Kyiv
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Experts: Ukraine needs to liberalize markets of land, labor and financial capital

Kyiv, May 16, 2017.

 This is the conclusion experts made during discussion of possible ways of increasing the level of direct foreign investment in Ukraine and prospects for small and medium businesses at Ukraine Crisis Media Center.

There is direct connection between direct investment and development of medium and small enterprises. “Competitiveness is the most important aspect here,” said Günther Fehlinger, President of the initiative “Europeans for Tax Reform”. Ukraine should compete. For example, corporate tax rate in Ukraine amounts to 18%. It was good 10 years ago, but now there are much more favorable corporate taxes in Europe.

Land reform

Land reform is among structural reforms that Ukraine needs to implement to increase investment attractiveness. The issue of creating the market relies on three main factors. “First of all, moratorium on sale of land is illegal; it limits constitutional rights of 7 million Ukrainians. Secondly, there is a colossal economic impact of creating free land market in Ukraine, which can reach about 100 billion dollars in the next 10 years. Thirdly, there is not a single civilized democratic country in the world with moratorium on sale of land,” explained EasyBusiness project manager Dmytro Lyvch. Therefore, scenario of opening the land market in Ukraine is the most efficient one.

Liberalization of financial capital flow

Liberalization of financial capital flow is required for Ukraine to integrate into European markets. Gradual liberalization of market is the safest and the most efficient. It is being implemented. Andriy Shpakov, executive director of EasyBusiness, analyzed the currency regulation in Ukraine: “There is a STS Index measuring the current state of a country in terms of regulation of certain elements of capital flow. For instance, there is inflow of investments, repatriation of investments and income, external payments and foreign currency earnings. […] It is the attraction (of investments – ed. UCMC) that fall under the largest number of limitations,” said Shpakov. Permits from state authorities need to be received to conduct certain operations. There are also limitations on repatriation of investments, so an investor cannot be sure that his resources will be returned.

Labor market

Volodymyr Vlasiuk, director of State Enterprise “Ukraine Industry Expertise”, is an expert in labor market. He said: “Ukraine is believed to have a number of advantages and we need to use them to secure economic growth. These are the sources of natural rent, i.e. agricultural raw materials, fertile soil and presence of mineral resources.” Moreover, these are competitive, creative, and labor resources, advantageous geographical location, access to sea and capacious internal market. We observe increase in the number of labour migrants. “At the same time, labor resources outflow is always a negative factor for economics. […]  Decrease of number of employees is the largest in industry,” said Vlasiuk. Share of informal individual income is high, too.

Marketing

Martin Nunn, director of Whites Communication PR-agency, focused on the issue of promotion and marketing of Ukraine in the European market. It is impossible to attract investments without it. “When we’re looking at risks which are threatening the business, we mention war, corruption, venal courts, problems with governmental stability,” he said. Often these factors have insignificant impact on foreign investments. There are few readers of economic publications in English in Ukraine. “Business news in Ukrainian mass media make up only 10%,” said Nun. Budget does not envisage marketing expenses.

Textile products export

“There are many enterprises in Ukraine employing about 50 thousand people, mostly women, who produce clothes exported to European countries. Nevertheless, when we look at a share of Ukrainian clothes in Europe, it is 0.4%», – said Rostyslav Lukach, economic advisor at ETFC (Export&Trade Facility Center). It results from absence of knowledge in export marketing, contacts with service companies in EU countries, currency limitations, overrated loans etc. We expect simplification of custom procedures for the purposes of facilitating business activity. “When PayPal enters Ukraine, then we’ll say that the National Bank of Ukraine did something in this regard,” believes Lukach.

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