INDEX OF UKRAINIAN INVESTMENT CLIMATE

Issue 51, November 2012.

In Q3, 2012 Ukraine’s business climate was assessed at 2.14 points out of 5 - the lowest score for three years.

Investor confidence shrank by 0.05 points in the three months from April to June compared with the previous quarter, according to the 17th wave of EBA Investment Attractiveness Index. Investors have been spooked by looming fiscal pressure, corruption, and general uncertainty in the run up to October's parliamentary elections. Improved customs procedures and the new Customs Code were a couple of patches of blue in an otherwise grey-skied business climate, and other figures are poor.
On October 4, 2012 the European Business Association released its most recent Investment Index result, which showed that 70% of respondents saw a downward trend in investment attractiveness, as no positive changes have taken place. Fears of investors stem from predictions of a hryvnia devaluation, and pre-election populism, pressure on the media initiated by draft libel laws etc.

Post-elections outlook
How do you assess the conditions for doing business in Ukraine after the parliamentary elections 2012?

 

 

It will definitely go down
It will probably go down
No changes will happen
It will probably improve
It will definitely improve
Difficult to say

 

Anna Derevyanko, the EBA's Executive director
"What we see is a vicious circle setting the tone of investor discontent – corruption, a biased court system, an overregulated market, and fiscal pressure. Disarray in the ranks of political parties contesting the 2012 elections and the election campaign only add fuel to the fire," says Anna Derevyanko. "At the same time, we see the quality of customs procedures moving in the right direction. Evidently, this very fact shows the efforts of the policymakers can work for the sake of doing business in our country. We all pin hopes on a post-election cooling-off period, and a return to normal. The business climate and investor content is likely to be tested in the coming quarters."

Tomas Fiala, EBA President, CEO of Dragon Capital: “
The further decline of our Index is in line with negative growth in industry, agriculture and construction in 3Q. Only domestic consumption remains positive. Based on preliminary numbers, GDP declined by 1.5-2.0% in 3Q and companies obviously feel that. On the one hand, external demand is a major cause, on the other, increasing tax pressure and the tightest monetary policy in the region also play a negative role. We hope the Government will refocus on pro-growth economic policies after the election.”

 

Alexei Kredisov, Managing Partner, Ernst & Young in Ukraine, Co-chair of the Emerging Markets Center, Ernst & Young Global:
“The EBA Investment Index is a perception-based indicator of over 100 Ukrainian and international business leaders in the country. It reports no improvement (or indeed slight deterioration) in the current business climate. What is even more worrisome, it indicates no expectation that things will change for the better in the near future. Such negative expectations on the part of business leaders will drive their decisions on employment and investment. With the Parliamentary elections coming to an end in October, this presents a new opportunity for the Government to reflect on the attitudes that the business community is evincing and to approach the reform agenda differently and more effectively.
Key issues remain undue pressures from the tax authorities, widespread corruption and red tape, an uneven playing field and conflicts of interest, and an ineffective court system. The Ukrainian leadership needs to present a trustworthy plan to address these issues and then effectively execute that plan. Only then can we expect changes for the better in business leaders' expectations, which in turn will drive investment and employment and increase the competitiveness of the Ukrainian economy.”

Krzysztof W. Siedlecki, Country Manager Ukraine, Astellas Pharma Europe
“The record low Index – Is it really that bad? Despite recent steps by the authorities to increase openness, and their will to connect with the Ukrainian business community, the overall perception of the business climate is not improving. But the stress must be placed on "perception." The EBA Investment Attractiveness Index is a subjective value, rather than an objective indicator based on figures and hard data. This does not diminish its value, as many business decisions are still taken on the basis of perceptions, but the index has a lot more inertia than objective numbers. It takes time to change managers' feelings and perceived judgments of the business environment temperature, the same way as a subjective feeling of heat or cold comes well after a temperature change can be read on a thermometer.
The government is making a visible effort to improve the business climate, and the temperature is increasing. The question is this – after the election, during the winter, will business be freezing, or will it be warming itself beside the fire of reform?”

INFORMATION:
The Investment Attractiveness Index of Ukraine: The evaluation of the Investment Attractiveness Index of Ukraine is conducted by the European Business Association with the support of the research company InMind. The index is based on regular monitoring of the investment climate of Ukraine by the first persons of the EBA member-companies. Details of the Investment Attractiveness Index is available at the Association web page indices.eba.com.ua