob van Dijk. Digital HR Transformation: Stages, Components, and Getting Started. Available from: <https://www.aihr.com/blog/digitalhr-transformation-stages-componentsgetting-started/>.

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Managerial competences in family firms from the service and production sectors Izabella Kęsy* А; Marcin Kęsy B; Patrycja Ślusarczyk C A, B, C University

of Economy in Bydgoszcz, 2 Garbary str., Bydgoszcz, 85-229, Poland

Received: December 12, 2021 | Revised: December 22, 2021 | Accepted: December 28, 2021 JEL Classification: M5, L2.

DOI: 10.38188/2534-9228.21.4.16 Abstract In each organization an important aspect is to maintain balance in terms of resources, processes and systems. Lack of relationship between the various components of the company affects the reduction of efficiency in organization, which in turn affects the effectiveness of action. However, it is also important to maintain effectiveness in the implementation of tasks at the strategic or operational level, and this is particularly influenced by the leader of the organization or team respectively. In the case of family businesses decision- making can be reduced to the leader, who makes decisions independently, without obtaining data or information from the environment. Such actions carry a high level of randomness, which in consequence affects the lowering of economic profitability of the company.

In the publication, theoretical and empirical considerations were carried out, which served the authors of the publication, to a limited extent, in juxtaposing the paradigm of the family business functioning in the theory of the subject with the results of the primary study, which was carried out using two qualitative methods, interview and observation. For this purpose, the measurement tool, the interview questionnaire, was developed and the planes of cognitive analysis that was conducted in the studied business entities were identified. The study was conducted on 30 family businesses operating through Poland, the only criterion for qualification for the study was the fact that this was the opinion of the business owners, which is in accordance with the theory of family business proposed by Frishkoff according to which a family business is an enterprise in which the owner admits that it is a family business, i.e. in this case the most important thing is the awareness of being one of the occurring types of family business.

Keywords: family business, competence, manager, knowledge, skills, behavior.

Introduction Family companies in Poland are a phenomenon which is common, however, still invisible in literature or statistics in the macroeconomic perspective. The first mentions of family companies appeared in the United States and were connected with industrial transformations in the period 1870-1890.

Due to the nature or size, there appeared different interpretations of family businesses. It can be considered that further deepening and systematization of knowledge in this field took place in the 60s of the twentieth century and then

widely since the early 80s (Benavides-Velasco, Quintana-Garcia, Guzman-Parra (2013), p. 1).

Since then, due to the horizontal perception of the family business, there is no single universal definition (Graves (2006), pp. 11-12). It still requires researchers of the entities, unambiguous determine research criteria that may disqualify companies that can be classified as family businesses according to other criteria.

Problems concerning the definition of family businesses have their base in legal and cultural conditions as well as in ambiguity of the very

*

Corresponding author: MSc, Lecturer, University of Economy in Bydgoszcz, e-mail: izabellakesy@interia.pl, ORCID: 0000-0002-8403-2776 B Assistant professor, University of Economy in Bydgoszcz, e-mail: marcin.kesy@byd.pl, ORCID: 0000-0003-3604-4702 C Assistant, University of Economy in Bydgoszcz, e-mail: patrycja.slusarczyk25@gmail.com, ORCID: 0000-0002-3360-8536 A

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concept of family (Harms (2014), pp. 300-302). It is true that the notion of family businesses appears in the research deliberations of Polish researchers, however, although it is noticeable in the world or in Europe, in Poland this phenomenon is neglected. I draw attention to the lack of the criterion of "family businesses" in secondary data included by the Central Statistical Office, e.g. in the Local Data Bank. It shows that in the macroeconomic perspective the strength of influence or share of family businesses in the total number of companies or SME are still not examined. There are reports on surveys carried out by various institutions, however, they are not of systemic nature and cannot even be said to be representative. They may serve as a hint for the researcher and do not show a real macroeconomic situation in the area of family businesses.

After all, in Europe, as many as 75% of companies constitute family initiatives stated that "in Europe, as many as 75% of companies constitute family initiatives" (Żukowska). Based on the results of PARP 2009 survey "family companies constituted 36% of the surveyed population (MMSP excluding some sections of PKD and natural persons running their own business activity, not employing anyone) and their number can be estimated at around 219 thousand" (Family companies…).

It is family businesses that are the backbone of national economies. Globally, they account for two-thirds of existing companies, generating over 70% of global GDP and creating 50-80% of all jobs.

According to the European Family Business Organization, between 60% and 90% of companies operating in European countries are family businesses and employ 40-50% of the workforce (https://alebank.pl... (2021)). Research conducted and published in 2017 within the framework of the European Commission's COSME Programme on a group of seven countries (Bulgaria, Denmark, Finland, Italy, Malta, the Netherlands and Poland) shows that family businesses count for 61.3% of functioning businesses. This research shows that in Poland 92% of companies are family businesses, although 36% of companies are considered as such (http://familybusiness... (2021)).

The cognitive aim which has been assumed by the authors of the publication consists in relating the specificity of family companies to managerial competences. By assumption, most family businesses belong to the SME group, i.e. they are small or medium enterprises at most, in which a manager should be equipped with more "horizontal" competences, i.e. with broad knowledge, which also has to be accompanied by vertical knowledge, which directly influences the success achieved by an enterprise managed in such a way. On the other hand, in the majority of family businesses decisions are made not by hired managers but by their owners, which brings strengths but also weaknesses to the phenomenon. Therefore, the research objective was formulated as follows: To describe the strengths and weaknesses of the competencies of family business managers.

Material and methods The issue of managerial staff in family firms is a subject that has been analyzed rarely and for a relatively short period of time.

The concept of competence dates back to the 1970s (Raven (2001), pp. 225-236). This is probably due to the fact that family businesses have so far been on the verge of scientific interest due to the underestimation of this type of organization and its large dispersion.

However, it should be emphasized that according to reports which appeared in Forbes (Zieleniewski (2018)), family companies produce about 70-90% of world GDP. In Poland there are 146

36% of family businesses with a broad definition of a family business (Lewandowska et al. (2016), p.19).

Managerial competence has many meanings, and as a result it is difficult to define. The encyclopaedia of management (https://mfiles.pl (2021)) defines competence as "a range of authorizations, duties, powers of attorney and responsibility of a manager; also a range of his knowledge and skills: conceptual, administrative, technical, organizational, interpersonal", and managerism (https://mfiles.pl (2021)) defines it as "a system

ISSN 2534-9228 of exercising supreme leadership in a company by a professional manager together with the accompanying management theory and ideology and a set of modern management techniques". Based on the above definitions, managerial competence can be defined as a set of managerial skills: organizational, interpersonal, communication, problem solving, thanks to which those responsible for the functioning of the company make decisions and take actions to achieve intended objectives. A simple definition of managerial competence based on L. Spencer and S. Spencer is given by Paweł Jurek (Jurek (2012), p.11), who defines them as expectations towards behaviours, skills, and other characteristics of employees that are conducive to achieving success at work.

In the literature, there are various criteria for dividing competencies, one of the most common and used is the division of competencies into hard and soft (Woodruffe (2003); Borkowska (2012), p. 72) competencies.

Hard, technical, measurable competences, also called qualifications or hard skills, are in particular: professional qualifications held, knowledge of foreign languages, work experience, knowledge of procedures, acquired knowledge, skills, confirmed by diplomas, certificates, certificates, these are the competences primarily required from employees, confirming their knowledge, qualifications, experience, acquired skills, but it is not these competences that determine being a competent manager.

More important and more extensive are soft competences, non-measurable personal abilities, psycho-physical characteristics, social skills, interpersonal skills-universal in every profession: personal values, behavioral models, personality, attitude, way of being, ability to plan, ability to make decisions, organizational skills, ability to motivate, ability to control, ability to negotiate, accurate analysis, ease of problem solving, ability to manage time, innovativeness, ability to divide work, selfmotivation, creativity, assertiveness, dealing with stress, ease of communicating with people, ability of convincing them, ability to inspire, ability to manage teams. As we can see from the

(2021) VUZF review, 6(4) above, the range of soft competences is wide, and at the same time difficult to verify, as it includes non-measurable ways of behaviour, leading to competent actions in company management.

Family companies or family business are the oldest and most frequently encountered forms of enterprises in the economy (Tourunen, Laaksonen (2009); Antoniewicz, Kęsy (2021), p.

185), being at the same time the foundation of the economy, its driving force and its most durable link, and at the same time the most diverse form of entrepreneurship, since they combine family and entrepreneurship. Family companies are the emanation of entrepreneurship, free market, economic development, adaptability, ability to survive.

In literature, one encounters an approach referred to as The Family Universe Bull's Eye, which distinguishes three categories of definitions, taking into account the criterion of the degree of family inclusion in them.

According to this approach, family business definitions can be divided into three groups: broad (low degree of family inclusion), medium (moderate degree of family inclusion) and narrow (high degree of family inclusion).

Medium definitions contain all elements of broad definitions and some additional criteria, just as narrow definitions contain their own criteria and elements of medium definitions (Graves (2006), p. 11-12). According to this definition, the broad approach is characterized by a low level of family coverage and involvement in the running of the business, and "it has been recognized that marriage and other family configurations, assuming the kinship of the persons forming them, and informal relationships, when they recognize their relationship as family, may be considered as family". According to the medium definition, a family business is characterized by the involvement of at least one family member or the possession of a majority shareholding allowing for decision-making in the company.

On the other hand, according to narrow definitions, family firms are characterized by the involvement of at least two family members in the day-to-day operations of the firm, there 147

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must be at least one generational transfer, and the managed firm must remain in family hands

(Więcek-Janka (2016), p. 168).

Broad definitions: Low level of family involvement. Influence on strategic decisions. Intent of intergenerational transfer.

Medium Definitions: Medium degree of family involvement. Involvement of at least one family member in the management of the business. Majority shareholding.

Narrow definitions: High degree of family involvement.

Multigenerational transfer. Work for the company by at least two family members.

Involvement in management. Majority ownership stake

Figure 1 –The degree of family involvement as a determinant of classification of enterprise definitions Source: Więcek-Janka E. (2016). Przegląd typologii przedsiębiorstw rodzinnych, "Marketing i Zarządzanie" (former. "Problems of Management, Finance and Marketing"), no. 2 (43), p. 169.

Similarly, the problem of defining family firms is captured by Astrachan and Schanker, making a division into three circles in their shield model.

According to this model, the outer circle captures the most general concept, defining family firms as businesses based on family ownership and strategic supervision. In the

middle circle, the creators of the model included family businesses focused on family ownership.

In the center of the shield are family companies, in which many generations are involved in their operation and development and more than one person bears managerial responsibility (WięcekJanka (2016), p. 168).

Strategic control

Founder, owner, managing descendant

Multigenerationality.

More than one family member makes managerial decisions

Willingness to leave the business in family hands Family participation in ownership

Figure 2 – Astrachan and Shanker disc model Source: E., Więcek-Janka (2016). Przegląd typologii przedsiębiorstw rodzinnych, "Marketing i Zarządzanie" (former. "Problems of Management, Finance and Marketing"), no. 2 (43), p. 169.

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According to the Model of five levels of defining a family business, which is quoted by E. Więcek-Janka and A. Lewandowska, family businesses are classified according to the following structure: • Level 5 - Potentially family-owned enterprises. The company is in family hands (for small and medium enterprises 50.1% and more, for joint stock companies min. 25,1%).

• Level 4 - Businesses with a family identity.

It has the characteristics of level 5, as well as an internal belief by the owners about being a family business.

• Level 3 - Single generation family businesses. They have the characteristics of level

4 and also the involvement of at least one family member - other than the owner - in the business operations and strategic cooperation.

• Level 2 - Family businesses at the threshold of succession. It has the characteristics of Level 3, management of the business taking succession into account, as well as the involvement of at least two people in the dayto-day management and the involvement of family members in the activities of the board of directors with a clarified intention of succession.

Level 1 - Multigenerational family businesses.

It has the characteristics of Level 2 and a history of succession (Więcek-Janka, Lewandowska (2017), pp. 159-177, p. 165).

Level I Multigenerational family business

Level II Family company on the threshold of succession

Level III Single generation family company Level IV Company with family identity

Level V Potentially family-owned businesses

Figure 3 – The family business -a model of five levels of definition Source: E., Więcek-Janka, A., Lewandowska (2017). Model of five levels of defining family enterprises, "Entrepreneurship and Management", Łódź, 18 (6)/2, p. 166.

The family business is a collage of two concepts: the family, which produces goods to satisfy its internal needs, and the companyenterprise aimed at meeting the needs of external customers (Sułkowski, Marjański (2009), pp.1314). In literature we can find many definitions of a family company. One of the most accurate ones says that a family company is an enterprise of any legal form, in the functioning of which at least two family members are involved, and at least one family member has a significant influence on the activity of the company. In family companies,

family members hold a majority of shares (Kowalewska (ed.) (2009), p. 52).

American theories define a family business as a company in any legal form in which all or a significant part of the capital is owned by the family, and at least one family member is involved in the management of the company with the intention of maintaining it in the possession of the family (Jeżak et al. (2004), p.19). A simpler definition of family businesses is presented by researchers at Oregon State University, stating that if one considers oneself to be a family 149

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business (Winnicka-Popczyk (2002), p.201; Frishkoff (1995)).

It seems that a family company can be defined as an enterprise with several adjectives: private, family, multi-generational, profitable, dependent (on the family), dominated (by the family), moreover being a kind of inheritance mass inherited or built to be inherited by descendants.

Family companies are the foundation of economy, its driving force and its most durable link. They are the most diverse form of entrepreneurship as they combine family and entrepreneurship (Antoniewicz, Kęsy (2020), p. 88).

In a family business it is the family itself and the relations within it that have the greatest influence on the functioning of the company, its development and future. Disadvantages of its members affect the failures of the company, while advantages lead to success.

Family businesses are characterized by the permeation of three areas: family, business management and ownership (Lipiec (2011), p. 34) structure.

1 FAMILY

5

2 MANAGEMENT MODE

7 4

6

3 OWNERSHIP

Figure 4: John Davies' three circles Source: M. A. Gallo, D. Kenyon-Rouvinez, The Importance of Family and Business Governance, [in:] Family Business Key Issues, ed. D. Kenyon-Rouvinez, J. L. Ward (pp. 45-57), New York 2005, p. 6.

Family companies are distinguished by features characteristic only for them, which illustrate the intensity of influence of family members on the enterprise in various areas of activity.

Stradomski M. proposes the following features, which he indicates that determine the specificity of the family business.

First, there is no clear boundary between the family and the company, the company is the family and the family is the company, the

company is at the center of the family's life, it is its essence, its workplace, its source of income, and its development is the family's goal.

Second, the family has significant influence over the management of the company or directly manages the company, maintains continuous control over the company directly or indirectly through trusted management subject to continuous evaluation and control.

Thirdly, the family, i.e. its members feel responsible for the company's fate, the company is a creation, a product of the family, but also the bedrock ensuring the family's existence.

Fourthly, the cultivated family values are reflected in the mission and vision of the company, the construction of the company and the way it functions is characteristic for each company and is related to the values cultivated in the family.

Fifth, family relationships have the most important influence on the control of the company, intra-family relationships, connections determine who has influence over the company and to what extent.

Sixth, the family business largely determines the choice of career path of family members, descendants; family members, when planning their career path, are guided by the needs of the company, its future and development needs.

Seventh, the history of the family is closely related to the history of the company, all the ups, successes, failures in the family are reflected in the history of the company and vice versa. One may be tempted to say that the fate of the company is connected with the fate of the family and vice versa.

Eighthly, in family businesses the issues of trust, mutual loyalty, family community come first, overtaking the issues of qualifications, abilities, skills, as the sphere of feelings and sentiments dominates over other advantages or disadvantages in relation to family members.

Ninth, emotional bonds between family members have a huge impact on the functioning of the company, its relations with the environment, employees and contractors.

Tenthly, lack of objectivity in company management and decision making; in family 150

ISSN 2534-9228 businesses the influence of emotions and feelings on decisions is most visible.

Eleventh, the organizational culture, characteristic of family businesses, manifesting itself in freedom and flexibility at work, accepting low efficiency and laziness among employees (Stradomski (2013), p. 18).

Twelfthly, family businesses maintain ownership within a single family, clan, familia, and it is more important for the business to exist, survive and develop peacefully and safely than to maximize profits, especially in the short term.

Thirteenthly, the sources of financing family businesses are to a large extent the owner's and the family's own funds, very often the family's funds are treated as the company's funds, and the family's financial situation is subordinated to

(2021) VUZF review, 6(4) and dependent on the financial situation of the company, which is perfectly illustrated by the recent situation of the Gołębiewski Hotel (https://www.forbes.pl, 2021) chain.

And fourteenthly, succession in a family business, or so-called inheritance, the ownership of a family business is inextricably linked to succession, the family business owned is either the result of succession or will be the subject of succession, an element of the inheritance estate.

Characteristics of family businesses indicate how important a determinant of their functioning is the managing family (owner or owners). These companies are specific, but at the same time unique and common, which are the most common forms of enterprises in the economic space and also the most diverse.

Results and discussion The literature often emphasizes the low level of managerial competences, especially in small and medium family businesses, concerning both the business knowledge of managers and their ability to manage companies (Sułkowski, Marjański (2017), p. 199).

However, analysing the available literature, it is difficult to take an unambiguous stand on this issue and make a firm judgment. Studies dealing with this topic are modest and come from a few years (Adamik, Bednarska-Wnuk (2011), pp. 6377) ago (Ciszewska-Mlinaric et al. (2011), pp. 2335; Czapla (2011), p. 21; Adamik (2011), p. 26), provide a narrow basis for assessing the whole phenomenon.

For the purpose of publication, the authors conducted primary research, due to lack of time and limited organizational capacity, the method of data triangulation was chosen, for this purpose two methods were used: survey and observation. The tool that made it possible to conduct research in organizations was a survey questionnaire. Observation was carried out according to the established key and concerned one of the spheres of competence, which is behavior.

What were the authors' interests in the area of managerial competence? In particular, attention was focused on: • the manager's belonging to a family, • education, • professional (managerial) experience, • knowledge in the area of management (in particular human resources management), • management methods (in terms of knowledge and skills), • behavior (communication, delegation of authority, relationality).

In the conducted study, it was not possible to carry out a broader as well as complex research process, so the qualifications, knowledge, skills, experience and behavior of the manager were analyzed.

Which entities were qualified for the study?

The only criterion qualifying a company for the research was whether it can be defined as a family business, either in a narrow or broader definition. Thus, 30 business entities were examined, of which 25 operate in the service and construction sector and 5 in the production sector.

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10 9 8 7 6 5 4 3 2 1 0 More than one member of the company management

The manager is the founder, owner of the company All

The company is managed by a successor

service company

The business is run by a person from outside the family

Hired manager

production company

Figure 5 – The manager as a family member Source: own elaboration based on primary research.

In the researched entities there is a predominance of situations, in which the manager is the owner or the founder of the company. It refers to 60% of the surveyed family businesses.

Only in every tenth entity the company is managed by the manager on the basis of outsourcing.

It should be noted that in the 30 family firms surveyed, 36 people are involved in management.

It is characteristic that in-service companies more than 40% of managers have secondary education.

In case of manufacturing companies, almost 80% declare having higher technical or economic education. In 25 companies there is one person managing the business organization. In five cases it can be assumed that they have a matrix character, there is multiple decision-making at the level of top management in the company.

15 10 5 0 Economic Higher education education Higher All

service company

concerns managers manufacturing sector.

in

the

20 15 10 5 0 Not more From 3 to From 5 to From 10 Over 15 than 3 5 years 10 years to 15 years years years All

service company

production company

Figure 7 – Experience as a manager Source: own elaboration based on primary research.

Under the phrase managerial knowledge there are the following knowledge disciplines: management, economics, law, finance. These are the areas of knowledge necessary to function as a manager in a family business.

14 12 10 8 6 4 2 0

Secondary Primary or education vocational education production company

Figure 6 – Education of the manager

Very low

Source: own elaboration based on primary research.

Out of 36 managers, who operate in 30 business entities in total, as many as 26 of them have experience in the role of a manager for 3 to 10 years. In particular, this phenomenon

operating

All

Low

Low Average

service company

High

Very high

production company

Figure 8 – Managerial knowledge in the area of organizational management Source: own elaboration based on primary research.

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The authors, analyzing the managerial knowledge of individual company managers, conclude that a higher level of knowledge applies to managers from the service and construction sectors. It is a resultant of the fact that 6 of them have economic education, while among managers of manufacturing sector it concerns only 2 out of 9 persons. Valuing the managerial knowledge of the entire surveyed group, it amounts to 2.86 on average per person, i.e. it is at most average. In a breakdown by sectors, a higher score was obtained by managers from the services sector (3.0), while in the services and construction sectors the average score was 2.44.

of managers is their managerial knowledge, which in turn determines further skills, which directly result from the acquired qualifications.

Thus, in the case of managers employed in the manufacturing sector, the average score for methods and forms of delegating tasks in an organization is 1.88 (low level). Out of 9 managers from the service sector, 2 have economic education and 5 have technical qualifications, which in micro and small companies is essential for the execution of orders in terms of the product quality.

14 12 10

12

8

10

8

6

6

4

4

2

2

0 Very low

0 Very low All

Low

Low Average

service company

High

Very high All

production company

Figure 9 – Manager's knowledge and skills in applying management methods Source: own elaboration based on primary research.

12 10 8 6 4 2 0 Very low All

Low

Low Average

service company

High

Very high

production company

Figure 10 – Manager's level of delegation Source: own study based on primary research.

The consequence of the educational profile

Low

Low Average

service company

High

Very high

production company

Figure 11 – Manager's level of relationship creation Source: own elaboration based on primary research.

Workplace behavior is an important endogenous factor in the quality of management of employees, their knowledge as well as their skills. It is in this area that researchers have analysed two components that are important from the perspective of managing a company from a process perspective. One of them is the creation of relationships in the team or organization, while the other is the effectiveness of communication.

The area of behavioural competences, which is a mix of knowledge and experience, reinforced by managerial intuition, should be highly rated. In the case of creating relationships, the average score of managers is 3.69, which means that this competence, which affects the creation of atmosphere at work, taking care of that informal sphere between the boss and employee, consisting of loyalty, trust 153

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and responsibility for the company and people, should be rated highly.

16 14 12 10 8 6 4 2 0 Very low All

Low

Low Average

service company

High

Very high

production company

Figure 12 – Level of communication by manager's behavior Source: own study based on primary research.

The model of communication is a process in which effectiveness comes to the fore, requiring from the participant not only the ability to speak, but also to listen, or to use various methods to strengthen the message, eliminate communication barriers and neutralize information noise. The observation of managers' relations with their coworkers in the place of the research allows for a high assessment of their communication skills, especially in the field of listening with understanding, clear and legible verbal message and the use of techniques increasing the effectiveness of communication, such as summarizing, paraphrasing, clarifying and even non-verbal body language. The qualitative conclusions are confirmed by the average score of the managers of family businesses, which is at a high level – 3.81.

Conclusions The carried out theoretical considerations were confirmed during empirical research in the field of typology of family companies according to the current of ownership and management. The theoretical basis is the model of five levels of definition of a family company according to which the constructed definitions of family companies assume certain types of manager of an organization including family members as well as people from outside the family circle.

An in-depth research analysis at the level of managerial competences showed, which competences are displayed by managers in the surveyed companies. Thus, in terms of qualifications, experience, knowledge or strategic and operational skills, they are at an average or even lower level. On the other hand, at the level of managerial behaviors, a distinctive and highly developed aspect in this area of competences of a manager of family businesses is determined as a whole.

Table 1 – SWOT analysis of the competencies of the family business manager Strengths

Weaknesses

• managerial behaviour (communication, relations with

• experience, • economic knowledge

154

colleagues), (qualifications), • technical expertise • strategic and in the manufacturing operational skills. sector.

Source: own elaboration based on primary research.

SWOT diagnosis of manager's competences builds an image of a manager in a family company who is a person with a potential to be a good boss and who can build an atmosphere in the company. However, this image is shattered by the lack of sufficient economic knowledge, as well as necessary skills related to the management of the organization and current activities. As for the managerial experience will increase, there is only a question: Will the experience of family business managers be built consciously or unconsciously?

It is important for managers to be able to recognize their weaknesses.

