Business leaders have slightly worsened the evaluation of the investment climate in Ukraine, – the EBA survey

14/ 12/ 2021

The integrated index of the Investment Attractiveness Index in the second half of 2021 decreased slightly to 2.73 points out of 5 possible. These are the results of a new wave of the expert study conducted by the European Business Association together with the law firm Vasil Kisil & Partners. For reference, half a year ago the index amounted to 2,84 points. View the presentation In general, the sentiments of the CEOs have slightly deteriorated. The percentage of CEOs who consider the current investment climate unfavorable remains unchanged at 58%. Another 35% of respondents rated the investment climate as neutral. Meanwhile, the number of positive evaluations has reduced to half of what was six months ago – from 13% to 7% now. The evaluation of the half-year dynamics of the investment climate has also deteriorated. Currently, 29% of respondents observe negative dynamics (against the previous 15%), although the majority, namely 57% believe that no significant changes have taken place. And only 14% believe that the business climate has improved, while six months ago such an opinion was shared by 32% of respondents. The CEOs also downgraded the traditionally highest score among the index components, namely the investment climate forecasts in the next six months. The majority, namely 55%, still believe that the investment climate will remain unchanged in the first half of 2022. But 32% expect further deterioration (against the previous 17%). And only 13% expect an improvement in the investment climate in the next six months (against the previous 25%). Nearly every fifth CEO (19% of respondents) believes that new companies will benefit from investing in Ukraine in the next 6 months. At the same time, the number of respondents who disagree with this has increased from 35% to 44%. The other 37% of respondents are hesitant about the evaluation. 45% of directors admit that there is still the impact of the pandemic on the work of their company. In particular, they complain about falling demand and income, temporary incapacity of employees, staff shortages and psychological fatigue, negative impact on contractors and partners. We were also interested in the rate of vaccination among the EBA member companies. It turned out that 83% of companies vaccinated more than half of employees, of which 15% have all their employees vaccinated. Another 16% have from 25 to 49% of employees vaccinated and only 1% of our member companies have vaccinated less than a quarter of all employees. The three key barriers to the development of the business climate remain unchanged: a weak judicial system (87% admit so), a high level of corruption (85%), and the shadow economy (76%). This year, for the first time, a low rate of vaccination has been added to this list with 50% of directors pointing it out as a barrier. Besides, the directors indicated geopolitical tension, energy crisis, imperfect public administration, stagnant reforms, a complex tax system, constant rotations in the government as negative factors for the development of the investment climate. Whereas as for the positives, business leaders highlight cooperation with the IMF and a stable exchange rate, digitalization of public services, currency regulation, the opening of the land market, and urban planning reform. According to top managers, improving the investment climate can be achieved through judicial reform, the fight against corruption, smuggling, the shadow economy, and shadow employment, elimination of geopolitical threats, the establishment of predictable and transparent conditions for doing business, tax simplification, and bureaucracy reduction, and accelerated vaccination. Anna Derevyanko. EBA Executive Director. At the end of 2021, one can feel growing concern among businesses. The investment climate is beginning to be influenced by new factors, such as the low rate of vaccination against COVID-19 or geopolitical threats, which are again being actively discussed by business representatives. At the same time, we are glad that the business mentions the positive and notes reforms and changes for the better. We hope that more of the latter will take place in our country. Andriy Stelmashchuk. Managing Partner, Vasil Kisil & Partners Law Firm. Respondents refer to the weak judicial system as a key obstacle hindering the improvement of the business climate. However, today the situation with the courts is much better than even 5 years ago. Judicial reform is a simultaneous movement in several directions: work with institutions, regulations, and people who administer justice; eradication of demand for dishonest practices; not only a declared but also real non-interference of the state in the judicial system to exert illegal influence. Restoring trust in the judiciary is a joint task and responsibility of the state and business. HOW WE MEASURE THE INDEX The European Business Association has been conducting the “Investment Attractiveness Index of Ukraine” survey since 2008. Throughout its history, the Index has never reached a positive zone – above 4 points. Altogether, 92 directors of the largest international and Ukrainian companies took part in this wave of the survey. For the Index calculations, we use a Likert scale which has 5 gradations, where is very negative, 5 is very positive, and 3 is neutral. Legal Partner - Vasil Kisil & Partners. Analytical Partner – Gemius.

