Survey: Corruption, distrust of courts making foreign firms wary of investing in Ukraine
Corruption and fears of not getting a fair hearing in court are the main obstructions blocking foreign investment into Ukraine, according to the latest investor survey by investment bank Dragon Capital, the European Business Association, and the Centre for Economic Strategy.
They have been selected by foreign investors as the top major obstacles for the last three years.
The annual study, which was conducted in early September, quizzed 109 existing and potential investors. The survey tested Ukraine’s investment climate, and highlighted the positive and negative factors that influence companies’ investment decisions.
According to Tomas Fiala, CEO of Dragon Capital and President of the European Business Association, corruption and mistrust of the courts have been found to be the top impediments to foreign investments for the third year in a row.
“In order for Ukraine to become attractive to investors, it is necessary to ensure the rule of law and justice and to reduce corruption in law enforcement agencies and courts,” Fiala said in a statement on the survey’s results.
The third main obstacle to the attraction of capital to Ukraine is the unstable financial system and shaky currency: these factors were up by two positions in the ranking of investors’ concerns compared to last year’s results.
The authors of the survey said the reason for that is “the continued uncertainty about the prospects for further cooperation with the country’s main creditor, the International Monetary Fund,” as well as worries over whether Ukraine can cope with its external debt payments.
Over the year, the IMF has repeatedly expressed concerns about the slow pace of implementation of reforms in Ukraine that are required for it to disburse more funds to the government.
Ukrainian Prime Minister Volodymyr Groysman recently announced that the country would have to pay back $27 billion in debts over the next four years.
Among other obstacles preventing investors setting up shop in Ukraine are the monopolization of the markets by oligarchs, Russia’s war on Ukraine, cumbersome and frequently changing legislation, oppressive law enforcement agencies, and restrictive capital and foreign exchange controls.
Although Ukraine started liberalizing its foreign currency legislation with a new law that simplifies currency operations for individuals and businesses, Anna Derev’yanko, the executive director of the European Business Association, said it has yet to be properly implemented.
Fiala also noted that the National Bureau of Financial Investigations has yet to be established.
“In September 2017 the country’s leadership at a meeting with business associations promised to create a National Bureau of Financial Investigations. Unfortunately, this has not happened and even our comments on the bill have not been taken into account yet,” Fiala said.
As next year Ukraine will have both presidential and parliamentary elections, foreign companies were also asked to select possible steps a new administration could take that would affect their investment decisions – both positively and negatively.
Among the top positive steps investors named an intensified battle against corruption, the overhaul of the judicial system, the separation of political and business interests, and the reduction of oligarchs’ influence on politics and the economy.
Steps that investors said would worsen the investment climate were Ukraine defaulting on its foreign debt, attacks on independent anti-corruption institutions, a rollback of democratic values, and political pressure on the National Bank of Ukraine.
“According to the rating of obstacles and the perception of possible actions by the new government, we can see that the rule of law, strong democracy and the destruction of the corruption system are prerequisites for investment and economic growth in Ukraine”, said Hlib Vyshlinsky, the executive director of the Centre for Economic Strategy.