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30 April, 2013  ▪  Jorge Zukoski

Investing in Ukraine’s Future: Removing Barriers to Open Opportunities

Improvement of the investment climate is of the utmost importance both for Ukraine and for all the companies which have chosen this country as one of their investment destinations.

Improvement of the investment climate is of the utmost importance both for Ukraine and for all the companies which have chosen this country as one of their investment destinations. As an organization that unites the largest strategic and institutional investors operating in Ukraine the American Chamber of Commerce fully supports the goal of raising the country’s capability to compete successfully in the global economy in order to become a responsible and prosperous member of the international community. Ukraine's potential is simply amazing and a success story that is waiting to be written. We see new opportunities arising not only in the agricultural sector but also within fuel & energy, food & beverage, healthcare and infrastructure development. What are these opportunities?

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Properly tapping into Ukraine’s hydrocarbon resources is opportunity #1. Ensuring successful exploitation of domestically available hydrocarbons is Ukraine's chance to replace imported energy resources and pave the way for securing energy self-reliance in the long run, as well as attract large scale investments into the energy sphere. Increasing domestic hydrocarbon extraction will not only bring money to the national economy but will also have a positive overall impact on the country's economy by creating jobs, adding much needed revenues to the national budget, stimulating economic growth and increasing Ukraine’s international competitiveness. As of now this opportunity has not been fully taken advantage of. Along with successful development of Ukrainian hydrocarbon exploration and production opportunities, establishing of a transparent and competitive gas market is one of the success factors to secure future investments. Creation of an open gas market with a level playing field for all market participants, including effective and non-discriminatory access to gas transportation, distribution, and storage systems, and the adoption of legislation which complies with the European Energy Community Treaty will be a positive sign for the investment community. Ukraine and its citizens need to understand that investments are not donations and while helping the Ukrainian economy to succeed investors need to be confident that their capital is safe and will bring advantages to both the economy and the business.

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National food & beverage industry shows stable and positive dynamics of a gradual growth and we believe that the expansion of this sector is Ukraine's opportunity #2. With the increase in volume of foreign direct investment into production of foodstuffs in Ukraine by 1.7 times over the last three years, the food processing industry is the second most attractive industry for foreign investors in Ukraine. The increased attention can be explained by a strong united effort of the Ukrainian government and business community to bring the national legislation in compliance with international standards of food safety and quality which leads to a significant growth of the competitiveness of Ukrainian products both in domestic and external markets. A lot remains to be done to fully take advantage of the opportunities. The Ukrainian government is currently developing the Law of Ukraine on Food Safety aimed at improvement and modernization of production processes of Ukrainian food and beverage producers to facilitate proper quality control of produced goods. One of the key ideas of amendments to the existing regulations is to introduce the Hazard Analysis and Critical Control Points (HACCP) tracking system which would enable producers and exporters to obtain relevant certification of foodstuffs considering technologies, state of hygiene at factories, etc., in order to enter the European market on good terms as well as to be competitive on the domestic market due to high international standards of quality. This task is crucially important in the context of signing the Association Agreement with the European Union which is one of the largest markets in the world.

I am also a firm believer in the capacity of Ukraine to attract more foreign direct investment into the pharmaceutical sector which is an opportunity #3. Bearing in mind the main aim of providing better care for patients and insuring their access to safe, effective and high-quality medicines, a strategic approach must be applied in the process of reforming the healthcare system in Ukraine. Full-fledged functioning of a reimbursement system as well as obligatory medical insurance are the key milestones for further reforms in the sector. It goes without saying however that regulatory policy in this regard should be transparent and predictable, providing equal opportunities for both domestic and international producers and avoiding creation of any unnecessary barriers for innovative medicines which are demanded by Ukrainian patients. For Ukraine to get its share from the annual global investments in the innovative pharmaceutical industry, the regulatory system should be in line with international best practices. We are now witnessing a willingness of Ukrainian authorities to align Ukrainian legislation with EU standards and in this regard we hope for technical assistance and experience-sharing from our European partners.

