Ukraine’s business climate is improving rapidly, and will continue to do so as the country strengthens ties with the West and attracts more foreign investment, writes Yuliia Kovaliv.
Yuliia Kovaliv is the first deputy minister of economic development and trade for Ukraine.
The new “Doing Business” ranking from the World Bank shows Ukraine moving up four spots. While this is welcome news, 83rd position in the world is far from the standards we set for ourselves as a European country and progressing into the top 50 is our goal for next year. With the new Deep and Comprehensive Free Trade Area (DCFTA) linking Ukraine to the European Union from 1 January next year, we have never had more desire or ability to implement reforms. In 20th position, Lithuania shows what an Eastern European nation can achieve through westward integration.
The “Doing Business” ranking assesses countries’ business environments across 11 potential stages in the lifecycle of a business: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts, resolving insolvency and labour market regulations.
Ukraine has moved up a massive 69 spots in the survey since 2012. In this year’s ranking, Ukraine showed the most progress in the “starting a business” category, where it jumped a massive 40 spots. The number of procedures needed for starting a business has been cut from six to four in the past year while the time needed to complete the entire process has fallen from 21 to seven days. Not only are these processes now quicker, but costs have also been halved in local currency terms, even though our currency has fallen nearly threefold versus the US dollar over the past two years.
These improvements are part of the Ukrainian government’s strategy to unshackle our population’s technical and creative potential. Ukraine has almost 100% adult literacy and hundreds of thousands of qualified professionals in the so-called STEM (science, engineering, technology, mathematics) subjects that are in such international demand. By eliminating barriers to these specialists establishing and operating businesses we hope to add a new growth engine to the Ukrainian economy, which until now has been held back by oceans of bureaucratic paperwork and corruption. With abundant skilled technical professionals and an average wage rate of approximately €1.50 per hour, Ukraine is at a major international competitive advantage to revive its manufacturing sector.
One of the key drivers of attracting investors is the large-scale privatisation of state enterprises. Ukraine still has over 3000 enterprises in state ownership, partially as a hangover from the communist era. The vast majority of these companies would be better off with professional private sector management. The aim of privatisation is to attract long-term strategic investors for the twin purposes of establishing modern management processes to spur the development of the Ukrainian economy and support the state finances.
Ukraine has many negative inheritances from the Soviet era. But we also have many characteristics that other emerging markets can only dream of. The quintessential emerging market can be imagined as somewhere with inconsistent power supplies, undeveloped transport infrastructure and too few financial institutions. None of this is true for Ukraine: our power supplies are consistent (in fact we urgently need to consume less energy), our transport system actively serves at the crossroads of Europe, the Middle East and Asia and the number of banks in Ukraine is being consciously reduced in order to promote financial sector stability.
Ukraine is changing for the better. Our currency has gained a new stability without any artificial peg. The International Monetary Fund, not usually an organisation known for warm emotions, has said Ukraine “surprised the world” with its achievements. Our sovereign debt has been restructured in a process involving internationally unprecedented levels of cooperation and our credit rating is inching upwards. We are making progress on attracting the new investments and technologies needed to harness the potential of having one third of the world’s highly fertile black earth soils and we are already in the top-4 global exporters of most major crops. The benefits of this approach are already being reflected in our national accounts with total Foreign Direct Investment moving from net outflows last year to $2bn of net inward investment in the first eight months of this year.
The World Bank says Ukraine’s improving Doing Business environment means the country’s economy is expected to grow 2% next year. Now that 95% of the country is completely secure and a ceasefire is holding in the far East on the Russian border, we can do significantly better than this forecast. In Ukraine we are working hard to make the most of our rapidly improving relationships with the European Union and the rest of the international community, making further improvements and attracting more investors.