By Jack Laurenson

KYIV – Investor confidence in Ukraine decreased slightly in the second half of 2017, breaking a steady rise of recent years, according to research by the European Business Association, or EBA.

The business organization regularly surveys dozens of CEOs in Ukraine from local and international companies. Results indicate that renewed concern around corruption and the courts threaten to erode faith in the country as a safe place to do business.

Positive developments in the second-half of this year, as well as ongoing reforms were also mentioned by 78 executives who responded.

Cutting red tape, enacting healthcare reforms, easing foreign currency controls and adoption of an anti-raiding law were praised by investors.

The Ukraine–EU Union free trade agreement and the visa-free travel regime were also welcomed by business.

Corruption Creeping Back?

But 58% of CEOs responded that they are not satisfied with the business climate in Ukraine. Sensing that corruption is on the rise again, they see little progress toward an independent judiciary and say that the new anti-corruption agencies are under real pressure.

A new political cycle, instability and populist political movements also are cited as causes for concern.

“Establishing political stability in Ukraine over the coming years is vital,” said Ansgar Bornemann, CEO of Nestle Ukraine. “The perception of Ukraine as a safe place to do business has to be strengthened by properly fighting corruption and improving the rule of law.”

Ansgar Borneman, Nestle CEO, speaks to Volodymyr Kotenko, E&Y; partner, Tomas Fiala, CEO Dragon Capital, Anna Derevyanko, EBA Executive Director. (Jack Laurenson)

The lack of impartiality in the courts worries businesses also.

“Many potential investors still are concerned they won't be properly protected by the police and the courts in Ukraine,” said Volodymyr Kotenko, a partner of Ernst & Young. “It's critical to reform the judiciary if the government wants to attract more foreign investment.”

However, there is also a base of cautious optimism. Forty percent of CEOs say they think the business climate will improve in 2018.

“If the critical issues are tackled and things continue to improve, we can expect Ukraine to receive a rating of 5.00 within the next five to six years” said Bornemann.

Stuck in Neutral

Today, Ukraine is stuck in neutral, scoring 3.03 on a 5 point scale on the EBA's Investment Attractiveness Index. In the first half of 2017, the score was a slightly higher 3.15. The country has yet to receive a “positive” rating of 4 to 5.

The country's lowest index score on record was 1.81 in winter 2014, during the Revolution of Dignity. Until last summer, the rating slowly improved.

According to EBA Executive Director Anna Derevyanko, all stakeholders have a role to play if progress is to be achieved.

“The government is pushing ahead with reforms, but improving the country is a joint exercise for all of us,” she said.

Slider Photo: Ansgar Borneman, CEO of Nestle Ukraine, speaks on European Business Association briefing on investor attitude survey. (Jack Laurenson)

For comments or story tips, please contact UBJ Reporter, Jack Laurenson at: <laurenson.jack@googlemail.com>

Posted Dec. 19, 2017