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Investment activity in Ukraine
06 сентября 2018 10:35

According to data by the State Statistics Committee of Ukraine, foreign investors from 76 countries of the world made USD 1151.0 million worth of direct investments in the Ukrainian economy in January-March 2018.

As of 01.04.2018, the amount of foreign direct investments in the Ukrainian economy made since the beginning of investment amounted to USD 32,751 million*[*].

Investments were channeled to developed areas of economic activity.

As of 01.04.2018, the largest direct investments were made in industrial enterprises (33.6%), and in wholesale and retail sales, motor vehicle and motorcycle repair industry (15.6%).

Major investor countries include Cyprus (28.1%), the Netherlands (20.6%), United Kingdom (6.1%), Germany (5.5%), Austria (3.4%), British Virgin Islands (4.1%) and Switzerland (4.7%).

The amount of capital investments in Ukrainian enterprises absorbed in January-March 2018 reached UAH 89.0 billion, which was 37.4% more than during the respective period of 2017.

In terms of amount of capital investment, the leading sectors of economy in 2017 were: manufacturing industry (35.9%), construction (11.7%), agriculture, forestry and fishing industry (12.0%), information and telecommunications (8.9%), wholesale and retail sales, motor vehicle and motorcycle repair industry (8.1%), transportation, warehousing, postal and courier delivery services (9.2%), public administration and defense, compulsory social insurance (2.1%).

As before, own funds of businesses and organizations were the key source of financing capital investments, being responsible for 76.2 percent of capital investments in January-March 2018.

Bank and other loans financed 8.4 percent of all capital investments.

State and local budgets provided 4.2 percent of capital investments. Foreign investors were responsible for 0.3 percent of all capital investments, and private investments in construction of housing amounted to 8.2 percent. Other sources of financing provided 2.7 percent of capital investments.

Therefore, Ukraine remains attractive for investments, but at the same time, the country does not stay on sidelines of processes taking place on the worldwide scale, being quite integrated in the global economy, so disruptions of macrostability on foreign markets are felt in Ukraine as well.

In the Doing Business 2018 rating, Ukraine has climbed 4 points up, currently ranked 76th among 190 countries of the world. The most significant progress was achieved in the following components of this index: +105 points (from 140th to 35th position) in "dealing with construction permits" thanks to decrease of shared participation in Kyiv from 10% to 2% and lower costs of technical inspection services; and +41 points in "paying taxes" as a result of reduction and unification of the flat social tax rate.

It is also worth noting that Moody's Investors Service has improved Ukraine’s credit rating on international economic list from Caa3 to Caa2, changing the outlook from "stable" to "positive".

Thus, the improvement of these indicators was driven by structural reforms in Ukraine, which helped the country cope with debt burden and improve its standing in foreign markets.

In addition, Ukraine was able to improve its ranking in the 2017-2018 Global Competitiveness Index (GCI) by 4 points, currently ranked 81st among 137 surveyed countries (vs 85th place among 138 countries in the 2016-2017 GCI).

In order to make its investment climate even more attractive, Ukraine needs to improve its regulatory framework and organizational base to make mechanisms facilitating favorable investment climate more efficient and create the basis necessary to preserve and improve competitiveness of the national economy.

 

A number of positive steps have already been taken in this direction:

1. As of today, Ukraine has created a legal basis for investments and development of the public-private partnership. Ukrainian legislation provides guarantees to investors and lays economic and organizational foundation for the public-private partnership in Ukraine.

2. Ukraine applies national investment regulations to foreign investors, creating equal business conditions with Ukrainian investors. Foreign investments in Ukraine cannot be nationalized.

3. To enhance protection of foreign investments, the Law of Ukraine No 1547 of 16.03.2000 has ratified the 1965 Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States.

Problematic issues which investors might face will be dealt with by commissions for facilitation of the out-of-court settlement of investment disputes, which may be created in accordance with the Resolution 1024 of the Cabinet of Ministers of Ukraine of 26.11.2008 “On measures of improving the work of bodies of executive power with investors” by bodies of executive power and bodies of local self-government as temporary consultative and advisory bodies to help negotiate the out-of-court settlement of disputes between an investor and a body of executive power (local self-government).

4. The Verkhovna Rada of Ukraine has signed and ratified intergovernmental agreements with over 70 countries of the world on promotion and mutual protection of investments.

