Vasil Kisil & Partners Jointly with the European Business Association Conduct the Second Wave of Ukraine's Investment Attractiveness Index Survey 2020

In the second half of 2020, Ukraine’s Investment Attractiveness Index decreased to 2.40 points out of 5 possible. The results of the index show an unprecedented decline in CEO sentiment, comparable to 2013 estimates. Such are the findings of the new wave of the expert survey conducted by the European Business Association together with Vasil Kisil & Partners. This index was 2.51 points during the previous period. 

Most CEOs of the EBA member companies, namely 78%, consider the current investment climate unfavorable, and this figure has increased significantly since the beginning of the year – by 16%. Another 16% of respondents think that the current investment climate is neutral. Only 6% of respondents believe that investment climate is favorable, compared to 4% in the first half of 2020.

The assessment of the business climate dynamics also shows a negative trend. Indeed, 66% of directors noticed a deterioration in the investment climate compared to the previous six months, while another 29% are convinced that the business climate has not changed, and only 5% believe that it has slightly improved. Compared to the beginning of the year, the number of optimists has halved, and the percentage of CEOs who have noticed the deterioration has slightly increased. 

Forecasts for the next six months are also getting gloomier. Only 10% of СЕОs hope that the investment climate will improve over the next six months. At the beginning of the year, there were 15% of optimists and, as the current wave of the survey shows, the expectations of only 6% of them have come true. Other opinions were divided, with 45% of respondents believing that the investment climate would not change in the next six months and another 45% forecasting that the conditions of doing business in Ukraine would be getting worse. 

Half of the directors, namely 50%, believe that there will be no favorable conditions in Ukraine for new investors to enter the Ukrainian market over the next six months, with 12% of respondents claiming the opposite and another 38% being undecided. 

Although the CEOs have not noticed many changes for the better in the last six months, the positive developments highlighted by business leaders include relatively rapid economic recovery after the lockdown, controlled inflation, lower NBU discount rate, stable national currency, simplified foreign exchange transactions, land market liberalization, and introduction of government e-services. 

The negative factors such as a crisis of the judiciary and a lack of the rule of law, no progress in fighting corruption, and a significant impact of the shadow economy were exacerbated by the introduction of restrictive measures, unstable tax legislation, the situation around the Constitutional Court of Ukraine, a threat of breakdown of cooperation with the IMF, complicated interaction with tax and customs agencies and law enforcement authorities. 

The CEOs identify the following  priority objectives for 2021 aimed at improving the investment climate in Ukraine, namely, resetting the judiciary, de-oligarchizing the government, developing an efficient and independent anti-corruption infrastructure, eliminating bureaucracy, reducing the administrative and tax burden on businesses, appointing pro-EU reformists to government offices, resuming and supporting cooperation with international financial institutions, reforming law enforcement agencies and effectively combating smuggling, including through strengthened fiscalization and establishment of the equal and uniform rules of the game for businesses. 

“Businesses and government authorities face many challenges in 2021. As we can see, a rather large list of issues has accumulated, resulting from both the pandemic and the internal decisions or failure to act. Businesses have identified areas that require immediate attention and progressive changes from the State and we hope that the President, the Government and the Verkhovna Rada will take them into account when writing their to-do list for next year. Plenty of time has been wasted, so now the country needs the proper decisive actions to improve the business climate and economic development,” Anna Derevyanko, EBA’s Executive Director, has commented on the survey results. 

Andriy Stelmashchuk, Managing Partner at Vasil Kisil & Partners, has commented: “Based on the results of this wave of the survey, 94% of respondents believe that a weak judiciary is one of the reasons for Ukraine′s low investment attractiveness. This may be due to the coincidence of a number of circumstances: a pandemic, an insufficient communication of the authorities regarding the country’s course, including in the context of the judicial reform. I am convinced that the problem of lack of trust in the judiciary must be dealt with comprehensively, including not only the judiciary, but also the reform of the law enforcement authorities and the bar. Additionally, it is necessary to fight the demand for corruption and illegal practices – to work on raising the legal awareness of citizens and overcome the legal nihilism.”

HOW THE INDEX IS MEASURED

The European Business Association has been conducting the “Investment Attractiveness Index of Ukraine” survey since 2008. Throughout its history, the Index has never reached a positive value – above 4 points.

A total of 101 directors of the largest international and Ukrainian companies took part in this wave of the survey. The index was calculated using a Likert scale, which is a 5-point scale where 1 is very negative, 5 is very positive, and 3 is neutral.

The research was conducted together with Vasil Kisil & Partners as a legal partner and Gemius as an analytical partner.