Government Shows Off Ukrainian Property
January 27 marked the closing day of the World Economic Forum in Davos, Switzerland. The Ukrainian delegation came to confirm Ukraine’s desire and readiness to ensure a substantial increase in the volume of foreign investment into the national economy.
The Ukrainian Premier stressed repeatedly that “a quite favorable investment climate” already exists in our country. A special session dedicated to the Prospects for Ukraine was held as part of the forum, at which Premier Yanukovych painted the investment portrait of the country. He stated, “there is a discernible trend in Ukraine toward a broader domestic market. The economy is coming out of the shadows, real incomes of the population are growing, and unemployment is decreasing.” The Premier believes that a critical mass of private property has formed in Ukraine, the groundwork of the market economy has been laid, the monetary policy is being upgraded, “a balanced budget is being ensured,” and structural reforms are promoted in the real sector of the economy. According to Premier Yanukovych, evidence of the attractiveness of the Ukrainian investment market is the fact that “improved legislation is designed to protect the interests of investors.” He went on to say that the institutes of protection of private ownership rights of creditors and investors are developing dynamically, with the system of corporate management being upgraded. “A qualitatively new atmosphere created in the economy has yielded positive results. In the nine months of the year 2002, the net increment of direct foreign investment into Ukraine was 28%,” the Premier stressed.
He informed the potential investors that stakes in a number of strategic enterprises will be put up for sale this year, namely stakes in power distributing companies, major metallurgical works, and chemicals enterprises. Having said this, the Premier did not round off a sharp corner which, many believe, can discourage investors from investing into the economically successful Ukraine. According to Premier Yanukovych, the Cabinet of Ministers is working systematically to bring Ukrainian legislation into compliance with international standards, which will help Ukraine avoid sanctions and be removed from the FATF blacklist. “Let us hope this will happen during the February 12 FATF session,” he said.
Among Ukraine’s priorities Yanukovych named further implementation of market reforms, improvement of conditions for investors, completing the process of Ukraine’s accession to the WTO, increasing the level of transparency of privatization and the budget process. On saying this, he even vouched for the parliament which, to quote him, “is dominated by forces supporting fundamental market and democratic reforms and European aspirations of our state.”
Ukraine’s Ambassador to Great Britain Ihor Mitiukov, former Finance Minister and member of the Ukrainian delegation, also worked actively in Davos. His assessment of the most attractive economy sectors was to help foreign businessmen make the right decision. According to Mitiukov’s forecast, the power generating sector will remain the most attractive to foreign investors (favorable conditions are being created in this sector, namely forecasts suggest an increase in the level of payments for consumed electricity which would satisfy the investor and guarantee quite high returns on investment, while the policy is becoming clearer, more coordinated and predictable), reports Interfax-Ukraine. Ambassador Mitiukov referred to agriculture as another prospective sector for foreign investment. This is due to a series of laws that have been adopted in Ukraine aimed at the development of the mortgaging system, the creation of a common register of the right to land and real estate. According to Ambassador Mitiukov, in the long-term prospects investors may take an interest in the machine building sector.
According to Mr. Mitiukov, the main factor that will ensure an influx of investment into Ukraine is tax reform, which should be aimed not only at lowering tax rates, but at improving the conditions for doing business and protecting the investor. However, Mr. Mitiukov believes that the main consideration of foreign investors will be the cheap work force in Ukraine, since a number of developed countries in Europe are already facing serious problems connected with high labor costs and ensuing social consequences. “If we complement this year’s tax reform with social security reform, inclusive of pension reform, we will be able to speak of one more factor for attracting investment,” Mr. Mitiukov said.
Arguably, all of the above sounded quite convincing. The question is what the forum participants made of Ukraine’s promises. A brief announcement of the session at which Premier Yanukovych spoke put out on the forum website reads that Ukraine “publicly stated its intention to attract foreign investment.” At the same time it reads that Ukraine “failed to create a favorable investment climate, despite the recent numerous uncoordinated steps of the Ukrainian leadership in this direction.”
The results of the Davos forum have also been taken with a pinch of salt in Kyiv. Oleksandr Suldin, director of the Public Opinion Polls Center, told The Day that at previous forums Ukraine “cut a more striking figure,” although, in his view, this time the new Premier looked trustworthy. Simultaneously, the expert believes that an ill-defined stance on the foreign policy will not stand the government in good stead. In the wake of the summit in Kyiv, the investment influx from the CIS could intensify. “One cannot occupy two chairs at a time,” he added. Diana Smakhtina, director of the international investment company, SigmaBleyzer, believes that the Davos forum has added a “positive touch” to the investment climate in Ukraine. As she put it, keeping silent in this situation is not an option. One should show off, instead. “If the forum was not timed to coincide with the FATF decision, without a doubt, Ukraine’s investment attractiveness would increase in the wake of the Davos forum. However, the forum participants, listening to our swashbuckling, could not but remember the decision of this organization,” believes Ms. Smakhtina.
