Only 1 in 10 CEOs expect the investment climate to improve in 2021

15/ 12/ 2020

The investment attractiveness index decreased to 2.40 points out of possible 5 in the second half of 2020. The results of the index show an unprecedented decline in CEO sentiment, comparable to 2013 estimates. These are the results of the most recent research conducted by the European Business Association in partnership with Vasil Kisil & Partners law firm. In the previous period, the index was 2.51 points. View the presentation Most CEOs of the EBA member companies, namely 78%, consider the current investment climate unfavorable, and this figure has increased significantly since the beginning of the year - by 16%. Another 16% of respondents consider the current investment climate neutral. Only 6% of respondents consider the investment climate favorable, compared to 4% in the first half of 2020. Meanwhile, the assessment of the business climate dynamics continues to deteriorate. Thus, 66% of directors noticed that investment climate has become worse compared to the previous 6 months, another 29% are convinced that the business environment has not changed, and only 5% believe that it has improved slightly. Compared to the beginning of the year, the number of optimists has halved, and the percentage of CEOs who have noticed the deterioration has increased slightly. Forecasts issued for the next six months are also getting more pessimistic. Only 10% of CEOs expect the investment climate to improve over the next half-year period. At the beginning of the year, there were 15% of positive answers and, as the current wave of the survey shows, only 6% of those expectations came true. Other opinions appeared to be rather divided. Thus, 45% of respondents believe that the investment climate will not change in the next six months, and another 45% predict that the conditions for doing business in Ukraine will worsen. Half of the directors, namely 50%, believe that it will be unprofitable for new investors to enter Ukraine in the next 6 months, while 12% say that it will be profitable, and the other 38% are hesitant. Although the directors have not noticed many changes for the better in the last six months, business leaders have pointed out a relatively rapid economic recovery after the lockdown-induced recession, controlled inflation, lower interest rates, a stable exchange rate, simplification of foreign exchange operations, land market liberalization, and introduction of state e-services. The effect of such negative factors as the crisis of the court system, the lack of the rule of law, the lack of progress in the fight against corruption, and the significant impact of the shadow economy, were exacerbated by the introduction of restrictive measures, instability of tax legislation, the situation around the Constitutional Court of Ukraine, the possible failure of negotiations with the IMF, complicated interaction with regulatory and law enforcement agencies. The CEOs consider the following tasks to be of the highest priority for 2021 in order to improve the investment climate in Ukraine, namely, relaunching the court system, de-oligarchizing the state power, establishing an efficient and independent anti-corruption infrastructure, eradicating bureaucracy, reducing administrative and tax pressure on business, appointing pro-European reformers to public offices, resuming and supporting cooperation with international financial institutions, reforming law enforcement agencies and fighting effectively against smuggling with the help of strengthened fiscalization and development of equal rules of the game for doing business. Anna Derevyanko. EBA Executive Director. The business and the state will have to face many important tasks in 2021. As we can see, a rather large list of problems has been accumulated, consisting of the consequences of the pandemic, as well as of ill-considered internal decisions or inaction. The business has identified areas that require the state′s immediate attention and progressive changes. Therefore, we hope that the President, the Government, and the Verkhovna Rada will take them into account when forming their to-do list for next year. Enough time has been wasted, so now the country needs proper decisive actions to improve the business climate and economic development. Andriy Stelmashchuk. Managing Partner, Vasil Kisil & Partners. According to the results of this wave, 94% of respondents believe that a weak judicial system is one of the reasons for Ukraine′s low investment attractiveness. This is due to the coincidence of a number of circumstances: a pandemic, insufficient communication of the authorities on the ongoing state policies, including the judicial reform. I am convinced that the problem of distrust to courts must be addressed comprehensively and include not only the judiciary but also the reform of the law enforcement system and the bar. In addition, we need to fight the demand for corruption and illegal practices, thus to raise the legal awareness of citizens and overcome legal nihilism. HOW DO 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, 101 managers 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. 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. Legal Partner Analytic Partner

The investment attractiveness index decreased to 2.40 points out of possible 5 in the second half of 2020. The results of the index show an unprecedented decline in CEO sentiment, comparable to 2013 estimates. These are the results of the most recent research conducted by the European Business Association in partnership with Vasil Kisil & Partners law firm. In the previous period, the index was 2.51 points.

