Ukraine's regulatory environment has been holding back investors and creating obstacles for business for years. Now when the country is shut out of capital markets due to Russia’s escalating war in the east, easing conditions for doing business can be the way to attract investment and bail out the nation's collapsing economy.
The Cabinet of Ministers passed a resolution simplifying a number of procedures for getting business permits in food, agriculture, oil and gas and information technology sectors, which came into effect on Feb. 10. Meanwhile, the lawmakers are expected to give the final approval to the bill that cancels a number of licenses, permits and agencies that issued them this week.
“While traditional instruments of economic growth are not available now, deregulation doesn’t require any money,” says Danyil Pasko, adviser to Prime Minister Arseniy Yatsenyuk and co-founder of Easy Business, non-governmental organization, which co-authored the legislation.
The legislation is expected to boost the economy up to Hr 20 billion ($800 million at Hr 25 to $1), including Hr 6 billion ($240 million) of foreign direct investment by 2020 and create up 150,000 jobs by that time, according to estimates.
Cancelling geological monitoring which cost up to Hr 250 million annually for oil and gas companies, will help them to save up to Hr 3 billion in total in one year, according to Pasko. Agriculture companies will also benefit after the quarantine certificates, for which they were spending Hr 25 per ton annually, are cancelled.
The quarantine certificates which are required for transit of grain within the country in Ukraine are not used for that anywhere else in the world, while the procedure of geological monitoring was introduced artificially by previous officials and the money state companies were making on it was trasferred out and never got to the sate budget, according to Pasko. “(Cancelling) these two things (will save) Hr 6 billion already this year. Instead of paying this money to corrupt officials, the companies will be able to invest it in their development,” he says.
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Successful experience of South Korea and Mexico, where deregulation was conducted in 1990s is a good example for Ukraine, according to Pasko. In South Korea it resulted in $35 billion of foreign direct investment and 1 million jobs, while in Mexico – $25 billion of foreign direct investment and 1.5 million jobs in five year period, according to the World Bank data.
Oleksandr Parashchiy, head of research at Concorde Capital investment bank is skeptical about estimated investment growth for Ukraine. “It obviously will save (some money) as it will not only reduce expenses for issuing licenses but also expenses related to corruption, However, it is not the issue that is holding back investors,” he says.
The main obstacle for investment is insecurity of property rights in Ukraine.
“Until we have a comprehensive judicial reform, it’s difficult to talk about any investment,” Parashchiy says. “Investment is a long-term thing. To decide whether to invest you have to know what to expect in five years. Right now nobody can guarantee that the deregulation path will be followed and that pressure on business will be reduced.”
For Pasko, the adopted legislation is the first step. His team together with lawmakers is currently also developing the law that wil allow for revision of exisitng regulatory legislation or so called “regulatory guillotine” procedure. The aim is to create a commission of independent experts who will do that, according to Pasko.
In South Korea after 11 months of “regulatory guillotine” almost half of 11,000 regulating acts were cancelled, while 22 percent of them – simplified. In Mexico more than half of 2,000 acts were cancelled, while 27 percent simplified, according to the World Bank data. “It’s impossible to count how many regulating acts are in Ukraine because there is no registry for those, but this is about thousands,” Pasko says.
Kyiv Post staff writer Anastasia Forina can be reached at [email protected]
