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What keeps foreign investors away from doing business in Ukraine

20 April 2016 | Wednesday
URE Club

Ukraine is lacking in foreign investors. They, in turn, require protection, guarantees and transparent rules of doing business.

The main problems local and foreign investors face in Ukraine and major solutions of them were discussed in the course of business breakfast hosted by Ukrainian Real Estate Club April 15, 2016.

Doing transparent business in Ukraine is rather tricky. This concerns both Ukrainian and foreign companies. They are affected by corruption, arbitrary behavior of officials, conflicts with the companies owned by authorities or businessmen close to their circles.

“I won’t divide investors into locals and foreigners, - says Mikhail Merkulov, Arricano Real Estate. -  Investors are those who want to invest in Ukraine.  They all should be protected against lawlessness of the officials”

Arricano is one of the few international investors still working in the Ukrainian real estate market. It is also one of the victims of poor transparency of business. The conflict involving shopping mall Sky Mall has been lasting for years. In spite of the fact that Arricano won several trials including international ones it is still impossible to ensure the compliance with the court's decisions in Ukraine. Nevertheless, the company manages to run it existing and new projects in Ukraine.

Mikhail Merkulov underlines that international investors are aware of the risks in Ukraine, but know almost nothing about the opportunities. So, “what the the opportunities’’ should become the main message for international investors and it is the only way for us to attract them doing business in Ukraine. 

One of the main problems faced by foreign investors in Ukraine is the arbitrary of minor officials, who can though block almost any decision unfavorable to them, says Marina Krestinina, EY.

Facing such rules of doing business many investors simply wind down their business in Ukraine or seek the local partner, preferably with good connections among authorities. Natalia Kochergina, DLA Piper Ukrainebelieves that without a strong partner it is impossible to do business in Ukraine.

One of the solutions how to fight corruption and violations of laws and regulations by the officials can be an appeal to the Business Ombudsman Council. According to Tatiana Korotka, Deputy Business Ombudsman, the Office investigates all appeals and in case of corruption passes these cases to the National Anti-corruption Bureau of Ukraine. Today, there are already several cases of dismissal of civil servants implicated in corruption, and the opening of criminal proceedings.

However, Tatiana Korotka underlined that the Office can do its job and protect business from the arbitrariness of the authorities only in case of official appliance. Aside from corruption there are problems such as regulation of the currency market and the lack of bank financing in Ukraine.

Dominique Menu, BNP Paribas, thinks that there will be no foreign investors in Ukraine as long as the country is in its current state. Today the external debt of Ukraine is too big and the banking sector is under clean-up process. Anyway, the majority of guests share the idea that clean-up process and rebuilding of banking sector is a positive factor. However, these reforms will require at least one more year. Only after their successful implementation can we anticipate for an inflow of investments in Ukraine. 

Attraction of investments in Ukraine also depends on the pace of reforms, says Mathieu de Bruin, Horizon Real Estate Business Solutions. The reforms are under way but their effect will be seen at the earliest in 2-5 years. Today the potential investment return in Ukraine is at the level of Romanian, but the risks in Romania are considerably lower, there are also bank financing and European guarantees of property rights.

Among other business concerns in Ukraine are constant checks by law enforcement authorities. “Today we are contacting the Security Service of Ukraine and Prosecutor General as often as never before”, says Sergei Grebeniuk, EPAP. According to the law though the Security Service of Ukraine should not be under business checks.

The foreign investors are facing other small nuisances, among which are need for constant prolongation of a residence permit in Ukraine for expats and difficulties in the purchasing of real estate by non-residents.

As result of the business breakfast Ukrainian Real Estate Club will prepare an open letter to the Business Ombudsman and the Ministry of Economic Development and Trade, with the main problematic issues of the market and the suggestions from all participants to form a transparent dialogue between business and authorities.

 

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