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Jul 06, 2012

Ukraine's Investment Attractiveness: Fair to Middling

Kyiv Post

In Q2, 2012 investors in the Ukrainian market rated its attractiveness at 2.19 points out of a possible five. This is hardly surprising: The respondents said there had been no perceivable positive changes, and the overall picture remains mostly unfavorable. There has been no significant improvement this year - the Investment Attractiveness Index in the first quarter of 2012 was at mere 2.18 points following its plunge at the end of the previous year.

The latest figures come from the 16th round of polling for the EBA Investment Attractiveness Index, a survey measuring the country’s potential as a haven for investment. This time, 115 CEOs from EBA member companies - from businesses large and small - contributed to the poll.

The continued low investor confidence in the Ukrainian market is attributed to the ongoing problems with VAT refunds and the loss carryforward procedure, the over-regulation of market activity, corruption, troubled relations with the EU, and technical barriers to trade. A few of those surveyed said Ukraine’s successful hosting of the Euro 2012 football championship, the adoption of its new Customs Code, and moves to stimulate the country’s IT sector were positive developments. However, these plus points were not sufficient to give a significant boost to the index.

Alexei Kredisov Managing partner in Ukraine Ernst & Young

"Result of the latest EBA business attractiveness poll is just another demonstration that the state of Ukraine is not making bold enough moves to improve its business climate. Reforms are being announced and some efforts are being applied, but business leaders fail to observe changes for the better. In the environment of the global fight for capital and employment and in general risk-averse attitude by investors, lack of progress in reforming its business climate is bad news

for Ukraine, for its business, employment and, ultimately, for the state revenues. One step forward (the customs reform) is followed by two steps backwards (disallowing tax losses and new ad-hoc regulations).

Ukraine needs to critically assess why its reform efforts are not delivering results which were expected and the EBA is ready to share our views as to what it stalling the progress."

Jose Manuel Pinto Teixeira Ambassador

Head of Delegation of the European Union to Ukraine

"This survey shows that European businesses and members of EBA have not perceived any real improvements in the business and investment climate in Ukraine in recent months. I am not surprised but I find it disappointing that so many issues still remain unresolved, despite frequent calls for action from the EU and the EBA, and commitments made by the Ukrainian government to improve the business climate. Many of the concerns identified are long-standing - such as VAT refunds, corruption and pressures on companies from state authorities. If Ukraine wishes to increase foreign investment - which it needs - then it should listen to business and take action to resolve their key concerns soon."

Tomas Fiala EBA President Chief Executive Officer, Dragon Capital

"On the one hand I am encouraged by the activity and thorough understanding of business problems by the new Government members and seamless organization of the Euro 2012, on the other, unfortunately, part of this success will be overshadowed by pre-election populism and investors will start to believe in effectiveness of regulatory changes only after they have been fully implemented and tested over time in practice."

Natalia Bochkova General Director, DHL Express Ukraine

"DHL is in logistics and transportation business so we are the first to notice any changes on border and customs. Speed and ease of international express deliveries is indicator of the infrastructure friendliness towards foreign business.

On the positive note, it is encouraging to see incremental improvements in customs legislation on provisional side. Electronic declarations, ability to declare in any customs point, decriminalization of "cargo contraband", creation of the "authorized economic operator" are the major milestones to create seamless and transparent clearance process. These and a number of other changes in customs regulations should make Ukraine more attractive for current and potential investors seeking to bring their production facilities into the country.

What’s worrying to me is that sometimes we as business lack to see the big picture behind tactical changes. Those changes could be positive, neutral or negative — business needs to be able to factor those into their long term plans. Lack of such vision and understanding brings uncertainty. There is, no doubt, a room for improvement on the implementation side of the new changes. The dialogue between business and authorities should continue, and become more predictable and productive. From our point of view, the EBA Investment Attractiveness Index is an integral part of the regular, open, and constructive dialogue aimed to improve business climate in the country and investors’ confidence in Ukraine."

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