Considering the strengths of family business managers, it should be pointed out that in the family business model an important place is occupied by a manager who is at the same time a family member. Taking into account the weaknesses of such a manager, it is advisable to build a team of associates with broader competencies, necessary to build an efficient

ISSN 2534-9228 decision-making team at the operational as well as strategic level. After all, some competences

(2021) VUZF review, 6(4) do not have to be permanently located in the family company.

References Adamik, A. (2011). Konkurencyjność i przewaga konkurencyjna MSP w teorii i praktyce, [w:] Kształtowanie konkurencyjności i przewagi konkurencyjnej małych i średnich przedsiębiorstw, red. A. Adamik, Warszawa.

Adamik, A., Bednarska-Wnuk, I. (2011). Luka kompetencyjna a kompetencje kierownicze w MSP, „Studia Ekonomiczne Regionu Łódzkiego”, PTE Oddział w Łodzi, nr 13.

Antoniewicz, A., Kęsy, M. (2021). Family-owned companies in the times of the international socio-economic crisis, „International Marketing and Management of Innovations” Global Scientific e_Journal, №6.

Antoniewicz, A., Kęsy, M. (2020). Kompetencje kadry menedżerskiej w firmach rodzinnych, [w:] Kompetencje menedżera, M. Kęsy, Ł.

Moniuszko (eds.), Wydawnictwo Wyższej Szkoły Gospodarki w Bydgoszczy, Bydgoszcz.

Benavides-Velasco, C., Quintana-Garcia, C., Guzman-Parra, V. (2013). Trends in family business research, Small Business Economics, vol. 40, issue 1.

Borkowska, S. (2012). Skuteczne strategie wynagrodzeń – tworzenie i zastosowanie, Warszawa.

Ciszewska-Mlinaric, M., Mlinaric, F., Obłój, K. (2011). Zdolność relacyjna, kompetencji organizacyjne i wyniki finansowe małych i średnich firm słoweńskich, „MBA”, nr 4.

Czapla, T. (2011). Modelowanie kompetencji pracowniczych w organizacji, Łódź.

Frishkoff, P. A. (1995). Understanding Family Business: What is a Family Business? Oregon State University, Austin Family Business Program, 15 April 1995.

Gallo, M. A., Kenyon-Rouvinez, D. (2005). The Importance of Family and Business Governance, [w:] Family Business Key Issues, red. D. Kenyon-Rouvinez, J. L. Ward (s. 4557), New York.

Graves, C. R. (2006). Venturing beyond the backyard: An examination of the internationalization process of Austrian

small-domatium-sized family-own manufacturing company.

Doctoral dissertation, The University of Adelaide.

Harms, H. (2014). Review of Family Business Definitions: Cluster Approach and Implications of Heterogeneous Application for Family Business Research, International Journal of Financial Studies, Hamburg Institute of International Economics, 2.

Jeżak, J., Popczyk, W., Winnicka-Popczyk, A. (2004).

Przedsiębiorstwo rodzinne.

Funkcjonowanie i rozwój, Warszawa.

Jurek, P. (2012). Metody pomiaru kompetencji zawodowych, Zeszyt informacyjnometodyczny doradcy zawodowego nr 54, Ministerstwo Pracy i Polityki Społecznej Departament Rynku Pracy, Warszawa.

Kowalewska, A. (ed.) (2009). Firmy rodzinne w polskiej gospodarce – szanse i wyzwania, Warszawa.

Lewandowska, A. et al. (2016). Model 5 poziomów definicyjnych firm rodzinnych.

Podstawy metodyczne i wyniki badań firm rodzinnych w Polsce. Raport z badania przeprowadzonego w ramach projektu „Statystyka Firm Rodzinnych”, Poznań.

Lipiec, J. (2011). Konstytucja firmy rodzinnej Roleski jako przykład pierwszego rodzinnego nadzoru właścicielskiego w Polsce, [w:] Firmy rodzinne – determinanty funkcjonowania i rozwoju. Zarządzanie rozwojem i zmianą, red.

A. Marjański, „Przedsiębiorczość i Zarządzanie”, t. XII, z. 7, Łódź.

Raven, J. (2001). Chapter 15: The McClelland/McBer Competency Models, Vol. 166, competence in the learning society, pp.

225-236, Publisher Peter Lang AG. Stradomski, M. (2013). Ciemne strony firmy rodzinnej, [w:] Firmy rodzinne – wyzwania globalne i lokalne, cz. II, red. A. Marjański, B. Piasecki, „Przedsiębiorczość i Zarządzanie”, t.

XIV, z. 6 cz. II, Łódź.

Sułkowski, Ł., Marjański, A. (2017). Firmy rodzinne – rozwój teorii i praktyki 155

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Sułkowski, Ł., Marjański, A. (2009). Firmy rodzinne – jak osiągnąć sukces w sztafecie pokoleń, Warszawa.

Tourunen, K., Laaksonen, S. (2009). The Significance of Business Ownership and Governance: Contribution and Profitability of Family Businesses in Finland.

Więcek-Janka, E. (2016). Przegląd typologii przedsiębiorstw rodzinnych, „Marketing i Zarządzanie” (daw. „Problemy Zarządzania, Finansów i Marketingu”), nr 2 (43).

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Woodruffe, C. (2003). Ośrodki oceny i rozwoju.

Narzędzia analizy i doskonalenia kompetencji

(2021) VUZF review, 6(4) pracowników, Kraków.

Zieleniewski, P. (2018). Dlaczego musimy dbać o firmy rodzinne, Forbes, 7.12.2018. Żukowska, J., Polskie firmy rodzinne a kryzys, Available from: <http://www.konferencja. edu.pl/Files/Conf.> XV/Reports/PDF, Instytut Międzynarodowego Zarządzania i Marketingu Kolegium Gospodarki Światowej, Szkoła Główna Handlowa w Warszawie.

Family companies in Polish economy opportunities and challenges (2009). PARP research of september. https://alebank.pl/firm-rodzinne-generujaponad-70-proc-swiatowego-pkb-jakzaplanowac-rozwoj-przedsiebiorstwa/. http://familybusiness.ibrpolska.pl/przedsiebior stwa-rodzinne-liczbach/. https://mfiles.pl/pl/index.php/Kompetencje. https://mfiles.pl/pl/index.php/Menedżeryzm. https://www.forbes.pl/biznes/hotelegolebiewski-w-czasie-koronawirusa-tadeuszgolebiewski-zastawil-majatek-by/dbnw4vj.

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The consequences of ageing for the Polish economy Irena Brukwicka * А; Iwona Dudzik B A, B Bronisław

Markiewicz State Higher School of Technology and Economics in Jarosław, Czarnieckiego str. 16, Jarosław, 37-500 Poland

Received: November 10, 2021 | Revised: November 20, 2021 | Accepted: December 28, 2021 JEL Classification: J11, J14, J28, J32.

DOI: 10.38188/2534-9228.21.4.17 Abstract The ageing of population, as well as the expected decline resulting from the demographic changes, may have a negative effect on the economy, burdening national budgets. Poland has been among 30 demographically old countries in the world for years, and the ageing of the population has already begun in the early 1970s (Majdzińska A., 2015). The subject of the study is the economic effects of ageing society in Poland. The aim of the article is to present the economic consequences of ageing in Poland. The data from the Central Statistical Office on the demographic situation in Poland are used in the article. The ageing of the population is perceived as the dominant demographic process reflecting changes in the age structure of the population and the growth in the general elderly population. Therefore, the task of the state policy is to ensure the most optimal development for ageing population. The ageing of society imposes many tasks for social policy, including pension deficits, increase in healthcare service costs and care for the elderly, as well as slowing down in economic growth in the context of increasing social costs (P. Błędowski, 2012). Human ageing is a natural process, and at the same time, it has become a subject of interest among researchers working in various scientific environments.

Therefore, it is necessary to regularly observe changes and undertake extensive discussions in this regard. It goes without saying that the course of aging process and its consequences require increased attention from experts and politicians. It is necessary to take up-to-date actions that will mitigate the negative effects in the future.

Keywords: aging society, economy, demography, demographic policy.

Introduction The aging process is considered to be a universal phenomenon because people have always been getting old. At the same time, the intensity of this phenomenon has increased in the last few decades, especially, in highly developed countries. The birth rate decreased due to the prolongation of many aspects, including (A. Dragan, 2011): • civilization progress, • extension of life expectancy, • improvement of life quality.

Demographic forecasts for the period 2014– 2029 assume a decrease in the number of Poles by 1.2 million, mainly in the 20–44 age group. At the same time, there will be a significant increase in the share of population aged 65 and over. The progressive evolution of an aging population is becoming a test for politicians, requiring the application of far-reaching, comprehensive and centrally harmonized actions on many levels (Central Statistical Office, 2024).

Material and methods The methods of observation and statistical

analysis are used in the paper. The extension of

*

Corresponding author: PhD, adjunct, The Bronisław Markiewicz State Higher School of Technology and Economics in Jarosław, e-mail: brukwicka.irena@op.pl B PhD, adjunct, The Bronisław Markiewicz State Higher School of Technology and Economics in Jarosław, e-mail: iwona.dudzik@op.pl А

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life expectancy of Polish society can be seen in the chart below.

Figure 1 – An average number of life span in Poland in 1990 and 2018 100 80 60

75,2

81,7 66,2

73,8

40 20 0 1990 Women

2018 Men

Source: Own study on the basis of Poland with figures, www.stat.gov.pl [access: 25.03.2021]

As it can be seen from the chart above, the average life expectancy of Poles in 2018 increased in almost 8 years for women, and 6.5 years for men. (www.stat.gov.pl, 2021). It is worth pointing out that this will undoubtedly have an impact on the so-called demographic old age. Despite the fact that this phenomenon is observed in each of the populations, one of the most dynamic changes is predicted in Poland. (B. Zasępa, 2015).

A disturbing phenomenon is not so much the quantitative growth of older population, but its participation in the structure of the population as a result of the decrease in the share of the youngest age groups in relation to the entire demographic structure of society. On the basis of demographic research, it can be concluded that the dynamics and the degree of aging of the society largely depend on the intensity of birth.

When the birth rate is high, the participation of children in the population structure increases. In this way, a society is rejuvenated. The aging of the society is the result of life extension of old people.

The increase in the survival rate of newborns is the factor inhibiting the above-mentioned phenomenon (A. Dragan, 2011).

In Poland, there has been a decrease in the birth rate for nearly twenty years, resulting in decrease in the participation of the youngest age groups and in increase in the average age of the society. There is also an increase in the age at which the female decides to give birth to the first child. This is happening due to their greater

professional activity. There has been also a significant reduction in the number of marriages.

More and more people decide to have informal relationships, thus the number of people willing to have a child is decreasing (A. Dragan, 2011).

The aging of the population is also connected with such factors as: ▪ current family model, ▪ social policy of a given country, ▪ affluence of people in a country, ▪ level of health protection, ▪ level of social welfare, ▪ education of the population.

It can be concluded therefore that the aging of the society is connected not only with the demographic aspect, but also with the economic and social spheres. This is illustrated by changes in the consumption structure, including the increased demand for some of the services. Thus, there is a need for the state to take actions for adapting infrastructure and making financial outlays for various types of social and economic areas (A. Dragan, 2011).

The aging of the population and the demographic decline have a significant impact on the economy of the country. In this way, the labor force is also reduced. For this reason, in the opinion of European Commission analysts, it is predicted that in Poland after 2021 the potential growth of the Gross Domestic Product per capita will decrease from 4.7% to 3% (X. Devictor, 2012).

X. Devictor points out that, due to the experience of other countries, the best solution to the aging of the population is an approach focused on persuasion of people (X. Devictor, 2012): ▪ work longer, ▪ tot increase productivity, ▪ to work better, ▪ to work at post-working age.

In his opinion, the percentage of the population over 65 may be doubled in 2030. This is a problematic issue, as if a smaller part of the society takes up work, the production in the country will be also reduced (X. Devictor, 2012).

As it was mentioned above, it is of great importance to enlarge the group of people who take up work in the productive age. This indicator is still too low in Poland, especially in relation to 158

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young people, people over 55 and women. It is an indicator that differs significantly from the average indicator in the European Union. It is very likely the result of favorable conditions for early retirement (X. Devictor, 2012).

Although currently Polish society is still younger

than the average age of all European Union countries. At the same time, however, the pace of the increase in the average age in Poland means that it is highly probable that Poles will gain the position of the oldest societies in Europe in the coming decades.

Results and discussion In the opinion of the authors of this article, Poland should follow the actions taken in other countries, which focus on providing care not only to children, but also to elderly relatives. In this way, people of working age don’t need to look after their relatives and stay at home.

Beneficial effects may be also achieved by creating flexible working conditions, for example, providing work in the form of telework or part-time job. This type of activity may contribute to entering of a significant group of people of working age in the labor market.

Beneficial effects may also occur in case of activities focused on enabling older workers to maintain appropriate qualifications and skills that would allow them to keep the job (X. Devictor, 2012).

It is also necessary to increase the efficiency of the employed workers, as it allows to increase production. To achieve this goal, however, the measures should be taken in the field of (X. Devictor, 2012): • quality of education, • economic environment, • innovation, • introduction of appropriate legal regulations relating to jobs, which would enable to relocate workplace to more productive enterprises,

• economic transformation in case of enterprises with low productivity.

When analyzing the issue of aging in Poland, it is worth emphasizing that this problem is observed throughout Europe. It is predicted that the median age will increase from 38 to 52 in 2050, while the number of people of working age will decrease by 48 million, and the number of elderly people will increase by nearly 58 million (X. Devictor, 2012).

It should be noted that the demographic explosion is mainly observed in poor countries, therefore the lack of linking it with the appropriate economic development may involve a significant risk. What concerns richer countries, to which X. Devictor also includes Poland, it should be noted that they show greater interest in combining development efforts with the ongoing demographic changes (X. Devictor, 2012).

The chart below presents the economically active population of Poland according to age grouping: • pre-production, covering the years from 0 to 17, • production, covering the years from 18-59 / 64, • post-production, referring to the age group 60/65 and more.

Figure 2 – The population of Poland in the productive age: 1990, 2000, 2010, 2019 18,1 18,8 24,4 29

2010 1990 0%

60 64,4 60,8 58,2 20%

pre-production 0-17

40%

60%

production 18-59 / 64

21,9 16,8 14,8 12,8 80%

100%

post-production 60-65 and more

Source: Own study on the basis of Poland with figures, www.stat.gov.pl [access: 25.03.2021] 159

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As it can be seen in the above chart, there is a significant reduction in the working age group of Poles in 2019, compared to 2000. In 2019, the number of people in post-working age has almost doubled (compared to 1990). In Poland, the number of people in post-working age has been constantly growing since 1990. The above data show the essence and necessity of taking

preventive measures. It is also predicted that the number of people in post-production age will continue to grow in the nearest future, while the number of people in the productive age will decrease. The chart below presents the forecasted number of people in non-working age per 100 people in working age.

Figure 3 – The number of people in non-working age per 100 people in working age – forecast for Poland 2019 2050 0

10

20 30 post-production 60-65 and more

40 pre-production 0-17

50

60

Source: Own study on the basis of Poland with figures, www.stat.gov.pl [access: 25.03.2021]

It can be seen in the chart above that there will be significantly fewer people in non-working age in Poland in 2050, and thus a significant increase in people in the post-working age, that is, aged 60/65 and older (B. Zasępa, 2015).

The fertility rate in Poland has decreased and the average age of women deciding to give birth to their first child has increased.

Figure 4 – The fertility rate in Poland in 1990 and 2019 2,5 2 1,5 1 0,5 0

1,991 1,419

1990

2019

Source: Own study on the basis of Poland with figures, www.stat.gov.pl [access: 25.03.2021]

Thus, the fertility rate in 2019 decreased by nearly 25%, in comparison to 1990. (www.stat.gov.pl, 2021). It is particularly problematic, as a negative birth rate was recorded in Poland in 2019. According to the data provided by the Central Statistical Office, it

amounted to -1.4 per 1000 population. The live birth rate was 9.5 per 1000 people, and the death rate was 10.9. Thus, in this case the fertility rate does not ensure the so-called replacement of generations (B. Zasępa, 2015). In a situation where a woman gives birth to two children, the fertility rate ensures that she and the child’s father are replaced. On the other hand, if one child is born, then a negative birth rate is inevitable (www.stat.gov., 2021).

According to the head of the Department of Demographics of the Warsaw School of Economics, A. Abramowska-Kmon, a positive birth rate in Poland is currently impossible. (A. Abramowska-Kmon, 2021). All the more so, people all over the world are currently struggling with the COVID-19 pandemic. Taking into account such a large number of deaths, there is a small chance for a positive birth rate.

Almost all developed countries are struggling with the problem of population aging. However, in Poland, the delay results from the lack of adequate preparation to face the challenges that arise. The example of such lack of preparation is a small number of geriatric doctors, and thus, an insufficient number of medical personnel (X. Devictor, 2021).

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Conclusions 1. To sum up, among the factors that undermine sustainable development, one can state a failure to act to support families. Health protection and facilitation of reconciliation of professional duties with parental responsibilities are also of great importance.

The task of the state is to ensure mobilization of the available resources and proper social welfare planning. This type of activities includes the increase in the retirement age, enriched with support in senior citizen clubs, nursing homes or retirement homes. Coordination of pension policy and health care provision, in the context of the increase in the rates of societies and the retirement age is associated with the need to find significant funds. The task of the authorities is to make the right decisions that will alleviate the effects of adverse demographic changes in the future (X. Devictor, 2021).

2. The assumption that it is possible to rejuvenate society is true. B. Zasępa points out that knowledge derived from demographic projections should be the driving force in demographic activities that are undertaken individually and collectively. It goes here about projection that Poland will become one of the oldest countries in Europe by 2050. This emphasizes the need to take actions focused on the limitation and minimization of the negative effects connected with this phenomenon, otherwise the aging of the society will adversely affect the functioning of Polish society, not only on an individual basis, but also in terms of family and social aspects. Thus, there will be a need to ensure social security and an appropriate level of competitiveness of the economy itself (B. Zasępa, 2015).

3. Analysts assume that in 2060 more than half of the EU population will be over 50 years of age. Therefore, it is already becoming advisable to target very young people with programs stimulating work, health and shaping a good life in an old age (A. Unton, 2020).

4. The Eurostat data forecast a decline in Polish population from 37.9 million in 2021 to 37 million in 2030, that is by 900 thousand people.

The above trend will continue to be at a similar level in the following decades, reaching 34.1 million in 2050, this constitutes 3.8 million people less than nowadays. (A. Unton, 2020).

Unfortunately, in 2100, that is, in about 80 years, the population of Poland will shrink to 27.7 million, that is 10 million people less than nowadays. This situation will be the result of a decrease in the number of births, as it is indicated by the data of the Central Statistical Office (A. Unton, 2020). EU forecasts are not optimistic for Poland. They assume that we will lead the ranking of the oldest society in the EU in 2070, because for 100 Poles aged 15-64 there will be 62 seniors, and unfortunately, we will maintain this infamous “leader” position until the end of 2100. (A. Unton, 2020).

5. Small professional mobilization of seniors may result in unsatisfactory human potential in relation to the needs of employers and smashingly weight the pension system down in Poland. The average level of retirement salaries in relation to the earlier pension system declaring a relatively high replacement rate has unfortunately been declining. The evolution of the pension system in calculating the retirement obligation will result in an incomparably lower average replacement rate than in the past, which will result in an even greater risk of poverty among pensioners. It is impossible to ignore women who earning less than men (due to paradoxically funny reason, because they live longer) and “doomed” to forced employment gaps (raising children) are particularly at risk of lower pensions.

6. In order to ensure decent living conditions for the elderly, the period of their professional career should be extended. Therefore, it will be a strategic task to raise the statistical retirement age and build support for extension of professional activity. Although it seems important, it is not synonymous with the economic policy of professional revival of the elderly, as only the growth of employment of the unemployed at the age over 50 or general economic activation of the elderly entitles to 161

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pursue such policy (https://www.pwc.pl/pl/media, 2020).

7. The aging of the population is conducive to a multitude of experiences in the labor market and in domestic and foreign policy. Therefore, it is necessary to constantly monitor the evolution of changes taking place in the demographic structure and apply or continue the innovative solutions in order to minimize the consequences of aging population. The effects of demographic aging seem to be extremely unpleasant for the labor market, they will surely affect social and health care system. The SARS-CoV-2 pandemic showed inefficiencies in Polish pension and health care system.

8. The issue of age discrimination in the recruitment process also seems to be significant for the comfort of life. The right strategy seems to be the intensification of protection of the elderly against discrimination. Despite the prohibition in current labor law regulations, this issue is commonly omitted. The employer has a statutory obligation to provide people over 50 with explanations for the refusal to employ.

9. Concluding the considerations on the economic consequences of demographic aging of Polish society, it is worth emphasizing once again the enormous role of the government which has to work in the legislative and political field. It should initiate an active demographic policy strategy, take over the role of a change leader in employers’ attitudes towards older colleagues and initiate realistic steps towards

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this group of people. It seems that the stabilization and development of the economy in the coming decades will not be possible if the employees over 50 start to disappear from the market. They could be creative participants in the labor market (https://www.parp.gov.pl, 2020).

10. Demographic policy connected with aging of the society needs actions for the development of the “silver economy”, that is: the evolution of the health care system (favoring geriatrics, long-term care, palliative care), increasing access to the appropriate quality of medical and care services and prevention of social exclusion. Demographic geopolitics forces the maneuvering in migration policy, making it possible to overcome cultural barriers and differences for active life of seniors (Central Statistical Office, 2014).

11. The issue of society aging does not refer only to Poland. We employ foreign workers, mainly from Ukraine. In the face of aging society, the Polish economy cannot cope without immigrants who pay taxes to the budget or social security contributions. According to the Social Insurance Institution, the number of foreigners registered for retirement or disability insurance increased significantly from 65,000 in 2008 to 662 thousand in the first quarter of 2020. According to the latest data, such contributions were paid by almost 485,000 Ukrainians (A. Unton, 2020).

References Abramowska-Kmon A., Why do we have a demographic decline?, Available from: <https://gazeta.sgh.waw.pl/?q=po-prostuekonomia/dlaczego-mamy-nizdemograficzny> [Access:26.03.2021].

Błędowski P. Policies towards the elderly – objectives and principles. Studies BAS, No 2(30) 2012, pp. 201–216. Available from: <www.bas.sejm.gov.pl> Central Statistical Office Population Projection 2014-2050. Statistical Analyses and Studies, Warsaw 2014, pp. 20-25.

Devictor X., Population aging and the economy," Worldbank 2012, no. 6, Available from: <https://www.worldbank.org/pl/news/opini on/2012/06/14/poland-aging-and-theeconomy> [Access: 24.03.2021].

Dragan A., The aging of Polish society and its consequences, Chancellery of the Senate, 2011. Available from: <https://www.pwc.pl/ pl/media/2018/2018-06-19-pwc-golden-ageindex-2018.html> [Access:29.11.2020].

Majdzińska A., Differentiation of Advanced Demographic Ageing in the Lodz

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Voivodeship, Acta Universitatis Lodziensis Folia Oeconomica 4(315), Lodz, 2015.

Poland in figures, www.stat.gov.pl [Access:25.03.2021].

Ageing of society – challenge for the labour market, activation of employees aged 50+ Available from: <https://www.parp.gov.pl/ storage/publications/pdf/Starzenie_sie_spol eczenstw.pdf> [Access:1.11.2020].

Unton A.: Demographic tsunami. Poland's

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population will shrink by several million.

Available from: <https://www.money.pl/ emerytury/demograficzne-tsunamipopulacja-polski-skurczy-sie-o-kilkamilionow-6531680886687361a.html> [Access: 13.07.2020 ].

Zasępa B., Demographic forecasts for Poland until 2050 - analysis of selected aspects of the population ageing process, "Studia Politicae Universitatis Silesiensis" 2015, no 14.

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Competitiveness of EU Member States Regarding Implementation of the Europe 2020 Strategy Assumptions

the

Alina Walenia * А A

University of Rzeszów, 2 Ćwiklińskiej str., Rzeszów, 35 - 601, Poland

Received: December 12, 2021 | Revised: December 14, 2021 | Accepted: December 28, 2021 JEL Classification: Q01, Q50.