View the presentation

Most CEOs of the EBA member companies, namely 78%, consider the current investment climate unfavorable, and this figure has increased significantly since the beginning of the year – by 16%. Another 16% of respondents consider the current investment climate neutral. Only 6% of respondents consider the investment climate favorable, compared to 4% in the first half of 2020.

Meanwhile, the assessment of the business climate dynamics continues to deteriorate. Thus, 66% of directors noticed that investment climate has become worse compared to the previous 6 months, another 29% are convinced that the business environment has not changed, and only 5% believe that it has improved slightly. Compared to the beginning of the year, the number of optimists has halved, and the percentage of CEOs who have noticed the deterioration has increased slightly.

Forecasts issued for the next six months are also getting more pessimistic. Only 10% of CEOs expect the investment climate to improve over the next half-year period. At the beginning of the year, there were 15% of positive answers and, as the current wave of the survey shows, only 6% of those expectations came true. Other opinions appeared to be rather divided. Thus, 45% of respondents believe that the investment climate will not change in the next six months, and another 45% predict that the conditions for doing business in Ukraine will worsen.

Half of the directors, namely 50%, believe that it will be unprofitable for new investors to enter Ukraine in the next 6 months, while 12% say that it will be profitable, and the other 38% are hesitant.

Although the directors have not noticed many changes for the better in the last six months, business leaders have pointed out a relatively rapid economic recovery after the lockdown-induced recession, controlled inflation, lower interest rates, a stable exchange rate, simplification of foreign exchange operations, land market liberalization, and introduction of state e-services.

The effect of such negative factors as the crisis of the court system, the lack of the rule of law, the lack of progress in the fight against corruption, and the significant impact of the shadow economy, were exacerbated by the introduction of restrictive measures, instability of tax legislation, the situation around the Constitutional Court of Ukraine, the possible failure of negotiations with the IMF, complicated interaction with regulatory and law enforcement agencies.

The CEOs consider the following tasks to be of the highest priority for 2021 in order to improve the investment climate in Ukraine, namely, relaunching the court system, de-oligarchizing the state power, establishing an efficient and independent anti-corruption infrastructure, eradicating bureaucracy, reducing administrative and tax pressure on business, appointing pro-European reformers to public offices, resuming and supporting cooperation with international financial institutions, reforming law enforcement agencies and fighting effectively against smuggling with the help of strengthened fiscalization and development of equal rules of the game for doing business.

Anna Derevyanko EBA Executive Director

The business and the state will have to face many important tasks in 2021. As we can see, a rather large list of problems has been accumulated, consisting of the consequences of the pandemic, as well as of ill-considered internal decisions or inaction. The business has identified areas that require the state′s immediate attention and progressive changes. Therefore, we hope that the President, the Government, and the Verkhovna Rada will take them into account when forming their to-do list for next year. Enough time has been wasted, so now the country needs proper decisive actions to improve the business climate and economic development.

Andriy Stelmashchuk Managing Partner, Vasil Kisil & Partners

According to the results of this wave, 94% of respondents believe that a weak judicial system is one of the reasons for Ukraine′s low investment attractiveness. This is due to the coincidence of a number of circumstances: a pandemic, insufficient communication of the authorities on the ongoing state policies, including the judicial reform. I am convinced that the problem of distrust to courts must be addressed comprehensively and include not only the judiciary but also the reform of the law enforcement system and the bar. In addition, we need to fight the demand for corruption and illegal practices, thus to raise the legal awareness of citizens and overcome legal nihilism.

HOW DO 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, 101 managers 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. 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.

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