Foreign investors don’t trust Ukraine’s judiciary and complain about ubiquitous corruption, according to a survey published by Ukrainian investment fund Dragon Capital on Nov. 9.
Nearly half of 117 respondents who filled out the questionnaire on Oct. 26-30 — foreign investors who have or plan to put money in Ukraine — said that the Ukrainian investment climate has become less attractive in 2020 as the struggle to build a strong judiciary system and eliminate corruption in the country continues.
“Last year, we hoped for quick market reforms, fair punishment for corruption, and a relaunch of government institutions,” Dragon Capital chief executive Tomas Fiala said in a note to the study.
However, Ukraine still favors oligarchs and corrupt officials who monopolize markets and stall progress, the survey states.
On Oct. 27, for example, the notoriously corrupt Constitutional Court destroyed Ukraine’s asset declaration system for state officials. This decision eliminated a crucial pillar of the country’s anti-corruption system, threatened Western funding and visa-free travel with Europe. The ruling by the Constitutional Court has cast doubt among foreign investors on whether Ukraine is a reliable business partner, Anna Derevyanko, executive director of the European Business Association, said in the study.
Foreign investors have also started questioning whether it’s safe to do business in Ukraine. In the survey, they said the country’s fiscal system and currency are unstable, while a possible debt default and the struggle to reach an agreement with the International Monetary Fund on the next loan tranche — part of the IMF’s $5 billion standby arrangement for Ukraine — may threaten the investment climate in the country even more.
According to the survey, international investors also struggle with Ukraine’s cumbersome and frequently changing legislation and complicated tax system.
Meanwhile, the war with Russia has stopped scaring investors away they way it used to several years ago.
Some international investors started to withdraw money from the country in 2020, Dragon Capital told the Kyiv Post.
For example, in the first quarter of this year, investors from the U.S. withdrew $28 million, from Luxemburg — $25 million, from Japan — $16 million, and from Singapore — $11 million.
From January to June, Ukraine lost nearly $1.6 billion of investment, while, during the same period last year, the country attracted $943 million.
Energy is the most lucrative Ukrainian industry for foreign businesses, alongside agriculture, logistics and real estate, Dragon Capital said. The Ukrainian tech sector is also gaining momentum — it attracted a record of $510 million in investment in 2019.
The coronavirus pandemic is taking a toll on the investment flow worldwide. The United Nations predicts that direct foreign investments will decrease by 40% by the end of the year.
In Ukraine, however, foreign investors seem to be more resilient to a new COVID-19 lockdown, according to Dragon Capital. Only 27% of the strategic investors currently working in Ukraine think that they would reduce or stop investing if the government introduced stricter quarantine measures.
To attract more foreign businesses to the country, Ukraine needs effective reforms, the respondents said. For example, the country should relaunch the judiciary, reduce the influence of oligarchs, and appoint credible officials.
As of June 30, Ukraine has attracted $50.3 billion in foreign investments since its independence — most of them from Cyprus, the Netherlands, Switzerland and the United Kingdom.