5. On 31.05.2016, the Law of Ukraine No 1390-VIII amending certain legislative acts of Ukraine by abolishing obligatory state registration of foreign investments was passed to simplify the procedure of bringing in foreign investments and root out corruption in the procedure of state registration of the said investments.

6. On 23.05.2017, the Verkhovna Rada of Ukraine has passed the Law of Ukraine amending certain legislative acts of Ukraine by eliminating barriers to foreign investments. This Law regulates basic aspects of the procedure of procuring work permits and temporary residence permits for foreigners, which would make it easier to engage foreign managers and foreign skilled personnel at the first stages of developing subsidiary business in Ukraine. The said Law also makes foreign investors holding a major stake in Ukrainian companies but not employed there eligible for a temporary residence permit in Ukraine.

7. On 26.05.2017, the First Vice Prime Minister of Ukraine – Minister of Economic Development and Trade of Ukraine Stepan Kubiv has signed in Vienna, Austria the Agreement on Promotion and Protection of Investments between Ukraine and the OPEC Fund for International Development. The agreement accords the most-favored treatment regime to the management of investments, and will predictably help increase the amount of foreign investments in key sectors of the Ukrainian economy.

Steps are also being taken in several areas to promote sustainable development of the Ukrainian economy and boost investment activity, in particular:

Re: protection of investor rights:

Pursuant to the Action Plan on Intensification of Cooperation between the Organization for Economic Cooperation and Development (OECD) and the Government of Ukraine, developed to implement measures envisaged by the Memorandum of Understanding between the Organization for Economic Cooperation and Development and the Government of Ukraine on Intensification of Cooperation of 07.10.2014, work continues on Ukraine’s accession to the OECD Declaration on International Investment and Multinational Enterprises (the “OECD Declaration”). Thus, the Directive 130-r of the Cabinet of Ministers of Ukraine of 01.03.2017 has approved a draft Agreement (in the form of exchange of letters) between the Government of Ukraine and the Organization for Economic Cooperation and Development on accession to the Declaration on International Investment and Multinational Enterprises, the relevant Recommendations and procedural Decisions of the OECD Council.

On 15 March 2017, the First Vice Prime Minister of Ukraine – Minister of Economic Development and Trade of Ukraine Stepan Kubiv has signed the Agreement (in the form of exchange of letters) between the Government of Ukraine and the Organization for Economic Cooperation and Development on accession to the Declaration on International Investment and Multinational Enterprises, the relevant Recommendations and procedural Decisions of the OECD Council.

Ukraine’s accession to the OECD Declaration on International Investment and Multinational Enterprises and membership in the OECD Investment Committee would provide a number of significant advantages to the country. In particular, it would:

  • prove implementation of international investment standards in Ukraine;
  • promote foreign direct investments by lifting restrictions on sectors in which foreign investments are prohibited and applying national regime to transnational corporations (TNCs) according to international standards development system when regulating the relationship between TNCs and countries in which they invest;
  • help improve competitive environment and effect on implementation and dissemination of innovations;
  • promote the principles and standards of corporate social responsibility according to the OECD guidelines for responsible business conduct.

One of the instruments allowing to bring additional investments in the public sector of economy and promote partnership between the government and businesses is the public-private partnership (PPP), which in today’s conditions of our country’s economic development is a priority form of cooperation between public and private partners high on the agenda.

The implementation of a PPP mechanism would help carry out the national policy oriented toward international standards and clearly aimed at improving standards of living of the Ukrainian population.

The key advantages of the PPP mechanism for the state and the society include, in particular:

  • improved quality and timeliness of public services;
  • more efficient use of budget funds;
  • investment of additional financial resources in creation/modernization of infrastructure;
  • increased employment rate, stimulation of economic growth with the wide use of innovations and advanced technologies;
  • engaging all interest groups in implementation of socioeconomic development strategies, increased trust and understanding in the society.

191 public-private partnership-based agreements have been made in Ukraine as of 1 January 2018, of which 182 are being performed (157 concession agreements, 24 joint venture agreements, and 1 public-private partnership agreement) and 9 are nonworking (4 agreements have expired, 3 were terminated and 2 suspended).

The largest number of projects are being implemented in such areas of economic activity as waste processing and collection, treatment and distribution of water: 64.7% (116 projects) and 21.4% (39 projects) of the total number of projects, respectively.

