Экономические науки/2. Внешнеэкономическая деятельность.

M.V. Simonova

Zaporizhzhya national university, Ukraine

Optimization of the institutional environment for FDI attraction in Ukraine

Attraction of the Foreign direct investment (FDI) is a crucial topic for Ukraine which is explained by several main causes. Firstly, FDI can increase the amount of capital in the economy and thus tackle the problem of capital scarcity. Secondly, FDI stimulates private and public investment, economic growth and welfare. Besides this one cannot but mention that FDI often contributes to the adoption of modern production and management technologies as well as better standards of bookkeeping and reporting (more transparency), especially in a long-run.

One of the most important and critical elements for FDI attraction is the favorable institutional environment, which is not one of the Ukraine’s strongest points now. Overall, the Ukrainian institutional environment is characterized by unpredictable changes of the legislation, low respect for existing guarantees for foreign investors, the absence of real protection of property rights, and, especially, high level of corruption. Consequently, the Transparency International Corruption Perceptions Index 2011 ranked Ukraine as the 31st most corrupted country in the world (among 183 countries monitored), which represents a great downfall compared to the 49th rank in 2010 [1]. This year Ukraine shares it’s position with Tadjikistan and was recognized more corrupted than the Russian Federation and Byelorussia.

Other issues interfering with FDI attraction are difficulties faced by investors while doing business in Ukraine. The World Bank Doing Business report for 2011 ranked Ukraine 152nd out of 183 economies in terms of its business environment which is three positions lower than in 2010 [2]. This decline was caused by Ukraine’s losing it’s positions in rankings by the following categories: “registering property” (from 165th to 166th position), “getting credit” (from 21st to 24th position), “protecting investors” (from 108th to 111th position) and “trading across borders” (from 136th to 140th position). Meanwhile the positive tendency was observed in rankings by “starting a business” (from 118th to 112th position), “dealing with construction permits” (from 182nd to 180th position) and “resolving insolvency” (from 158th to 156th position) categories. Ukraine’s position in rankings by “getting electricity” (169th position), “paying taxes” (181st position) and “enforcing contracts” (44th position) did not change.

To improve the macroeconomic stability of Ukraine the government initiated an aggressive reform program in 2010 [3].

This program involved the creation of the State Agency for investment and national projects of Ukraine in 2011 [4]. The Agency is the main responsible institution for the investment reform, aiming to:

- radically change the procedure of administration of the state development expenditure;

- limited usage of the state resources as an instrument for the partnership with the private capital;

- creation of the necessary infrastructure to attract investment;

- creation of the conditions for a radical incensement of the investment flows.

A significant positive step in the improvement of the institutional environment of FDI attraction was introduction of a one-stop-shop on December 1st, 2011 – a unique mechanism of personal assistance for investors for guidance through the investment process, which will reduce the time to market for investors from 2-3 years to 6-9 months [5].

Due to reforms carried out by the Ukrainian state and an improving climate and institutional environment for foreign direct investment international organizations forecast expansion in FDI in 2012-2014. We must admit that despite existing difficulties with the legal framework, political risks and corruption Ukraine can still offer investment opportunities for international investors attracted by its big internal market, a qualified labor force and low wages, its natural resources and a favorable geographic location.

References:

1. Transparency International, "Corruption Perceptions Index 2011". Retrieved 1 December 2011. ISBN 978-3-943497-18-2

2. The World Bank and the International Finance Corporation, Doing Business 2012. Doing Business in a More Transparent World, Published October 18, 2011, 264 pages; ISBN: 978-0-8213-8833-4; SKU: 18833

3. Reforms in Ukraine: Assessing Current and Potential Progress, Ukrainian Economy, Dragon Capital, 6 April, 2011

4. Про Державне агентство з інвестицій та управління національними проектами України: Указ президента України № 583/2011 від 12 травня 2011 року

5. Офіційний сайт спеціального підрозділу Державного агентства з інвестицій та управління національними проектами України InvestUkraine – Режим доступу: www.investukraine.com