Top managers have downgraded the evaluation of Ukraine’s investment attractiveness
The Investment Attractiveness Index value, measured by the European Business Association semiannually, has dipped below the level of 2016. According to the results of the newest survey from the first half of 2019, the Index value is currently at 2,85 points out of 5 and is now negative. As a comparison, the Index over the last period was 3,07 and showed a neutral attitude that investors had towards the country’s investment climate.
The results of the survey indicate a significant downward turn in the attitudes that businesses have today. Over the last wave of surveys 40% of respondents were not satisfied with the current investment climate, and now that number has grown to 57%. The percentage of those satisfied with the current state of affairs has also decreased: currently, only 19% of top managers consider the business environment to be favourable. (In late 2018 that number was 25%).
Among the positive trends that have been remarked by the businesses over the last six months are the liberalization of currency legislation, the stability of the national currency, a smooth presidential election, a lower rate of inflation and the continuation of a dialogue with the IMF.
However, a noticeable political and economic turbulence that worries entrepreneurs and constraints business to an uncertain climate, has added to the list of the “old” problems, such as corruption, mistrust towards the judiciary system and the outflow of the workforce. Among the main problems the investors have, as per usual, cited a high level of corruption (83% of respondents are highly unsatisfied with the current state of affairs), lack of trust towards the judiciary system – 77%, and the lack of a land reform and shadow economy – 66% each.
In addition to that, businesses are not inclined to make optimistic predictions. 54% of company leaders are uncertain if Ukraine will be a profitable investment market in the next 6 months. 47% think that the conditions in their industry will not undergo any changes in that time period. An additional 35% of investors think that the business climate in Ukraine will remain the same in the second half of 2019, though another 35% expect a slight improvement.
2019 has brought a lot of challenges to businesses in Ukraine. Entrepreneurs complain about political and economic turbulence, the need to work in an unpredictable climate. We can see that the investors are putting the planned projects in Ukraine on hold before the end of all elections and the finalization of a new political environment. The new faces in politics are not always seen in the same light: some consider this to be a new challenge, some see it as a precursor to positive change. I think that we will be able to make the first conclusions by the end of the year, with the second wave of 2019’s surveys of investors.
We asked the top managers of companies what has to change for a noticeable improvement in the climate. The investors are waiting for political stability and real progress in the fight against corruption, effective measures against smuggling and the shadow economy, judiciary and land reforms, improvements in the infrastructure, the reduction of the administrative pressure towards businesses, the creation of the necessary conditions for an increase in the salary rates, transparent fiscal legislation, prompt VAT refunds and the improvement of Ukraine’s business image abroad.
HOW 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 evaluation, the Index has not reached the 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?
100 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.