The most commonly found form of PPP is concession (86% of the total number of agreements).

At the same time, there is a positive trend in making agreements according to the procedure set out in the Law of Ukraine On the Public-Private Partnership. In particular, joint venture agreements have been made in Malyn and Oster.

Thus, to facilitate implementation of economic reforms in Ukraine, the Ministry of Economic Development and Trade continued to work on improving legislation regulating PPP. In particular:

  1. 1.    Legislative loopholes have been eliminated by passing the Law of Ukraine amending certain laws of Ukraine by eliminating regulatory barriers to development of the public-private partnership and promotion of investments in Ukraine, which introduced, in particular, comprehensive amendments to the Law of Ukraine On the Public-Private Partnership.
  2. 2.    The procedures of contest-based selection of private partners and PPP effectiveness analysis have been improved by adopting the Resolution 815 of the Cabinet of Ministers of Ukraine of 16.11.2016 amending the procedures approved by the Resolution 384 of the Cabinet of Ministers of Ukraine of 11 April 2011.
  3. 3.    The private partner replacement mechanism was implemented on the basis of the best international experience (Resolution 298 of the Cabinet of Ministers of Ukraine of 26.04.2017 approving the Procedure of Replacing a Private Partner under a Public-Private Partnership-Based Agreement).
  4. 4.    On 27 December 2017, the Government has approved three draft laws regarding concession legislation reform, including a draft Law of Ukraine On Concessions laying the foundation for creation of efficient PPP mechanisms, improving legal regulation of concessions, and borrowing from the best international experience in engaging private businesses in development of infrastructure.

The Ministry of Economic Development and Trade also provides methodological assistance in preparation of PPP projects for implementation, in particular, in regions:

  • the following towns were designated for implementation of pilot PPP projects with the support from U-LEAD with Europe Program: Truskavets, Dolyna, Ternopil, Zhytomyr, Trostianets and Shatsk;
  • U-LEAD Program has signed memorandums with the mayors of designated towns at the initiative of and with the support from the Ministry of Economic Development and Trade;
  • project teams have been created to prepare PPP projects, comprised of representatives of bodies of local self-government trained by the Ministry of Economic Development and Trade and U-LEAD;
  • six pilot PPP projects have been selected in designated towns.

Next steps in this direction include: facilitating preparation of pilot PPP projects for implementation; disseminating and utilizing experience in implementation of pilot projects in other regions; selecting new PPP projects for implementation in regions in the first half of 2018.

Re: development of investment infrastructure:

According to the National Strategy of Regional Development for the period until 2020 (approved by the Resolution 385 of the Cabinet of Ministers of Ukraine of 06.08.2014), creation of a regional network of industrial parks and government support to operators of these parts are designated as one of the priority areas of regional development.

Development of industrial parks would help promote investments and innovations, stimulate manufacturing industry, create new high-tech production facilities and tens of thousands of highly-productive jobs, increase the output and range of export-oriented products and, as a result, increase competitiveness of the national economy and wellbeing of Ukrainian citizens.

As of 08.06.2018, the Register of Industrial Parks featured 31 industrial parks (vs 13 in 2017).

Managing companies have been designated at 17 industrial parks.

In addition, Ukraine has operational industrial parks created even before the legislative framework that supports them.

(A park in Bila Tserkva established in 2000 on the base of an aircraft repair factory; Olimp in Malynivka village created in 2002, Patriot in Sumy established in 2008 on the base of a worsted spinning factory, Cheksil in Chernihiv established in 2010 on the base of a worsted spinning factory, Zaporizhkran opened in Zaporizhia in 2011)

Industrial park operators can also take advantage of instruments and mechanisms provided by law, in particular:

  • import duty relief for investments under registered agreements (contracts) or foreign investor’s subscription to the authorized capital of a company with foreign investments
  • reduced-rate (up to 0%) import duty on goods originating in World Trade Organization member states or states with which Ukraine has bilateral or regional most-favored nation agreements, including the EU and Canada
  • import duty relief for equipment operating from renewable energy sources, energy-saving equipment and materials, fuel and energy consumption measuring, controlling and managing devices, equipment and materials for production of alternative fuels or production of energy from renewable sources

A continuous dialogue with businesses has been launched to address problematic issues with investors: quarterly working meetings featuring representatives of ministries and businesses.

