You're reading: Raiser: ‘A lot more has to be done’ to attract foreign investment in Ukraine

World Bank country director for Belarus, Moldova and Ukraine speaks with the Kyiv Post.

As economies continue to recover from the devastating 2009 global recession, the fight among emerging markets for investment is intense.

The government of Ukraine, whose economy was one of the hardest hit by recession, has pledged to improve its investment climate making the nation more attractive for foreign capital, improving transparency, anti-corruption measures and the rule of law.

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The Kyiv Post turned to Martin Raiser, World Bank country director for Belarus, Moldova and Ukraine, to get his opinions on what has been done, how much progress has been made and what needs to be done.

Kyiv Post: Have you seen any improvements in Ukraine’s investment climate last year?

Martin Raiser: We’ve seen an improvement in the macro-economic situation in the world, and evidently this meant that investors are looking again at Ukraine (as they are at other emerging markets) with a little bit more optimism.
If we look at the actual measures to attract investment – policies, regulations, and so on – I would say that if Ukraine wanted to tell the world that it is ready for foreign investment, a lot more has to be done.

KP: Looking at the results of last year, the net amount of foreign direct investment (FDI) in Ukraine was only $ 5.7 billion and has not reached the pre-crisis level. Every year since the crisis FDI is as smaller percent of the country’s GDP. Is it a bad sign – or rather a typical situation for Eastern Europe?

MR: A decline in the percent of net FDI to GDP from a very high level to 5-6 percent is what is happening in the region. But I do think that Ukraine – out of all the countries in the region – has the potential to significantly increase, indeed double, FDI in nominal U.S. dollar terms and significantly increase its share in GDP.

KP: What are the major problems investors are facing in Ukraine?

 

I would say that if Ukraine wanted to tell the world that it is ready for foreign investment, a lot more has to be done.”

– Martin Raiser, World Bank country director for Belarus, Moldova and Ukraine.


MR:
The number one problem is the uncertainty of the business environment, the second one is corruption.

If you are going to put a lot of money into the country, you want to make sure that your contracts are safe and you can enforce them in the courts and that the courts will look at them objectively.

KP: But was has been done by the government so far – any results?

MR: We have seen some improvements in the area of technical regulations.

It is important for the government to signal real commitment to fight corruption.”

– Martin Raiser, World Bank country director for Belarus, Moldova and Ukraine.

There has been a reduction in the number of activities subject to licensing and in the amount of minimum capital that is required to open a business.

There has been legislation that introduces silent consent as the principle for issuing permits. Ukraine has also increased the number of taxpayers who filed their taxes voluntarily through electronic filing.

These are all measures that improve the business climate in particular for small and medium enterprises.

But these steps are not enough. There are issues investors were unhappy about – for example grain export quotas and the issue with value-added tax refunds. And it is important for the government to signal real commitment to fight corruption.

KP: What kind of signal for investors is the new tax code?

MR: Investors were happy with the consultation process – particularly in the end, when they could solve a number of issues. But they still have underlined fiscal risks and are looking at how this is going to work in practice.

We think it is a missed opportunity. The tax code still has too many exemptions to create an unlevel playing field and lower revenues, and the complexity of the rules on tax administration remains too high.

KP: You are country director not only for Ukraine, but Belarus and Moldova as well. Could you compare: are these countries more effective than Ukraine in attracting investment?

MR: It is difficult to compare. Moldova is a small country, but they have been very active last year and have done a lot in areas of trade and business regulation.

Ukraine just has to look at international rankings of international competitiveness, transparency and corruption. And where is Ukraine? It is way at the bottom.”

– Martin Raiser, World Bank country director for Belarus, Moldova and Ukraine.

Belarus has also done well in improving its Doing Business ratings although it faces some serious challenges.

The concern for Ukraine, however, is that investors would rather go to emerging markets like Romania, Poland, Indonesia, Mexico or Brazil than to Ukraine. These are Ukraine’s real peers.

Ukraine just has to look at international rankings of international competitiveness, transparency and corruption. And where is Ukraine? It is way at the bottom.

KP: Well, Ukrainian officials say they have lots of plans and even a special program on how to attract investors. Plans include creation of a special bank and fund for attracting investment in innovation projects. Will these help fight corruption – or will such moves create new opportunities for corruption?

MR: In a lot of areas things that were written in the government reform program for 2010–2014 were not done – or were done with delays.

That is something investors worry about. They want to see that when the government commits, there is actually implementation.

There is a perfect expression about it in English: Are you going to walk the walk or talk the talk? I hope that we will see the answer in 2011.

KP: Are you saying that there is no need for a special bank or fund to boost investment?

MR: No. Most serious investors have access to international funding.

The key challenges for the government are in protecting legal rights of investors, harmonizing regulations, and so on. Look where Ukraine is in the Doing Business ranking. Ukraine is number 145.”

– Martin Raiser, World Bank country director for Belarus, Moldova and Ukraine.

And Ukraine has a fairly developed banking and financial system. They will find financing. The question is how secure are these projects and how costly is it to invest in Ukraine.

The key challenges for the government are in protecting legal rights of investors, harmonizing regulations, and so on. Look where Ukraine is in the Doing Business ranking. Ukraine is number 145.

Ukraine should be aiming to get into the top 100 in 2011, and then focus on getting into the top 60. Other countries from the region showed that it is perfectly possible. Georgia is a good example.

KP: Which sectors of Ukraine’s economy could attract more investors?

MR: Other countries have to be choosy, but Ukraine has many combinations of attractive resources and has potential in a lot of areas.

But obviously, the sector everybody is looking at now is agriculture. Ukraine could be one of the biggest food exporters and attract lots of investment if the policy is right.