2 REDUCING MARKET DISTORTIONS FOR A MORE PROSPEROUS UKRAINE attempts to privatize the remaining SOEs have largely failed. Certain sectors and even speci昀椀c SOEs remain protected from restructuring despite operating alongside private 昀椀rms in markets where competition is clearly viable. SOE market shares exceed 50 percent in at least 15 of 28 sectors and markets. These SOEs consume public resources and crowd out private investment, and their continued existence often lacks a clear rationale. In addition, the share of politically connected private 昀椀rms is unusually high, reaching over 60 percent of sectoral turnover or assets in capital-intensive 1 industries. Together, SOEs and politically connected 昀椀rms are the major players in at least 13 markets, including all of the key productivity-enabling sectors. The Ukrainian economy su昀昀ers from weak competitive pressure, with little room for investment in value addition. An analysis of entry and exit dynamics reveals a persistent lack of contestability in Ukrainian markets. Even markets where competition would typically be viable tend to be dominated by a single SOE or a few large 昀椀rms, often with political connections, which reduces competitive pressure and exacerbates the risk of anticompetitive practices. An econo- 2 metric analysis of 昀椀rm-level data for 2006–2015 昀椀nds statistically signi昀椀cant di昀昀erences in economic outcomes between politically connected 昀椀rms and other 昀椀rms, even when controlling for 昀椀rm sector, size, and age. Not only are politically connected 昀椀rms less productive than their non-connected peers, they also tend to have slower turnover, employment, and TFP growth rates. The estimated di昀昀erences range from –5.7 to –16.2 percentage points for the turnover growth rate, –13.0 to –28.9 percentage points for the employment growth rate, and –4.6 to –10.1 percentage points for the TFP growth rate. Concentrated markets and weak competitive pressures increase the costs of goods and services and diminish their quality. Ukraine ranked 83rd out of 140 countries on the 2017–18 Global Competitiveness Index (GCI), and its overall score (4.11 out of 7) has improved little over the past 昀椀ve years. Among Eastern European countries, only Moldova and Bosnia and Herzegovina scored lower on the GCI. Ukraine fares especially poorly on the sub-indicator for goods-market e昀케ciency (4 out of 7) and ranks well behind close regional comparators such as Romania, Bulgaria, and Poland. Prices for basic food products, which comprise a signi昀椀cant portion of Ukraine’s food consumption basket, are an estimated 20 to 50 percent higher than the levels observed in the OECD and in peer countries in Eastern Europe and Central Asia. Markets for certain food products, such as rice and sugar, are especially distorted by powerful interests, and prices for these goods are far above the levels of comparator countries. In addition, domestic prices for food commodities traded on international markets do not appear sensitive to changes in international prices, and domestic price regulations may have served as a 昀氀oor, preventing downward price adjust- ment due to increased competition from abroad. 1 Firms are considered politically connected if they are able to in昀氀uence the policy process to their advantage at the expense of the public interest. 2 The World Bank Group and the UK Good Governance Fund (2018). Crony capitalism in Ukraine: impact on economic out- comes (English). Washington, D.C.: World Bank Group.