AMBASSADOR'S BLOG - UKRAINE: HOW POLITICS AFFECTS INWARD INVESTMENT

Kyiv
30.09.10




I often feature in this blog "good news" stories about business in Ukraine.  That's because there are great business opportunities here.  And British businesses which are successful in Ukraine often make powerful points about what the Ukrainian authorities could do to improve the business environment.

I was struck recently, however, by some trenchant comments by a couple of major international investors which had decided that, for the time being at least, they were not going to invest in Ukraine.  It may be helpful to list their concerns, not because I necessarily agree with them all but because they show how some investors perceive factors which deter inward investment.  They listed:

  • over-regulation and lack of transparency in business processes.  According to the World Bank Doing Business report for 2010, Ukraine has moved up four places from 146th to 142nd since 2009.  This is progress but Ukraine will surely want to do better.   
  • corruption fuelled partly by that over-regulation: in particular, widely held perceptions that state organisations frequently demanded bribes in order to issue permits without which it was impossible to do business (in Transparency International's Corruption Perceptions Index, Ukraine comes in at place 146 out of 180);
  • a court system whose decisions were often based less on the facts of the case than on the readiness of one or more parties to the dispute to pay a bribe, or on political pressure;
  • the concern that in the absence of a truly independent and rules-based court system, property rights were difficult to ensure;
  • the lively debate in Ukraine, stretching back over several years, about the possibility that newly-elected authorities would prosecute former elected leaders and pressurise businesses associated with them.  This undermined the confidence of international investors that democracy was firmly established in Ukraine. More specifically, it undermined investor confidence that if they reached an agreement with the elected authorities on a given investment, these agreements would not be torn up next time someone else was voted into power.  This made major long-term investments more risky.

I have heard recently several encouraging statements by leading Ukrainian politicians that they are tackling these issues.  But I've also heard investors saying they can't yet see much sign of progress.  I hope this list is useful to the authorities as a check-list of action needed to improve Ukraine's image and attract more inward investment.

Leigh Turner
British Ambassador to Ukraine


NOTE:  You can read all of Ambassador Turner's blogs by visiting: http://blogs.fco.gov/roller/turner 



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