Ukraine has made significant efforts to improve business climate and attract more foreign investment since 2015, but the government still needs to make sure its new laws actually work, and it should reconsider some existing regulatory restrictions.
Those were the main conclusions of the Organization for Economic Cooperation and Development (OECD) in its latest review of Ukraine’s investment policy, which was conducted in December 2015 and presented on Sept. 27.
The review examined laws, regulations, and statistical data connected to the business climate, and included a set of recommendations for the authorities.
OECD’s overall assessment of Ukraine’s investment policy and legal framework was positive. The post-Maidan government has demonstrated a willingness to promote investment by introducing a series of reforms in the fiscal and judicial systems, setting up State Food Safety and Consumer Protection Service, and ratifying the Association Agreement with the EU in January 2016.
New policies have been adopted to simplify the launch of a new business and licensing procedures, and to make public procurement more transparent, the OECD’s review reads.
The OECD report also pointed at Ukraine’s high potential for innovation and its highly educated workforce.
However, despite willingness and effort from the authorities, the flow of foreign investment into Ukraine has been volatile due to the adverse geopolitical environment, but also because of corruption and poor infrastructure. Other impediments included lack of access to agricultural land, the absence of a unified registration system for land and real estate, and uncertainty over the application of laws.
“Problems in applying existing and new laws and regulations continue to plague the business environment and depress domestic and foreign investors’ sentiment,” the review reads.
“An additional obstacle is persistent skepticism about the fight against corruption in the highest echelons of power.”
The OECD’s recommendations on improving Ukraine’s investment climate place a priority on restoring the country’s financial stability and the outlook for security.
With the State Agency for Investments and National Projects having been liquidated in 2015, the OECD recommends establishing “an agency responsible for investment promotion with a clear mandate and adequate funding,” which could provide public support and the required information to foreign and domestic investors.
Ukraine also needs a user-friendly and regularly updated website that caters to potential and existing investors.
“Given the state budget constraints and substantial investments required to modernize and expand existing infrastructure capacity, more private sector participation is necessary,” the OECD said. “However, despite a modernization of public private partnership (PPP) legislation in 2015, the use of PPPs is still at an early stage in Ukraine.”
The government should also reconsider some of regulatory restrictions on foreign investments. For example, foreign companies should be allowed to participate in the privatization of state-owned enterprises, and public monopolies (such as the railways and the production of ethyl alcohol) should be opened up to private investment. Ukraine has already prepared a large-scale privatization plan for 2017.
Finally, the Ukrainian authorities have to clearly define “strategic sectors” that might be closed to foreign investors or subject to authorization procedures for national security seasons. That would reduce legal uncertainties, the OECD said.
According to the OECD, so far Ukraine maintains restrictions on the foreign-ownership of businesses with access to land and forest resources, and in the following sectors: news information agencies, television and radio broadcasting, and maritime transport.
