16 REDUCING MARKET DISTORTIONS FOR A MORE PROSPEROUS UKRAINE in Ukraine, high levels of market concentration and a heavy SOE footprint are compounded by an unusually large share of politically connected private 昀椀rms. Firms are considered polit- ically connected when they are able to in昀氀uence the policy process to their advantage at the expense of the public interest. Recent research has found that between 0.5 and 2 percent of all 昀椀rms in Ukraine are politically connected, yet these 昀椀rms account for over 20 percent of total turnover.30 Politically connected 昀椀rms tend to operate in capital-intensive industries such as mining, energy, and transportation, where they account for over 40 percent of total turnover and over 50 percent of total assets (Figure 15). FIGURE 15 Market Shares of Politically Connected Firms by Subsector, 2015 (%) 70% 60% 50% 40% 30% 20% 10% 0% g y g d ly d e s d s n d d k s ing n p ion n te n n io n ies ity ion tinstr r a ad o an r t e ying p ct r n a i a n r r s a t a e iat g n cu u ishin r a u le il r g e ca l wor h F a ctu g r su a u a icat d ctivit u ctivitie , u fa , e str ta r n e tin a tio d cia a e d fo q t n lese n a E o r n u ty r sta u m e a n o e sto r r ss cial s s u nd a iciwa Co h r , m e , e d vice d t m inistrso n r a M tr W n r te sin , icult g lec a o co l int u m ce a se r E sp sta b d n lth r g inin ls n cia l e a e A te a n a c a fe h M r li e Ot Ho T ina Re b d He F u P Agriculture Industry Services Sector’s number of rms Sector’s turnover Sector’s assets Source: The World Bank Group and the UK Good Governance Fund, 2018. Many politically connected 昀椀rms are owned by the country’s oligarchs who wield enormous political and economic power. The Ukrainian oligarchs emerged during the country’s transition and privatization process in the mid-1990s, when the leaders of newly formed business groups rapidly accumulated economic assets and began investing in politics to defend their market positions.31 The Ukrainian air-transportation market is currently dominated by the oligarch-owned Ukrainian 30 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. http://documents.worldbank.org/curated/en/125111521811080792/ Crony-capitalism-in-Ukraine-impact-on-economic-outcomes. This analysis uses two approaches to identify politically con- nected 昀椀rms. The 昀椀rst approach is based on publicly available information on the ownership and control of businesses by individuals who have been entrusted with prominent public functions, including senior politicians and party o昀케cials, senior government, judicial or military o昀케cials, and senior executives of SOEs. A 昀椀rm is considered connected if it has at least one such person among its owners, shareholders, or managers. The second approach includes companies that possess political connections through an oligarch or a business group. 31 Wojciech Kononczuk´ , Denis Cenus¸a and Kornely Kakachia (2017). Oligarchs in Ukraine, Moldova and Georgia as key obstacles to reform. Available at: http://www.3dcftas.eu/system/tdf/Oligarchs_14%20June_FINAL_0.pdf?昀椀le=1&type=node&id=358%20