It’s Neutral: Foreign investors evaluated business climate in 1st half of 2017

The Investment Attractiveness Index of Ukraine has left the negative plane according to the top managers of EBA member companies. This time the indicator increased significantly and reached 3.15 points (out of 5 possible)*. Last year, the index was 2.88 and 2.85 points – in June and December, respectively.

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The last time when the Index crossed the 3-point thresholds was at the end of 2011. It seems that the business is gradually recovering from the constant stress of those crisis years and finally begins to take an active position.

Does this mean that the business climate has become more predictable?

How to explain the growth of optimism among foreign investors?

What are the predictions of top managers for the next 6 months?

What needs to be done to further improve the investment environment in Ukraine?

We have analyzed the expert assessments of 142 top managers of the largest international and Ukrainian companies and can give answers to all these questions.

A GOOD START

The year of 2017 started quite successfully for many industries. Indeed, over the past 6 months, we have often received good news from our member companies about the Government’s focus on innovation, IT and the creative economy, capacity building, opening additional research centers and terminals, expanding or consolidating retail chains, launching low-cost flights etc.

In April, the Government celebrated a year of its work under the chairmanship of Volodymyr Groysman, and the business community had the opportunity to summarize the main achievements of the Cabinet of Ministers, noting a number of positive changes. Among the main positives, respondents highlight the openness of state data, gradual deregulation, significant development of electronic services (including electronic VAT refund system), simplification of the procedure for obtaining building permits, moratorium on inspections, weakening of currency controls, introduction of private contractors, adoption of the law on squeeze-out etc.

With slow but confident steps, Ukraine gained a long-awaited visa-free regime, which has become a kind of marker of our country’s development according to the European model. This great news almost coincided with the successful hosting of the international Eurovision Song Contest, which opened Ukraine as a new promising and inexpensive tourist destination.

WHY IS IT JUST 3,15?

The results of our survey showed that the negative sentiments of businessmen have significantly weakened but not disappeared. For example, at the end of 2016, investors pointed to cautious development and gradual adaptation to economic conditions. Now there is a small but already noticeable progress.

In the first half of the year we have 54% of investors dissatisfied with the business climate. However, this figure is 13% lower than the previous one, as in December it was 67%. The investment climate has become more predictable, as there has been no sharp deterioration in the situation, and business has become accustomed to the existing conditions and has revived its activity.

The percentage of cases satisfied with the current situation has also increased compared to last year’s result. Currently, 13% of top managers consider the business environment favorable (at the end of 2017 there were only 9%).

At the same time, “old” problems, such as corruption and the slow pace of reforms in some areas (such as judicial and land reforms), have not disappeared. However, the situation in the country has become more stable. That is why, in our opinion, this time most respondents assessed the investment environment as neutral.

HOW TO MAINTAIN THIS POSITIVE TREND

Investors are looking to the future with much more optimism. Thus, 46% of respondents believe that the business climate will be better by the end of 2017 (in the last wave, 35% of respondents considered so).

38% of directors of EBA member companies also believe that the Ukrainian market will be favorable for attracting new investments in the second half of 2017.

Only 19% are inclined to the opposite opinion which is a small number compared to 42% of respondents who in December 2016 did not consider the Ukrainian market attractive to new investors in the first half of 2017.

Among the top priority issues that need special attention from the authorities, the business repeated the following three positions:

Fight against corruption – 36%

Judicial reform – 20%

Land reform – 11%

Some participants also noted negative factors such as the slow pace of reforms, high loan interest rates for business, the conflict in the East, bureaucracy, smuggling and the shadow economy, and so on.

So, we see that despite the increase in the integrated indicator, we are still far from ideal. However, the fact that the index came out of a negative plane and obtain a neutral position, indicates that the country is gradually changing for the better.

*HOW WE MEASURE THE INDEX

The European Business Association asks 5 questions to the top managers of its member companies quarterly:

1) what do you think about the current investment climate;

2) whether the climate has changed compared to the previous quarter;

3) what are your forecasts, how will the investment climate change in the next quarter;

4) whether it will be profitable to invest in Ukraine in the next 3 months;

5) what changes do you expect in your industry for the next quarter and one bonus question – which of the public authorities is currently the most and least effective?

We use the Likert scale, which has 5 gradations, where: 1 is extremely negative and 5 is extremely positive. 3 – neutral.

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