The Directive 174-r of the Cabinet of Ministers of Ukraine of 21.03.2018 has established Ukraine Investment Promotion Office under the auspices of the Economic and Financial Department of the Secretariat of the Cabinet of Ministers of Ukraine. The Regulation on the Office was approved by the Order 76 of the State Secretary of the Cabinet of Ministers of Ukraine of 23.04.2018.

According to the Regulation, the Office’s key objectives include:

  • information support to foreign investors in the course of preparation and implementation of investment projects and while doing business in Ukraine to accelerate and improve effectiveness of foreign investors’ interaction with bodies of public administration and bodies of local self-government regulating business (including investment) activity;
  • bringing in investments, and facilitating cooperation of bodies of executive power and bodies of local self-government to create favorable investment climate in Ukraine;
  • helping improve Ukraine’s investment image and promoting investment development of Ukraine;
  • coordinating foreign investors’ actions with bodies of executive power and their officials to address problematic issues which foreign investors might face when doing business in Ukraine;
  • preparing proposals for the Government Commissioner for Investments regarding creation and utilization of Ukraine’s investment potential, implementation of the Government’s investment program, support of priority investment projects, improvement of investment climate in Ukraine, protection of investor rights guaranteed by law;
  • increasing effectiveness of central and local bodies of executive power, temporary consultative and advisory bodies established by the Cabinet of Ministers of Ukraine, bodies of local self-government, public institutions and organizations when interacting with investors and improving Ukraine’s investment attractiveness.

The Office Coordinator is the Government Commissioner for Investments: Oksana Markarova, First Deputy Finance Minister of Ukraine.

In addition, the Decree 365/2016 of the President of Ukraine of 29 August 2016 has approved the Regulation on the National Investment Council. The Council’s key objectives include: preparing proposals regarding promotion and development of investment activity in Ukraine, formation of an attractive investment image of Ukraine (in particular, by borrowing from the best international practice); facilitating formation of the main areas of national policy on improvement of investment climate in Ukraine; preparing proposals regarding strategic areas of developing Ukraine’s investment potential, promoting foreign and domestic investments in development of the national economy; studying initiatives and potential offers of investment projects and the practice of interaction between investors and public authorities; analyzing and generalizing problems obstructing investments in the Ukrainian economy, and preparing proposals regarding the ways of solving these problems, in particular, regarding measures of promoting protection of investor rights; participating in development of draft legislative acts regulating investments.

The first meeting of the National Investment Council was held on 25 May 2018.

In addition, the Resolution 578 of the Cabinet of Ministers of Ukraine of 9 August 2017 has established the interagency working group for review of violations of the rights of business entities by law enforcement authorities; the Resolution 226 of the Cabinet of Ministers of Ukraine of 21 March 2018 has established the interagency working group for preparation of proposals regarding solution of systemic problems and establishment of efficient cooperation and dialogue with foreign investors to implement their proposals regarding improvement of investment climate.

In order to ensure efficient interaction between representatives of scientific community, bodies of executive power and the real sector of economy when forming and implementing a uniform national policy on science and technologies, the Resolution 226 of the Cabinet of Ministers of Ukraine of 5 April 2017 has established the National Council of Ukraine for Development of Science and Technologies, a permanent consultative and advisory body under the Cabinet of Ministers of Ukraine. The Directive 520-r of the Cabinet of Ministers of Ukraine of 9 August 2017 has approved the membership of the National Council of Ukraine for Development of Science and Technologies.

The Concept for Development of Digital Economy and Society of Ukraine for 2018-2020 and the Concept implementation plan were approved. The main goals of these documents are implementation of Digital Agenda of Ukraine 2020 initiatives (digital strategy) aimed at eliminating barriers to digital transformation of Ukraine in the most promising areas by stimulating economy and promoting investments, overcoming digital inequality, intensifying cooperation with the EU in digital sector and building the country’s innovative infrastructure and digital transformations.



 

*Note. The direct investment data for 01.01–01.04.2018 was calculated on the basis of NBU’s administrative data which, unlike in the previous periods, includes amount of reinvested profits of Ukrainian banks (calculated by NBU on the basis of undistributed profit/loss data according to the size of direct investor’s stake in their capital).

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