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Sep 14, 2016

Corruption, lack of trust in judiciary biggest obstacles for investment in Ukraine


Foreign investors believe that the biggest obstacles for investment in Ukraine are widespread corruption (average score – 8.5 points out of 10 possible) and lack of trust in the judiciary (7.5 points), according to a survey conducted by Dragon Capital (Kyiv) and the European Business Association.

According to a joint press release of the two organizations, the military conflict with Russia (6.1 points), as well as unstable currency and financial system (6 points) were the next most highly ranked obstacles.

According to the document, "military conflict is one of the least significant obstacles for investors who are actively looking for business opportunities in Ukraine, who ranked it in 7th place (4.9 points) on their list of concerns. Of higher concern for this group, just behind corruption and the judiciary, is complicated tax administration (6.1 points)."

"In general investors worried less about tax rates than about tax administration – with the rates per se occupying last place among the listed obstacles (offering tax breaks is less of an issue than simplification of administration)," reads the press release.

Among the most positive actions that the government of Ukraine has to take to attract foreign investment, businesspeople mentioned relaunching the judiciary by vetting existing members and hiring new judges (average score – 7.6 points out of 10 possible), and the prosecution of large numbers of high-level officials and judges for corruption (7.4 points).

At the same time, the third most highly ranked government action is ensuring the IMF program remains on track and liberalization of foreign exchange controls (including canceling the dividend repatriation ban) – both received a score of 6.2 points.

"The resumption of Ukraine’s economic growth and reducing the gap with our western neighbors, which unfortunately increased significantly since 2009, is not possible without foreign investors. The results of interviewing international companies that invest around the world show in which areas the Ukrainian investment climate is uncompetitive and where the leadership of the country should aim first," Dragon Capital CEO Tomas Fiala said.

"The study found that the main barriers to foreign investors in Ukraine are corruption at every level of power and a judiciary which is too weak. Despite the authorities’ attempts to improve the situation by introducing an anti-corruption agency or, for example, by introducing a new system of public procurement, business has not experienced drastic and visible changes in this direction," Anna Derevyanko, Executive Director of European Business Association, said.

The survey was conducted on the joint initiative of Dragon Capital investment bank and the European Business Association (EBA) with analytical support of the Centre for Economic Strategy from August 25 to September 2, 2016. In total, the survey involved 102 respondents, including Dragon Capital clients and foreign investor-EBA members (including portfolio and direct investors who already have investments and who plan to invest in Ukraine). The survey was conducted by method of online interviews.

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