DOI: 10.38188/2534-9228.21.4.18 Abstract The Europe 2020 Strategy occupies a prominent place in the European Union's (EU) cohesion policy as a long-term programme for social and economic advancement. The main objective of the strategy is to implement the idea of smart, sustainable and inclusive development. An important priority implemented by EU countries in the context of implementing the assumptions of the Europe 2020 strategy is smart growth, i.e., the development of an economy based on knowledge and innovation.

This requires significant spending on research and development and the use of mechanisms that enable the rapid transfer of theoretical knowledge into economic practice. The Europe 2020 strategy has set new targets for increasing competitiveness and accelerating the development of EU regions and countries. For all regions, including the economically weakest ones, the implementation of the Europe 2020 Strategy goals has been an important stimulus for the development and increase in competitiveness of EU regions. The decade just ending justifies carrying out assessments that must be intricately linked to the analysis of indicators set by the European Commission within the framework of the strategy's three priorities, i.e., smart, sustainable and inclusive development. The aim of the article is to assess the degree of implementation of the assumptions of the Europe 2020 Strategy in EU Member States. With the use of a synthetic indicator calculated using a multidimensional comparative analysis based on the Hellwig method, a ranking of EU countries, in terms of implementing the Europe 2020 Strategy assumptions, was established. The main indicators proposed by Eurostat for monitoring the Europe 2020 Strategy were applied for the assessment. As a result of the conducted research, conclusions were formulated regarding the importance of the Europe 2020 Strategy in the implementation of the cohesion policy principles in EU Member States. The research results show that the countries that have achieved the best results in the implementation of the assumptions of the Europe 2020 Strategy are also leaders in the ranking of competitiveness taking GDP per capita into account published by the European Commission.

Keywords: Europe 2020 Strategy, competitiveness of Member States, sustainable development.

Introduction One of the priorities of the EU cohesion policy is to reduce disparities in development between Member States, their regions and their local environments. The problem of development disproportions mostly concerns EU countries and is particularly pronounced between urbanized and rural areas, which generally not only have lower economic potential, but are also affected by the problem of migration, low quality human capital and low propensity to *

transfer innovation (Bonfiglios at al., 2017, pp.

78-82, Neumaier, 2017, pp. 34-46).

In the context of implementing EU cohesion policy priorities, following the moderate success of the Lisbon Strategy (2000-2010), the EU launched another ten-year development plan, the strategy for smart, sustainable and inclusive growth. On 17 June 2010, the European Council endorsed the implementation of the Europe 2020 strategy as a long-term programme for the

Corresponding author: PhD, adjunct, Institute of Economics and Finance, e-mail: alinawalenia@poczta.onet.pl, ORCID: 0000-0003-3389-9465

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social and economic development of the EU (Europe 2020... 2010). Despite their diversity, EU Member States are pursuing the set targets and moving towards a green economy. The target values of the measures of the strategy have been set at the level of the whole Community.

At the same time, taking internal socioeconomic differentiation into account, the Member States have proposed their own indicators and targets in Partnership Agreements (PA) for Financial Perspectives 2014-2020. They are identical to the priorities of the strategic documents at a national level, while preserving synergy with the Europe 2020 Strategy. Each country has defined its target values based on the recommendations of the European Commission in the position paper (European Commission PP 2013), but it is possible to use different means to achieve the targets, adapted to internal specificities. The targets for each country have been formulated in national documents (National Reform Programmes), where the programming logic is a response to the expectations of the Europe 2020 Strategy (Athens Declaration 2014).

The main objective of the Europe 2020 Strategy, which is the European Union's development programme, is to implement the idea of smart, sustainable and inclusive development. In diagnosing the strategy, in addition to Europe's inability to catch up with the United States in terms of development, new contexts became apparent: globalization, scarcity of resources and an aging population. It was decided that long-term growth (and in particular overcoming the global crisis of 20082009) would require different measures from those taken, so far. Three interrelated priorities were identified, i.e., - smart growth: developing an economy based on knowledge and innovation; - sustainable development: promoting a more resource-efficient, greener and more competitive economy; - inclusive growth: fostering a highemployment economy delivering social and territorial cohesion.

One of the priorities of the European Union is

to counteract the negative effects of economic processes on the natural environment by implementing the assumptions of the policy of reducing greenhouse gas emissions, sustainable energy use and the use of renewable energy sources. (Ten priorities for Europe 2015; The European Union climate action 2014). The Union is committed to creating a leading economy in the field of environmental technologies and protection. By implementing the assumptions of the "Europe 2020" strategy, EU Member States aim to reduce greenhouse gas emissions by 20% (and even by 30% compared to 1990), while increasing energy efficiency by 20% and the amount of energy consumed from renewable energy sources by 20% as well. The objective of reducing the consumption of primary energy will be achieved, inter alia, by systematically improving the energy efficiency of processes of energy production and use (Hinrichs-Rehlwes 2013; Jänicke 2012).

Another priority implemented by EU countries as part of the implementation of the assumptions of the Europe 2020 Strategy is smart growth, i.e., the development of an economy based on knowledge and innovation.

This growth requires significant spending on research and development and the use of mechanisms that enable the rapid transfer of theoretical knowledge into economic practice (Dziawgo, Dziawgo 2016; Common, Stagl 2005; Coddington 1993; Stern 2007; Yi 2013). It is impossible to create a knowledge-based economy without a well-educated society.

Therefore, this priority requires improving the quality of education.

According to the guidelines, Member States should make necessary investments in all education systems in order to increase their effectiveness and efficiency in raising the level of skills and competences of the workforce. In order to implement smart growth, full use must also be made of information and communication technologies. Innovative ideas and projects in the area of solving problems, such as climate change, energy efficiency and health, environmentally friendly production methods should be translated into new products

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Achieving inclusive growth is also a priority for the European Union. The European Commission supports and complements the policies of the individual Member States in this area. One of the objectives is to lift at least 20 million people out of poverty and social exclusion and increase the employment rate of 20–64-year-olds to 75%. In line with the guideline for action on social inclusion, combating poverty and promoting equal opportunities, Member States should modernize their social security systems. These systems should support the protection of and investment in human capital and encourage people to participate actively in the labour market and society. In this area, the availability of quality and affordable services, such as childcare, out-of-school care, education, training, health services and long-term care is essential.

Against this background, the aim of the study was to assess the degree of implementation of the planned assumptions of the Europe 2020 Strategy in each Member State in improving their competitiveness, measured by the dynamics of development in economic, social and spatial fields.

The impact related to the implementation of the assumptions of the Europe 2020 strategy, defined by three interrelated priorities, should contribute to this: ● counteracting the negative effects of economic processes on the natural environment by implementing the assumptions of the policy with regard to reducing greenhouse gas emissions, sustainable energy use and the use of renewable energy sources, ● the development of an economy based

(2021) VUZF review, 6(4) on knowledge and innovation, smart growth, i.e., increasing expenditure on research and development and the use of mechanisms that will enable the rapid transfer of theoretical knowledge to economic practice ● inclusive growth, with the European Commission supporting individual Member States' policies in this area. These activities should help to lift at least 20 million people out of poverty and social exclusion and increase the employment rate of 20–64-year-olds to 75%.

In the context of the research, the hypotheses assume that: H1: The competitive position of most EU countries in relation to the implementation of the strategic objectives of cohesion policy defined in the Europe 2020 Strategy has not improved significantly.

The article is structured as follows. The first two parts explain the nature of the problem in the light of the literature (in relation to the paradigm of smart sustainable development conducive to social inclusion) and present the research assumptions. The next part presents the research results illustrating synthetic indicators for the implementation of the Europe 2020 Strategy in each Member State. A statistical analysis based on a synthetic indicator was used to rank EU countries in the implementation of the Europe 2020 Strategy assumptions. The synthetic measures calculated with its help made it possible to determine which countries are in the best, average and worst situation with regard to the implementation of the EU's long-term development programme. The last part of the article contains the conclusions resulting from the conducted research.

Material and methods The empirical material used for the study covers 27 EU Member States. The figures were obtained from Eurostat. The time frame of the study covered the years 2010 and 2020.

A comparative analysis of the implementation of the Europe 2020 Strategy in EU countries was carried out for the years 2010

and 2020 using a multidimensional comparative analysis by Hellwig (Hellwig, 1968). The synthetic indicator for the implementation of the Europe 2020 Strategy was determined on the basis of certain factors (established by the EC). Monitoring the implementation of the strategy assumptions. Based on the calculated 166

ISSN 2534-9228 synthetic indicator, a ranking of EU countries in the implementation of the assumptions of the Europe 2020 Strategy was created. The main indicators (available at: http://ec.europa.eu/eurostat.) proposed by Eurostat for monitoring the Europe 2020 Strategy include X1 – the employment rate of people aged 2064 to the total population of the same population age group in %, X2 - expenditure on research and development (R&D) in % of GDP, X3 - greenhouse gas emissions (dynamics index 1990 = 100), X4 – the share of energy from renewable sources in the gross final energy consumption in %, X5 - primary energy consumption in Mtoe (in million tonnes of oil equivalent) per 100 thousand inhabitants, X6 – the share of people aged 18-24 with at most a lower secondary education, who do not continue their education and do not train in % of the total population including the same age, X7 – the share of people aged 30-34 with a higher education in % of the total population at the same age, X8 – the indicator of people at risk of poverty or social exclusion in % (definition can be found at: http://stat.gov.pl/cps/rde/xbcr/gus/dzial16_Metadane_pl.pdf.f. ), X9 – the share of people living in extremely low intensity households work in % of total population (definition can be found at: http://stat.gov.pl/cps/rde/xbcr/gus/dzial16_Metadane_pl.pdf.f. ), X10 – the indicator of severe material deprivation in % (definition can be found at: http://stat.gov.pl/cps/rde / xbcr / gus / dzial16_Metadane_pl.pdf.f.).

Based on the desk research method, an analysis of documents published by EU and

(2021) VUZF review, 6(4) national institutions was carried out. The indicator method, supported by a qualitative analysis of the collected research material (Eurostat data), was chosen to assess progress in the implementation of the Europe 2020 Strategy.

In addition, the Regional Competitiveness Index (RCI) 2019, established on the initiative of the EC to measure competitiveness and its factors at a regional level, was used, which measures the main factors of competitiveness for all NUTS -2 level regions and EU Member States. Graphic methods were used for analysis and the basic characteristics were compiled, i.e., the arithmetic mean - the average level of variables; the median (mean) - half of the measurements are below and half above the median; the largest (maximum) and smallest (minimum) values.

In the Hellwig method, in the classical version and the modified method, taking into account the weighting of each variable, the indicator for the implementation of the Europe 2020 Strategy was calculated on the basis of detailed factors for monitoring the implementation of the strategy assumptions. On the basis of the calculated synthetic indicator, a ranking of EU countries in the implementation of the assumptions of the Europe 2020 Strategy was established. The calculated synthetic measures made it possible to identify which countries are in the best, average and worst situation in terms of implementing the EU long-term development programme. The assessment was based on the main indicators of the implementation of the development programme proposed by Eurostat.

The research hypothesis was tested on the basis of the data published by the European Commission using Hellwig statistical analysis and correlation and regression analysis.

Results and discussion In the context of the implementation of the Europe 2020 Strategy in EU countries, the following targets should be achieved: - The employment rate for people aged 20-64 should increase to 75%,

- 3% of GDP will be spent on investment in research and development, - greenhouse gas emissions will be reduced by 20% (or even 30%) compared to 1990 levels - the share of renewable energy in total 167

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energy consumption will rise to 20%, - energy efficiency will be increased by 20%, - the educational level of society will be raised by reducing the percentage of early school leavers (to less than 10%) and increasing the percentage of 30–34-year-olds with tertiary education (to at least 40%), - Poverty and social exclusion will be reduced (by lifting at least 20 million people out of poverty).

To guide and accelerate the methods of implementing each of the three main priorities of the strategy, seven flagship initiatives have been launched under each priority (flagship initiatives), i.e.: ⮚ “Innovation Union” – a project to improve framework conditions and access to research and innovation funding, so that innovative ideas turn into new products and services, which in turn contribute to economic growth and job creation; ⮚ “Youth on the Move” – a project to improve the performance of education systems and facilitate young people's entry into the labour market; ⮚ “Digital Agenda for Europe” – a project to promote high-speed Internet, enabling households and businesses to benefit from the digital single market; ⮚ "Resource-efficient Europe" – a project to decouple economic growth from resource consumption, transition to a low-carbon economy, increase the use of renewable energy, modernize transport and promote energy efficiency; ⮚ “An Industrial policy for the Globalization Era” – a project to improve the business environment, in particular for SMEs, and support the development of a strong and sustainable industrial base capable of competing in world markets; ⮚ "Agenda for New Skills and Jobs" – a project to modernize labour markets and empower citizens through lifelong skills development in order to increase the labour

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force participation rate and better match demand with supply in the labour market, including through better labour mobility, among others; ⮚ "European Platform against Poverty" – a project to ensure social and territorial cohesion so that the benefits of economic growth and employment are widely available and poor and socially excluded people can live in dignity and participate actively in society.

In order to compare the implementation of the assumptions of the Europe 2020 Strategy by each country, a synthetic indicator was created based on detailed factors to monitor the implementation of the strategy. Three areas for the implementation of the strategy were distinguished: sustainable development (climate and energy), smart growth and inclusive growth. In the area of climate and energy, the following indicators were used: primary energy consumption, greenhouse gas emissions and the share of renewable energy in gross final energy consumption. In turn, in the area of smart growth, the following indicators were used: Expenditure on research and development activities (% of GDP), people aged 30-34 with tertiary education and young people discontinuing their education. In the third area, the indicator of vulnerability to poverty or social exclusion – total – and the employment rate of 20–64-year-olds – total – were used. Based on the calculated synthetic indicator, a ranking of EU countries in the implementation of the Europe 2020 Strategy in 2010 and 2020 was made.

The general statistical evaluation of the values of each of the main indicators monitoring the implementation of the Europe 2020 Strategy in 2010 and 2020 made it possible to assess the design of this indicator and its place in the ranking of individual EU countries. Based on the indices X1 - X10, the values of the synthetic measure of Z. Hellwig for the years 2010 and 2020 were determined (Fig. 1 and Fig. 2).

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Figure 1 – Values of the synthetic measure of Z. Hellwig in 2010 (di) for individual EU countries Source: own calculations based on Eurostat data [http:/www.epp.eurostat.ec.europa.eu].

The analysis of the value of the synthetic indicator (Fig. 1) shows that, in 2010, the leading countries in the implementation of the Europe 2020 strategy, which occupy the best positions in the ranking of EU countries in terms of the measure and value of Z. Hellwig were: Denmark (0.5976), Belgium (0.5643), Sweden (0.5556), the Netherlands (0.5495) and Slovenia (0.5444).

The following countries finished the ranking: Spain (-0.0151), Malta (0.0498), Italy (0.0841) and Cyprus (0.1275).

Due to the activity of these countries in sustainable development policies, they remained leaders in adopting the assumptions of the 2020 Strategy. However, in the new ranking, Sweden (0.6127) is in first place, followed by Denmark (0.5876), Finland (0.5177), the Netherlands (0.5033) and Estonia (0.4683).

The last places in the ranking were occupied by Italy (-0.0880), Spain (-0.0326), Cyprus (0.1266) and Romania (0.1348).

4 3 2 1

Czechia Estonia Cyprus Latvia Lithuania Hungary Malta Poland Slovenia Slovakia Bulgaria Romania Croatia Belgium Denmark Germany Ireland Greece Spain France Italy Luxembourg Netherlands Austria Portugal Finland Sweden United Kingdom

0

Figure 2 – Values of the synthetic measure of Z. Hellwig in 2020 (di) for individual EU countries Source: own calculations based on Eurostat data [http:/www.epp.eurostat.ec.europa.eu].

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e.g., Austria (from 9th place in 2010 to 6th place in 2020), Lithuania (from 13th place in 2010 to 9th place in 2020) and Malta (from 27th to 22nd place). Poland also belongs to the group of countries that have improved their position in the ranking due to the implementation of the strategy assumptions (from 12th to 10th place).

For 12 EU countries, their competitive position has deteriorated, partly due to economic problems. This is particularly the case for: Belgium (from 2nd to 11th place), Bulgaria (from 18th to 21st place), Ireland (from 11th to 14th place), France (from 14th to 19th place), Portugal (from 16th to 20th place) (Fig. 3).

In 2010, the best EU countries in terms of the implementation of the Europe 2020 Strategy were: Denmark, Belgium, Sweden, the Netherlands, Slovenia, Estonia, Luxembourg, Finland, Austria and Slovenia. In 2020, significant changes took place among the leaders of the implementation of the EU development plan. Sweden came first (from 3rd place in 2010), second to Denmark (from 1st place in 2010), and third to Finland (from 8th place in 2010). In the context of the implementation of the Strategy in 2020, compared to 2010, 15 EU countries improved their competitive position compared to 2010, Ranking 2010

Ranking 2020

United Kingdom

Sweden

Finland

Austria

Portugal

Netherlands

Luxembourg

Italy

France

Spain

Ireland

Greece

Germany

Denmark

Croatia

Belgium

Romania

Bulgaria

Slovakia

Slovenia

Poland

Malta

Hungary

Lithuania

Latvia

Cyprus

Estonia

Czechia

30 25 20 15 10 5 0

Figure 3 – Ranking of Member States in relation to the implementation of the assumptions of the Europe 2020 Strategy Source: own calculations based on Eurostat data, [http:/www.epp.eurostat.ec.europa.eu]

Based on the values of the synthetic indicator for the implementation of the assumptions of the Europe 2020 Strategy and the ranking of individual EU countries, four groups of EU

countries with a similar level of implementation of the Europe 2020 Strategy (Nowak 1990) (Fig. 4) were determined.

4 3 2 1

Figure 4 – Groups of EU countries in relation to the implementation of the Europe 2020 Strategy assumptions Source: own calculations based on Eurostat data, [http:/www.epp.eurostat.ec.europa.eu] 170

United Kingdom

Sweden

Finland

Portugal

Austria

Netherlands

Luxembourg

Italy

Spain

France

Greece

Ireland

Germany

Denmark

Belgium

Croatia

Romania

Bulgaria

Slovakia

Slovenia

Poland

Malta

Hungary

Lithuania

Latvia

Cyprus

Estonia

Czechia

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The group of countries with a high level of implementation of the assumptions of the Europe 2020 Strategy in 2010 consisted of 7 EU countries, and in 2020 - 4. The group of the medium-high indicator in 2010 - 6 countries, and in 2020 - 11. The group with a medium-low level

of implementation of the EU development programme in 2010 consisted of 10 countries, and in 2020 - 7. The low level of implementation of the Europe 2020 Strategy in 2010 was represented by 4 countries, and in 2020, by 5 countries (Fig. 5 and Table 2).

Figure 5 – Groups of EU Member States according to the level of implementation of the assumptions of the Europe 2020 Strategy Source: Eurostat data, [http:/www.epp.eurostat.ec.europa.eu]

Table 2 – The classification of EU countries according to the state of implementation of the Europe 2020 Strategy in 2010 and in 2020 Europe 2020 Strategy implementation level High (group 1)

Medium-high (group 2)

2010

2020

Sweden, the Netherlands, Luxembourg, Denmark, Belgium, Slovenia and Estonia.

The Czech Republic, Lithuania, Poland, Ireland, Austria and Finland.

Sweden, Finland, the Netherlands and Denmark.

The Czech Republic, Estonia, Latvia, Lithuania, Hungary, Poland, Slovenia, Belgium, Ireland, Luxembourg and Austria.

Medium-low (group 3)

Latvia, Hungary, Slovakia, Bulgaria, Malta, Slovakia, Bulgaria, Croatia, Romania, Croatia, Germany, Portugal, Germany and France.

Greece, France and Portugal.

Low (group 4)

Cyprus, Malta, Spain and Italy

Cyprus, Romania, Greece, Spain and Italy.

Source: own calculations based on Eurostat data, [http:/www.epp.eurostat.ec.europa.eu].

Conclusions For all EU Member States, the implementation of the objectives of the Europe 2020 Strategy was an important stimulus for the development and growth of their

competitiveness. The applied research methods enabled the evaluation of the implementation of the Europe 2020 Strategy from the point of view of all important indicators. The synthetic 171

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measures of the indicators calculated with their help showed which countries are in the best, average and worst situation as far as the implementation of the EU long-term development programme is concerned. The analysis of the empirical material, carried out using the Hellwig method, made it possible to verify the assumed research assumptions. The research confirmed that the competitive position of most EU countries has not improved significantly in terms of the implementation of the strategic objectives of the cohesion policy defined in the Europe 2020 Strategy. In the context of the implementation of the 2020 Strategy, 15 EU countries have improved their competitive position compared to 2010 and in the case of 12 EU countries their competitive position has worsened. Sweden, Finland, the Netherlands and Denmark remain leaders in the implementation of the Europe 2020 Strategy.

The elevated position of these countries in the ranking depends on achieving an elevated position in individual areas of the strategy. It is satisfactory that the nine countries that were among the top ten in 2010 in implementing the

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assumptions of the strategy are still among the top ten in 2020.

For 12 EU countries, their competitive position has deteriorated, partly due to economic problems. This was particularly the case for: Belgium (from 2nd to 11th place), Bulgaria (from 18th to 21st place), Ireland (from 11th to 14th place), France (from 14th to 19th place), Portugal (from 16th to 20th place). The reason for this situation was a decrease in expenditure on research and development (France and Portugal), a decrease in employment (Portugal and Greece), an increase in the risk of poverty and social exclusion (Greece), an increase in the number of young people leaving education (Estonia) and an increase in greenhouse gas emissions (Estonia).

On the basis of the research carried out, it is possible to distinguish a group of countries with low rankings. These include Malta, Greece, Romania, Cyprus, Italy and Spain. In comparison with other EU countries, these countries are characterized by unfavourable values of indicators for monitoring the implementation of the Europe 2020 Strategy.

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Role of tax incentives for increase in personal pensions saving Stanislav Dimitrov * А A VUZF

University (Higher School of Insurance and Finance), 1 Gusla Str., Sofia, 1618, Bulgaria

Received: November 02, 2021 | Revised: November 12, 2021 | Accepted: December 28, 2021 JEL Classification: H24, H31, G51.

DOI: 10.38188/2534-9228.21.4.19 Abstract Personal pensions increase their role in the retirement savings in the European Union. The design of the personal pensions is of great importance for the success of the saving. In the European Union there is no common legislation on the taxation of pensions. In recent years, the personal responsibility of savers for making decisions to save for retirement has increased. The limited ability of public pension systems to guarantee an adequate and sustainable income after working age necessitates the search for opportunities to fill this "pension gap". That is why the market for long-term savings products is central to achieving adequate income replacement and maintaining the standard of living of the elderly. This is one of the reasons for the greater role of the tax treatment of the savings products. The paper is analyzing the role of tax incentives for the increase of the saving in personal pension products.

The study is searching answer which are the most important steps for efficient tax policy of retirement savings products. The new product on the European Union market, the pan-European personal pension product, sheds extra light on the topic of the importance and the efficiency of the tax treatment of saving in personal pension products. The research finds out that favourable tax treatment for saving in personal pension products is a must but it has to be major part of the overall social welfare and tax policy of the member states.

Keywords: tax incentives, taxation of pension, personal pension products.

Introduction Personal pensions increase their role in the retirement savings in the European Union (EU). The design of the personal pensions is of great importance for the success of the saving. The tax treatment of the saving is part of the design. The taxation of savings is very important element of the legislative framework. In the EU there is no common legislation on the taxation of pensions (EIOPA's (European Insurance and Occupational Pensions Authority) advice on the development of an EU Single Market for personal pension products, 2016).

The tax reliefs are sometimes crucial for taking decision whether to save. The tax treatment can influence the decision which product to choose, how much to save and the preferred out-payment.

The new product on the EU market, the panEuropean personal pension product (PEPP), sheds

extra light on the topic of the importance and the efficiency of the tax treatment of saving in personal pension products. Very important part of the design of the PEPP is the tax treatment of the three flows related with the saving: the in-payments (contributions); the investment returns (the yields from asset management) and the pension benefits (out-payments, pay-outs). The Regulation on PEPP (European Parliament, Regulation (EU) 2019/1238 of the European Parliament and of the Council of 20 June 2019 on a pan-European Personal Pension Product) enters into force in August 2020. In 2021 EC approves the additional legal instruments (the so-called Level 2 PEPP legislation). It is expected that the tax treatment is of great importance whether the product will be attractive to customers and financially feasible to providers.

