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Investment Climate in Ukraine: Old and New Challenges

Investment Climate in Ukraine: Old and New Challenges. Iryna Akimova, Chief Economic Advisor, UNDP Ukraine ABCDE , Amsterdam, 23-24 th of May, 2005. Some statistics on capital investment in Ukraine in 2004. Volume– 20% of GDP Growth rate- 28% (higher than GDP growth rate)

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Investment Climate in Ukraine: Old and New Challenges

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  1. Investment Climate in Ukraine: Old and New Challenges Iryna Akimova, Chief Economic Advisor, UNDP Ukraine ABCDE , Amsterdam, 23-24th of May, 2005 UNDP Ukraine

  2. Some statistics on capital investment in Ukraine in 2004 Volume– 20% of GDP • Growth rate- 28% (higher than GDP growth rate) • Main source- retained profits of the firms (62%) • Main sectors- industry, transport, communication FDI: • Volume- US$ 1.93 bln (cum. US$ 8.54 bln, US$ 177 per capita), 2.5% of GDP • Growth rate- 23% • Main sectors- wholesale trade, food industry UNDP Ukraine

  3. Investment climate components Investment climate is a general term for factors that provide incentives or disincentives for private sector investment, including : Investment potential • resource endowment and operation costs; • physical, financial and technological infrastructure; • openness to international trade and access to international markets; Investment risks • macroeconomic performance and political stability; • the regulatory and policy framework and policy coherence , i.e. quality and stability of public policies including: a) rule of law and protection of property rights (including corruption issues) ; b) competition policy; c) entry barriers , operational and exit restrictions; d) tax policy. UNDP Ukraine

  4. Investment climate in 2004 and changes in the 1st quarter of 2005 UNDP Ukraine

  5. Barriers to investment in Ukraine in 2003 (% of firms in the sample) UNDP Ukraine

  6. Risks: Macroeconomic situation • GDP growth rates: 2003- 9.4% , 2004- 12.2% , 1st quarter of 2005- 5.5%, 2005 (forecast) • Inflation: 2003- 8.2%,2004- 12.3%, 1st quarter of 2005-5.1%, 2005 (forcast)-13% • Budget deficit (as % of GDP): 2003- 0.2% , 2004- 3.4, 2005 (forecast) official- 1.6%, unofficial- 4% UNDP Ukraine

  7. Risks: security of property rights • Privatisation strategies: a) Re-privatisation (unclear criteria, scale, procedures, no credible protection of good faith purchases); b) Slowing down of privatisation process, focus on state sector. • Weak corporate law; • Moratorium on bankruptcy of the firms with state shares ; • Weak court system. UNDP Ukraine

  8. Risks: unstable regulatory and tax policies • Cancellation of tax privileges in FEZ; • Dangerous changes in simplified system of taxation for SMEs; • Postponement of tax cuts and tax simplification; • State interference in price setting; • Low transparency of public policies; • Absence of an efficient ad hoc monitoring of new legislation. UNDP Ukraine

  9. Conclusions • After “orange revolution”, Ukraine received a window of opportunity for attracting domestic and foreign investors; • Efforts in improvement of investment climate should be supported by sound macroeconomic policies and fiscal stability; • Ensure security of property rights. Re-privatisation (if not stopped) should be limited in scale and pursued via transparent procedures as quick as possible; • Continue liberalization of trade and financial markets; • Changes in regulatory and tax policies should be predictable and constrained in terms of time; • Reduce the level of state interference in the economy and strengthen anti-trust institutions. UNDP Ukraine

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