Jorge Zukoski writes: Freeing investors from onerous regulations and taxes will unleash the economy, leading to a more prosperous future. Elections in Ukraine, especially presidential, have always been closely followed by the international community. They provide an opportunity for the country to turn the corner and leave behind the negative legacy of post-Soviet cronyism and corruption. Doing so could usher in an era of prosperity and growth, changing the economic and civil society landscape for the benefit of the Ukrainian people.
Ukraine, as a nation, is once again at a crossroads. Anything is possible. With the proper focus and political resolve, the negative impact of the worsening recession can be effectively addressed and competitiveness and growth can resume again.
The international business community has been very clear that the most important outcome of the election is not who wins but, more importantly, that there is a smooth transition of power. There also needs to be a focus on implementing comprehensive reforms that will bring stability and predictability into the system.
So, what needs to be done to push Ukraine down the road towards prosperity?
The new president and opposition leadership will have to exhibit political maturity and coalesce around issues that are best for the people. Now that the elections are over and campaign rhetoric can be put back on the shelf, developing a shared vision of necessary reforms, as well as a clear plan on how to implement these measures, will be the litmus test. It is also something that investors will be looking very closely.
There have been many individuals and organizations, the Chamber of Commerce in Ukraine among them, which have developed concrete proposals with deliverables and timelines that will assist in defining a comprehensive regulatory and legislative agenda that will move the country forward. It requires political will and a transparent dialogue among interested stakeholders. Our organization looks forward to being an integral part of that dialogue.
We believe that, in five years, Ukraine can have a much stronger and dynamic economy that is diversified with a larger value-added component that augments the traditionally strong sectors of the economy, including commodity and industrial-based exports. This new economy will also be further integrated into the larger global community, including with the European Union, through a free-trade area within the Association Agreement that is currently being negotiated. Also, engaging Russia as an important partner based upon a mutually beneficial interests is a win-win scenario.
What are a few of the issues that are priorities that will attract additional investment, increase tax revenues to the budget, create more jobs and stimulate the economy?
Easy steps which will provide immediate and tangible results include taxation and permit system changes. There are a large number of different permits, inspections, mandatory certification and standardization procedures that businesses face. According to data from the International Finance Corporation, 100 percent of goods produced in Ukraine are subject to mandatory standardization requirements, 80-90 percent of all businesses are inspected each year, over 50 percent of business have to get at least one permit per year. Thus, business people spend significant resources to deal with these unnecessary and often corrupt bureaucratic hurdles.
In regards to taxation, the amount of time spent on tax reporting, complicated tax administration mechanisms and non-codified legislation also negatively influence the investment climate. Last year, the World Bank in their Doing Business Report, ranked Ukraine 181 out of 183 countries, highlighting the complexity and difficulty for companies to properly pay their taxes. Moreover, according to this research, Ukraine is among 10 countries in which paying taxes is the most difficult and prolonged process.
Another aspect of taxation hampering investment and the competitiveness of the agricultural sector is the lack of transparency and corruption within the value added tax system, with exporters owed billions of dollars to date. Improvements within the tax and permit regimes will have an immediate and positive impact.
Another big priority is energy self-reliance, energy-sector modernization and liberalization to foster energy security. Change can start with developing a list of areas onshore and offshore that will be offered for auction or tender, a timetable and development of the terms and conditions for such auctions/tenders that will ensure a fair and transparent process.
The Euro 2012 football championship, if properly hosted, will have tangible benefits long after the football fans have left, including improved roads, rail, airports, stadiums and hospitality infrastructure.
These projects are large, require a proper legislative and regulatory framework and will assist other important investment projects and provide a solid base for future growth.
During the presidential campaign, the Chamber of Commerce in Ukraine hosted a speech by President Victor Yanukovych. The investment community walked away with a feeling that the president understands the needs of domestic and international business and is ready to take practical steps to improve conditions.
Cooperation with the International Monetary Fund, taxation and regulatory reforms were mentioned by Yanukovych as his top priorities. A reform agenda is crucial to the future success of this great country in which we all live and work.
Jorge Zukoski is the president of the Chamber of Commerce in Ukraine, which represents large strategic and institutional investors from more than 50 nations across the globe.
