What would Ukraine without corruption look like?

What would Ukraine without corruption look like?
September 14, 2016.

Businesses began declaring their unwillingness to tolerate corruption, yet problems at enterprises go beyond corruption. Foreign investors named the conditions for investment in Ukraine.

Kyiv, September 14, 2016. In Ukraine, 47 per cent of companies admit that they pay bribes and 60 per cent underestimate their income to pay lower taxes. Corruption is more noticeable now. Expectations in the fight against this phenomenon also increased. “No one is ashamed to fight corruption any more. Some businesses declare their unwillingness to tolerate bribes,” said Yaroslav Yurchyshyn, Executive Director of Transparency International Ukraine, at the debate held at Ukraine Crisis Media Center.

Similar to Poland

As of today, Ukraine ranks 130 in terms of corruption in Transparency International ranking. To compare, Poland ranks 30. If the level of corruption in Ukraine reached the level of Poland, direct investment would rise by 74%. This is USD 2.2 billion. “We could forget about some sources of financing. We chase tranches, but our internal resource is much bigger,” stated Andriy Boitsun, member of Strategic Advisory Group for support of Ukrainian reforms, Research Director at the Center for Economic Strategy. Corruption leads to lower capital productivity in the country. If Ukraine was at the level of Poland, GDP would increase by 13% – USD 21 billion and real per capita GDP could reach up to USD 3.000 more in 10 years.

Expectations of foreign investors

According to Tomas Fiala, Chief Executive Officer of the Investment Company “Dragon Capital”, co-founder of the Center for Economic Strategy, the biggest risk for foreign investors is corruption, lack of independent judiciary and the war with Russia. Rebooting the judiciary is a priority. “Trust in the courts is very low, they are totally corrupt, and no one expects a fair resolution of cases. Also, foreign investors consider it important to punish high-ranking officials and judges for corruption. The third task is for Ukraine to remain in the IMF program and receive regular tranches. Here the problem is not tranches, but fulfilling the IMF requirements – this would mean that reforms move in the right direction, and they can invest in the country, it will be stable,” explained Mr. Fiala.

Direct losses due the lost revenue

According to Oleg Prokhorenko, head of the board, gas extracting company “Ukrgazvydobuvannya,” a year ago the company’s losses due to corruption accounted for UAH 2-3 billion per year. The new team managed to save UAH 1.9 billion on purchases only.

According to Mr. Prokhorenko, revenue losses are difficult to assess. “Once we switched to production of gasoline “Euro-4” and “Euro-5″, we immediately achieved extra 2 thousand hryvnias per ton of production. If this modernization had been possible 5 years ago, who will calculate how much would we have earned? And there are many other examples,” noted the head of “Ukrgazvydobuvannya”.

Another channel of corruption is management that does not address development. “Management cannot devote a part of time to stealing and a part of time to developing the company. Management comes either to steal or to develop. Now I physically do not have time to think about the schemes, because we think how to modernize equipment and to make money. Logically, people who were engaged in schemes did not have time to develop the company. Why Ukraine’s production is at UAH 14-15 billion within 12 years? No one has thought whether it is possible to exceed this level. We have actually concerned ourselves with this problem and are planning to increase the production from 14.5 billion up to 20 billion cubic meters by 2020. If this had been done 10 years ago, Ukraine would have imported 5 billion cubic meters less this year,” emphasized Mr. Prokhorenko.

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