Two-thirds (66%) of respondents to a poll conducted by the Socium Expert- Analytical Center intend to expand their businesses in Ukraine, and only 4% will shrink them.
If these statistics correspond to reality, this is a wonderful result of this government’s verbal efforts. Yaroslav Zhalylo, president of the Anticrisis Study Center, told a roundtable at the Ukrainian National Committee of the International Chamber of Commerce that two crises are unfolding in Ukraine, in addition to the fuel one. First, a crisis of prospects that, for various reasons, has domestic and foreign investors losing interest. Mr. Zhalylo noted that “in the first quarter of this year investments registered a sharp decline: up to 4.5%.” The second crisis, according to Mr. Zhalylo, is a crisis of expectations. This expert believes that investors are afraid that the current government may make decisions that will have a negative effect on business, inasmuch as strategy is being formulated in an uncertain way. On the other hand, if the optimism of expectations is damaged to a certain degree, then management effectiveness is also harmed. Payouts from investments then plummet. Can this appeal to anyone?
The president of the Anticrisis Study Center believes that “administrative measures to regulate the oil market and reprivatization speculations” are unpopular by the same token. All this can only breed uncertainty about prospects for private ownership as the basis of any kind of market economy. Big national business is also being actively discredited. Oligarchs have no place in a democratic society, they say. Granted. Then whom will the state choose as an equal social partner and whose interests will it protect on the foreign market?
The slogan of expropriating expropriators has never been synonymous with justice. This time around, according to Mr. Zhalylo, it has caused a noticeable decline in construction and machine-building investments, while increasing them in the resale domain: “In fact channels are being created to increase expansion on the domestic market of finished products, while the national producer finds himself exposed to mounting competition.”
This expert believes that reprivatization should be struck from the official agenda to improve Ukraine’s investment climate. In addition, a different attitude should be adopted in regard to big business to overcome political prejudices and realize that big business can become the missing link in the chain of the Ukrainian economy: “We may continue stimulating small and medium business, in one way or another and for a very long while, but this won’t work until both types are drawn into the field of the financial gravity of large companies, in their subcontract schemes.” Mr. Zhalylo insists that, sooner or later, this country will have to formulate a top-level official concept of strategic economic and political guidelines: “It’s of principal importance for the investors to be able to shape their own strategies.” Pessimistic views prevail in what is supposed to be the Ukrainian investment environment. According to Mark Ivashko, Western NIS Enterprise Fund’s chief investment manager, investors are shifting their capital into calmer waters because companies in Ukraine aren’t operating transparently. He adds, sighing, that “their businesses seem reluctant to accept our investments because they know that we’ll be demanding transparency.” He also says that most investments are being made in the food industry and the financial sector because they are kept transparent. Investors insist that every effort should be made to achieve such transparency and that the authorities must demand it.
This, however, requires ironing out legal controversies, starting with corporate law, the protection of minority stockholders, who are often the investors themselves. After all, it doesn’t seem fair when the owner of 51% of shares makes all the decisions while the owner of the 49% share package has no say at all.
Mr. Ivashko believes that serious attention should be paid to the taxation system. There is nothing with the legislation: 25% income tax on profits is normal; 13% personal income tax is something an American could only dream of. But all this remains on paper. Mr. Ivashko recalls that one day he ordered an investment account report from his company — he wanted to see how well his company was performing and what taxes it was paying. Mr. Ivashko says that “it was a very successful investment, but when I was adding up the taxes, I would come up with 40% instead of 30%. In principle, this was nothing serious, if a similar business working in the same sphere was paying as much, but I discovered that it wasn’t paying anything. Here’s a question for you: How effective are the current laws in Ukraine? “
This also leaves one wondering how investments are being made in Ukraine.