*

Corresponding author: Ph.D, Associate Professor., Head of Pensions and Insurance research unit, VUZF Lab, e-mail: sdimitrov@vuzf.bg, dim_stanislav@yahoo.com

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Material and methods The aims of the research are reached through the following methodology: analysis of the role of the tax incentives for saving in personal pension products; description of the current situation and trends in the markets of retirement savings; review of the policy in the sphere in the EU; exploration of the literature on the topic; discussion of how to incorporate the taxation of pensions in the overall tax policy and social welfare policy.

The problem of the impact and efficiency of the tax incentives for saving in personal pension products is analysed by numerous authors. The need to expand saving in supplementary pensions and the importance of the taxation on private pensions are analysed by Whitehouse (2005), Antolin et al. (2012), Hinz (2009) and others.

Different factors are affecting the development of saving in retirement plans. The financial incentives can make the saving in voluntary pension plans more attractive in terms of “higher net rates of return (resulting from favourable taxation)” regardless the low interest rates (Marcinkiewicz, 2017). The effects of taxbased saving incentives on contribution behavior from the introduction of the Riester scheme in Germany show that the government has control over the contribution behavior and that people react to the changes of the amount of the tax advantage (Kuper & Schmidt, 2016).

From the perspective of the consumer, the exact structure of the tax system has a significant impact on their incentives to save in a personal pension product. So, it is important whether the fiscal incentives lead to the creation of additional savings, or merely to displacement from other forms of saving for retirement. For instance, a recent study on the German Riester (Börsch-Supan et al., 2012) showed that they are complementary to other forms of savings, and therefore the tax incentives provided by

government can be seen to assist in achieving the goal of greater savings for retirement. At the same time some researches (Corneo et al., 2008) are casting doubts on the effectiveness of the Riester scheme in raising private savings. These authors call for enhanced systematic efforts to evaluate that policy.

Some authors (Rutecka-Góra et al., 2018) justify that non-financial incentives is more efficient tool in terms of increased pension coverage compared to tax incentives. There is theoretical discussion how effective are the tax advantages, which type of financial incentive to apply. 85% from the people are passive (Chetty et al., 2012). Tax advantages upfront requires active position from the saver. So, the tax advantages trigger increase (according to the authors) in the saving of only 15% from the people.

Another authors (Carbonnier et al., 2014) find out that the deduction scheme is effective in boosting the demand for annuity of the highincome people, especially for those aged 45 and above. The effects of the applied tax policies are analysed by Amariei (2018), Hooghiemstra (2020), Van Meerten et al. (2017). The importance of the type and manner of disclosing information about the taxation effects is analysed by Dimitrov (2020).

Papers that include positions about the taxation of pensions expressed many institutional bodies such as AAE (Actuarial Association of Europe, 2020), Aviva (2016), Better Finance (2020), EFAMA (European Fund and Asset Management Association, 2020), EIOPA (2016), European Commission (2019), E&Y (2017), Insurance Europe (2020), Pensions Europe (2020), London School of Economics and Political Science, Open Evidence and BDI Research (2020), OECD (Organisation of Economic Co-operation and Development, 2020) and others.

Results and discussion Based on the analysis reached is the conclusion that favourable tax treatment for saving in personal pension products is a must

but it has to be major part of the overall social welfare and tax policy of the member states.

In recent years, the personal responsibility of 176

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savers for making decisions to save for retirement has increased. The limited ability of public pension systems to guarantee an adequate and sustainable income after working age necessitates the search for opportunities to fill this "pension gap". That is why the market for long-term savings products is central to achieving adequate income replacement and maintaining the standard of living of the elderly.

This is one of the reasons for the greater role of the tax treatment of the savings products. The tax treatment of pensions “…is a critical policy choice…” (Whitehouse, 2005).

There is a pension shortage (pension gap) in the EU. Estimates show (Aviva, 2016) that additional savings of more than € 2 trillion a year, or 13% of EU GDP, are needed to fill this deficit. This trend is even more vivid in the countries of Central and Eastern Europe (CEE), where the insurance under employers' pension plans (occupational pensions and quasi mandatory pensions) is significantly lower than in the other EU member states.

The most commonly considered solution for filling the pension deficit is to increase the share of supplementary pensions. In this context, the EU builds the framework of a personal pension product (PEPP). The aim is to increase the people who save in personal retirement products.

Personal pension plans in the EU cover 67 million people (EIOPA, 2016), or 27% of the Union's population aged between 25 and 59.

The saving in the personal pension plans is provided via 72 products. The assets under management are worth more than € 1.1 trillion.

From the point of view of the saver, efficiency is measured mainly in the form of the expected sum to receive at the end of the saving compared to the contributions invested at the beginning. Tax reliefs help to increase the financial effect from the saving. The consumers’ association, Better Finance, uses the term “tax efficient” when describing the expected features of PEPP. Historically the tax incentives have been the dominant form of the fiscal incentives. Generally, they provide favourable

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income tax treatment to savings for retirement relative to other forms of savings. Other types of financial incentives are not linked to the income tax system. Such other types are matching contributions and fixed nominal subsidies In the PEPP framework the European Commission (EC, 2017) has a recommendation to the member states to treat the PEPP product the same way the national personal products are treated from the taxation point of view. In the PEPP regulation the conditions in the accumulation/decumulation phase are not prescribed (Amariei, 20018) in all aspects in order to allow providers to adapt to national laws and meet the criteria for tax relief.

According to Hooghiemstra, 2020 the “soft law PEPP tax recommendation” and “…resolves tax discrimination. This instrument, however, does not resolve system diversities of the various tax systems.”

The overall strategy for development of the market for personal savings could be linked with the national policy for capital markets development. One point of view is that if there are no well-developed financial markets decisions makers will not be positive to grant high tax reliefs. The reason is that the accumulated sources from voluntary contributions will be invested out of the country. This is in doubt controversial issue because the investment income is accrued in the savings of the local savers and also local pensioners will benefit from the pension payments. The vast part of the pension payments will be spent in the national economy.

Another point of view is that through the development of private pension insurance could be seek greater activity and development of the local financial markets. The logic is that pension funds will invest the accrued sums in financial instruments of the local companies that are traded on the registered markets.

Favourable tax treatment for the contributions compared to the pension’s benefits empower the transparency of the product. Long-term nature of the product requires transparency in order to convince the

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potential saver to buy it.

Very important for the perception of the tax advantages from the potential savers are the trust and the supplied information. The lack of sufficient consumer trust is raised as a problem concerning the reasons the EC to develop the PEPP (London School of Economics et al., 2020).

57% is the trust by consumers in financial products and financial institutions according to Edelman Trust Barometer – the lowest among 10 categories.

For the sake of the savers, it could be positive to announce periodically the volume of the annual tax reliefs in absolute sums, the number of people who took advantage of the tax reliefs, the benefitted tax advantages by type of income, by income groups, number of people that use the maximum tax advantage and others. Another measure is to visualize the potential tax advantage when providing tax declaration. Stressing about the tax advantages opportunities before the fiscal year could be another positive measure. All the mentioned is a way to encourage people to save and to benefit from the tax advantages. Also, this is a sign that the government supports the favourable tax regime and encourages saving in personal retirement products.

It is important to have the opportunity to apply the tax relief monthly as well as at the end of the fiscal year. This is a way not to overpay the tax and after that to file tax declaration and gain the saved tax in the next fiscal year (after filing the tax declaration).

Another fiscal stimulus, except financial tax reliefs, could be matching contributions. The matching contributions correspond to a certain proportion of the individual’s contributions. This proportion is the match rate. Examples of matching contributions are presented in the next table.

Table 1 – Government non-tax financial incentives, 2018 matching contribution (match rate)

fixed nominal subsidies

Austria (4.25%), Czech Republic (scale), Hungary (20%), Croatia (15%)

Germany, Lithuania

In the case of Austria, the matching contribution is a fixed rate of 2.75% plus a variable rate depending on the annual general level of interest rate. For 2020, the variable rate is 1.5% (OECD, 2020). As of 1 January 2020, the maximum personal contributions considered to calculate the government contribution is EUR 2 957.80 thus setting the maximum government matching contribution for 2020 of EUR 125.71.

The maximum subsidy is EUR 175 per year and per person in Germany for Riester plans members. Partners’ and child’s subsidy is also available for Riester members. The maximum subsidy amounts to EUR 185 per year and per child born before January 1st 2008 or EUR 300 per year and per child born on or after January 1st 2008. It is interesting another encouragement measure: Riester members with first government subsidy before their 25th birthday, receive an additional maximum onetime bonus of EUR 200.

We can conclude that tax advantages for the contributions in personal pension products are vital for the start of the saving. As Actuarial Association of Europe states (2020) “…in order to provide an adequate retirement income, it is necessary to pay an appropriate level of contributions; the investment strategy alone cannot deliver this”.

This taxation of investment returns is with the lowest impact on the decisions of savers concerning personal retirement products. This is a fact that stem from two reasons. First, tax advantage on investment returns is less well perceived compared to tax reliefs on contributions or benefits. Second, savers often consider the distributed investment yield as a net result no matter whether it comes after investment fees or income taxes.

In a situation where there is a taxation on the investment return, it could be imposed differentiated tax. The different treatment could be based on the number of years of holding the investments, the type of the assets or the income of the saver.

Some products allow early withdrawal of sums. This right could be without conditions or

Source: OECD (2018). Pensions Outlook 2018, p. 46.

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after meeting certain criteria. The amounts withdrawn are taxed under local tax legislation.

The logic is if for the contributions are benefitted tax advantages as a consequence the early withdrawn sums to be taxed proportionately. The total sum withdrawn could have part of distributed investment returns.

There are products that do not impose tax on investment yields withdrawn before retirement.

From one hand, such preferential treatment increases the trust, the transparency, the liquidity of the retirement product. On the other hand, it could diminish the accrued sum and future pension entitlements which is in contradiction of the nature of the product.

Often the tax treatment of investment returns on retirement products is compared to the taxation of similar flows in alternative products. One example is the interest on deposits. Another example is the technical interest and additional investment yield to life insurance products. Such comparative taxation analysis has to take in mind the different factors that influence the saving in different types of long-term products and the guarantee mechanisms that are behind each separate product. The tax on interest of deposit often is regarded as a way to encourage people to invest more actively their spare money not to save “passively” in bank deposits.

Another policy approach could be to apply different taxation on the investment options.

Applying different taxation could be a policy to encourage the saving in specific investment option, in specific investment portfolio, promoting low fees, encouraging low risk profile or others. The policy to encourage the saving in specific underlying portfolio could be regarded as an example of pursuing green policy, supporting ESG (Environmental, Social and Governance principles) portfolio or others.

Private pension schemes usually offer several types of benefits (pay-out options, decumulation payments). These options are life annuity, programmed withdrawal, lump sum or combination of more than one of the previous options. Information about the product features

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concerning the out-payments is presented in the following figure.

Percentage of decumulation option possibilities combinati on of lump sum and annuities 22%

other 1%

lump sum 33%

annuities 44% lump sum annuities

combination of lump sum and annuities other

Figure 1.

Source: E&Y (2017). “Study of the feasibility of a European Personal Pension Framework”, p. 36.

The figure above shows that annuities is the most widely offered payment option in personal pension product – with 44% share.

Second most offered option is the lump sum payment – with 33% share. The combination of lump sum and annuities comes third with 22% share. Other options have 1% from the decumulation option possibilities of personal pension products.

The tax treatment of pension income is usually identical across different types of payout options. Some countries, like Czech Republic and Estonia, apply more favourable tax treatment for annuities as compared to programmed withdrawals. This is a way to incentivise people to annuitize their pension income. Another applied policy is to levy no tax on lump sums to a certain amount or only to be partially taxed.

For the personal products it is important to be liquid product – in case of certain situations before retirement the saver to be able to withdraw (the so-called early withdrawal) the accumulated capital (or part of it). It is logical if the saver has benefited from tax exemptions for the contributions the early withdrawal sum

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to be taxed. This scenario is confirmed in nearly 80% of the product (E&Y, 2017).

The fiscal stimuluses are part of the overall tax policy of a country. Some of the elements of the overall tax policy are the existence of family reliefs, coverage of tax advantages to various types of income, policy options for increased tax advantages for lower income groups, relations tax base, compulsory contributions and tax rates, strategy for the evolution of the tax system and others.

The tax advantages can be spread out not only to labour income but also to income from real estate (rent and capital gain), income from financial instruments (dividend and capital gain), some kind of social or labour compensations or indemnities. Another milestone is to give possibility to gain the tax advantage for self-employed and for income from non-labour contracts.

Other policy option is to apply family tax reliefs. That means that there is favourable tax treatment in favour of a family member. In economies that has uncertainty in career and uncertainty in the labour income this is regarded as a solution to increase the coverage and to decrease the inequalities in gender and in income.

It is interesting to see the relation between type and depth of the tax exemptions with the success of a personal pension product. For the measure of the “success” we will use the market penetration index (MPI) developed in the E&Y 2017 study (pp. 185-186). The five products with the highest market penetration index are Riester from Germany, the Spanish IPP, the Belgium PP, the Danish RP and the Austrian PZV. Riester (Riester-Rente) is a government subsidised pension saving product. IPP is an individual personal pension plan (Plan de pensiones individual). PP (Pensioensparen) is a pension savings plan. RP (Ratepension/Ophorende livrente) is an annuity pension plan.

PZV (Prämienbegünstigte Zukunftsvorsorge) is a state sponsored retirement provision. Three of products (Riester, IPP and PP) fall to EET (E

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– exempt, T – taxed) category. RP is ETT taxation scheme and PZV is EEE label. The explanation for the highest MPI of the five products is different. One common feature is the “exempted” in-payments for the five products. In the study there is a conclusion that “…the main driver of consumer choice when it comes to personal pension product investment appears to be tax incentives”. And further “…when tax incentives increase by 1%, the penetration index (or the propensity to consume a personal pension product) gains 6 points on average”.

An element of the consumer trust in personal pension products is the possibility to transfer (switching) between providers without penalties. This transfer can be regarded in two directions – domestic and cross-border. The domestic switching is between providers in the same state. The cross-border switching is transfer to provider from another state. The taxation of the transfer is of great importance. The imposed tax is considered as an obstacle and as a cost to the transfer. It has to be taken into consideration that when allowed the transfer can be subject to any fees. The possible fees are not analysed in the current chapter. No tax impact following the domestic switching is envisaged in almost 84% of the personal pension products (E&Y, 2017). In the cases of three products (from Belgium, Latvia and Luxembourg) the domestic switching triggers immediate taxation. For five products (from Cyprus, Germany, Malta and Slovak Republic) the domestic switching is not allowed.

Relatively the same is the taxation in crossborder switching. In the cases of five products (from Belgium, Latvia, Luxembourg and Ireland) the cross-border switching triggers immediate taxation. For fifteen products (from twelve states) the cross-border switching is not allowed.

The tax treatment can be different for different products based on certain criteria: the type of the provider; the duration of the contract; the aim of the contract – savings or

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investment; the type of the guarantee; the risk nature; the underlying investments and others. The applied policy options can have the aim to encourage saving in a specific product. The chosen from the government policy is part of the overall social welfare strategy.

For example, one policy option is to encourage savers to save in a capital protected products. The capital protection for the PEPP can have the form of a guarantee (guarantee for the accumulated contributions after costs) or the form of applied risk-mitigation technique (RMT). The PEPP Regulation sets out the requirement for all PEPP investment options to include a risk-mitigation technique.

This requirement is supposed to secure high level of protection. The savers can choose a guarantee or RMT. Here comes the first problem – there are no clear criteria to assess the effectiveness of the RMT. In this regard, it is important to apply an algorithm of risk assessment operations, including determining the stages in the risk assessment process.

Taking the occasion of PEPP framework the social welfare policy can have focus on specific financial institutions – providers of personal retirement products. The possible PEPP providers are generally insurers, pension institutions, asset management companies and banks. Those groups of providers have different business models. They all need to have at least Basic PEPP. It will be difficult for the saver to compare between Basic PEPPs from different types of providers. The policy of pensions taxation can give competitive advantage of one personal retirement product to another (provided from different type of financial institutions).

Another policy option is the tax treatment to be favourable for products which are part of national guarantee scheme. For the PEPP in the section in KID (key information document) „What happens if (the name of the PEPP provider) is unable to pay out?” shall have description on whether the related loss is covered by an investor compensation or

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guarantee scheme. This information is very important for the savers’ choice and behaviour. The saver has to take into account whether some part or the whole amount of the savings is under protection from national guarantee scheme. In some countries life insurances and bank deposits are guaranteed up to certain level under sectoral guarantee schemes. At the same time savings in voluntary pension funds and in mutual funds are not protected under national guarantee scheme.

Another policy option is favourable tax regime to be granted for products which have high level of providers’ prudential rules. For the saver’s security stricter rules are better.

Higher capital and governance requirements lead to increased price for the private capital to participate in the market. It is said that life insurers have stricter prudential rules compared to asset managers. This could lead to prudential rules arbitrage.

We can view the favourable tax treatment as part of the standardized features in pension savings products. Using standardized features and measures for quality assurance EC is expecting increase in personal pensions savings.

When there are different sectoral legislations raises the question how to apply the same tax treatment. Logic dictates that tax treatment will follow the specific sectoral legislation. If for the saving in mutual funds there are no tax reliefs so for the PEPP provided by the investment company also is applied neutral tax treatment.

This could be a part of the solution for the personal pension savings coverage. High coverage rate is considered as one of the main factors for success of the personal pension product.

In this context for the success of the policy option it is very important the transparency of the product. Crucial indicator for the transparency is the comparativeness between PEPPs and PEPP with alternative products.

That is why it is needed clear and easy to

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understand information, including taxation.

User-friendly tools, calculators and others will help for the success of the product.

Other elements of the transparency are the compulsory informative documents KID and PEPP BS (benefit statement). The tax regime of saving in PEPP is not well presented in KID and PEPP BS (Dimitrov, 2020). On the contrary opinion is Better Finance (2020) which says that the applicable tax regime should not be detailed in KID. The lack of sufficient information about taxation of the pay-ins, investment yield and pay-outs lead to low comparability between PEPPs and PEPP and alternative products. Little information about tax regime has to be disclosed only in the section „What can I expect at retirement” in the KID. Positive influence on the PEPP Level 2 legislation is the carried-out testing among consumers (London School of Economics et al., 2020) of KID and BS mock-ups. The communication design, behavioural studies and consumer testing stand as a very valuable in product design. Valuable information from this testing is the influence of particular factors in both ways alone each other and in combination: security guarantee; annual cost (1%); risk profile (low or high); quality assurance (EU flag); social nudge and reward projection. Examples of social nudge are “very popular product”, “many people are buying” and “friends’ recommendation”.

The tax regime of the personal pension saving could be used to reduce the income inequality of the elderly. The tax reliefs could be differentiated based on level of income, types of income, the amount of the contribution, the amount of the pension benefit and others.

Those problems could be solved with combination of reliefs between absolute values and relative terms.

There is no common policy for tax reliefs in the CEE countries. Bulgaria, Croatia, Romania, Lithuania, Latvia, Estonia, Czech Republic, Hungary, Poland, Slovenia and Slovakia. This fact shows that countries with similar socio-

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economical conditions apply different policy options.

Table 2 – Taxation on saving in personal pension products in CEE countries country / flow

contributions

investment returns

benefits after retirement

Bulgaria

E

E

E

Croatia

T

E

E

Romania

E

E

T/PE

Lithuania

E

E

E

Latvia

E

10%

E

Estonia

20% credit

E

E

Czech Republic

T/PE

E

E

Hungary

T

E

E

Poland_IKZE

E

E

10%

Poland_IKE

T

E

E

Slovenia

E

E

T

Slovakia

T/PE

19%

E

Source: OECD (2020). “Financial incentives for funded private pension plans. OECD OECD country profiles” and E&Y (2017). “Study of the feasibility of a European Personal Pension Framework”.

Greater tax reliefs require more active government policy. The active government policy could take the form of detailed regulations, higher capital requirements, sophisticated supervision, medium- and longterm targets, adequate and regular information, appropriate statistics, periodic analyses and others. Other tools could be customer survey, analysis from independent parties. Based on the periodic analyses of the results of the pension system can be taken decision for changes, including evolution of the tax treatment of the personal pensions.

The tax regime has to be part from the overall social policy. If the income replacement ratio is low the government could encourage saving in personal retirement plans by tax reliefs. The existence of maximum pension from PAYG system may encourage saving in voluntary personal pension plans. Contrary, high amount of minimum pension from PAYG system discourages saving in voluntary personal pension plans. When there is not sufficient trust the policy-makers have to execute active policy.

The favourable tax treatment is part of the active policy.

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Conclusions The tax treatment of personal savings products is an important milestone of the accumulation of savings. Favourable tax treatment is regarded as a sign from the government that increases the trust in the particular saving product. In addition, favourable tax treatment is part of the social nudge that encourage potential saver to make a decision.

When granted tax reliefs increase the responsibility of the regulators and supervisors.

People tend to believe that tax reliefs are because of the active role, active policy and positive attitude from the authorities towards specific savings product. The decision which types of tax relief to grant is within the power of the authorities.

Stable and consistent tax reliefs policy is a must in the social and economic policy. This a step to increase the overall savings, with focus on personal retirement savings.

References AAE, (2020). “Comments on EIOPA PEPP consultation”, Available from: <https://actuary.eu/aae-comments-oneiopa-pepp-consultation/> Amariei, C. (2018). “Fostering Institutional Investment in Europe’s Capital Markets Reality vs. Expectations”. 2nd Interim Report of the CEPS-ECMI Task Force on Asset Allocation in Europe, Available from: <https://www.ceps.eu/> Better Finance (2020). “Response to EIOPA PEPP Consultation”, Available from: <https://betterfinance.eu/> Börsch-Supan, A.; M. Coppola and A. Reil-Held, (2012). “Riester pensions in Germany: design, dynamics, targetting success and crowdingin”, Available from: <https://www.nber.org/ papers/w18014> Carbonnier C., A. Direr and I. Slimani Houti, (2014). “Do Savers Respond to Tax Incentives? The Case of Retirement Savings”, Available from: <https://www.researchgate.net/publication /286527569> Chetty, R.; J. Friedman; S. Leth-Petersen; T. Nielsen and T. Olsen, (2012). “Active vs. passive decisions and crowd-out in retirement savings accounts: evidence from Denmark”, Available from: <https://www.nber.org/papers/w18565> Corneo, G.; M. Keese and C. Schröder, (2008).

“Can governments boost voluntary retirement savings via tax incentives and

subsidies? A German case study for lowincome households”, Available from: <https://www.econstor.eu/handle/10419/2 7673> Dimitrov, St. (2020). “The Basic PEPP – safe, transparent and cost-efficient product”. pp. 5 – 17, in: “PEPP – Regulation and Technical Standards for Market Realization”.

Conference proceedings, VUZF Sofia, ISBN 978-954-8590-93-8, Available from: <https://vuzflab.eu/en/collections/> EFAMA (2020). “Response to EIOPA’s Consultation on the PEPP”, Available from: <https://www.efama.org> EIOPA (2016). “EIOPA's advice on the development of an EU Single Market for personal pension products (PPP)”, Available from: <https://www.eiopa.europa.eu/ document-library/consultation/advicedevelopment-of-eu-single-market-ppp_en> European Commission (2019). High-level group of experts on pensions, Final report, Available from: <https://ec.europa.eu/transparency/ regexpert/> European Commission, (2017).

“Recommendation on the tax treatment of personal pension products, including the pan-European Personal Pension Product”, Available from: <https://ec.europa.eu/ info/sites/default/files/170629-personalpensions-recommendation_en.pdf> European Parliament, “Regulation (EU) 2019/1238 of the European Parliament and 183

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of the Council of 20 June 2019 on a panEuropean Personal Pension Product (PEPP)”, Available from: <https://eurlex.europa.eu/legal-content/EN/TXT/?uri= uriserv:OJ.L_.2019.198.01.0001.01.ENG> E&Y (2017). “Study of the feasibility of a European Personal Pension Framework”, Available from: <https://ec.europa.eu/info/ sites/info/files/170629-personal-pensionsstudy_en.pdf> Hinz, R. (2009). “Voluntary Retirement Savings: Motivations, Incentives and Design”.

