One of the most significant gains for the international business community in Ukraine over the past year has been the establishment of the International Council of Business Associations and Chambers (ICBAC). This new organization brings together many of the business organizations operating in Ukraine, namely the Ukrainian Chamber of Commerce and Industry, the German-Ukrainian Chamber of Industry and Commerce, the International Turkish-Ukrainian Business Association, the US-Ukraine Business Council, the Chinese Business Association, and the French-Ukrainian Chamber of Industry and Commerce. It provides business communities representing different countries with a permanent corporate communications platform while offering opportunities to address common issues with a single voice and share opinions on ways to attract more foreign investment to the country with both the government and the public.
During a recent meeting of the ICBAC Board of Directors, we decided that each member association would prepare a report reflecting the views of their business community and highlight five key issues that can help create a better business environment in Ukraine for international investors. This will form the basis of a comprehensive report for the Ukrainian government and public. The Turkish-Ukrainian Business Association (TUID) has identified the following five issues that we believe can contribute significantly to the improvement of Ukraine’s investment climate
1. Communication is Key
Over the past three and a half years, structural reforms have achieved more in Ukraine that in the previous twenty-three years of independence. However, due to image problems regarding corruption, rule of law and geopolitical risks, Ukraine has not yet witnessed the kind of growth in international investment that the country needs. To remedy this situation, the government should seek to improve communication with the business world. Ukraine needs to tell its story and highlight positive developments to potential investors. This is achievable in part by working more closely with existing investor communities and business associations. At TUID, we have engaged with potential investors at more than 30 different events in the past two years, including forums, panels and roundtables in both Turkey and Ukraine. Success stories of existing investors are a powerful tool readily available to the Ukrainian government.
2. Invest in Infrastructure
In terms of successful communication, deeds are just as important as words. The Ukrainian public is generally aware of the short-term challenges created by structural reforms. It is vital they also encounter positive changes in their daily lives in order to maintain support for the reform process. This means improving the quality of public services like healthcare and transport. Physical infrastructure such as hospitals, highways and airports should receive major upgrades. Given the limitations of the state budget, the current drive to pass a new concession law and create a framework for public-private-partnerships (PPPs) is particularly important. Turkey has used the PPP model to develop infrastructure investments totaling USD 150 billion over the past 15 years. Turkish companies can now contribute both knowhow and investment capital into Ukrainian PPP projects.
3. Free Trade Impetus
To attract more foreign capital, Ukraine requires catalysts. In this context, the proposed Turkish-Ukrainian Free Trade Agreement could be a major step towards multiplying the volume of Turkish capital in Ukraine, which currently amounts to USD 2.5 billion. The conclusion of this Free Trade Agreement, which has been at the negotiation stage since 2007, would increase green field investments from Turkey to Ukraine and play a catalytic role for the country to receive investment from third countries.
4. Profitable Privatization
Another catalytic factor is privatization. Turkey has generated income of USD 60 billion via privatizations since 2000. A well-structured privatization policy could provide income to the Ukrainian budget for new investments. Meanwhile, the increased productivity and improved governance standards of newly privatized firms could cancel out budget burdens created by loss-making public enterprises. Instead, rising tax revenues would provide inflows to the budget. According to a recent protocol signed with the IMF, Ukraine aims to privatize 900 public enterprises by 2020. This process has the potential to attract considerable foreign capital to the country if managed correctly.
5. Harnessing Ukraine’s Amazing Agricultural Appeal
The final factor on our shortlist of steps to attract more foreign capital to Ukraine is removal of the moratorium on agricultural land sales. Due to this moratorium, small-scale farmers cannot mortgage the agricultural land they possess and are unable to utilize credit from banks. This situation leads to monopolization in the sector. The moratorium policy also restricts international investment in Ukraine’s otherwise highly attractive agricultural sector. Ukraine boasts the most fertile soil in the world and possesses around one-third of the planet’s black earth resources. It is a European agricultural superpower in the making with vast investor appeal. If the agricultural land market is developed appropriately, it will pave the way for a wave of investments that could climb as high as USD 50 billion over the coming decade.
I am confident these steps can help Ukraine move towards sustainable GDP growth rates of 6-7% annually. Increasing foreign investment will also contribute to the development of the country’s legislative framework and the creation of a more stable political and economic environment.