Two years of foot-dragging on reforms is endangering Kyiv’s relations with its most committed trade partners. That includes France, with whom Ukraine did more than $1.2 billion in business last year, making it Ukraine’s 13th biggest trading partner.
Ukraine’s investment environment is better than two years ago, after disgraced ex-President Viktor Yanukovych abandoned office, according to French economic and business representatives.
Corruption
But three issues remain unresolved, they said: corruption, timely refunds of value-added tax and the lack of rule of law.
“You need growth of the market, you need progress in the fight against corruption,” Vincent Falcoz, French economic counselor to Ukraine, Belarus and Moldova, told the Kyiv Post.
And to have a vision of medium- to long-term growth, investors need to see that there is “respect for the rule of law” within the country, he added.
None of the 160 French companies working in Ukraine left the country last year, while one entered in 2014.
Biocodex enters Ukraine
Biocodex, a French pharmaceutical company, opened an office in Kyiv a yeag ago, reporting €1.5 million in revenues. Previously it had worked through a distributor.
Aude Bocle, Biocodex Ukraine country manager, said the decision to enter the market was a difficult one given the unstable environment, but that the future potential gains seem to outweigh the short-term costs.
“Since we were thinking about Ukraine in the long run, we chose,” the option of setting up operations without the distributor at the end of October 2014, Bocle told the Kyiv Post.
Problems
Although the company hasn’t encountered problems with Ukraine’s customs service as many foreign firms do, Biocodex feels the weight of the weak economy. Bocle said that since pharmacists have low salaries, they are motivated to accept bribes from local pharmaceuticals to prescribe their cheaper drugs.
But the issue of unfair competition takes a backseat, according to the Franco-Ukrainian Chamber of Commerce and Industry’s 115 members, to getting VAT refunds and having access to dividends.
Chamber president Thomas Moreau said that eight members are still owed a total of Hr 200 million (roughly $8 million) in refunds.
“Unfortunately, even if we spend a lot of time with the French ambassador, if we speak a lot with the ministry, and send a lot of letters… we still can’t solve anything today,” Moreau said.
This, of course, creates an even more negative image.
“When you’re not sure 100 percent that you will get a VAT refund on your investment, it’s just impossible,” Moreau said. “At this moment, when Ukraine is waiting for new investors, they have to do something, because it’s a real problem to develop a business in Ukraine.”
French businesses also spend a lot of time in court with tax authorities who initiate litigation on spurious grounds.
“They start making some problems and then they immediately start to tell you that we will open a criminal case against the general manager and the chief accountant,” Moreau said. “And you don’t see the end of this conflict.”
Falcoz often attends trials in which French enterprises are involved.
“Honestly, when we’re present, many judges are more professional,” Falcoz said. “The behavior of some of the judges changes dramatically.”
Progress
But Jean-Jacques Herve, vice president of the French chamber of commerce in Ukraine, says that corruption has declined.
“It really has, and we can see it,” Herve told the Kyiv Post.
Moreau’s strategy for 2016 is to set up a better business image of Ukraine in France. “The image is very poor actually because, for them, Ukraine is war,” he said.
But Herve said graft is the biggest obstacle and still the number one complaint. “Corruption is still huge and we really need an improvement in that field. We feel really uncomfortable with the pressure of strong corruption,” he said.
Falcoz says that all sides must apply pressure to reform the country: the government, business, international financial institutions and the public.
“Countries are like people – we don’t change without pressure, and the pressure in Ukraine has never been so huge,” Falcoz said.