Available from: <https://www. fiapinternacional.org/> Hooghiemstra, S. N. (2020). “The Pan-European Pension Product Regulation – Europe’s Solution to the “Pensions gap””, Available from: <https://ssrn.com/> Insurance Europe (2020), “Response to the EC Roadmap on CMU Action plan”, Available from: <https://www.insuranceeurope.eu/> Kuper, S. and Schmidt, T.-P. (2016), “Effects of Tax-Based Saving Incentives on Contribution Behavior: Lessons from the Introduction of the Riester Scheme in Germany”. Modern Economy, 7, 1198-1222.

DOI: 10.4236/me.2016.711117 London School of Economics and Political Science, Open Evidence and BDI Research, (2020).

“Consumer testing and communication design work specifying the

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details of the pan- European Personal Pension Product (PEPP) Key Information Document (KID) and Benefit Statement (PEPP BS)", Available from: <https://www.eiopa.europa.eu/content/eio pa-finalises-regulation-pan-europeanpersonal-pension-product_en> Marcinkiewicz, E. (2017). “Factors Affecting the Development of Voluntary Pension Schemes in CEE Countries: A Panel Data Analysis”.

Central European Economic Journal, 3, 50, pp. 26−40. DOI: 10.1515/ceej-2017-0015 OECD (2020). “Financial incentives for funded private pension plans. OECD country profiles”, Available from: <https://www.oecd.org/daf/fin/privatepensions> PensionsEurope (2020).

“Answer to Consultation on PEPP Level-2 Measures”, Available from: <https://www.pensionseurope.eu/> Rutecka-Góra J., J. Vostatek and J. Turner (2018).

“Extending Pension coverage: Tax versus non-tax incentives”, Available from: <https://www.researchgate.net/publication >, DOI: 10.33119/ACTA/2018.12.2 Whitehouse, E. (2005). Taxation: The tax treatment of funded pensions, Available from: <https://www.oecd.org/pensions/ private-pensions/2391559.pdf.>

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Selected financial indicators as a tool for optimizing local government units management Marek Wolanin* А A

VUZF University, 1 Gusla Str., Sofia, 1618, Bulgaria

Received: December 18, 2021 | Revised: December 20, 2021 | Accepted: December 28, 2021 JEL Classification: R51.

DOI: 10.38188/2534-9228.21.4.20 Abstract Finances of each organization are the basic security of its existence and the main indicator of its profitability. In local government units public finances, despite many similarities, are governed by different rules than economic entities, if only because local governments have systemically guaranteed income in the form of state grants and subsidies. New and modern methods of financial management appear in self-government financial management. We can notice it both in the scope of sources of investment financing and the scope of information and data justifying or negating financial decisions and, consequently, local government management. Financial indicators as tools supporting the decision-making process of governing bodies are an important factor in decision-making, including the implementation of public tasks, satisfaction of social needs and expectations. Thanks to indicators local governments have analytical information, useful in the process of management taking into account social expectations comparable to other units. The indicators show where a given self-government unit is in relation to its competitors, allow for a comparable evaluation of the achievable results and for a social evaluation covering the expectations and needs of the community's inhabitants. It should be noted that the indicators are the effect of using data, which are very abundant on the local government and business market. We often deal with metadata covering the whole country and regions and their sources are more or less reliable. Reliability of sources is extremely important in public perception. It is guaranteed by institutions representing information collected on the basis of systematic reports, obtained in a uniform space for all local government units. Both data and indicators calculated on their basis, as well as reliable rankings presented, are tools used by mayors of communes, local communities, more and more often government institutions, funds, agencies and media presenting more and less reliable rankings.

Keywords: metadata, financial indicators, ranking, kindergarden enrollment.

Introduction The basic task of local government is to provide the best possible living conditions and the best possible quality of services to its residents. It is an obvious fact, which is already known to a vast majority of inhabitants of small and large towns. It is to the local selfgovernment that the inhabitants turn with requests in public matters and in search for data, believing that the local self-government should solve all problems bothering them. *

More and more often the submitted matters concern issues including modern, forwardlooking solutions observed in other communities.

General availability of information and huge amount of data, which accompanies us at every step, is used more and more often not only by economic entities but also by individuals and the media. It is, of course, one of the factors influencing social assessment of the efficiency in management

Corresponding author: PhD Student of the VUZF University, e-mail: marek.wolanin@interia.pl, ORCID: 0000-0002-7685-9626

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of particular self-governments.

Polish self-governments, while fulfilling their current duties, create more and more digital data, analyzed and published collectively and individually by state institutions. Such activity causes that more and more data become easily accessible. It should be emphasized that a lot of generally available information may be useful in management, including preparation of strategic documents of local government development.

The main objective of this article is to show the usefulness of secondary data, indicators and rankings that help decision-makers in local government units to use their resources effectively and optimally in time. The information calculated by independent entities and, more and more often, by ministries and national statistical bodies define in a highly reliable way the position of self-government compared to other units. This information supports managers in choosing the direction of development and informs whether it is possible to solve political and organizational problems. Another objective is to draw attention to changes taking place in the financial system of self-governments and to the need to introduce innovative methods of self-government finance management, which are often conditioned by legal and institutional analyses. In itself, innovations in

financial policy should adjust selfgovernments to the emerging opportunities on the financial market allowing to implement a particular mechanism. Although innovations may be of different nature, including organizational, generic and financial, they should always result in a concrete outcome.

They should be based to a large extent on economy, oriented at rational management of resources. A self-government unit does not have to prove that the solution it intends to apply in a particular project, undertaking or in the area of services is state-of-the-art and has not been implemented by anyone before. The most important thing is their usefulness and high probability of achieving the assumed objective. Local self-government bodies are forced to look for new, innovative and alternative solutions due to limited resources and unsatisfied needs of self-government communities. Very often, heads of villages/mayors/presidents are left alone in making key and difficult decisions.

Therefore, pointing to publicly available tools, indicators, rankings, compilations of statistical data is a support in taking strategic and operational actions. This article presents selected financial indicators that, from an operational point of view, may contribute to the choice of appropriate directions of development and substantive justification of the tasks adopted for implementation.

Material and methods A special group of data appearing in the public area includes financial and economic data. This includes information about local taxes and fees for leases, lane occupation, swimming pool admission, ice rink admission, parking, and broadly defined economic indicators. This data is important for the local community, which is currently scattered in many local governments in different, often closed, systems and, what is worse, not used for specific analysis or optimization of service

operations. A special set of data and information are budgets and reports of local government units, which present the scope of implemented tasks and the amount of funds spent and gained. The financial report of an organization is a source of knowledge about the scope of its activities and at the same time a useful tool for many entities. These entities can be grouped according to the type of scope of activity, institutions or recipients operating within the organization.

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(2021) VUZF review, 6(4) Table 1 – users of financial statements External users Internal users

Business units and others

State and local government agencies

1. Investors 2. lenders and borrowers 3. Suppliers 4. Customers 5. Other groups

1. central offices 1. company management and ministries 2. managers of various 2. local government authorities levels of management 3. tax offices 3. supervisory board Treasury and fiscal control and audit committee 4 Other tax inspection authorities of 4. general meeting fiscal control 5. employees 5. statistical offices Source: W. Gabrusewicz, M. Remlein, Sprawozdanie finansowe przedsiębiorstwa – jednostkowe i skonsolidowane, Warszawa 2011, p. 24.

The list of recipients naturally expands each year, which creates the possibility of its different inclusion, depending on the method of classification.

Among the users of financial statements there is a predominance of external recipients interested in financial information to meet the needs of entities operating in the environment.

Investors are interested in the amount of risk and return on investment. They need information to decide whether to keep or sell the investment (W. Gabrusewicz, M. Remlein (2011)). Internal users use data to analyze the validity of solutions adopted or the effectiveness of actions and to find out the position of units, products among competitors. Data enables the calculation of financial and organizational indicators in order to react in time and introduce new solutions or strengthen existing ones.

Availability of metadata in public space has been noticed by European Union countries for a long time, and at the beginning of the XXI century, legal regulations were adopted in the Directive 2007/2/EC of the European Parliament and of the Council of 14 March 2007, which established an infrastructure for spatial information in the European Community (INSPIRE). Article 10(1) of the Directive reads

Member States shall ensure that any information, including data, codes and technical classifications, needed for compliance with the implementing rules referred to in Article 7(1) is made available to public authorities or third parties in accordance with conditions that do not restrict its use for that purpose (Directive 2007/2/EC).

Data is a very valuable commodity on which to build an organization's entire operating strategy. This is one of the reasons why, as the amount of data grows, so do the technologies of its acquisition, analysis and collection. The value of data for the local government is measured by a different scale and most often it is used to meet the socially expected public needs, social, economic, infrastructure, education, etc. The art of efficiently functioning self-government is proper analysis of obtained data and what is connected with it, better designing of services.

Local governments have at their disposal various sources of data which include all kinds of public registers and indicators calculated by means of algorithms. The analytics used serve to dynamically predict and preventively improve the services provided. Each financial statement should be clear and reliable only then it is a reliable and useful document, which contains a

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By skillfully reading financial statements, both external and internal audiences can assess the financial health of a company (K. Szopa (2021)).

Financial statements are the final product of the financial accounting system, they are the result of measuring the activities carried out by an enterprise. Among the reports generated by business entities, financial statements are the most widely and extensively used by external users (A. Kaczmarczyk (2015)). It is a tool that allows conducting detailed analyses, calculating indicators and presenting the organization's position in the environment and this is the basis for a number of rankings and statements.

Financial reporting is the primary source of economic analysis. The purpose of financial statements is to provide information about the financial position and performance and changes in the financial position of the company. This information is needed by a wide range of users in assessing management skills of managers and in making economic decisions (D. Krzywda (1999), p. 41).

Local government unit is obliged to apply the principle of openness and transparency of public finance, which are legally defined in Part I, Chapter 4 of the Public Finance Act. For the local government unit the principle of openness means making public collective data on its finances and activities in the form of e.g. annual reports. On the other hand, the principle of transparency obliges the entity to, inter alia, use the budgetary classification scales at the stage of planning, bookkeeping and reporting.

Information openness and transparency provides a more complete control over public funds, which improves liquidity management, has a positive impact on budgetary discipline and, as a result, on the financial position of the

(2021) VUZF review, 6(4) local government unit (D. Adamek-Hyska (2016)).

Annual reporting is a source of analysis of financial decisions made on an annual basis, which is a component of financial management.

It is also a link in the chain of the general management process of obtaining finances as an essential factor of current and investment activities.

Financial statements to be able to reliably present the financial situation should be characterized by features such as truthfulness, verifiability, completeness, transparency and understandability, relevance, continuity, comparability, timeliness (Kiziukiewicz (2014), p.

36).

Reporting is the last stage - on an annual basis – of accounting. In local government it is regulated by legal norms applicable to all units.

It allows to freely conduct analysis and aggregate statements on a regional and nationwide scale. Then, presentation of basic financial and economic data becomes more colorful, often it is also a reason for additional analyses and locally adopted directions of action in subsequent accounting periods.

It should be noted that it is impossible to make decisions on the further functioning of the economic unit, steering it, adapting to changing conditions both internal and external without the information contained in financial and budget reports (M. Wakuła (2015)).

On the scale of a single local government, decision-making about further activity cannot take place without reliable data on the property and financial situation of its organizational units.

Local government finance is, after all, a consolidated balance sheet of all links related to the local government unit in such a way that the impression is given that the group is a single entity.

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ISSN 2534-9228 The local government units have been obliged to prepare such reports since 2006.

Since then, it has become an element serving the management of a given unit and not only its administration. It provides a full picture of its functioning including its organizational units.

The most important from the point of view of local government unit management is the information on operating costs, which are the basic criterion for decision-making as it is impossible to run any activity without incurring them. The component element of the financial statement of the local government unit providing information on the purposeful consumption of production factors and on some expenses that do not constitute the consumption of production factors is the profit and loss account (M. Wakuła (2015)).

Annual local government reporting, however, is a form that we can say has a historical nature of data collection, which is not conducive to management efficiency. So, the need has arisen to collect data from shorter reporting periods, semiannual, quarterly and monthly. With such a system, it is possible to make adjustments and eliminate emerging negative indications and risks.

Typical economic entities in their activity are focused on maximizing profits. Meanwhile, in self-governments, one of the most important aims is to optimize the utility of the funds spent.

Therefore, from the point of view of efficient management, information necessary for making key decisions is important. In this case, taskbased reporting is useful, as it provides many benefits concerning data on the planned tasks, the planned and additional costs incurred in their implementation and appropriate measures of the achieved effect. Budget tasks are the smallest element of the activity-based budget.

Therefore, it is the easiest to calculate, precisely follow the processes and costs which occur during its implementation. It is an irreplaceable

(2021) VUZF review, 6(4) treasury of knowledge for the managers and planners of subsequent tasks, especially in the aspect of direct and indirect costs of its implementation.

Each self-government functions in a constantly changing environment, the volatility and often ambiguity of operation accompanying all entities, the uncertainty of principles and rules of obligatory conduct impose the need to use full and reliable information by persons managing the commune self-government (heads of communes/mayors/presidents). In efficient management, the ability to use both financial and task-related information is indispensable.

The substantive assessment of financial functioning of self-governments can be carried out in an infinite number of ways. Practically everyone who is engaged in the analysis may develop their own indicators and measures of the financial functioning of self-government.

However, all analyses should be based on reliable data and, what is important, presenting exactly the same substantive research space based on reliable sources, which to a large extent guarantees their acceptance. Only such an approach is a guarantee of correctly calculated and presented indicators, which in the next stage can be a source of comparisons and rankings.

One of the most frequently presented indicators for assessing self-governments' financial condition is the share of selfgovernment own income in total income. The indicator shows the extent to which own income allows realization of public tasks. It is called the index of financial independence. It is the main measure influencing the assessment of financial independence. It is also information about the scope of the local government's revenue policy and the scope of the local government's decision-making powers. When the ratio begins 189

ISSN 2534-9228 to fall, the local government unit becomes more dependent on the funds transferred from the state budget.

Operating surplus and its relation to total revenue is another very important financial indicator. Calculating the difference between current revenue and current expenditure and achieving a positive result indicates the ability of the local government to repay its liabilities and finance investment expenditures. A positive ratio also indicates to what extent the local government can incur new liabilities. In the case of a negative result, we deal with a local government, whose current revenues are not sufficient to secure current expenditures. This situation requires an urgent conduct of many analyses, often a reconstruction of the budget plans, of course taking into account the factors that concern the specific situation and the specific local government.

The costs of self-government functioning are an indispensable expense that is borne by all units. When making financial analyses, it is important to know what percentage of current expenditures is spent on salaries and salary derivatives. When there is a high share of these expenses in the current costs, such case is evaluated as a negative financial management.

Often, in such cases, an efficiency assessment is carried out, connected with qualitative research covering the work efficiency of individual employees. Sometimes a job evaluation is also carried out in order to determine the salary structure.

Very often in local government rankings the indicator of share of investment expenditures in total expenditures is used. It is an indicator indicating the financial situation and investment possibilities. Achieving a high indicator for a period of several years is an additional piece of information that the financial decisions taken have a significant influence on increasing the

(2021) VUZF review, 6(4) assets and maintaining an appropriate financial condition. It may also be related to the increasing investment attractiveness of the local government, the constant maintenance of creditworthiness and ability to service financial liabilities. A low value of the indicator is clearly associated with a weak development potential and moderate financial independence.

The share of financial liabilities in total income is an indicator which absolutely defines the degree of indebtedness of a local government. Its amount influences the whole financial activity of the local government. If the safe limits are exceeded, the financial liquidity of the local government is threatened and the budget becomes more rigid.

The local government's own income includes the share of personal income tax in the current income. Their amount varies depending on the level of local government. It is an indicator that local governments often analyze in order to check the level of the state support that includes the obligation to secure financial means for realization of own tasks of local governments.

In recent years, a popular financial indicator is the share of European funds in total expenditures. This is important information about the level of activity of local authorities in the sphere of competition for external funds and additional sources of financing. These funds absolutely influence the increase of investment potential and sustainable development. It should also be emphasized that they also allow for the implementation of tasks in the social sphere, counteracting social exclusion, development of education, construction of new and modern social infrastructure and the development of NGOs and civil society.

For the purpose of studying the financial efficiency of individual local governments, financial information is often used to calculate other social indicators. One of the most popular 190

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is income per capita, which is the ratio of income to the number of inhabitants and, similarly, expenditure per capita.

Educational indicators are undoubtedly very important information covering the management of financial resources and organizational aspects of schooling at every level. Of course, for parents and students as well as for principals and teachers the indicators are important from the point of view of the level and effects of teaching. This is one of the factors that influence the evaluation of their work. This information is also carefully analyzed by local government units, which, of course, mainly by securing an adequate educational base, thus working and learning conditions, are able to support the efforts of teaching staff in terms of the level of teaching. Conducting detailed analyses covering the functioning of the local education system is indispensable, if only due to the fact that the amount of funds allocated for educational tasks reaches from 25 to 50% of commune budgets.

On the one hand, local governments strive for efficient and safe management of their educational institutions and, on the other hand, they are responsible for rational management of resources. And although information about high

educational results gives a lot of satisfaction, effective education management also requires various data presented in the form of indicators, such as the average number of pupils per class or the number of pupils per teacher. These data inform about working and learning conditions but they also have a very important impact on unit costs of school functioning and costs of education per pupil. These are indicators that must be taken into account when establishing the school network and determining the effectiveness of expenditures incurred, and they cover a range of organizational and financial issues. In colloquial terms, it has been calculated that there are currently 256 education indicators. It is difficult to state, however, whether these calculations are correct, but we can state with certainty that they include basic indicators that must be noted by TSU as being fundamental and decisive for the construction of school networks and for the amount of funds spent, although decisions in this respect are influenced by many social and political factors. It should be stressed that any changes in this sphere must be introduced with caution and should be preceded by extensive preparations, consultations and strong justifications, including economic ones. Certainly, indicators alone will not solve the issue. In school management at the municipal level, the indicators can be grouped by areas.

Table 2 – Areas and indicators considered in education management Area School organization:

Equalization of opportunities:

Indicator • Number of pupils per class division.

• Number of students per one teaching position.

• Number of teaching posts per class division.

• Number of posts for teachers per class.

• Number of students per computer with Internet access.

• Percentage of students transported to schools at the commune's expense.

• Shift patterns.

• Percentage of students attending secondary schools in a given type of school (concerns only districts).

• Share of students repeating a year in the total number of students.

• Percentage of students receiving individual teaching.

• Percentage of students with special education certification.

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Area

Indicator • Percentage of students receiving subsidized or reimbursed lunch.

• Kindergarden education (concerns only municipalities).

• Weekly number of instructional hours per teacher.

• Percentage of full-time teachers.

• Expenditures on further education of teachers per FTE. • Share of teachers' salaries in current expenditure on education.

• Average monthly salary of a non-teaching staff member.

• Average monthly remuneration of teaching staff.

Financing education: • Current expenditure on educational tasks excluding mainstream kindergartens and pupil transportation as a percentage of subvention received.

• Total current expenditure on educational tasks per pupil.

• Total current expenditure on educational activities per pupil.

• Non-financial outlays as a percentage of total spending on education and educational tasks.

• Financial expenses from EU structural funds (or other non-repayable funds) as a percentage of total expenditure on educational tasks.

Source: Own study based on: Komu i do czego potrzebne są wskaźniki, Aleksandra Kużniak, file:///C:/Users/Marek/AppData/Local/Temp/komu_i_do_czego_potrzebne_sa_wskazniki-2.pdf; 10.12.2021.

Staffing:

Indicators that are useful in providing a picture of what local governments face when managing education are grouped together in a table. The 24 education indicators, cover various organizational and financial issues (E. Cone (2012)). It is a set of data presenting holistically and logically information about the situation of education in individual municipalities, which are indispensable in developing education development strategies, analyzing school networks, teaching profiles, retrofitting and rational management of financial resources.

Practically, each district functions in different conditions and these differences are visible particularly at the level of urban and rural districts. Rural districts must compare, among other things, in their financial analysis, whether it is profitable to maintain schools, often very expensive, or whether it is cheaper and more effective to incur the costs of transport to a larger school that guarantees better working and learning conditions and more rational use of financial resources.

Results and discussion The usefulness of indicators is greatest when we can compare them at different levels.

Readable are educational indicators whose [w]hen comparisons require appropriate normalization. Three ways of comparing indicators can be formulated: 1. Comparing among themselves indicators for specific class divisions of a given school or schools run by a given TSU. This is an internal diagnosis of the local school system.

2. Comparison of indicators for a given

school or TSU with other local governments at different levels of aggregation (voivodship, country). It is a comparative diagnosis of the local school system.

3. Comparison of indicators of a given school or a given local government in subsequent years. This can be described as a dynamic diagnosis of the local school system (M. Herbst (2012)).

It should be noted that an important factor in comparing indicators and making decisions 192

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about their operation is the issue of the school's location, urban and rural environments. In addition, the decision-making bodies of local authorities must take into account the environmental role played by the school, its position in the local community, its integration with the parents' community and the provision of other, non-school social needs. These are difficult to estimate activities in the sphere of social policy. Although the cost of transportation may be much lower than the cost of maintaining the school, the policy goals achieved and social peace are more important and costly.

Based on available data and indicators, rankings have accompanied us for years and cover practically every area of life. We approach them with emotion, admiration and smile. The rankings we treat most seriously are those for which we are convinced of the credibility of the data presented, knowing their sources and methods of analysis. It is a matter of objectivity in creating the database used in the rankings. It can be said that rankings allow us to find clues as to the quality of the presented product, they are tools that are useful in analyses, indicate where we are, inform about the entity's superiority or inferiority in relation to the competition. It depends on the skills of the management whether the presented results will be useful in the life of the organization. The presented data, which are the basis for placing an entity in a proper position in the ranking, are the basis for the evaluation, which serves as recommendations and results in investment, financial and organizational decisions. Ranking is an objective assessment very important in the cyclical life of local government.

It is commonly known that the overall assessment of local government authorities and the degree of satisfaction with the work of the local government takes place cyclically, in the election process. Verification of their usefulness should not be only final, but enriched with sets of assessments concerning various aspects of local government functioning. General evaluations are difficult to prepare and their components should focus on the most

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significant values and conditions of the local government. They are labor-intensive and require the involvement of specialists in various fields of economy. These assessments focus on the perception of local government in the light of its attractiveness, competitiveness and innovativeness. A necessary element of the assessment is the identification of challenges, weaknesses and threats in the market environment and risks to the local government.

An important aspect of such assessments is, among others, knowledge of spatial and economic accessibility to basic public services (rarely concerning their standards), financial and asset management, or investment intentions (E. Wojciechowski (2018)).

Ranking, after all, is a form of competition in which the aim is to select the best, to indicate the winner. However, the usefulness of rankings is much greater, as they present a range of information about an entity, presenting data, indicators and analyses in the same way for all entities and taking into account the same features for all participants. Through positioning, contrasting participants, differences and distances between them are presented. It is a kind of diagnosis of the state of affairs indicating the strengths and weaknesses, it is an impulse to fight for a change of the position held while changing or correcting the strategy and taking up new risks, actions not taken before or improving the already existing solutions. In a special way the role of promotion, marketing, which in case of positive results presents the entity in better colors of competition, should be emphasized. For local governments it is an important political and social instrument indicating adoption of good or bad directions of development. Therefore, rankings are needed by entrepreneurs, politicians, governmental, self-governmental and administrative authorities, scientists, inhabitants, investors and media. Of course, we encounter different types of rankings; in our considerations we are interested in economic rankings, as those that emphasize economic parameters of development and evaluate 193

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financial condition of an organization. From the point of view of local government, social capital and environmental rankings are also important.

The whole is an excellent, analytical presentation of local government units, realized by external entities and indicating our good solutions and pains.

On the basis of selected indicators and data sets we can learn a lot about a particular local government and a particular organization. It turns out that in a world full of ambiguity and uncertainty, the value of well and reliably presented data is valued by a range of institutional audiences of individuals. Through the media, this information is reaching ever larger audiences. In the situation of constant volatility that surrounds us, reliable data is sought by people who professionally process it, scientists who need information in their research work, local community, politicians.

The obtained financial data supplemented with additional social information, data from censuses, surveys and information provided by the Central Statistical Office allow for presenting an up-to-date picture of each local government unit. These are excellent tools supporting the decision-making process, expressing in an analytical way the activities, functioning and conditions. They are tools, which in an impartial and independent way present the directions of activity of self-government, its strengths and weaknesses and further development opportunities.

