ЕВА Investment Attractiveness Index
Sees First Sharp Drop in Two Years
Investors’ confidence in the Ukrainian market slumped to 2.56 in third quarter 2011, down from 3.39 the preceding period. The increased uncertainty stems from a combination of global economic worries and Ukrainian political and economic imbalance, according to EBA Investment Attractiveness Index.
The European Business Association released the most recent results of its quarterly survey, which reflects investor sentiment and perception of Ukraine’s business climate, on October 6. The poll encompasses assessments provided by 122 CEOs of EBA member companies.
Investor confidence during third quarter 2011 sank to its lowest level in two years, equaling the score posted for third quarter 2009.
The Index vividly points to a decline in Ukraine’s investment attractiveness:
- The current investment climate was ranked at 2.3.
- Changes to the investment climate during the last 3 months were pegged at 2.5 points.
- Further predictions and expectations of the investment climate received 2.7 on average.
When evaluating dominant market tendencies, respondents flagged negative trends on stream. Top investor concerns included continuous pressure from government agencies (12%), the detrimental impact of corruption (11%), taxation barriers, VAT refund lags and overall market instability (9% each).
The rate of positive market trends and changes mentioned is still modest, feeding worries about a further economic slowdown. The downside of the businesses’ uncertainty, the absence of positive changes, adverse index indicators points to the insufficient efforts made by Ukraine’s government to keep internal policies accommodative and to implement efficient structural reforms.
As the investors’ confidence evaporates, we clearly see that the policy steps already taken by the government should be more tangible and investor-friendly.
In addition to the generally unenthusiastic sentiment toward the nation’s business climate, more than half those surveyed (51%) feel that a further global economic recession is either a certainty or probable, heightening fear of a double-dip. Taking into account that the Eurozone’s markets are already losing their lustre, the risk and extend of a slowdown is a real question for Ukrainian and foreign investors.
The I3tn quarterly installment of the EBA Investment Attractiveness Index unambiguously points to the necessity to deploy more business-friendly policies and implement structural reforms in order to offset further weakness and return the country’s market to normal. The measures taken should be matched by policies to restore growth and investor confidence.
Tomas FIALA, Chief Executive Officer, Dragon Capital and EBA President:
Three months ago, when announcing a flat reading of the 2Q Index, we voiced fears that a correction was on the cards for 3Q as we observed a slowdown in reforms, very few tangible results trickling down to business from recently approved laws and little progress being made on the most pressing issues including the rule of law, corruption, deregulation, and fiscal pressure. Unfortunately, the final figure came in much worse than anticipated, depressing the Index to levels last seen in the recession year of 2009. A deteriorating international environment also played a role, obviously, and we do not expect it to improve any time soon. Under the circumstances, there remains very little room for further policy errors.»
Anna DEREVYANKO, EBA Executive Director:
The downward trajectory of EBA Investment Attractiveness Index - from 3.39 points in the II quarter of 2011 to 2.56 points in the III quarter - is an alarming signal feeding worries about unprecedented uncertainty among Ukrainian investors’ community.
The outer reasons of the adverse Index level are intertwined with global market turbulence and concerns over the double dip fuelled by US and Eurozone’s debt crisis. It is still difficult to gauge precisely what will be the further scenario of global markets development on the cusp of recession. The inner reasons point to the lack of stable and efficient domestic policy measures and overwhelming impact of corruption.
To make the investment climate in Ukraine robust, the Government’s top priority is to rehabilitate the trust and confidence of investors’ community, as business is the driving force of country’s economy, which fuels and keeps the economy expanding. To gear up Ukraine’s potential and to attract FDI as a near-term goal, the efforts and the policy steps made by the Government should be closely allied and
consolidated with the proposals voiced by business community, state and business should go hand in hand. All in all, we can use volatile times to reveal new opportunities and to make the most of them!»
Dario MARCHETTI General Director, Danone&Unimilk Ukraine, EBA Board member, EBA Dairv Committee Chairman:
Since the second half of 2008, we have not had such a huge fall in the sentiment of our members, and I would say of all businesses. Yes, there are some outside factors with over half of businesses expecting a second crisis. But at the same time, there are internal factors that have remained unchanged. These factors - like corruption, the court system, and administrative pressure - have remained unchanged for a year. So now businesses see little hope of solving these issues in the near future. Combine this with the international financial situation and we get a very dangerous and worrying mix for Ukraine. So it is now URGENT that the administration listen to business and the population, and find the political will to stop corruption and reform the court system. Otherwise, Ukraine will suffer in the upcoming uncertain times yet again!»
Maurizio PATARNELLO CEO, Nestle Ukraine and Moldova:
The significant drop in the Investment Climate Index is partially due to the negative impact that the Western Europe’s financial crisis will have on Ukraine. We expect that Western Europe’s demand for Ukrainian products will drop and that foreign investor’s appetite for a country considered high risk will decline. The business community’s preoccupation is fuelled by the rumors about Ukraine potential default and risks of hrivnya devaluation. Strong pressure from the state authorities on companies and the general sense that corruption is still not eradicated is also influencing such a negative score.
In such difficult situation the Government has to take courageous decisions for the future of the country, introducing important reforms, including the ratification of the EU Free Trade Agreement, aiming at restoring the confidence and attracting more local and foreign investments. Without investments the huge potential of this country, in which we strongly believe, will remain widely unrealised.»