Vasil Kisil & Partners and the European Business Association Carried out the Ukraine’s Investment Attractiveness Index Survey
Vasil Kisil & Partners has examined, together with the European Business Association, the Ukraine’s Investment Attractiveness Index for the first half of 2020. As the survey has shown, the index is 2.51 points out of 5 possible and continues to be in the negative area. This index was 2.95 points during the previous period.
The sentiment of CEOs has deteriorated significantly. Only 4% of respondents believe that the investment climate is favorable, while they were 17% during the previous wave. The majority, i.e. 62%, consider the current investment climate unfavorable, and another 34% think it is neutral.
The assessment the business climate dynamics also points out to a negative trend. Thus, 55% of CEOs have noticed that the investment climate deteriorates as compared to the previous 6 months, while another 35% of them are convinced that the business environment has not changed, and only 10% of the respondents said there were some improvements.
The launch of the land market, currency liberalization, continued cooperation with the IMF, lowering the NBU discount rate, and a stable national currency are among the positive points noticed by business leaders over the past six months.
There are new factors that negatively affect the business climate apart from such traditional problems as the weak court system, lack of progress in fighting corruption, and the significant impact of the shadow economy. Specifically, they include the restrictive measures to prevent the spread of COVID-19, constant rotations in the Government, which have resulted in political and economic instability, increased tax pressure and changes in tax legislation, and the suspension of reforms.
Forecasts for the next six months are not very optimistic as well. Only 15% of CEOs hope for the investment climate to improve over the next 6 months. It is worth noting that 41% of CEOs had optimistic expectations in the previous wave of the survey. Almost a half, i.e. 44%, believe that no change will take place, and 41% of them fear that the business environment in Ukraine will continue worsening.
A half of the CEOs are not sure that Ukraine will be a favorable market for new investors to come over the next six months, and only 15% of them believe that new investors will profit from starting their business in Ukraine.
“We are witnessing an unprecedented deterioration in investor sentiment, comparable to the post-crisis sentiment of 2015. The negative impact of the forced quarantine measures, which lasted for more than two months, was amplified by the Government rotations and the slow pace of reforms. Without further structural changes in the fight against corruption, reforms of courts and law enforcement agencies, increasing economic freedom, and stable legislation, the sentiment of even the most optimistic people, who are the entrepreneurs in Ukraine, will deteriorate,” Anna Derevyanko, EBA Executive Director, commented results of the survey.
Andriy Stelmashchuk, Managing Partner, Vasil Kisil and Partners Law Firm, said, “For the first time during the past three years, we see an extremely high level of dissatisfaction with the judiciary system: 87% of respondents noticed the judiciary′s weakness. Recently, the President has instructed to carry out a revolutionary judicial reform. But when we talk about the court reform, we need to look at the context in which it will take place and solve the problem comprehensively, along with law enforcement reform and the fight against the demand for corruption. To improve the investment climate, the planning horizon for the judiciary must be 10-15 years. Now, we must lay down the principles of the reform, which will not change with the election of each new President and the appointment of the next Government.”
HOW DO WE MEASURE THE INDEX
The European Business Association has been conducting research on the “Investment Attractiveness Index of Ukraine” since 2008. Throughout the history of the evaluation, the Index has not reached a positive value – above 4 points.
We ask our company members’ directors 5 questions:
- What are your thoughts concerning the investment climate in Ukraine?
- How do you evaluate the current investment climate for your company compared to the previous 6 months?
- What are your predictions for the investment climate in the next 6 months?
- Will it be profitable to invest in Ukraine in the next 6 months?
- What are your expectations for conducting business in your field in the next 6 months?
105 company leaders of the largest international and Ukrainian companies have taken part in this wave of surveys.
For the Index calculations, we use a Likert scale which has 5 gradations. For that scale, 1 is very negative, 5 is very positive, and 3 is neutral.
The research was conducted together with Vasil Kisil & Partners as a legal partner, and Gemius as an analytic partner.