For some, the 2018 UEFA Champions League final might have seemed to be the most exciting and anticipated event Ukraine hosted at the end of May. But for international investors who came to Ukraine as well as for top-level government officials, there was business to take care of before the entertainment.
On the eve of the men’s annual football competition for Europe’s top soccer clubs, on May 25th, Kyiv welcomed the participants of the first National Investment Council meeting, which was headed by Ukraine’s President Petro Poroshenko.
The total market capitalization size of the council members – 20 large companies and international financial institutions that are long-term investors in Ukraine – amounted to almost $1 trillion. Their leaders came to share first-hand experience of working in Ukraine and their vision of the further steps the country has to make to boost the inflow of foreign direct investment.
With rather stable gross domestic product growth, and a much better position in the World Bank’s Ease of Doing Business ranking, Ukraine is now experiencing an economic renaissance. Investors have a reassuringly supportive position, recognizing the country’s commitment to improve pro-business environment.
Most of the attendees – ArcelorMittal, General Electric, Citibank, Bunge, Cargill, Engie, Holtec, Metro Cash & Carry to name a few – shared positive feedback on the advancement of the country towards deregulation and transparent public procurement. Ukraine also gets a thumbs-up from investors on the initial liberalization process of the energy sector, automatic reimbursement of value-added tax, significant changes in the banking system, and remarkable progress in improving corporate governance.
Needed improvements
But there remains a number of comprehensive measures to carry out in many sectors. Among them, investors named the successful launch of privatization, allowing a significant decrease in the government’s share of the economy.
Most attendees of the meeting also agreed that improving rail and port logistics through the new concession legislation will unlock key infrastructure bottlenecks for export-oriented businesses, with the support of private capital. The new law, which will soon be submitted to the parliament for second reading, should help Ukraine attract around $10 billion in investments in transport infrastructure alone.
Further efforts in tax and customs reform, namely strengthening the transparency and efficiency of the State Fiscal Service and Customs, together with tackling the gray agricultural export market, will give a boost to exports and international trade.
An open land market is another key reform to work on in the nearest future. According to the International Finance Corporation, this would bring Ukraine $15 billion in agricultural output.
At the National Investment Council meeting, companies with a long business history in Ukraine said that a predictable and transparent legal and regulatory framework would attract more new investors to the country. Along with that, many attendees at the meeting named investor rights’ protection and intellectual property rights’ protection as being equally important for the investment climate.
Additionally, the adoption of a law on institutionalizing the Business Ombudsman Council will set a long-term prospect for supporting business and preventing the mistreatment of it. This body is also considered to have had a significant positive influence on the investment environment. According to the European Bank for Reconstruction and Development, the BOC’s financial impact amounted to $7 million during the first quarter of 2018 alone.
The view of global businesses is that Ukraine should also introduce incentives for investors. Alternatives to consider are export-oriented economic zones, where companies do business under special terms and conditions (for example, stable and improved regulations, quick and transparent tax and customs procedures). A carefully developed mechanism for tax holidays might also be an incentive option.
The above recommendations given by the members of the National Investment Council serve as the solid basis for an action plan in Ukraine. The country has to think big, and combine efforts on all levels, for the plan to result in Ukraine’s version of an economic miracle. The path might be tough, but while our economy has been getting back in shape since 2014, investments are what will actually fuel it and switch the investment climate discourse from talk about potential success stories, to real ones, and growth.
Yulia Kovaliv is the head of the Office of the National Investment Council, a non-governmental organization that partners with the Ukrainian government to lure investors to Ukraine.