The integrated index of the Investment Attractiveness Index in the second half of 2021 decreased slightly to 2.73 points out of 5 possible. These are the results of a new wave of the expert study conducted by the European Business Association together with the law firm Vasil Kisil & Partners. For reference, half a year ago the index amounted to 2,84 points.

View the presentation

In general, the sentiments of the CEOs have slightly deteriorated. The percentage of CEOs who consider the current investment climate unfavorable remains unchanged at 58%. Another 35% of respondents rated the investment climate as neutral. Meanwhile, the number of positive evaluations has reduced to half of what was six months ago – from 13% to 7% now.

The evaluation of the half-year dynamics of the investment climate has also deteriorated. Currently, 29% of respondents observe negative dynamics (against the previous 15%), although the majority, namely 57% believe that no significant changes have taken place. And only 14% believe that the business climate has improved, while six months ago such an opinion was shared by 32% of respondents.

The CEOs also downgraded the traditionally highest score among the index components, namely the investment climate forecasts in the next six months. The majority, namely 55%, still believe that the investment climate will remain unchanged in the first half of 2022. But 32% expect further deterioration (against the previous 17%). And only 13% expect an improvement in the investment climate in the next six months (against the previous 25%).

Nearly every fifth CEO (19% of respondents) believes that new companies will benefit from investing in Ukraine in the next 6 months. At the same time, the number of respondents who disagree with this has increased from 35% to 44%. The other 37% of respondents are hesitant about the evaluation.

45% of directors admit that there is still the impact of the pandemic on the work of their company. In particular, they complain about falling demand and income, temporary incapacity of employees, staff shortages and psychological fatigue, negative impact on contractors and partners.

We were also interested in the rate of vaccination among the EBA member companies. It turned out that 83% of companies vaccinated more than half of employees, of which 15% have all their employees vaccinated. Another 16% have from 25 to 49% of employees vaccinated and only 1% of our member companies have vaccinated less than a quarter of all employees.

The three key barriers to the development of the business climate remain unchanged: a weak judicial system (87% admit so), a high level of corruption (85%), and the shadow economy (76%). This year, for the first time, a low rate of vaccination has been added to this list with 50% of directors pointing it out as a barrier.

Besides, the directors indicated geopolitical tension, energy crisis, imperfect public administration, stagnant reforms, a complex tax system, constant rotations in the government as negative factors for the development of the investment climate. Whereas as for the positives, business leaders highlight cooperation with the IMF and a stable exchange rate, digitalization of public services, currency regulation, the opening of the land market, and urban planning reform.

According to top managers, improving the investment climate can be achieved through judicial reform, the fight against corruption, smuggling, the shadow economy, and shadow employment, elimination of geopolitical threats, the establishment of predictable and transparent conditions for doing business, tax simplification, and bureaucracy reduction, and accelerated vaccination.

Anna Derevyanko EBA Executive Director

At the end of 2021, one can feel growing concern among businesses. The investment climate is beginning to be influenced by new factors, such as the low rate of vaccination against COVID-19 or geopolitical threats, which are again being actively discussed by business representatives. At the same time, we are glad that the business mentions the positive and notes reforms and changes for the better. We hope that more of the latter will take place in our country.

Andriy Stelmashchuk Managing Partner, Vasil Kisil & Partners Law Firm

Respondents refer to the weak judicial system as a key obstacle hindering the improvement of the business climate. However, today the situation with the courts is much better than even 5 years ago.

“Judicial reform is a simultaneous movement in several directions: work with institutions, regulations, and people who administer justice; eradication of demand for dishonest practices; not only a declared but also real non-interference of the state in the judicial system to exert illegal influence. Restoring trust in the judiciary is a joint task and responsibility of the state and business.”

HOW WE MEASURE THE INDEX

The European Business Association has been conducting the “Investment Attractiveness Index of Ukraine” survey since 2008. Throughout its history, the Index has never reached a positive zone – above 4 points.

Altogether, 92 directors of the largest international and Ukrainian companies took part in this wave of the survey. For the Index calculations, we use a Likert scale which has 5 gradations, where is very negative, 5 is very positive, and 3 is neutral.

Legal Partner – Vasil Kisil & Partners. Analytical Partner – Gemius.