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10 June, 2013 11:00   ▪  

Reuters: Selective justice keeps foreign investment out of Ukraine

Ukraine is still a long way from becoming an investor-friendly location, notes Reuters.

“Four years after British financier Neil Smith bought one of Ukraine's largest local vodka producers, it was listed by Forbes as one of the country's fastest-growing firms, with annual sales of $600 million. Then a local court ruling nearly shut it down,” writes Reuters journalist Olzhas Auyezov

“Such cases are one reason why Ukraine performs so poorly in attracting foreign investment, drawing just over $6 billion in FDI last year compared to over $10 billion each for its EU neighbours Poland and Czech Republic. Of that sum, $3.9 billion came from Cyprus which many Ukrainian businessmen used - until this year's banking crisis - as an offshore tax haven. Investors also took out $1.3 billion in profits and wrote off $629 million in losses, leaving very little in actual foreign investment.”

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

“Although President Viktor Yanukovich's government has made business climate improvement one of its top goals, figures and high-profile cases show that the former Soviet republic is still a long way from becoming an investor-friendly location.

While Smith says the case against his company appears to be only about money, such tactics are also used for what Ukrainians call "corporate raiding".

In the West the term refers to hostile takeovers, but here, as elsewhere in the former Soviet Union, it implies taking over a business without paying.

In its annual report on Ukraine's investment climate, the U.S. State Department said local courts "allow and sometimes protect corporate raiding", one reason foreign direct investment has been anaemic in recent years,” states the author. 

Source: Thomson Reuters Foundation

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