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Last but not least – implementing concessions which is widely used by many countries as an effective mechanism for the operation and modernization of existing public assets and infrastructure is Ukraine's opportunity #4. Infrastructure usually entails a long time horizon and large investment and unfortunately the current state of affairs with national legislation still leaves a lot to be desired. Only the good will of the government to become a partner with private companies will help to achieve this strategic task. The adopted Law “On Sea Ports” that the American Chamber of Commerce was advocating for, identifies concession as one of forms of business projects in the port sector, and indicates that Ukraine is focused on the latest global experience in this area, which certainly is a positive factor for companies who consider to invest in that business. The legislation is in place, so now it is time to implement it.

Even though we see a number of investment opportunities on the horizon at this point there are still quite a few barriers that need to be taken care of in the sphere of tax and customs policies as well as real estate.

 

Many of the positive accomplishments related to tax and customs simplifications that took place recently were directly attributable to the constructive engagement of the business community with the tax and customs authorities and their readiness for an open and constructive dialog. On the other hand, we all know that there remains a number of issues that need our joint efforts to find constructive solutions – for example, further development and proper implementation of transfer pricing rules, introduction of the fiscal unity concept, improvement of the corporate income tax advance payments mechanism, assignment of right of demand operations. As for the customs sphere we believe that a number of steps are required to improve the country’s ‘Trading across Borders’ rating and experts of the American Chamber of Commerce are ready to cooperate on their successful implementation with all stakeholders. These steps include implementation of e-declarations; introduction of the one-stop-shop concept for receiving permits by subjects of foreign economy activities; development of risk-oriented approach during customs control; further development of post-audit control and a number of others.

Another important aspect of doing business and attracting additional investments is properly functioning real estate sector. Along with the number of improvements that took place over the last years I would like to highlight the issue of legitimacy for Ukrainian companies with 100% of foreign investment to acquire and own non-agricultural lands. This important matter was addresses by the Draft Law “On Amending the Land Code of Ukraine regarding Acquiring Land Ownership” aiming to fix problematic Article 82 but it was returned to Parliament with Presidential suggestions. We strongly support this legislative initiative as it will make the Ukrainian land market more transparent as well as attract additional investment from investors who are already working in Ukraine and new investors who would like to enter the market.

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Moreover, rule of law is a cornerstone to all successful and competitive economies. To achieve rule of law in Ukraine, the judicial branch must be perceived by citizens, business and government as transparent, staffed with well qualified professionals who understand the importance of their role. Transparency is one of the key factors and a way to achieve this goal is by assigning court cases randomly and publishing all verdicts in a public forum. Also, judges should be independent and not reliant on their livelihoods or professional appointments at the whim of civil servants. 

Systemic work with enforcement of intellectual rights protection is also needed – especially for development of the healthcare sector – to secure the accession to international treaties and their proper enforcement.

Finally, in one of his recent speeches President Viktor Yanukovych said that in 2012 the state budget lost over USD 2.5 billion due to corruption offenses. This statement is not surprising given that according to the latest international survey of corruption risks made by Transparency International, out of 174 countries Ukraine was ranked 144th sharing the position with Bangladesh, Cameroon, Republic of Congo, Syria and South Africa. Corruption touches the lives of every citizen at every level from education and healthcare to business and government. In the years since Ukraine’s independence much lip service has been paid to combating corruption but little has been done to accomplish this monumental task. Corruption is the biggest impediment to Ukraine moving forward in economic development, becoming more competitive and attracting much needed domestic and foreign investment.

Investing in Ukraine’s Future is a Success Story that is waiting to be written and by working together we can start writing that story chapter by chapter and in the end have a novel that culminates with Ukraine taking her rightful place in the larger global community of prosperous democratic nations.

 

Jorge Zukoski is a President at American Chamber of Commerce in Ukraine


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