Russia's war against Ukraine is no excuse for the lack of reforms, representatives of American, Canadian, Dutch, Georgian, and Lithuanian businesses emphasized at a roundtable on judicial reform.
“War is too often applied as a lame excuse,” said Michael Datsenko from the U.S.-Ukraine Business Council and The Open Court project on Aug. 27. “All of us understand that (investment) problems are not connected to war. They have existed long before the war started.”
President Petro Poroshenko’s optimistic forecast of a return to economic growth in 2016 is doubted.
“Economic growth can recover in the upcoming months if there is no escalation of the conflict,” Poroshenko said on Aug. 24. “Business is adapting. It finds new markets to replace the completely closed for Ukraine Russian market.”
While the Ukraine’s Ease of Doing Business ranking indeed improved for almost 20 points in comparison with 2014, Ukraine is still run badly, Jocelyn Guitton from the European Union delegation to Ukraine said. To succeed Ukraine has to show more progress in economic and judicial reforms. Harassment by tax authorities, hostile takeovers of businesses and absence of effective mechanisms of enforcement of court judgments flourish, Guitton added.
The investment attractiveness index of Ukraine for the second quarter of 2015 (2.66 out of possible 5), has little changed in comparison with the first quarter of 2015 (2.51), according to the European Business Association’s survey conducted on July 23.
More than 80 percent of businesses are not satisfied with the current investment climate, while 49 percent of CEOs do not see any positive changes.
Source: The European Business Association’s investment attractiveness index for the second quarter of 2015
Flaws in the tax laws and customs regulation, the inability of investors to protect rights in courts and corruption are the most common concerns of potential investors, according to Yulia Vengerovych from the European Business Association. Similarly, overregulation, excessive number of permits and extreme discretion of regulators does not help the situation much, said first deputy Minister of Economic Development and Trade of Ukraine, Julia Kovaliv.
In addition, “there is basically no property in Ukraine which is fully protected from unlawful takeover,” Datsenko added.
Source: The European Business Association’s investment attractiveness index for the second quarter of 2015
The bad experience of investing in Ukraine is another obstacle.
“When Ukraine gained independence, Ukrainian-Canadian business people rushed into Ukraine to find out how they can be of assistance … but they got burned, forced out. Bad news followed the bad news,” said Clint Martin from the Canadian Embassy in Ukraine.
What Ukraine needs to do now is to demonstrate more success stories of the simple and pleasant trade deals, change of customs regulation, anti-corruption and anti-bribery measures.
If national investors start to invest funds into Ukraine’s economy, it will also serve as a positive signal for foreign investors, said Bohdan Lvov, chairman of the Higher Commercial Court of Ukraine.
The development of alternative platform for solving disputes in Ukraine – an effective commercial arbitration – can supplement the judicial system as it undergoes reforms.
Similarly, the creation of investor-friendly institutions, such as National Investment Agency in Georgia, which would guide investors, and funds for the co-funding of investment projects, could be helpful, added Giorgi Zakarashvili from Georgian Embassy in Ukraine.
The logic of the foreign investor is simple: before you start building a house, you clean a land and start digging the foundation, Astrid Dunzelman from the Netherlands Embassy in Ukraine said. “But we all know what happens (in Ukraine) when you start digging.”
Kyiv Post legal affairs reporter Mariana Antonovych can be reached at [email protected]
