This week, at the 6th Annual Ukrainian Investment Summit in London
, business leaders and financiers will no doubt urge sweeping reforms to give the country a better investment prospect. There will be calls for macro-economic controls, deregulation of enterprises, the sale of agricultural land, recommencement of privatization, gas reform, etc. But can any of these reforms take root if Ukraine’s underlying structure is broken?
However you look at it, Ukraine’s economy underperforms badly when compared to its neighbours, which gained independence at the same time. At $2,542 its gross domestic product per capita is 84.4 percent lower than its neighbour Slovakia, barely 50 percent of Belarus and only 4 percent more than tiny war torn Georgia. When it comes to Foreign Direct Investment (FDI) it is a similar depressing picture. FDI in Poland, Hungary and the Czech Republic is 3.5, 6.5 and 7.8 times higher, respectively. The World Bank’s ‘Doing Business’ index ranks Ukraine 142 out of 183 countries. Similarly, Transparency International ranks Ukraine 146 out of 180 countries in its 2009 corruption perception index.
We start to get to the nub of the issue when we talk to potential investors. The Bleyzer Foundation’s first quarter 2010 ‘Investor Sentiment Survey’ reveals some consistent trends. Two of the top four most important concerns of investors planning to invest in Ukraine in the next six months are worries about the ‘legal environment’ and ‘corruption.’ These are also the first and second concerns for those who do not plan to invest or are undecided.
Unless these fundamental principles are addressed, policy reforms, which are badly needed, will be as useful as sticking plasters on a gaping wound. It is therefore heartening to see that the premier sponsor for this year’s conference is not a bank or a major multi-national, but a new non-political democracy initiative, the ‘People First’ foundation, which aims to empower democracy in Ukraine by giving the people a voice through a 'People’s Charter,' enabled by a series of national internet-based referenda. Such initiatives are badly needed.
It is no coincidence that nine out of the top 10 destinations for FDI are considered true democracies. The stability and predictably they offer represent a far safer bet than the alternative. In Ukraine it is time to invest in democracy.
Viktor Pynzenyk is a former finance minister of Ukraine.