Kuchma establishes advisory council to spur foreign investment in Ukraine (04/20/97)

Kuchma establishes advisory council to spur foreign investment in Ukraine

by Roman Woronowycz
Kyiv Press Bureau

KYIV - Attempting to attract investors from abroad who are shunning the Ukrainian market, President Leonid Kuchma on April 14 established a consultative council for foreign investments that will include heads of leading multinational corporations.

The president was reacting to the removal of tax breaks for foreign investors and an opinion developing in the world business community that it is not worth doing business in Ukraine.

President Kuchma will chair the council, which will also include the chairmen of corporations such as Deutsche Telekom, British Petroleum, Daimler Benz, Coca-Cola Amatil Europe, Boeing, Siemens, Mitsui, Fiat, Royal Dutch Shell and Cargill. All are among the leaders in their fields, and all have some sort of investment in Ukraine.

The group will meet every six months to iron out difficulties for foreign investors and to develop an image for Ukraine as a place attractive for foreign investment. The council's statutes state that its objective is "to ensure the elaboration and implementation of a policy for drawing foreign investments into Ukraine's economy and using world experience to accelerate Ukraine's integration into the system of international economic ties."

Ukraine's business climate is suffocated by a huge government bureaucracy on a level that makes Russia's system look pristinely laissez-faire. Corruption has increasingly become a problem for foreign investors who are often forced to pay and re-pay bribes at every level of government.

Another problem foreign firms face is the constant changes in commercial laws at the local, oblast and national levels. Motorola Inc. announced early this month that it would not act on a bid it had won to develop mobile communications in Ukraine because it could no longer continue to invest in Ukraine when the government is constantly changing the rules of the game. Motorola, which had planned to invest $500 million into the Ukrainian economy, also alluded to favoritism and corruption in the communications sector.

But a move by the Verkhovna Rada that removes tax incentives for foreign investment could further strangle potential foreign investment. A key tax break that the anti-reform Rada has suspended allowed a two-year exemption from taxes for firms investing at least $50,000 (U.S.). The legislature also rescinded a law allowing firms to bring capital equipment into Ukraine without paying customs duties.

The lawmakers said the law is meant to discourage businesses that do not produce goods in Ukraine. But at least one businessman thinks that it will only further discourage foreign investment - something Ukraine does not want to do. "Foreign investors will find alternative markets for investments. Ukraine cannot afford this," Ake Davidson, president of the Ukrainian branch of Asea Brown Boveri, a Swiss-Swedish industrial conglomerate, told the Associated Press.

Indeed, the cash-strapped government needs to encourage those few investors who express interest in Ukraine. The government owes its workers and pensioners about 1.5 billion hrv (about $833 million). Since independence Ukraine has attracted only $1.4 billion in foreign investments.

According to Valerii Lytvytskyi, secretary of the newly formed consultative council on foreign investments, President Kuchma may veto the Verkhovna Rada bill. "It would be incorrect to outrightly deprive foreign investors of their privileges," he said.

In his first public statement, newly appointed Vice Prime Minister for Economic Reform Serhii Tyhypko said he would work with foreign investors "so that joint ventures with real investments, which are involved in real production, do not lose their privileges." He said he would speak with representatives of Motorola to see what he could do to keep the company in Ukraine.

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