Investors have worsened the assessment of Ukraine’s business climate to the level of 2015
The Investment Attractiveness Index in the first half of 2020 amounted to 2.51 points out of 5 possible and continues to be in the negative area according to the new wave of expert research conducted by the European Business Association together with Vasil Kisil and Partners Law Firm. Previously, the Index was 2.95 points.
The sentiment of CEOs has deteriorated significantly. Only 4% of respondents consider the investment climate favorable, while in the previous wave this number was 17%. The majority, namely 62%, consider the current investment climate unfavorable, and another 34% – neutral.
Assessments of the business climate dynamics also demonstrate a negative trend. Thus, 55% of directors noticed a deterioration in the investment climate compared to the previous 6 months, another 35% are convinced that the business environment has not changed, and only 10% believe there were some improvements.
Among the positive points noted by business leaders over the past six months are the launch of the land market, currency liberalization, continued cooperation with the IMF, lowering the NBU discount rate, a stable national currency.
There are new factors that negatively affect the business climate apart from such traditional problems as the weak court system, the lack of progress in fighting corruption, and the significant impact of the shadow economy. Those new factors 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 also not very optimistic. Only 15% of CEOs hope to see the investment climate improve over the next 6 months. It is worth noting that in the previous wave of the survey, 41% of CEOs expressed optimistic expectations. Almost half, namely 44%, believe that no change will take place, and another 41% fear that the business environment in Ukraine will worsen.
Half of the directors are hesitant whether Ukraine will be a profitable market for new investors over the next six months, and only 15% believe that new investors will profit from opening a 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.
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 instructed to carry out a revolutionary judicial reform. But when we talk about 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, the principles of reform must be laid, 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:
1) What are your thoughts concerning the investment climate in Ukraine?
2) How do you evaluate the current investment climate for your company compared to the previous 6 months?
3) What are your predictions for the investment climate in the next 6 months?
4) Will it be profitable to invest in Ukraine in the next 6 months?
5) 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.