To invest, or not to invest?

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The Ministry of the Economy has initiated the adopting of a new law that will limit the influence of domestic authorities on the activity of foreign companies. Nevertheless, analysts believe that such innovations in the law will not substantially change investor`s attitude toward Ukraine.

According to the data of study recently conducted by experts of Ukraine`s Ministry of Economy, there are three main factors that have a negative impact on the process of investing in Ukraine. Specially these are unjustifiably tough administration in the regions, potential political rinks and the imperfect Ukrainian judicial system.

Furthermore, investors that have experience working in Ukraine mostly complain about the excessive interest toward their business on the part of local authorities. The authors of the draft law On State Support and Stimulation of Investment Activity, which is to be reviewed during the next parliamentary session, has taken into consideration such distressing conclusions. I t is worth pointing out that this is not the first initiative of the legislators to simplify access of foreign companies to the risky Ukrainian market.

The current bill has a complete list of new clauses, which includes simplifying the procedure for state registration of foreign investments and the certification of new products. Also interesting is the fact that the bill also stipulated administrative liability and calls for financial penalties for officials that violate the procedures or terms of issuing permits for investors. The only thing is that the penalties creating obstacles for investors will not be significant, ranging from Hr 170-425. In addition, taking into account the negative experience of previous years, the future law bans central and local authorities from demanding investors to finance the development of territorial infrastructures and measures for environmental protection.

Nevertheless, despite the progress of new norms, experts are doubtful that the authorities will be able to resolve the investment issue by simply adopting the new law. For example, last spring the Cabinet of Ministers approved a resolution on setting up the Foreign Investment Agency with the objective of improving the investment image of Ukraine. So far, there have been no apparent results from the operation of the agency and it has only been made possible to expend the structure of those bodies controlling investments. Ukraine`s parliamentarians also believe that the new bill is not effective and are proposing to reject it. In their opinion, the document is too vague and declaratory and does not contain a specific mechanism for stimulating investment activity and sources of alleged budget support of investors.

Representatives of foreign companies believe that the authorities are forgetting about other important constituents of investment attractiveness. As paradoxical as it may seem, the West so far is not aware of the real benefits of conducting business in Ukraine. This is what should be talked about; there should be more presentations of the country`s investment potential. Certainly, informing of what preventive, measures should be taken in order to avoid possible negative consequences is key. If you don't tell the investors about possible problems, it will only hurt the business as a whole. After attempting to open a business in Ukraine and personally facing all the difficulties, an investor will tell their story to other investors and the path for new investments will be closed, said European Business Association President Jorge Intriago.

Kiev Weekly January 28, 2005 pg 9