Capital inflow to Ukraine to reach 10 billion dollars in three years
Tomas Fiala, President of the European Business Association, is convinced that investments will come here, first of all, from EU, North American, and East Asian countries
Within three years, Ukraine can increase the interest of foreign capital in its economy at least threefold and receive up to an annual 10 billion dollars in investment as early as 2017. This is a forecast Tomas Fiala, President of the European Business Association (EBA), made as he announced the results of a survey of Ukraine’s investment attractiveness. By comparison, in 2013 Ukraine has secured about three billion dollars – almost half as much as in the previous two years.
But EBA analysts say a lot of problems should be solved to achieve the required growth rate. What remains topical for the business community is judicial and corruption-control issues. “If those who work in courts and other bodies come to understand that if they do unlawful deeds they will be punished in spite of their high office, everybody will take a different attitude to their duties,” says Timur Bondarev, member of the European Business Association board, managing partner of Arzinger.
In his words, it is also necessary to reform the tax system and ensure decision-making transparency. “Sometimes we do not even understand why a certain decision is being made. There is no right communication between the authorities and business,” he says. In Bondarev’s view, what will essentially improve business performance is creation of proper conditions for independent activity of the local government. “Formally, we do have self-government. But, at a closer examination, local government bodies are ‘tied up’ in terms of budget funding – they totally depend on a central body,” Bondarev explains.
At the same time, Tomas Fiala points out that one of the chief factors that will influence the inflow of foreign investments is the presidential elections in May. “An election always causes some uncertainty among investors. Now is the same thing. It is good, though, that these elections will take place earlier, which considerably reduces this period of uncertainty. There are quite a few big-time investors who will wait for the elections’ results and, accordingly, make decisions which will be noticeable in June-July this year,” he says.
The EBA president forecasts that investments will come to Ukraine, first of all, from EU, North American, and East Asian countries. What will mostly attract investors this year are traditional sectors of the economy, such as real estate, retail trade, and farming. Investors will also show interest in mechanical engineering and light industry. Fiala says cheap labor is the key factor here. “We will begin to see the effect of rapprochement with the EU, including the signing of the free trade agreement, next year. As a result, the investors that used to place their production facilities in Central Europe – Poland, the Czech Republic, and Slovakia – will be coming to Ukraine. They will be engaged in auto component production, electronics, and light industry,” the EBA president says.
Fiala notes that Ukraine’s IT industry also arouses considerable interest among foreign investors. In his words, this will be one of the top-priority investment recipients this year.
“Things have always been OK on the IT market because customers in this sphere are usually foreign companies. As far as export is concerned, this is a boundless market. Secondly, it is always on the rise. Moreover, as the local currency devalues, it is more profitable to do export-oriented business because it is cheaper to produce a commodity. This is why the Ukrainian IT market has never been in crisis,” says Dmytro Sholomko, member of the EBA board and Google director in Ukraine. The sector will remain stable this year, too. “We did and still do see a double-digit growth,” he points out.
According to Sholomko, among the factors that stand in the way of IT business in Ukraine is an imperfect legislation that hinders doing this business legally. “It is no secret that taxes have always exerted considerable pressure on business. Of course, there are some law-related deals that simplify very much working in the IT field. But if this industry were allowed to develop in a more legal form and be supported in terms of legislation and control, things would be better,” he says. What will also make IT people’s life easier is solution of the problems connected with the personnel tax and absence of a free movement of capital. “These problems are very easy to solve because it is a virtual industry and we do not have to build new factories and upgrade something. All we have to do is create jobs for people – and they will work,” he says.
In spite of considerable funding, pharmaceutics remains the most problem-beset industry. “The pharmaceutical sphere is one of the most vulnerable and I would say neglected ones,” says Krzysztof Siedlecki, member of the EBA board, chief representative of Aslellas Pharma Europe BV in Ukraine.
In his words, the pharmaceutical industry has an extremely great credit of trust in the government and understands the necessity of difficult reforms in the sector. But Siedlecki notes that the government’s actions lack transparency and predictability. “Business should be able to make plans for at least a year with certain stability. The developed countries never introduce taxes in the middle of a year because in this case businesspeople will be unable to plan anything,” Siedlecki says, citing the example of a recently imposed VAT on medicines as one of the government’s worst steps. “I would never like to see this kind of laws passed. Let this be an example for the future – how things must not be done,” he says.
