Ukraine's prime minister announces goal of $1 billion in foreign investment (06/15/03)

Ukraine's prime minister announces goal of $1 billion in foreign investment

by Roman Woronowycz
Kyiv Press Bureau

KYIV - Prime Minister Viktor Yanukovych announced during a plenary meeting of the Ukrainian Investment Council on June 6 that Ukraine should begin to attract at least $1 billion in foreign investment annually beginning this year.

"The formation of favorable conditions for investment is a cornerstone of government policy, and it provides that foreign investment should grow annually and should reach $1 billion every year beginning in 2003," Mr. Yanukovych told the investment council, a gathering of Ukrainian and foreign businessmen and diplomats that is chaired by President Leonid Kuchma.

The prime minister said that his government is working steadfastly to complete the overhaul of the tax system to make it more transparent and favorable for investment, which would finally draw the many foreign businesses waiting to set up shop in the country.

Ukraine has drawn $1.6 billion in total investments since the economy was opened up after state independence in 1991 - a paltry sum when compared to what its neighbors to the west have received. Whereas Estonia, Hungary and the Czech Republic have had foreign investments totaling tens of billions of dollars, which comes to a couple of thousand dollars per individual on a per capita basis, Ukraine's per capita foreign investment stands at $116.

While Mr. Yanukovych did not explain specifically how he was going to assure a flood of new direct foreign investment into Ukraine, he said outside investment in the country had increased in 2002 by $797 million, which was substantial growth and logically led to expectations that the goal was attainable, especially given the continued strong growth of the Ukrainian economy. Thus far in 2003, Ukraine's GDP has stormed ahead by another 7 percent on an annual basis, making its expansion since 2000 about 21 percent.

Mr. Yanukovych noted that investment from abroad continues to enter Ukraine from many different countries - 114 in all - with the United States, Great Britain, the Netherlands, Russia, Germany, Switzerland and Austria leading the pack in that order in 2002 and accounting for three-quarters of all foreign investment. He pointed out that the largest amounts of investment finances had been directed at the food industry, machine building and the financial sector.

While the prime minister put an optimistic spin on the current investment climate in Ukraine, President Kuchma gave a more restrained assessment of the situation.

"The situation with investments does not meet the requirements of the present time," Mr. Kuchma bluntly stated. The Ukrainian president announced that he would develop an agency solely dedicated to coordinating and supporting foreign investment growth throughout the country.

He noted that the economic sectors that produce 80 percent of Ukraine's economic output - metallurgy, the chemical industry, machine building, and the oil and energy sector - had drawn merely 20 percent of the foreign investment total. President Kuchma called the situation particularly troublesome when a variety of large-scale industrial projects exist that have failed to attract foreign money, including international transportation corridor development, highway construction, fuel and energy infrastructure development, and space vehicle development.

The president also noted that it was pitiful that 65 percent of all foreign investment was focused on nine cities that contain 20 percent of the Ukrainian population. Meanwhile 10 oblasts that held a third of the population of Ukraine had less than 7 percent of the total foreign investment pie. Mr. Kuchma blamed the situation on a lack of initiative by many oblast leaders in drawing foreign investor interest.

Mr. Kuchma also made it known that he wants the Verkhovna Rada to pass legislation that would give more stability and transparency to the financial sector of Ukraine, including the banking system. He explained that 80 percent of foreign businessmen who were asked in a survey about the largest hurdles they face in doing business in Ukraine replied that it was the instability and uncertainty of Ukraine's legislative base.

The president requested the speedy approval of laws on credit policy, hard currency trading, stock corporations, rights of private ownership and the final stage of government privatization.

President Kuchma urged more transparency and fairness in the final government privatization process, and he called on local and regional governments to closely oversee the process to guarantee its success. Ukraine plans to sell parts of its largest and most strategically significant state-run companies in the next 18 months, including Ukrainian television, Ukrnafta, the oil refining consortium, and its Black Sea Shipyard, as well as the last nine regional (oblast) energy producers, called oblenergos.

While acknowledging that some progress had been achieved in tax reform, Mr. Kuchma called for further reduction of the value-added tax (VAT), the abolition of tax preferences and rebates to some sectors of the economy, and a general reduction in the number of taxes paid both by businesspeople and workers.

Mr. Kuchma also instructed the Cabinet of Ministers to develop a commission for the pre-trial settlement of business disputes with foreign investors. Several major foreign investors have left the Ukrainian market over the years - leaving others wary of entering - after being unable to get what they considered equitable resolution of business disputes that had ended up in the Ukrainian courts.

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