To obtain financial indicators, reliable information is most important, including: total revenue, current revenue, own revenue, total expenditure, current expenditure, expenditure on wages and salaries, property (investment) expenditure, liabilities, operating surplus and European funds. Their reliable source is local government financial reporting. These and similar information are increasingly available to the inhabitants of a given self-government unit, who evaluate the selected self-government authorities on their basis.

Comparing the indicators of a given territorial self-government unit with the national,

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voivodship and the same types of selfgovernments changes the perspective and leads to interesting conclusions, to conscious and responsible decision-making, to planned and well-thought-out activities, to making conscious choices, to prioritisation of objectives and to elaboration of factual and constructive information on the tasks implementation status.

Local governments, which submit themselves to independent evaluation by experts, increase the effectiveness of their activities in the implementation of public tasks. Obtained certificates, statuettes and diplomas prove that they stand out from other local government entities, which in subsequent stages shows that they are a place where it is worth to educate, invest, that they are units caring about the development of the economy and thus strengthen their investment attractiveness.

In any environment knowledge and information is a basic source of success, so the ability to use available data, information, indicators and rankings is a tool that helps in effective and efficient management. Financial ratios are a special form of analysis of the financial condition of an organization, its ability to operate and its position in the world of competition. It is also an assessment of the efficiency of operation and the adopted courses of action. It should be stressed that in cases where rankings are done for a fee, their credibility is very low. Only free rankings, based on financial reporting, on indicators calculated on the basis of open, real and easy to control data provide a basis for effective analysis and can be the basis for making strategic decisions for the organization.

Data from reliable reporting sources are an important, if not the most important element of management in local government. Often underestimation of the role of essential information contributes to wandering and operating in the dark, which in the world of modern management methods and ruthless competition is unacceptable. Local governments are, to a large extent, organizations in which the same mechanisms apply as in other economic 194

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entities. That is why, they must analyze and introduce innovations in the financial policy, which are to adjust self-governments to new possibilities of supporting their functioning that appear on the financial market. Decisions in this scope must be preceded by well-prepared financial analysis based on data, indices, rankings and solutions and courses of action adopted by comparable entities. Innovations in

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self-government do not have to be the latest, innovative on a global or national scale. A selfgovernment unit does not have to prove that the solution it intends to apply in a specific project is the most modern and has not been implemented by anyone in a given form so far.

What is important is the achievement of social objectives and the development of the local government community.

Conclusions Summarizing the above discussion, it should be stated that: 1. Financial ratios are one of the basic tools necessary for decision-making in planning and development of any organization.

2. The type of indicators depends on the needs and areas in which the organization operates.

3. Compilation of data over time allows for analysis of performance and indicates whether the specified objectives have been achieved or whether we are approaching their achievement.

4. With respect to local government units, the obtained financial data supplemented with additional social information, allow for presenting an up-to-date picture of the finances of each local government unit and its position among other local governments.

5. Financial indicators are tools that in an impartial and independent way present the directions of activity of a self-government unit, its strengths and weaknesses and development opportunities.

6. One of the most important factors affecting the reliability of financial data necessary for the calculation of financial indicators are the current financial statements and statistical data covering the same research areas made public by the Statistical Offices.

7. Compilation of indicators of a given unit of local government and relating them to comparable units supports conscious and responsible decision-making, making informed choices and provides an opportunity to prioritize objectives.

8. Financial indicators are a special form of analysis of the financial condition of an organization, its ability to operate and its position in the world of competition.

9. The only form of presenting indicators are free rankings, based on financial reporting, on indicators calculated on the basis of open, real and easy to control data. Then they are the basis for effective analysis and can form the basis for strategic decisions for the organization.

10. A well-conducted analysis based on financial indicators helps to avoid marginalization of the organization and to present financial and program perspectives.

The utilitarian nature of secondary data, indicators, rankings, or compilations supports management. Calculated by independent entities and, more and more often, ministries in a highly reliable way determine the position of the organization and the new financial reality, ongoing changes in the financial system have a significant impact on the choice of innovative management methods.

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Monetary incentives and fiscal policy mutual influence Vitaliy Shapran * А A National

Bank of Ukraine, Instytutska St, 9, Kyiv, 01601, Ukraine

Received: December 20, 2021 | Revised: December 22, 2021 | Accepted: December 28, 2021 JEL Classification: E.31, E.32, E.52, E.58.

DOI: 10.38188/2534-9228.21.4.21 Abstract The article considers the problems and practice of using the tools of monetary and fiscal stimulation of the economy. The main problems of the application of monetary instruments in practice in emerging markets are identified. The author paid special attention to the definition of classical monetary policy instruments and their role in economic growth in emerging markets.

Critical assessment of the role of monetary policy instruments in stimulating economic growth is based on the practice of central banks in emerging markets. Recommendations for the analysis of the efficiency of monetary transmission are given. Problems of efficiency of application of fiscal stimulus instruments in emerging markets are raised. The mechanisms of the dependence between fiscal and monetary policies and the strengthening of such dependence in the case of a significant informal sector of the economy and an underdeveloped financial market are demonstrated. The author not only points out the need for coordination in choosing between monetary and fiscal policy but also advocates the idea of having an independent arbitrator between monetary and fiscal authorities in developing countries. The article also focuses on the analyzing algorithm of the use of monetary policy instruments for economic growth effectiveness. The conclusions made in the article will be especially useful for those who are interested in the issue of optimal choice between monetary and fiscal instruments to stimulate economic development in emerging markets.

Keywords: inflation, inflation target, monetary policy, development markets, monetary transmission, prime rates, credit markets, monetary regime.

Introduction Emerging markets are currently experiencing a shortage of growth incentives. Governments, people, and businesses would like their economies to grow faster. However, monetary inflationary constraints and fiscal limits on budget deficits mean that each developing country has certain development constraints that must either be overcome through reforms or adopted as is and considered when

developing national development plans. The study of the choice between the impact on the economic growth of fiscal and monetary policy is a very popular topic for research, but such research lacks an understanding of the relationship between the monetary and fiscal sphere and what are the internal barriers to using the instruments of monetary and fiscal stimulus.

Material and methods The study used such methods as historical comparison, historical analogies, analysis using statistical methods to study the dynamics of indicators. Particular attention was paid to the

comparative analysis of the situation in developing countries. To confirm the conclusions, the article used data from national statistical agencies, central banks, and

*

Corresponding author: Professor, Ph.D. in Economics, Member of the National bank of Ukraine Council, e-mail: shapranv@gmail.com, ORCID: 0000-0002-1540-6834

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1. Organizational problem in choosing the field of incentives. When studying the issue of choosing between fiscal and monetary policy in terms of stimulating the economy, it should be noted that today such a choice theoretically cannot be made by a single governmental body, as most of the laws regulating central banks in developed countries provide them with a high level of independence from the executive branch. Sometimes in democracies, when the power is concentrated in the hands of the head of the executive branch, the principle of independence of the central bank is violated. In my opinion, this trend has been observed in Turkey during the last 5-7 years and in some African countries. Also, the model of cooperation between the People's Bank of China and the government of this country, which is based to some extent on party discipline and a clear command vertical is very peculiar.

However, the cases of functioning of the models that imply the suppression of the central bank’s independence, are becoming rather exceptional nowadays. The IMF, which is a lender to many countries, is a reason for that, usually requiring strengthening the independence of central banks. My personal opinion is that central banks should have a high level of independence from the government because the lack of it usually leads to destabilization of the national currency and inflation. But it must be clear that in case of providing the central bank with a high level of independence in the governmental system, there will be a debate going over the choice of policies and instruments to stimulate economies between two equal players: the government and the central bank, without any qualified arbitrator. In practice, it means a struggle between central bank workers and officials of the government and the Ministry of Finance.

Such a conflict is likely to have a political connotation in case members of the national parliament, the legislature, join it.

In practice, central bank management, experts, and analysts make claims about poor

(2021) VUZF review, 6(4) tax collection, an inefficient fiscal control system, or problems with the Finance Ministry's borrowing system, while considering the monetary bloc to be sacrosanct. Government officials, on the other hand, always consider the central bank's policy too harsh and call for cheap money if not for getting the government directly credited. And of course, when politicians are interested in their public polls, they agitate for both low taxes and low credit rates. This combination of discussions between the monetary, executive, and legislative branches leads to the situation when the direct analysis of the effectiveness of economic development stimulation instruments either does not take place at all or takes place formally. At the same time, it is the actor with stronger political positions who wins the discussion and then dictates the conditions to others. In my opinion, this is what happens not only in Ukraine but also in many other developing countries.

However, there are certain steps that can somewhat reduce organizational chaos while choosing the optimal stimulus model between fiscal and monetary policy instruments. One of the first things to be done is to sign a memorandum between the central bank and the government. This document should provide for an objective and unbiased analysis of the choice of instruments to stimulate economic development, reconciliation of contradictions, as well as a mechanism for involving the scientific and expert community in the discussion on the issue. It is desirable to have an arbitrator who can assess the effect of the use of other tools in this systematic discussion competently and correctly. That is, a potentially chaotic discussion/power struggle should turn into a planned scientific discussion, the purpose of which is to determine the optimal list of incentive tools.

2. The problem of using monetary stimulus tools. Most researchers name such tools of monetary policy: • Central bank interest rate; • Mandatory provisioning rate set by the central bank; • Open market operations.

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ISSN 2534-9228 All three tools can be used to stimulate economic development, but each state needs to study the specifics of these tools. For example, the effect of the Federal Reserve System interest rate in the United States and the National Bank one in Ukraine is different, just as the efficiency of the transmission mechanism. Banks in different countries may also react differently to the movement of the reserve ratio. For instance, there may be systemic issues that prevent the required backup from being used effectively.

Such problems may include, in particular, the low quality of loan portfolios, specific market conditions, or even a policy imposed by an external lender where the sterilization of the money supply occurs through central bank certificates of deposit on a non-payment basis.

The open market operations instrument is specified in each country and depends on: the state of development of the government bond market and quasi-government structures, the foreign exchange market, and the ability of players in these markets to influence the macroeconomic situation. Therefore, I would recommend starting studying the specifics of the country with the block "open market operations".

The effectiveness of the central bank interest rate performance should be measured through a study of the effectiveness of monetary transmission. Here we should focus on how the impulse from the change in the central bank's interest rate reaches the final consumer (borrower) and analyze what obstacles stand in the way of such an impulse in changing the cost of money. If we take Ukraine as an example, the experience of my analytical work shows that the relationship between the movement of the interest rate of the National Bank of Ukraine and market rates in different market segments is approximate as follows: • Interbank credit market – 95-98%; • Secondary market of short-term government bonds – 70-85%; • Prime-segment corporate lending market – 50-60%; • Corporate lending market – 30-60%; • Prime-segment retail lending market –

(2021) VUZF review, 6(4) 20-40%; • Market cash loans for any purpose – 0-10%.

Such statistical research is seriously hampered by various government programs to stimulate lending to small businesses and individuals. Typically, these programs interfere with the market segment and block the establishment of a market price for a bank lending service. In such a study, it is also important to control the quality of statistics, which is usually depleted by national regulators or national statistics bodies. For example, my practice has shown that while official statistics could indicate an average interest rate on loans to individuals of 35% market sources indicated a nominal rate of 100-120% per annum, in case there are proposals for instant loans with an effective rate of 25,000% per annum on loans in Ukrainian hryvnia.

The lack of national statistical standards for the reflection of effective rates in the credit market is one of the key problems of accurate analysis. But even without an accurate analysis, we can conclude that when the lender's effective rate is about 100%, such a market (or market segment) suffers from high credit risk.

This means that the lender usually does not care how much it will cost to refinance the central bank (either 5% or 10%), because more than 90% in the cost structure of its credit product may be a credit risk. In this case, non-performing loans (NPLs) will be compensated at the high effective rate.

In the case where credit risk is the main factor influencing the lender's expenditures, the momentum from the change in the central bank's rate will simply not reach such markets, and monetary transmission can be considered weakened. The example of Ukraine shows that to effectively use the monetary stimulus instrument, it is necessary to work to ensure that credit risk in certain market segments ceases to be a significant part of banks' expenditures. This may be not only about improving the infrastructure of the credit market (for example, the creation of credit bureaus), but also about reforming the judiciary and the enforcement system.

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The reserve requirement is not a tool that can stimulate economic development. But according to my practice, I would recommend that central banks be cautious about this tool for the following reasons: Firstly, the overload of the banking system with low-quality assets and reserves under them against the background of a possible crisis may affect the margin between loans and deposits.

Against this background, a rise in required reserves may increase the gap between lending and deposit rates in the market. This state of excessive influence of monetary regulation can lead to the fact that deposits or credit products may lose their attractiveness, which is an undesirable outcome for countries with a high share of M0 in M1.

Secondly, before ending the use of the reserve requirement instrument, you need to make sure that certificates of deposit are excluded from these liabilities when accruing reserves for central bank liabilities. This is especially true for banks that use the interest rate as the main tool for inflation targeting. If you do not withdraw certificates of deposit from the reserve base, then the growth of the interest rate and increase in certificates of deposit will lead the raise of the reserves of the central bank that are formed from profits. In turn, the growth of reserves will negatively affect the profits of the central bank. In a system in which the sterilization of the money supply occurs through the raising of bank funds, an increase in the interest rate deals a double blow to the central bank's profits: Since the resources raised by central banks are in most cases not included in the monetary base, such instruments should indeed be excluded from liabilities.

The effectiveness of open market operations in developing countries is measured by how developed the securities market and the foreign exchange market are, i.e., how they affect macroeconomic parameters. Some authors and researchers exclude the foreign exchange market from the open market operations instrument, but I would not do so in the case of countries with dollarized economies such as Ukraine. In dollarized economies, the money

supply depends on the central bank's operations in the foreign exchange market, and this dependence can be quite strong. As for the central bank's operations in the securities market, Ukraine's practice is not indicative.

National legislation of the NBU prohibits the financing of the state budget. And although there is no direct ban on NBU operations on the secondary market, in fact they are not carried out due to the possibility of double interpretation of the content of such transactions.

However, the practice of developed countries shows that the central bank's operations in the government bond market are possible not only in the secondary but also in the primary market. That is, the central bank can buy bonds directly from the government.

Moreover, this practice is enshrined in law at the level of setting the rate of redemption by the central bank of government bonds. An example of such operations is Canada. By 2015, the Bank of Canada was to repurchase 20% of government bonds from the government. In 2015, this rate was reduced to 15%, and then had to be reduced to 13-14% (Report, Bank of Canada, 2018).

Interestingly, this practice does not limit the amount of redemption of government bonds.

For example, in 2020, the Canadian government issued far more bonds than planned due to the crisis, so even as the interest rate fell, the central bank's redemption of government bonds was expected to increase. The redemption of government bonds by auction in the primary market can only be considered in part as an instrument of monetary influence through open market operations. But Canada's example shows that the country's central bank should have unrestricted access to all segments of the government bond market. Only the amount or percentage of redemption of such bonds should be limited. It is also important that the monetary policy instrument does not become a hidden channel of regular government funding, even through the secondary market. In my opinion, the idea of the central bank operating in the secondary market of government securities

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Another important argument is that the same monetary policy instruments should be available to the central banks of developing countries as to the central banks of developed countries.

3. The problem of using fiscal stimulus instruments. Fiscal stimulus in the form of, for example, tax cuts in emerging markets should be the best driver of growth. With the fiscal stimulus, money instantly reaches consumers and businesses. Monetary stimulus takes time to gain momentum from lowering the rate from the central bank to the consumer and business.

In the case of monetary stimulus through government lending programs, funds available to the public usually require interest to be paid to banks and at the same time cause increased budget expenditures. That is, fiscal stimulus seems more effective, but its tools are quite limited, and there is no effect of instant enrichment of the population or business.

As a result, most researchers studying the impact of fiscal stimulus on economic growth point to the inexpediency of such stimulus and the need for strict tax rules. The problem is that most fiscal stimulus experiments have been about trying to reduce taxes. The last wave of such "research" took place in 2021 when the impact of tax benefits on public consumption was studied. However, the case of "pandemic" tax breaks was unsuccessful and inconspicuous for the study, as consumer behavior was influenced by quarantine measures. The problem is that most fiscal stimulus measures in emerging markets have been spontaneous and ill-considered. Sometimes such measures were populist, and sometimes in response to falling incomes as a result of the pandemic. The tools of fiscal stimulation of the economy in whole or in part include: • Measures to reduce the tax burden; • Privileges to certain industries or categories of citizens; • Tax breaks for investments;

(2021) VUZF review, 6(4) • Tax breaks for improving the environment; • Tax amnesties and more.

According to my observations, the most effective tool in Ukraine was the introduction of tax breaks in exchange for investments. This tool was used in the '90s in the so-called tax experiment in the mining and metallurgical industry. However, it should be noted that the change in the tax burden on sectors of the economy can be perceived not only as a fiscal stimulus to the economy but also as an attempt to actively intervene in the structure of sectoral markets. However, I do not think that the desire to change the structure of sectoral markets can differ significantly from the ideas of stimulating the economy. The actions of tax authorities and governments in emerging markets are difficult to predict, but most sectoral benefits are concentrated around high-tech industries.

Stimulating the development of technology industries implies a significant increase in the scale of the economy, so the management of the structure of sectoral markets and fiscal stimulation of the economy is, if not complete synonyms, then identical concepts.

Tax amnesties can be an interesting tool for fiscal stimulus, which can be used to try to reduce the shadow sector of the economy. An increase in the formal sector usually leads to an increase in GDP and tax revenues. But there are very few examples of successful tax amnesties in the world. Moreover, frequent amnesties in emerging markets lead to deteriorating tax discipline and lower government tax revenues.

The success of the tax amnesty for the state is guaranteed only in the case of its comprehensive implementation and consideration of behavioral aspects of the population.

In my opinion, net fiscal stimulus cannot significantly affect the economy, as the reduction of the tax burden will not lead to a surge in economic activity. It is worth combining fiscal and monetary stimulus. At the same time, the effect is noticeable only if the fiscal stimulus stimulates investment. The second effective tool that will make fiscal stimulus a factor of 202

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economic growth is the incentive for market participants to move to the formal sector of the economy. And although there are very few practical examples of such a transition in the

world, the result can be quick with some preparation, because it is not about building a new economy, but the transition from the shadows to the formal sector.

Results and discussion The crucial factor in the selection of instruments for economic stimulation in emerging markets is the presence of a significant share of the shadow economy. It plays a key role in choosing methods to stimulate the development of the formal sector of the economy. The example of Ukraine, in this case, is very illustrative. According to various estimates, now the informal economy takes from 30 to 50% in Ukraine. For the fiscal sector, this means that from one-third to one-half of businesses are not taxed. The position of the fiscal authorities is to impose a tax burden on the entire shadow sector without changing taxes. But it does not take into account that taxing what has never been taxed will lead to a significant increase in inflation and may even have a long-term impact on the structure of industry markets. If a monetary regime of the country is targeting inflation, then a conflict of interest between the monetary and tax authorities appears.

On the other hand, the study of monetary resources shows that the national currency in cash occupies 50% of the total money supply that serves current transactions in the economy in Ukraine. The high share of cash in the monetary aggregate M1 is a consequence of the informal sector of the economy demand. But this is only the tip of the monetary iceberg. The central bank provides cash to the economy, and there is a whole list of purposes for which the central bank provides cash support free of charge in Ukraine. As a result, the NBU does not receive significant compensation for the cost of providing cash, which negatively affects the central bank's profits. However, the main fact remains that the central bank is not only the main issuer of national currency for the informal sector but it also conducts unprofitable operations. The only way out of the “vicious circle” is to increase the value of cash on the way

from the central bank to the economy. If the increase in the value of cash transactions is not accompanied by a reduction in taxes, then economic agents may increase cash settlements among themselves. That is why any quality reboot of the system must be accompanied by a quality tax amnesty.

In my opinion, in practice, effective stimulation of growth in the formal sector only by monetary or only fiscal instruments is impossible. We must agree that the quantitative parameters of the monetary environment are a mirror of the division of the economy into formal and informal, and the depth of this distribution depends on the effectiveness of ways for monetary and fiscal stimulus instruments implementation.

Meanwhile, a large share of the informal sector simply blocks the most productive part of the monetary transmission mechanism. In Ukraine, this axiom is demonstrated like never before. Imagine you are the owner of a large company that wants to issue bonds. In developed markets, this is a simple step that is carried out under the supervision of auditors.

Investors are confident that the reports they receive are ones of high quality and reflect everything that happens in the company. But what to do in the case the part of the accounting of the company is informal, and resources from the formal sector are used to serve the informal part of the business? The answer lies in the increased cost of resources for such semi-official companies. That leads us to the situation that while having an NBU interest rate of 8-9%, a bond issuer must pay 20-30% per annum to attract investors. Of course, the movement of the interest rate of 0.5-1.0 percentage points simply does not reach the corporate bond market as strongly as, for example, the interbank market. Thus, overcoming the problem of the shadow sector of the economy

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increases the efficiency of monetary stimulus

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instruments.

Conclusions This article is an overview of the application of monetary and fiscal policy instruments to stimulate economic growth. The described issues and conclusions may seem strange to experts and analysts who are accustomed to working in developed markets but will be quite clear and acceptable to the audience from emerging markets. As a result of the study, the following conclusions can be drawn: 1. In any jurisdiction, there is an organizational problem of choosing an arbitrator who will determine the optimal coexistence, and possibly the scenario of the order of application of monetary and fiscal incentives for economic development. The problem arises because of the central bank's independence from other branches of government and because the central bank and the government have conflicting interests in monetary policy and fiscal stimulus. In my opinion, this problem can be solved in a civilized way only through negotiations and signing of framework agreements or memorandum of cooperation.

2. The central bank should be able to use all the available monetary policy instruments to stimulate economic growth. In each specific country under analysis, it is necessary to study

the effectiveness of the monetary transmission mechanism and then proceed to the scenario of the use of monetary instruments to stimulate economic development and growth. Countries with emerging markets may find that monetary stimulus efforts do not have the desired economic effect but can increase inflation.

3. In emerging markets, fiscal stimulus will only be effective when it is by reducing the tax burden in exchange for investment. The use of other fiscal stimulus instruments should consider the behavioral aspects and reactions of the population. That is, the use of only fiscal stimulus is likely to give a limited result. The use of fiscal stimulus instruments may also affect the structure of sectoral markets, which requires additional control by the economic regulator.

4. Fiscal and monetary policies are closely linked through their tools. This link is strong in emerging markets, especially because of the more prominent informal sector. When using monetary instruments, the central bank must consider that part of the cash in circulation serves the informal sector of the economy.

Similarly, the tax authorities should consider that achieving 100% tax coverage of the informal sector will lead to rising inflation.

References IMF. World Economic Outlook, October 2021 IMF. Annual Report on Exchange Arrangements and Exchange Restrictions 2019 10/08/2020.

Shapran, V.S. (2021). The Influencing the "virus" crisis on the monetary policy of Ukraine in 2020. Center of research on name of Razumkov. 112-115 Shapran, V.S. & Shapran, N.S. (2019). Risks of monetary stimulation of economic growth.

Center of research on name of Razumkov.

126-136 Shapran, V.S.; Britchenko, I.G., (2021). The

establishment of the inflation target and the corridor of fluctuations of the target: analysis of world trends and practice in Ukraine, VUZF Review, 6(3) 2021. 13-19 Associativity in foreign exchange regulation in Ukraine. Scientific digest of the Financial Research Institute 2018. 89-91 Annual Report, Bank of Canada 2018, page 71. bank.gov.ua tradingeconomics.com centralbanknews.info.

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Mathematical model in the banking on the ex ample of simple percentage Anna Małgorzata Jatczak * А A VUZF

University, 1 Gusla Str., Sofia, 1618, Bulgaria

Received: December 20, 2021 | Revised: December 23, 2021 | Accepted: December 28, 2021 JEL Classification: C02, E43.

DOI: 10.38188/2534-9228.21.4.22 Abstract Mathematical modeling is the description of the reality in the language of the mathematics and formal logic which creates symbols, mathematical relation and also strictly determined rules of employing them (Jaworski, Micał 2005). This article is devoted to the structure of the model describing the process of increasing the capital value within the time which basis constitutes the calculations based on the rule of simple percentage. In its content are determined the chosen, basic terms associated with the financial activity of the bank (including interest rate, interest, discount). Mathematical models are also discussed enabling to count: the final capital for the initial capital with the fixed annual interest rate for the set time, the initial capital which generated the determined final capital with the fixed annual interest rate for the set time, the interest rate on the basis of the initial and final capital after certain time, the initial value of the loan for the amount of the payoff within the fixed discount rate within the certain time, the value of the commercial discount for one year on the basis of the initial value of the loan and the amount of its payoff.

