It has been an eventful and profitable year for international companies working in Ukraine. 88% of American Chamber of Commerce member companies reported an increase in revenue in 2019, while 65% of our 600 members plan to increase their investments in Ukraine over the next 12 months, according to our latest survey of members. These positive indicators are one of the reasons why the current business climate is cautiously optimistic. However, concerns remain that the Ukrainian authorities could further spoil this positive image in the coming year.
We now come to the end of twelve remarkable months in Ukraine, filled with events that have occupied the country’s politicians to the extreme. Ukraine held a high-profile presidential election followed by summer parliamentary elections. This led to the appointment of a young new government. Parliament kicked in and was quickly labeled “turbocharged” because of the speed with which it began to pass new legislation.
President Zelenskyy and Prime Minister Honcharuk wasted no time in demonstrating a pro-business approach. The president was willing to hear the voice of business, meeting with representatives of the business community even before being elected. The Prime Minister went even further, inviting me and two other heads of prominent business associations to attend the weekly government cabinet meetings. This commitment is encouraging, as is the vision of the new government for the future development of the Ukrainian economy. Shortly after his appointment, Prime Minister Honcharuk demonstrated the scale of his ambition when he announced a plan to attract $ 50 billion in foreign direct investment and achieve 40% GDP growth in by 2024. No wonder new investors are eyeing Ukraine and trying to understand the opportunities it represents. .
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What could go wrong? While the current business sentiment is certainly optimistic, I am getting signals that the mood could quickly turn sour. As we move into the New Years season, we are closely monitoring a number of key issues that risk sending dangerous signals to the international business community.
All eyes are currently on the National Bank of Ukraine (NBU) and its ability to maintain its independence from foreign interests. The ongoing mob rental protests taking place in front of the bank and, more distressingly, in front of the homes of the NBU leadership, are proof that the central bank is disrupting vested interests. Once a year on Thanksgiving, we ask our members who they would most like to thank for making Ukraine a better place to do business. This year’s choice was unanimous: we presented the Thanksgiving Award 2019 of the business community to the National Bank of Ukraine. The NBU is on the right track and should continue to be supported.
Investments in the green energy sector in Ukraine have exploded over the past two years, attracting more than US $ 4 billion. The government is now threatening to go out of business and end wind and solar renewable energy projects by introducing retrospective changes to existing legislation. If this turns out to be the case, possible international arbitrations and disputes will seriously damage Ukraine’s investment attractiveness.
The rule of law remains the main concern of companies. The protection of property rights, in particular intellectual property rights, remains a challenge. Further legal reform is essential to build investor confidence.
The way the laws are made is also a problem. With things moving so quickly in the country’s supercharged parliament, MPs can amend the texts of bills at the very last minute, introducing unexpected changes in the law. We’ve seen examples like this before with new excise goods legislation, including mind-boggling last-minute changes being introduced targeting tobacco retailers. Such actions are disappointing and need to be watched closely.
Information technology is Ukraine’s fastest growing export sector. The government should think twice before introducing short-term tax measures that could devastate the industry in the long term. Ukraine’s thriving agricultural sector is also doing well, with Ukraine being the world’s number one producer of sunflower oil and seeds. However, logistical issues with the country’s railways continue to hamper seamless delivery from field to fork.
While these issues worry the business community, confidence is also high as the coming year approaches. In 2020, I look forward to the long-awaited opening of the first McDonald’s restaurant at Boryspil International Airport. The Golden Arches, along with other restaurant chains, have been kept away from Ukraine’s busiest airport for years. Boryspil’s new McDonald’s will serve as a more visible and tangible example of how things are changing in Ukraine.
Ukraine remains attractive to investors due to its talents, labor costs and considerable access to European markets. Confidence in the authorities among the business community is also relatively high. According to our recent poll, 84% of members believe that the Ukrainian state authorities are committed to further opening up the domestic market to foreign investment.
Thomas L. Friedman, American political commentator and author, says that while pessimists are generally right and optimists are generally wrong, all great changes have been made by optimists. Perhaps Ukraine could learn from this as the country approaches what promises to be another pivotal year. While there is certainly reason to be pessimistic, we hope that the optimism of the new government will translate into policies that match the upbeat mood of the business community and bring about positive change.
Andy Hunder is President of the American Chamber of Commerce in Ukraine. He tweets @AndyHunder.
The opinions expressed in UkraineAlert are solely those of the authors and do not necessarily reflect the views of the Atlantic Council, its staff or its supporters.
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