The Ukrainian government is eager to work with the business community to avoid and resolve disputes, but the country needs more systemic changes before a truly positive investment environment without state harassment of businesses can be achieved.
The battle between reformers trying to make the country welcoming and the old guard seeking to profit from businesses continues, but a sense of cautious optimism defined a panel discussion entitled Investor-State Disputes: Toward Greater Dialogue that was held this month at the Hyatt Regency Kyiv.
The panelists at the Apri 20 event, organized by Nobles Fortune consulting comany in Kyiv, agreed that in post-Maidan Ukraine there is an ongoing shift away from state interference in business.
“The Ukrainian government does everything possible to create a comfortable environment for investors,” said Justice Minister Pavlo Petrenko.
This sentiment was echoed by Yuliya Kovaliv, head of the office of the National Investment Council, who said her agency is both “on the side of investors and protecting the interests of the state, which is interested in attracting investors.”
But problems persist. While high-level government officials claim to do everything they can to ease doing business in Ukraine, predatory practices by some government agencies, especially on a local level, continue.
Iaroslav Gregirchak, deputy business ombudsman, said businesses routinely face issues with value-added tax reimbursement. Other frequent complaints include arbitrary contract termination, excessive—and often groundless—government inspections and fines. Panelists also mentioned underdevelopment in e-governance the recognition of e-signatures as hurdles to doing business.
When asked about the main issues facing investors, Petrenko pointed to the courts and outdated procedural rules that can delay—and be used to delay—resolutions. “We need simplified dispute resolution processes,” he said, noting that new rules will be introduced next year.
Petrenko cited the General Prosecutor’s Office and the State Fiscal Services as institutions creating problems for businesses.
“There are elements of coercion and repression,” he said, noting that in these bodies the prevailing attitude is that “the more criminal proceedings, the more chances to catch big fish.” He suggested purging excessive rules and regulations was key to creating a business-friendly environment.
Kovaliv disagreed. “Even if we deregulate, it doesn’t mean we’ll grow,” she said. “I see businesses that are sometimes shocked by deregulation because it’s so unpredictable.”
She said rapid deregulation sometimes creates a vacuum, and many disputes arise due to ambiguity in the rules. “So we should be careful about cancelling laws when there is no procedure to replace it,” she said.
Sevki Acuner, country director for the European Bank for Reconstruction and Development in Ukraine, said deregulation is less important than eliminating inconsistencies that bring rise to disputes in the first place.
The decision to invest in a country comes from a cost-benefit analysis that “requires invisibility, clarity about the rules of the game and the policies of the state, and consistency,” Acuner said. “Then investors can decide if it’s worth investing here or not.”
Value of mediation
The panelists pointed to the value of mediation in resolving disputes between businesses and government before they develop into larger conflicts.
They agreed that the Business Ombudsman Council, which was set up in 2014 as a point of first contact for businesses claiming unfair treatment by the authorities, has played a positive role in advocating for business and mediating disputes.
Gregirchak emphasized the power of communication to resolve problems early on. “Come to us and we can help you resolve any situation before it becomes a dispute.”
In cases when disputes do escalate, Petrenko said the government increasingly seeks compromise. “Unlike past administrations, our approach is to find some reconciliation with the investor.” He cited the recent settlement in a patent dispute with Gilead over a hepatitis drug as an example of the government deciding to settle rather than get involved in a larger dispute.
Forget about bribes, propose solutions
The panelists all stressed that businesses must follow the rules as well.
“You can only expect the rule of law to apply to you if you yourself play by the rules,” said Acuner.
Kovaliv put it more plainly, saying businesses must “forget about bribes or not complain about corruption in this country.”
She said the National Investment Council is there to help, but suggests businesses requesting assistance be clear about what they need and want. “Come to us not only with a problem but also with a potential solution to the problem,” she said. “This will speed up the resolution process.”
While predatory practices by the government remain an issue, the panelists were generally cautiously optimistic about the business environment in Ukraine.
Petrenko said positive changes are being made, and that change brings opportunity. “My recommendation is you’ve got to believe in this country,” he said.