The presented content will supply the reader with the knowledge in calculations applied in the banks associated with the simple percentage. The article constitutes the example of combination of the theoretical knowledge with the practice and it also shows how important mathematical modeling is in the modern world.

Keywords: mathematical modeling, simple percentage, interest, discount.

Introduction Bank is the financial institution which in the field of its activity deals with, among other activities, with the cash handling (payable on demand or after the designated date) and also credit granting. In both cases the mathematical calculations are used-the interest is calculated which is the fee for the right to use the financial capital. For the creditor the percentage is the

income which he or she receives for the withdrawal of the right to have the capital in her/his own disposal. For the borrower the percentage is the cost for taking the loan. One of the rules on the basis of which the interest is charged in banking transactions is the model of simple percentage which will be exposed in the article.

Material and methods The rule of simple percentage is that the percentage is calculated from the primary capital and it is proportional to the length of time interest rate. The interest is not capitalized. *

If the percentage is calculated for the time consisting of several periods, the interest for each period is the same. After ending the time of percentage they are summed and added to

Corresponding author: PhD Student VUZF University, e-mail: a.m.jatczak@gmail.com

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the primary capital.

Interest rate – is the influence of the percentage over the primary capital. Mostly it is expressed in the percentage. The period from which the particular interest rate is referred to is the period of percentage. Most often the bank gives percentage per year. We assume that: P - the initial value of the capital, n - the time of percentage expressed in years, r - the annual interest rate, I - the percentage for n years, F - the future (final) value of the capital after the expiration of n years.

If the time of the percentage is the multiple of the year, n is the natural positive number, in the other cases it is converted into years, for 1 1 3 example 𝑛 = 4 (quarter), 𝑛 = 12 (month), 𝑛 = 2 (one and a half year).

In accordance with the implemented indications the relationship between the primary capital, the final capital and the interest owed after n time expresses the following formula: 𝐹 =𝑃+𝐼 (1) For every year the capital owner is entitled to Pr percentage, which after n time will be equal to: 𝐼 = 𝑃𝑟𝑛 (2) then: 𝐹 = 𝑃(1 + 𝑟𝑛) (3) The obtained equation (3) is called the model of simple percentage in terms determined by the interest rate r.

Within the simple percentage the charged after every year interest is the fixed interest, and the value of final capital after the passage of another years creates arithmetic sequence of Pr difference (Podgórska, Klimkowska 2005).

From formula (4) arises that within the simple percentage the final value of F capital is the linear function of time. The slope factor of this function is equal to value of Pr percentage for one year, while free word the primary capital.

Picture 1 – The final capital as the linear function of time within the simple percentage

Picture 2 – The increase of interest rate causes the faster increase of final capital

Table 1 – The comparison of mathematical models associated with simple percentage activities

activities

activities

mathematical model Calculation of final capital F for the primary capital P at the fixed annual interest rate r within n years.

Calculation of primary capital P at the fixed annual interest rate r and n time years, knowing the final capital F. Calculation of the value of Pr percent for one year knowing the primary capital and the final capital after n time.

𝐹 = 𝑃 + 𝑟𝑛𝑃

theoretical equivalent Calculation of the value of the function for the relevant argument.

𝐹 𝑃= 1 + 𝑟𝑛

Calculation of the argument, for which the function takes the determined value.

𝐹−𝑃 𝑛

Determination of the slope from the mathematical formula of the linear function.

𝑃𝑟 =

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Subperiod interest It is quite common that the percentage is computed for the period of time shorter than a year, for example a month, three months, six months and the like. Therefore, the interest rate is computed for this time.

Dividing the year, so the basic percentage period into the equal parts, we get subperiods rate. The interest rate responding to each of them is named the subperiod interest.

We assume the following marking: k - the number of subperiods which combined length is equal to one year, 𝑖𝑘 - subperiod interest, 𝑚𝑘 - time of the percentage expressed in subperiods.

When k = 2 the subperiod is half year.

When k = 4 the subperiod is a quarter.

When k = 12 the subperiod is a month.

When k = 52 the subperiod is a week.

When k = 365 or k = 360 the subperiod is a day.

The percent from the primary capital P for 𝑚𝑘 subperiods is equal: 𝐼 = 𝑃𝑖𝑘 𝑚𝑘

(4)

The exchange of the percentage time expressed in years for the time expressed in subperiods describes the following formula: 𝑚𝑘 = 𝑛𝑘

1

(6)

and the final capital after 𝑚𝑘 subperiods is expressed with the following formula: 𝐹 = 𝑃 + 𝑃𝑖𝑘 𝑚𝑘

1

(8)

2

where: 𝑖𝑘1 , 𝑖𝑘2 – subperiod rates of the simple percentage, 1 1 , – - the length of subperiods expressed in 𝑘 𝑘 1

2

years.

The rates of simple percentage are equivalent then and only then when are proportional (Podgórksa, Klimkowska, 2005).

The rate variable within the time. The interest rate of average.

We assume that the time of the percentage of the primary capital P expressed in years is equal to n and it consists of m succeeding subperiods in length 𝑛1 , 𝑛2 …, 𝑛𝑚 (also in years) and also that within every subperiods the annual interest rates are the following 𝑟1 , 𝑟2 …, 𝑟𝑚 .

The future F capital after this time is of the following value: 𝐹 = 𝑃(1 + 𝑟1 𝑛1 + 𝑟2 𝑛2 + ⋯ + 𝑟𝑚 𝑛𝑚 )

(9)

The average interest rate with the n time is named annual interest percentage rate 𝑟̅ , within which any primary capital P achieves after this time the final value F equal to the final value of this capital with the diversed interest rates within the same time.

The interest rate 𝑟̅ fulfills therefore the equality.

therefore: 𝐹 = 𝑃

1

𝑖 𝑘1 ÷ 𝑖 𝑘2 = 𝑘 ÷ 𝑘

(5)

Therefore percent I for 𝑚𝑘 of the subperiods is computed in the following way: 𝐼 = 𝑃𝑖𝑘 𝑚𝑘

This rule is the following: The interest rates are equivalent if with each of them the primary capital P generates within the time n interests I of equal value.

Proportional interest rates are named those subperiod rates of simple percentage which relation is equal to the relation of responding to them subperiods. This can be written in the following way:

𝑃(1 + 𝑟̅ 𝑛) = 𝑃(1 + 𝑟1 𝑛1 + 𝑟2 𝑛2 + ⋯ + 𝑟𝑚 𝑛𝑚 ) (10)

+ 1 ( 𝑖𝑘 𝑚𝑘 )

(7)

from which we get:

it means that the final value of the capital F is the linear function of time of the percentage 𝑚𝑘 expressed in subperiods.

The rule of equivalence of the interest rates

𝑚

1 𝑟̅ = ∑ 𝑟𝑗 𝑛𝑗 𝑛 𝑗=1

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(11)

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From the formula (11) the following conclusions are made: (1) the average interest rate 𝑟̅ is the weighted arithmetic mean of the interest rates from the respective subperiods of the variable interest, within which the scales are the length of these subperiods.

(2) the interest rate 𝑟̅ is not depended on the value of the primary capital P. (3) in the case, when each of the subperiods 𝑛 has the same length 𝑚, the interest rate 𝑟̅ is the arithmetic average of the interest rates from the respective subperiods which shows the following formula: 𝑚

1 𝑟̅ = ∑ 𝑟𝑗 𝑚

(12)

𝑗=1

4) the interest rate 𝑟̅ is the quotient of the interest and the capital which generated them in the case of changeable interest rate having regard to the time of the percentage which can be written down as the following:

Transforming the formula (3) we get: 𝐹 𝑃= (15) 1 + 𝑟𝑛 Therefore: 𝐹 𝐹(1 + 𝑟𝑛) − 𝐹 𝐹𝑟𝑛 𝐷=𝐹− = = 1 + 𝑟𝑛 1 + 𝑟𝑛 1 + 𝑟𝑛 The obtained formula: 𝐹𝑟𝑛 (16) 1 + 𝑟𝑛 is named the model of simple discounting in the condition data of the annual interest rate of simple percentage r.

Including the formula (2) it can be written: 𝐷=

𝐷=𝐼 (17) From the mathematical point of view the simple discounting is the diversed mathematical operation to the simple percentage:

𝑚

∑ 𝑃𝑟𝑗 𝑛𝑗

Picture number 3. The graphical illustration of the simple percentage and the simple discounting

𝑗=1

𝑟̅ =

𝑃𝑛

(13)

The term of average interest rate has also its application in the situations when the borrower or the creditor concludes a lot of transactions on different terms and there appears the necessity of the synthetic assessment of his, her actions (Bijak, Podgórska, Utkin 1994).

Simple discounting The discounting of capital F, which value is known is computing the startup capital P. The amount, over which F ought to be depreciated, in order to get P is named the discounting.

Discounting which is computing of the primary capital on the basis of the final capital with the fixed interest rate of the simple percentage is simple discounting.

If the value of the discount is marked with D symbol, therefore it can be written: 𝐷 =𝐹−𝑃

(14)

Commercial simple discounting (banking) Commercial discounting (banking) also named the percentage taken in advance is the fee for the right to have the capital at her/ his disposal, charged from F amount which the borrower has to return after the appropriate time and taken ‘in advance’ while the loan is granted.

The annual interest rate d is the relation of the commercial discount to the amount owed to the creditor after the year.

We approve the following markings: F - the amount of payoff (the face value of the loan), P - the initial value of the loan (the amount given ‘to hand’), n - the time of the discounting expressed in years (from the time of receiving loan repayment), d - the annual discount rate, D – discount (commercial).

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Then: 𝐷 = 𝐹𝑑𝑛

(18)

Subtracting the computed discount from the F amount we get the discount value P, which the borrower receives ‘to hand’.

4) at the established value of F the function is descending faster the bigger the interest rate d is 5) the values of the function are positive only for the time of smaller discounting from the certain m value (Podgórska, Klimkowska 2005).

𝑃 = 𝐹 – 𝐷 = 𝐹 – 𝐹𝑑𝑛 Therefore: 𝑃 = 𝐹 (1 − 𝑑𝑛) (19) Therefore equation (19) has the name of discounting model (simple commercial).

There are so the following conclusions: 1) Value P is the linear function of the Picture 4 – The discount amount as the discounting n time. linear function of time 2) Where F > 0 and d > 0 this function is descending.

From the (19) equation there can be 3) the annual decline in value of this function is determined all the existing values within it. equal to the annual D discount (D=Fd).

Table 2 – The profile of the mathematical model associated with the simple discounting activities

activities

activities

mathematical model Computing the initial value of the P loan for amount of payoff F at the fixed annual discount rate d and time n years.

Computing the amount of payoff F for the initial value P of the loan at the fixed annual discount rate d and time n years.

Computing the value of dn commercial discount for one year knowing the initial value of the loan and the amount of its payoff.

theoretical equivalent Computing the value of the function for the argument.

𝐹 = 𝐹 − 𝑑𝑛𝐹

𝑃 𝐹= 1 − 𝑑𝑛

𝑑𝑛 =

𝐹−𝑃 𝐹

Computing the argument for which the function takes the value.

Determination of the directional rate in the formula of the linear function.

Picture 5 – The graphical illustration of simple percentage and the discounting commercial simple

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The discount rate and the interest rate The rule of equivalence of the discount rate and the interest rate is the following: The annual discount rate d and the annual interest rate r are equivalent in the n time if the discount and the interest calculated with this interest rate for the same loan is equal.

The equality in mathematics D=I is fulfilled when: 𝐹𝑑𝑛 = 𝑃𝑟𝑛

(this formula let change the loan with the fee in the form of interest into the loan with the fee of the equal value and the equal duration in the form of discount).

This can be written in the equivalent formula: 𝑑 + 𝑑𝑟𝑛 = 𝑟 Hence we get the formula:

it means

serving for the computing the time, within which the interest rate d and r are equal. This time is called the time of equality of the interest rate.

𝐹𝑑 = 𝑃𝑟 because 𝐹=

𝑛=

1 1 − 𝑑 𝑟

(23)

𝑃 1 − 𝑑𝑛

therefore 𝑃𝑑 = 𝑃𝑟 1 − 𝑑𝑛

(20)

from which, the interest rate r equal to interest rate d is determined by the following formula: 𝑟=

𝑑 1 − 𝑑𝑛

(21)

(this formula let change the loan with the fee in the form of the discount to equal to its loan having the form of interest and the same time of duration).

Therefore the interest rate d equivalent to the r interest rate is determined by the following formula: 𝑟 𝑑= (22) 1 − 𝑟𝑛

Picture 6 – The graph shows the fee for the loan at the fixed time as the function of the interest rate.

The increase of the interest rate causes the increase of the fees for the loan and also the increase of the difference between the fees for the loan with equal interest rate and discount rate

Results and discussion Percentage computing is the basis activity of the banks. The level of interest rates influences over the condition of the economy because their increase imply the lower demand in the economy.

The level of percentage of deposits and loans influences over market prices which balance the accessible savings with the demand for the credits.

The interest rates are the reflection in the running of the households. The high percentage motivates for saving, putting the capital on the deposits. The low percentage-encourages into taking the credits

(the installment trade, investment financing). The low interest rates will make the entrepreneurs easier to cover the current costs and also to reach the strategic decisions (the development of the company).

The analysis of the activity of the bank based on the model of simple percentage is indeed the study on the linear function which general formula is the following:

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𝑓 (𝑥) = 𝑎𝑥 + 𝑏

(24)

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Within the increase of absolute value of the a slope factor increases the pace of: - the increase of the value of the function in the case a is the positive number, - the decline of the value of the function in the case a is the negative number.

In the banking practice it means that for the fixed capital in the certain time higher percentage gives higher profit (in the case of the deposits-the clients of the banks, in the case of the credits-the banks).

At the fixed slope factor a the increase of the value of the linear function is proportional to the increase of the responding them values of the arguments. Therefore at the fixed interest rate the level of the simple interest at the bank is proportional to the length of the time percentage. It means that the longer time of the saving results in the bigger increase of the capital and the longer payoff time of the loan causes the increase of the amount of the payoff.

The mathematical instruments give the opportunity: -to compute the final value of the capital, within the set percentage after certain time; -to set the value of the percentage in that

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way that the capital reach the certain value after appointed time; - to determine the value of the capital paid in for the deposit which at the set percentage and time will generate the certain value; - to establish the amount which the borrower returns after certain time in the condition of appointed percentage; - to set the percentage at the so level that the borrower paid back the demanded amount of money after certain period of time; - to compute the value of the loan in such a way that at the appointed percentage after certain time, the amount which the borrower pays back reaches the expected value; - to set the equivalent values within the interest rates time and also within the interest rate and discount rate; - to determine the subperiod rates in that way to get the average interest rate at the certain time; -the change of the loan with the charge in the form of the discount into its equivalent within the time loan with the charge in the form of the interests and the other way round.

Conclusions Simple percentage is mainly used for the computing of the interest within the short-term transactions (no longer than a year). These are mostly: 1. the deposits which are not renewable (after the confirmed time of the saving the capital within the interest is withdrawn and the deposit is liquidated); 2. the deposits, which are paid out to its deposit holder ‘to hand’, not on the bank account, on which originally the capital was placed; 3. the loans, which the borrower does not pay back in installments but gives back the whole amount of it with the interest once.

The presented example of mathematical modeling shows how important in banking mathematical instruments are. On the basis of them the rules of running the bank accounts, the proposals of deposits and the credits for the clients are worked out. The knowledge of mathematical rules let the client make the conscious decisions while using the offer of bank services.

The presented rule states (apart from the compound interest) the basis of banking computing. On the example of it is presented how important it is joining the theoretical knowledge with the practice in the modern world.

References Bijak, W.; Podgórska, M.; Utkin, J. (1994), Financial mathematical Theory and the practice of

financial computing, Bizant Publishing House, Warsaw, ISBN 83- 900810-2-4.

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Jawroski, P.; Micał, J. (2005). Mathematical modeling in finance and insurance, Poltext, Warsaw, ISBN 83-88840-73-8.

Piasecki, K. (2007). The models of financial mathematics Basic instruments, The Scientific Publishing of Polish Scientific Publishers, Warsaw, ISBN 978-83-01-15231-4.

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Podgórska, M.; Klimowska, J. (2005). Financial mathematics, Scientific Publishing of Polish Scientific Publishers, Warsaw, ISBN 978-8301-15290-1.

Sobczyk, M. (1997). Financial mathematics, The Agency of Printing industry and Publishing PLACET, Warsaw, ISBN 83-85428-13-5.

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Use of design methods in optimising the economic resources of an enterprise Maciej Ślusarczyk* А; Izabella Kęsy B; Patrycja Ślusarczyk C A, B, C

University of Economy in Bydgoszcz, 2, Garbary str., Bydgoszcz, 85-229, Poland

Received: December 15, 2021 | Revised: December 18, 2021 | Accepted: December 28, 2021 JEL Classification: M21, D21.

DOI: 10.38188/2534-9228.21.4.23 Abstract The main objective of the article was to show the relationship between the selection of appropriate economic indicators, correlating them with the appropriate project methods used in process management, and on the basis of this to show ways to improve management processes in this method. Presentation of economic resources, indicator dependencies and management tools in the project method was necessary to achieve the goal.

The paper presents the authors' views on the essence of tool selection in the design method taking into account resources and economic aspects. The VUCA environment is also considered and characterized and described. The use of two methods adapted to project management has been proposed. The selection of these methods used in project management based on the analysis of economic resources, vibrating environment and the speed of response and planning in the company was justified.

In the following article, the authors also proposed a selection of economic indicators on the basis of which it is possible to determine the degree of advancement of the project, its profitability and to indicate the critical points and places where delays may occur or the original plan may be exceeded.

The indicators were selected in such a way as to be a representative group of comparisons in the field of economics, in the macro and micro environment, in the social field, in the resource field of the company and to show the economic aspect of these activities. By matching appropriate methods of project management with appropriate economic indicators, a model of economic-management relations was obtained, which used in management streamlines decision-making processes in the company and improves its effectiveness, profitability and resource efficiency.

Keywords: Management, project method, economic indicators, enterprise, enterprise resources, economic indicators.

Introduction The aim of the authors in this publication is to present the project method as the most optimal choice for a company taking into account the economic and management aspects in the selection of appropriate economic indicators.

The aim of the study was to show the relationship between the selection of economic indicators and their matching in tools used in the

management of the project method. To show the relationship between the selection of the project method and matching the economic indicators and their impact on the efficiency of the company.

Selecting and using the right tools in project management is a key element when it comes to operational efficiency.

*

Corresponding author: Lecturer, University of Economy in Bydgoszcz, e-mail: maciej.slusarczyk21@gmail.com, ORCID: 0000-0001-6612-8179 B MSc, Lecturer, University of Economy in Bydgoszcz, e-mail: izabellakesy@interia.pl, ORCID: 0000-0002-8403-2776 C Assistant, University of Economy in Bydgoszcz, e-mail: patrycja.slusarczyk25@gmail.com, ORCID: 0000-0002-3360-8536 A

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Managing an organization requires from managers increasingly specialized competences, of course depending on the industry, various competences from the professional (technical) group are necessary and desirable, however, strategic competences are universal. On the other hand, social competences are this group of competences, which are the foundation of effective activity for a manager in an organization regardless of the position on the organizational level (M. Kęsy, D. Pawliszczy, N. Navolska, 2021).

Managing a company requires from its managers, as well as from the entire staff of the company, a high degree of flexibility and the ability to respond quickly to changes that are happening in its closer and further environment.

Companies exist in a changing, oscillating and uncertain environment, which makes uncertainty inscribed in the management of the entity.

The VUCA world is the environment in which companies and organisations operate, struggling with continuous planning and appropriate strategic management. It is characterized by the four elements of VUCA mentioned above, so we can describe it as a world in which everything is constantly changing, the conditions in which companies operate are uncertain and complex, and an excess of information causes ambiguity, making it difficult for leaders to make decisions. In operating in a VUCA world, one must reckon with the challenges posed by such a complex environment" (Praveen K.S., 2018).

This condition is referred to as a VUCA condition and is characterized by four factors: First, V from "volatility", meaning volatility.

Second, U from "uncertanity", meaning uncertainty. Third, C from "complexity", meaning complexity. And fourth, A from "ambiguity", i.e., ambiguity (Mack O. (ed.), 2016).

Volatility - defines the rate and speed of changes that a company experiences in its surrounding environment. These are, for example, changes taking place in the market, including increasing or decreasing prices of

products and services, which may occur at unpredictable periods of time. Such changes require rapid decision making and immediate action (Mack O. (ed.), 2016).

Uncertainty - lack of ability to predict the situation and events that may occur. It is caused by the volatility of the environment or lack of sufficient knowledge to assess the consequences of events. The key in this case are the existing information resources, which the company must constantly expand in order to be able to create patterns that can contribute in determining the consequences of the situation (Bennett N., Lemione G.J., 2014).

Complexity - along with volatility and uncertainty comes complexity in how the environment works. It consists of a network of information and procedures, the variety of problems that can occur and the lack of causal effect. Complexity can be defined as a situation in which different companies can obtain different results despite applying the same procedures. When it comes to decision making, it is important to consider many factors.

Ambiguity - refers to the difficulty of understanding one's surroundings and involves different interpretations of situations and events. Ambiguity is reflected in situations where one problem has multiple solutions and there is no way to decide which solution should be chosen (Mack O. (ed.), 2016).

In a turbulent environment, which is also referred to as a VUCA condition, basing management on a process approach can be a solution to increase the effectiveness of operations (Impel Group, 2018). The most important factors, in fact, in this management is the breakdown into specific elements, in such a way that they are well understood and assimilated by employees. This is the foundation for building activities and team and intraorganizational bonds, which is reflected in the optimization of activities taking into account the process. The process approach is extremely important as it is a real determinant for achieving efficiency gains in a modern organisation which is embedded in a VUCA environment. In process management, the very

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ISSN 2534-9228 element of process plays an important role, thanks to which it is possible to present each single activity or a set of these activities. As a result of such a process, from a certain possessed initial value, which is an input, we receive a result, which is the same input enriched with added value, which is the result of the process.

Therefore, thanks to the processes we can get a certain picture of the operation of the entire organization, and thus it is possible to react quickly if necessary (M. Ślusarczyk, 2021).

The world economy undergoes constant changes, forcing companies to adapt to them and adapt the methods by which life in the company is organized. The enforced vigilance in management results in increased economic and managerial activities that are planned, prudent and thoughtful. Economic aspects are increasingly used for basic planning functions aimed at improving the efficiency of profitability of a given enterprise.

The economic aspect of the company, according to the authors, is mainly the speed of response to the variability of the environment and the way of adaptation to the changes in the area.

Keeping consistency, the authors also distinguish and classify economic aspects such as: a) Production capacity b) Leadership skills c) Planning capabilities d) Management capacity The most important factor influencing the final effect of decisions taken is the choice of management method and implementation in it of economic conditions from micro and macro environment. In such a solution it is necessary to take into account inflection points, conflicts, failures and the issue of volatility of economic factors. It is necessary to plan the process so that it is possible to minimize the points at which subsequent actions could be exposed to failure due to errors arising in the preceding process.

Task management, must be clearly

(2021) VUZF review, 6(4) delineated and include appropriate process components so that critical points are easy to capture. The goal to which the organisation is aiming must be constant and fixed, so that the project process from its beginning until its completion runs according to the assumptions.

The aspects of profit, sales, production or development orientation should be determined before the project is put into effect and should not be modified during the project. For the orientation to be determined correctly it is necessary to carry out a market survey and to implement the economic aspects in the design method.

Nevertheless, existing in a changeable, vibrating and uncertain environment, every organization and enterprise must be prepared for rapid changes and improvements. This is because the effectiveness of the planned task depends on the speed, accuracy and validity of decisions made. Continuous supervision, control and settlement of "milestones" in the project will allow for quick reaction in case of a crisis situation.

The use of normative economics in the design method has a positive impact on the development of the company, as it is impossible to conduct a controlled experiment. The assumption of ceteris paribus is unfeasible in the world of free market economy focused on continuous development and profit. However, when the following is done: observation of economic processes, indexing, drawing conclusions, which are then subjected to criticism, and finally the management method is substituted, the executive process acquires transparent and clear solutions.

