VoxUkraine: Ukraine rates 162 in Economic Freedoms report, between Kongo and Solomon Islands


Kyiv, March 9, 2016. Ukraine rates 162 out of 178 in the recent Economic Freedoms report, occupying place between Kongo and Solomon Islands, which proves that Ukrainian economy falls into the category of so-called “repressive economies”, said Borys Davydenko, chief editor at VoxUkraine at a round table discussion at Ukraine Crisis Media Center. According to Svitlana Rusakova, member of VoxUkraine initiative group, Head of Proprietary Trading at Dragon Capital, Ukraine is sorely in need of investments for sustainable development of the economy. “Amount of direct foreign investment decreased to record low 300 million USD in 2014, while in 2013 is was 4.1 billion USD. This amounts to 3.1 billion USD in 2015. Nevertheless, the National Bank estimates that 76% of this sum accrues for the banking sector. International banks converted the issued loans into shares of their subsidiary banks, i.e. these are not ready cash,” informed Rusakova.

There are a number of large-scale indices assessing general economic situation in the country, said Rusakova. It is about Doing Business Index assessing how easy it is to open and conduct business in a country. Ukraine is the 83th out of 189 here. There is a Corruption Perception Index by Transparency International where Ukraine occupies the 130th place out of 168. Ukraine’s rating in the Economic Freedom Index is 162 out of 178. This index consists of 10 components divided into four groups. The experts analyzed the criteria where Ukraine got the least points. For instance, Ukraine took 20 points out of 100 in the Economic Freedom Index due to excessive bureaucratic procedures, limitation for investments in certain industries, weak mechanisms of contract implementation, delay of privatization and moratorium on sale of agricultural land to foreigners, explained Rusakova.

Ukraine got 30 points in the next component – Financial Freedom Index which defines the level of state interference into financial sector and banking activity. The expert mentioned overregulation of banking system and the entire financial market, large amount of problem loans in banks’ portfolio, regulatory hindrances for international financial institutions, and low level of financial market development and privileged status of publicly owned institutes. Ukraine got 26 points for the third component, Corruption Freedom Index, for delayed launching of anti-corruption authorities and increased interaction between authorities and business. The fourth component of Economic Freedoms Index, property rights protection, analyzing legislation aimed at investors’ property rights protection and accounting cases of private property expropriation, gave Ukraine 25 points due to low level of private property protection and corrupted inefficient judiciary system.

Volodymyr Semenikhin, director for business development and regulatory policies at the Ministry of Economic Development and Trade of Ukraine, said that the ministry is working on raising the level of Ukraine in Doing Business raiting. Nevertheless, the last two years of activity is rather an imitation of the process. “The Ministry of Economy created a deregulatory office in the last six months, engaging experts who are knowledgeable in work regarding Doing Business rating. “We created the road map in December, which means we decomposed these 10 components into all the indices they measure. We made a list to be implemented by the government and parliament, and the Cabinet of Ministers passed a decree approving this agenda. It contains 46 items, and half of these items have been ready since December,” informed the head of the department. He also said that the experts are ready to implement all the items necessary for Ukrainian economy, within the next two months. Nevertheless, Semenikhin believes that parliament involvement is essential. “There will be no reforms in this country without efficiently working institution named ‘Ukrainian parliament’,” he said.

According to Natalia Shapoval, head of the Economic and Political Studies at the Kyiv School of economics, associate editor at VoxUkraine, ratings are largely criticized. For instance, speaking of Economic Freedom Index, there is no clear dependence on GDP growth. Moreover, indexes may disregard certain problems, such as taxation, for not all types of taxation are considered. Shapoval also said that index consider only monetary politics inside the country. “Nevertheless, presence of various indexes is rather good than bad, for they allow look into various aspects and see a wider picture, concentrating not only on the GDP,” said the editor.

The main problem is that at present it is difficult to represents an investment case in Ukraine, said Serhiy Budkin, partner at the investment-banking company FinPoint. “This is a huge problem indeed, as there is less money in the world after the “oil shock”, unlike the previous decade. There are more possibilities to earn money and invest them in the country providing more or less attractive investment environment, so the competition for every dollar increased immensely,” said Budkin. So, according to the expert, in this context it is important to have at least some positive index to be added to presentation of investment attractiveness of the country.

Hlib Vyshlinskyi, executive director of the Center for Economic Strategy, said that the European Business Association conducted a survey regarding investment attractiveness of Ukraine. “39% mention fighting corruption as a key factor, 25% – fiscal reform,  24% – judicial reform,  14%  – acceleration of reforms and 8% – clearance of state institutions from bureaucracy,” said the expert. Investment risks influence negatively on investment attractiveness of Ukraine, namely corruption in the judicial system, macroeconomic instability, currency regulation and limitations for foreign investors regarding transfer of dividends as well as “the simmering conflict in the east of Ukraine which is the least manageable,” summarized Vyshlinskyi.