The main assumption of the project method is to clearly determine the beginning and end of a given project, task or activity aimed at bringing measurable profit to the enterprise. The choice of tools used for project management is a challenge for every manager.

Material and methods The accuracy of method selection in the management of the company is a key aspect

that has a major impact on the development of this organization. In order to choose the right 215

ISSN 2534-9228 method it is necessary to specify the objectives and tasks to be implemented. Defining will allow you to choose the appropriate tools so that the process of project method management runs without complications.

Project management, project management is a process during which the person in charge of the project carries out purposeful planning and control of tasks included in the project and makes appropriate allocation of resources allocated to the project, using appropriate techniques and methods to achieve the imposed requirements within a specified time and at a specified cost (P. Jedrych, P. Pietras, M. Szczepańczyk, 2012).

The concept of project management is associated with the "Manhattan" war project of 1940. Its details were shrouded in mystery, as it concerned the construction of an atomic bomb.

The methods that were used then were being improved. They were revealed only on the occasion of the Apollo and Polaris programmes.

The history of project management developed thanks to the launch of the American Marshall Plan - a program of assistance to Europe. The basic methods of project management, the socalled "network methods", were developed at that time. The formal definition of project management was stopped by the Project Management Institute (Sołtysik M., Wesołowska M., 2016).

The authors described in the paper two methods used for project management. The first method is the critical path method (CPM). This method was chosen for its clarity and for its notation, which uses a network graph and makes the contact points of subsequent activities visible.

Thanks to this method, in a very easy way it is possible to observe places in which there may be a probability of jeopardizing the execution of a task according to the schedule and plan in force.

This method has been chosen by the authors also because it allows, through the graphical representation of activities, to extract the time which is needed to perform the tasks and to introduce improvements in it. Important aspects here are the duration of activities and

(2021) VUZF review, 6(4) improvements that can be made.

Another method chosen is the Gantt Diagram. According to the authors it is one of the basic planning methods used in project, company and organization management. The reason for choosing this method is that the Gantt Diagram is a graphical, transparent and clear way of planning and controlling the speed and quality of tasks. All tasks are planned in a time section, which clearly delineates the framework.

Many subjectivities of action thanks to its functions is undoubtedly another asset and advantage. Graphical display of sequences of activities is a factor that affects the quality of management and shows the profitability of the project. If there are any disturbances in the continuity of tasks it is easy and simple to catch and it reduces the time needed to react.

Critical Path Method (CPM) The method belongs to the group of deterministic network planning techniques. Its basis is the construction of a particular type of network graph, which represents the activities and events that make up the project, on the basis of this graph calculations are carried out.

Thanks to these calculations we obtain a plan for project realisation.

This specific type of network is referred to as a dependency network or network graph. This network is based on two-point network models, that is, where activities are represented by graph arcs and events by graph nodes (M. Ślusarczyk, M. Kęsy, 2021).

This method is used for planning and controlling projects and is closely connected with the design method. An important determinant of this method is the technological knowledge of the process and the knowledge of organizational relationships.

Examples of projects in which this method is used are: investments and construction projects, renovations and projects in which complex unit products are manufactured, such as: aircraft, space rockets.

The CPM method was developed in the years 1956-1957 in the USA. Its authors were J. Kelley and R. Walker, DuPont employees. They 216

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developed the method to improve the work in the production of neoprene. Engineers were concerned about the high amount of downtime during machine maintenance. By using the CPM method, they were able to reduce downtime from 125 hours to 93 hours (a savings of 32 hours!!!), thus improving their bottom line. This method is a graphical representation, of an organized activity that aims to achieve a set goal within a specified time, with specified resources and budget.

A project consists of a finite number of interrelated activities performed in an appropriate order (their durations are known): (M. Ślusarczyk, M. Kęsy, 2021).

• Calculation of times of the earliest possible beginning of activities (the calculation is made going forward in the graph). Note: In the CPM method it is assumed that the durations of individual activities are exactly known (deterministic).

• Assume the earliest possible date of the initial event (first on the left) equals 0.

• Calculate the earliest possible start date of the next task as the earliest possible date of the occurrence of the preceding event + the duration of the activity leading up to that event (Note: if there are more predecessors, take the task with the latest occurrence time to calculate).

• Repeat the described steps for all tasks.

Calculation of the latest permissible dates for the occurrence of particular events (the calculations are made going backwards in the graph): • The final event (the last one on the right) should be assigned the latest allowable occurrence date, which is equal to the earliest possible occurrence date.

• Calculate the latest permissible date of occurrence of each event, starting with the events closest to the final event (the latest permissible date of occurrence - the duration of the action leading to that event (Note: when an event is the beginning of two or more actions, the latest permissible date of occurrence of the event will be equal to the minimum of the respective differences).

•

Repeat the described steps for all tasks.

Figure 1 – Illustration of the marking convention Source: M. Urbaniak, Scheduling of IT projects using the critical chain method based on the fuzzy competence characteristics, Scientific Journals of UEK, Poznań 2012.

The critical path is the longest of all possible sequences of chronologically arranged tasks such that each subsequent task cannot begin until the previous one has ended (sequential tasks). In the critical path technique, the start and end date of the project, the sequence of events and the interrelationships between them are known. Also known are the durations of activities that must be completed for certain events to occur. An event cannot occur until all the activities concerning it have been completed. The sequence of individual events and activities performed between them is determined by technology and organisational connections.

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Figure 2 – Structure of the project with the execution times of individual operations (activities) Source: Kisielnicki J. (2011). Project management.

Ludzie - procedury - wyniki, Oficyna a Wolters Kluwer business, Warszawa.

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Let us assume for further consideration that the graph (Fig. 2), with the help of which we have written the structure of our project along with the execution times of individual operations (activities).

The first step in determining the critical path is to identify for each event the earliest possible moment of occurrence. When determining the critical path it is assumed that the earliest possible moment of the occurrence of the initial event number 1 is 0. The earliest possible moment of the next event (e.g. 2) is equal to the sum of the earliest possible moment of the occurrence of event 1 and the duration of the action leading to event 2 (event 2 will occur after 4 time units). Moving from the beginning to the end of the graph, the earliest moments of the resulting events are determined sequentially (Fig. 3).

Figure 3 – Results of calculating the earliest possible dates

Figure 4 – Results of calculating the latest acceptable dates Source: https://mfiles.pl/pl/index.php/CPM.

The most important and concluding element of this method is the determination of the critical path, which we define as the sequence of activities for which the sum of times is the largest of all possible paths connecting the final event to the initial event. The activities on this path have zero time stock (the latest possible deadline - the earliest possible deadline) (J. Kisielnicki, 2013).

Figure 5 – Determination of the critical path

Source: https://mfiles.pl/pl/index.php/CPM

In the next step, we calculate the latest permissible moment of occurrence of individual events, starting from the events closest to the final event, where the final event itself should be assigned the latest permissible moment of occurrence, which is equal to the earliest possible moment of occurrence (event 7).

Moving this time from the end to the beginning of the graph, the latest moments of the resulting events are determined sequentially (Figure 5).

When an event is the beginning of two or more activities, the latest possible moment of occurrence will be equal to the minimum of the respective differences.

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Source: Kisielnicki J. (2011). Project management.

Ludzie - procedury - wyniki, Oficyna a Wolters Kluwer business, Warszawa.

In the case under consideration, the critical path passes through events 1-2-4-5-7 (marked in red in Figure 6). The length of the critical path is 11 units (time). The project manager should pay special attention to the events lying on this path.

The delay of one event will cause the postponement of the project completion date.

As can be seen in Figure 5, activity (1-4) connects critical events, but is not itself a critical activity. A delay in performing this activity does not necessarily entail a delay in performing the entire activity (https://mfiles.pl/pl/index.php/CPM).

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Gantt Diagram This method is correlated with the critical path method. It is extremely helpful during investment planning, implementation of key tasks, but it is also a basic method used in project management. Gantt diagram is a graphical way of planning and control.

Planning and coordinating the course of various activities over time plays an important role in the formation and functioning of an organization. Gantt diagram is used to plan multi-actor activities both team and group.

They present the sequence of subsequent events, also taking into account tasks performed in parallel. Thanks to this technique it is also possible to control the execution of the planned undertaking.

The primary purpose of the diagram is to support the work of the project manager by highlighting the relationships between tasks and the impact of potential changes on the overall project.

It also allows simulation to determine the proposed changes to specifications, resource availability and set deadlines. The Gantt Chart also plays an essential role during the optimization of the first "realistic" version of the project plan.

Henry Laurence Gantt first used the graphical form to represent a production plan in 1917. In a typical Gantt Diagram, the rows contain the jobs, while the columns indicate the time units.

The layout of events on the diagram is most often presented in a version planned before the activity begins and the actual version drawn on the diagram over time. The real development of the Gantt Diagram occurred only in the era of computers, thanks to which it is possible to graphically illustrate even very complex relationships and plans.

The prototype of the diagram was a Pole, Karol Adamiecki, but his graphical method of analysis and planning did not gain popularity because he did not publish his achievements (elaboration in 1896, publication 35 years later).

With the help of Gantt Chart you can not only plan and control the execution of the plan, but also through the use of an appropriate system of

marking take into account the variability of the course of the task.

In the case of the chart of labour productivity, the analysis is carried out on the basis of actual records supplemented with indications of disturbances (e.g. no worker, no materials, no instructions, machine overhaul, no energy, no tools, no experience of the contractor, holidays, meetings, strikes, lack of qualifications of the contractor, no order).

The stages of creating a Gantt chart are divided into 5 stages: • Phase I: breaking the project down into phased or residual objectives, • Stage II: Establishing the duration of the project and determining the times for achieving the milestones and sub-objectives, • Stage III: establishing the sequence of milestone and sub-goals and setting deadlines for their start and completion, • Stage IV: identifying where these goals are to be met, • Stage V: expressing in graphical form all the activities carried out.

Time of task completion is presented in a Gantt Diagram in the form of a rectangle, which is placed on a linear scale. Its left edge corresponds to the beginning of the task and the right one to its end. If necessary the scale can be changed to show days, weeks, months etc.

Next to the Diagram there is information related to the presented project, i.e. task type, its name, duration, start and end date, predecessors, resource names, costs, etc. On a Gantt Diagram, usually the so-called Milestones are marked. They define events corresponding to particular nodes of the network, which are breakthrough (most important) in the project schedule. Milestones are marked in the Gantt Diagram with a special symbol, usually combined with a description.

The advantages of this method are mainly due to: • the possibility of automatically determining the critical path, • clear presentation of the schedule of tasks,

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• the possibility of current control of the implemented undertaking and making appropriate corrections, • a flexible form of presenting data on selected tasks.

Figure 6 – Example Gantt diagram Source: Frąckiewicz R., Krzemiński M., Analiza możliwości wykorzystania w harmonogramowaniu budowlanym reguł szeregowania zadań stosowanych w produkcji przemysłowej WIL nr 19, Politechnika Warszawska, Warszawa 2011.

Preparing a schedule takes place by marking horizontal bars on a chart, which indicate activities with the length of their duration, taking into account the scale adopted for the time axis. The placement of these activities takes place in an appropriate order, which takes into account the causeeffect relationships characteristic for the cooperative structure of the project.

Based on the position of the bars illustrating the separated activities it is possible to read their start and end dates and

determine the critical path as well as project milestones. Project milestones (milestones or checkpoints) are coordination and control points for partial project results. As a rule, they are marked on schedules with an inverted triangle or diamond sign.

They mark critical points in the execution of particular stages of the whole project and are very important for its success. Hence the question arises, how many such points should there be? The literature indicates that at least two stones (at the beginning and at the end of implementation) should be set.

No specific number is given, although in order to streamline and effectively implement the project it is suggested that such points should be established at relatively equal intervals, e.g. after 15-20%, then after about 50%, 70-80% and 95% of its implementation.

However, it is noted that their number will depend on the size and complexity of the project being implemented. The bigger and more complex the project is, the more milestones should be marked on the chart, so that earlier control of the project activities will contribute to earlier detection and correction of any irregularities and successful completion. However, too many milestones (e.g. after each activity) causes an increase in the effort of controlling it and may cause disruptions in the current task execution.

Setting milestones completes the stage of setting project deadlines and allows you to complete the schedule of activities of the implemented project in the form of a Gantt Diagram and determine the critical path (Z. Jedrzejczyk, K. Kukuła, J. Skrzypek, A. Walkosz, 2014).

Results and discussion The problem of evaluation of enterprise efficiency and effectiveness is well-known and repeatedly discussed in literature. Since these concepts are understood ambiguously, their original definitions should be cited. The basic forms of effective action, i.e. all forms of action carried out by organisations and individuals, are: efficiency, profitability and 220

economy (T. Kotarbiński, 1975). Beneficiality is the difference between a useful result and the cost of action.

On the other hand, praxeological economy is the ratio of the useful result to the cost of action (W. Kieżun, 1997). Economy can take the form of efficiency, or savings (P. Lech, 2007).

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Narrowing the attributes of efficiency to the evaluation of economic organizations allows for the quantification of efficiency and its evaluation (P. Lech, 2007). Efficiency is the ratio of effects to inputs or costs, i.e. praxeological economy (J. Zieleniewski, 1981). The quantification of efficiency and one of its basic attributes, which is effectiveness, is referred to as the purposive approach (M. Bielski, 1992).

Multidimensionality of modern companies forces to systematize the measurement of financial and resource efficiency. The authors selected the methods of enterprise evaluation on the basis of analysis of available methods and systematized them from the most general methods to more detailed ones, thanks to which it is possible to have a closer look at the efficiency, profitability and profitability of an enterprise together with its projects.

In order to appropriately match economic indicators, the authors focused primarily on the possibility of matching the relevant indicators with the design methods described in the article, so that they are a true picture of the actual state of the enterprise. The presented methods focus on the factors of economic resourcefulness, human resourcefulness, processiousness and aspects related to the improvement of a given process.

GRI Report The GRI Guidelines 3, ISO 26000 and Global Compact Principles are some of the most important guidelines, norms and standards in the world for voluntary corporate social responsibility reporting. In the world and in Poland, CSR reporting (CorporateSocialResponsibility, CorporateSustainability and Responsibility or CorporateStakeholderResponsibility) (E. Szczepankiewicz, 2014).

The main task of GRI is to express, measure and prepare reports on economic, social and environmental issues. [A report prepared in

accordance with the GRI guidelines should include a general presentation of the company, its vision and strategy, and the presentation of its social responsibility policy.

It should include programs, indicators and procedures on economic, environmental and social policies (L. Borowiec, 2013).

In line with the GRI reporting guidelines, the majority of the indicators (34 out of 54 indicators), the so-called profile indicators, are required by each organisation unless on the basis of the principles (in particular the materiality principle) the organisation decides to show other indicators. Additional indicators, the so-called detailed indicators, relate to issues that may be relevant only for some organisations due to the specifics of their operations. These are indicators identified as important, among others, in accordance with the materiality principle.

There are 91 specific indicators and they are divided into three categories: - economic (indicator symbols G4-EC1 to G4-EC9), - environmental (indicator symbols G4-EN1 to G4-EN34), - social. In the last category of specific indicators, the following subcategories are distinguished: - Employment and decent work practices (indicator symbols G4-LA1 to G4LA16), - human rights (indicator symbols G4-HR1 to G4-HR12), - society (indicator symbols G4-SO1 to G4SO11), - product liability (indicator symbols G4PR1 to G4-PR9).

Considering the economic dimension of sustainable development, it concerns the impact of the organization on the economic conditions of its stakeholders and on economic systems at the local, national and global levels. The economic category of specific indicators, illustrates the flow of capital between different stakeholders and the main economic impact of the organization on society (H. Sikacz, 2012).

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Table 1. Specific indicators according to GRI G4 guidelines - economic category Indicator symbol G4-EC1 G4-EC2 G4-EC3 G4-EC4 G4-EC5 G4-EC6

G4-EC7 G4-EC8 G4-EC9

Indicator Aspect: Financial guilt Direct economic value generated and distributed Financial implications and other risks and opportunities for the organisation's activities resulting from climate change Coverage of the organisation's pension obligations under defined benefit plans Financial aid received from the State Aspect: market presence Ratio of remuneration of entry-level employees by gender to the minimum wage in the relevant market in the main business locations Percentage of people from the local community in senior management positions in major business locations Aspect: Indirect economic impact Development and impact of investments in infrastructure and services Significant indirect economic impact including its magnitude Aspect: Purchasing practices Percentage of spending on local publishers in the main locations of operation

Source: Based on (G4 Reporting Guidelines. Principles, 2016).

ISO standards ISO standards are documents that are publicly available and include standardized product, service, technology and research activities that define, in a clear and transparent manner, how to deal with various aspects of an organization's activities.

These standards are based on scientific, economic and technically correct grounds. The condition is to take into account the current state of knowledge and technological progress as well as economic conditions.

The application of these standards allows to increase the effectiveness and efficiency of work, so the economic factor is an important determinant. Thanks to the implementation of ISO, the attractiveness, prestige and business communication on global markets of a company is improved. External and internal audits allow for continuous maintenance of processes at the highest level, which translates into efficiency of the organization.

Most commonly used ISO standards - types and examples There are many different types of ISO standards. We meet them in basically every field of economy. Their number is constantly growing (currently there are more than 23 600). Each of the ISO standards has a unique code, informing which series/family the standard belongs to. The most commonly used ISO standards are the standards of the series: • 9000 - standards for quality management; • 14000 - standards for environmental management; • 18000 - Occupational health and safety standards; • 22000 - standards for food safety management; • 22300 - standards for business continuity (e.g. ISO 22301); • 27000 - standards for information security management (e.g. ISO 27001); • 28000 - standards for security management in the supply chain; 222

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• 31000 - risk management standards [https://resilia.pl/blog/normy-isodefinicja-rodzaje-czy-warto-wdrazac/].

Design indicators The basic criteria for project selection are considered to be: project life, investment expenditure (outlay), net return on investment, financial surplus, discount rate, and project risk determination.

A more detailed analysis, also includes the following methods to support the decision to proceed: - static methods, - flows treated statically as nominal values: simple payback period and simple rate of return, - dynamic methods - estimation of investment profitability using discounted cash flows: net present value method, investment profitability index, internal rate of return, FCFE - cash flow models from the owners' point of view, FCFF - cash flow models from the perspective of the financing parties, WACC - weighted average cost of capital (taking into account the leverage effect on the company's bottom line),

- non-economic methods: implementation of the project due to the market strategy and prestige of the company, despite the fact that the preliminary analysis shows the unprofitability of the project (T. Szymański, 2012).

Financial Provision A very important economic indicator, according to the authors, is also a financial breakdown expanded with active cells which give the possibility to edit them during the project. It is a tool which gives a constant and real insight into the state of effectiveness of a given task.

The financial forecast includes assumed data for the next accounting year, taking into account all purchases of fixed assets, variable costs and fixed costs with salaries and incomes. Based on these assumptions the forecast profit is calculated and it is divided into profit and real profit. The real profit in this case is the profit after deduction of all subsidies from subsidy programmes and other sources. Thus, we may assume that this is the net profit of a given department or unit.

Table 1 – Branch costs Own elaboration Amortization Rent Energy and other media Classes OFP BFPadministration Bedspreads Advertisement Renovations Office supplies Learning materials Prints Postal and courier services Telephone services other costs Other materials Other services Health and safety measures A delegation Representation Sum

6,589 15,318 0

6,589 15,304 1,195

6,589 17,431 4,528

6,589 32,149 5,972

91,030 31,536 5,865

104,997 31,548 5,139

9,059 31,011 6,322

9,059 31,935 7,222

9,059 31,603 6,742

9,059 31,667 5,278

7,503 31,419 4,173

7,503 31,998 5,543

273,627 332,911 57,980

59,216 30,315 496

30,700 32,552 256

35,906 39,118 4,310

53,836 39,458 5,604

50,523 42,547 5,149

62,149 39,136 5,149

45,587 39,136 5,149

49,555 39,136 5,149

52,156 44,957 5,149

49,764 39,136 5,149

40,396 39,436 5,149

72,075 39,136 5,149

601,774 464,065 51,858

13,068 8,242 0 63 152

13,420 22,016 244 0 16

13,062 17,494 0 958 4,215

15,730 7,656 0 975 4,215

14,901 4,682 0 1,608 4,215

15,293 2,305 0 4,491 4,215

14,349 3,014 0 500 3,028

13,912 6,443 0 913 3,028

15,286 3,343 0 239 3,028

13,978 2,212 0 239 3,028

13,742 7,189 0 386 3,028

16,285 26,639 0 574 3,028

173,025 111,236 244 11,231 35,197

0 27

15 309

52 395

26 115

501 297

340 100

12 148

72 169

22 167

41 174

357 123

100 258

1,539 2,282

115

115

593

1,046

105

921

892

1,420

1,575

1,700

1,276

1,625

11,382

2,221 0

2,318 450

2,172 3,172

2,136 2,260

2,145 1,693

2,139 8,427

2,144 559

2,136 3,289

2,148 1,251

2,136 618

2,137 1,778

2,807 1,770

26,638 25,266

9,294 84

8,835 136

12,934 492

10,735 424

12,246 445

15,819 298

12,535 77

13,302 257

11,072 317

10,874 122

12,639 34

12,691 77

142,976 2,760

272 8 145,481

402 8 134,881

136 8 163,565

0 8 188,935

34 8 269,530

1,642 8 304,116

1,166 8 174,696

77 8 187,079

1,448 8 189,854

1,895 8 176,988

478 8 171,249

0 8 227,256

7550 90 2,336,630

Source: Own elaboration.

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By adding an additional table with branch revenue to the cost indicators in the provisional, in which we can include DPP results and DPE results, it facilitates continuous access to information, and when introducing current

changes that take place in the organization, it is possible to observe whether the company realizes the project assumptions as expected or whether there are deviations from the norm that need to be immediately corrected.

Table 3 – Branch revenue

Source: Own elaboration.

When the entire analysis of the revenue and - price fluctuations of the market taking into fixed and variable cost data will be substituted a account competition, table with departmental indicators that include - resignations, variables such as: - attendances, - economic assumptions from the micro - discounts, environment correlated together with macro - average teaching rates. factors, Table 4 – Unit indicators

Source: Own elaboration.

The feasibility of results and constant preview of the results of activities carried out in the area of a given project thanks to such a financial breakdown gives access to all implementation indicators and thus shortens

the reaction time, improves the project security and ensures its stability. By showing the areas that may be problematic it enables preparation for a quick reaction in case of such necessity.

Conclusions After analyzing the tools used during project management presented in the above article, the authors conclude that these are the most appropriate management methods to be used in a company to have a real impact on economic resources.

Economic resourcefulness is also highly dependent on the turbulent environment. The VUCA environment is ubiquitous nowadays and every enterprise has to face its effects while

managing. Proper planning, analysis and control of the entire management process in correlation with the economic resources of the enterprise and the surrounding macro and micro economic factors will minimize errors resulting from poor decisions made at strategic levels. The use of the design method in conjunction with the Gantt Diagram and Critical Path Method is a guarantee of minimizing wrong decisions, securing economic resources and the development of the 224

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company.

Taking into account also economic indicators such as GRI, ISO standards, project indicators and financial forecasts, the authors can conclude that it is necessary to use a measure such as indicators in order to have a real impact and overview on the project implementation and to reduce the reaction time when there are implementation uncertainties.

Project management in combination with such tools as CMP and Gantt Chart together with the application of indicators and economic

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aspects will contribute to the improvement of the organisation's effectiveness and thus will have a real impact on the profitability of the organisation and the project. The main aim of this article is to show the relationship between the selection of methods in process management and economic indicators, economic aspects and economic resources of the company. By showing the whole complexity of the process along with its explanation and discussion, the authors have achieved this goal.

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Finanse. Rynki finansowe. Ubezpieczenia, 71(142). Szczecin.

Sikacz, H. (2018). Wskaźniki ekonomiczne w raportach zintegrowanych wybranych grup kapitałowych – wyniki badań, Uniwersytet Ekonomiczny we Wrocławiu, Wydział Inżynieryjno-Ekonomiczny, Katedra Pracy i Kapitału, 2 (2). p. 41.

Impel Group (2018). Dlaczego warto wdrożyć zarządzanie procesowe?

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