foreign investor survey: special edition · • widespread corruption and lack of trust in...
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Foreign Investor Survey:
Special Edition
April 2019
Highlights
2
Readiness to Invest:
• 88% are ready to invest, 20% think now is the optimal time to invest, 68% prefer to wait until after the parliamentary elections and formation of a new government.
Key steps by newly elected President:
• Demonstrate effective anticorruption efforts, appoint of credible reformers to key positions and take visible steps to separate politics and business interests and reduce the influence of oligarchs – all this would have the biggest positive impact on investment decisions by both direct and portfolio investors.
• A shift in Ukraine’s geopolitical direction away from the west, attempts to undermine the anticorruption framework and NBU independence would have the biggest negative impact on investment decisions.
• Cooperation with the IMF remains a key factor. Quick agreement with the IMF on the next loan tranche would be an important positive signal for all foreign investors, while failure to reach a deal would be taken negatively.
Obstacles:
• Widespread corruption and lack of trust in judiciary remain the key obstacles to investment for the fourth consecutive year. Market monopolization and state capture by the oligarchs is the third most important obstacle.
• The top-3 obstacles are the same across portfolio and direct investors.
• Notably, the military conflict with Russia returned to #4, oppressive law enforcement agencies moved up to #5 in 2019 from #7 in 2018. Unstable currency and financial system moved down 3 spots, becoming the sixth most important obstacle.
2019 Special Edition Survey: Key Facts
3
• Online questionnaire powered by Info Sapiens
• April 15 - 19, 2019
• 75 responses
• 63% are direct investors
• 76% are currently invested
Q1. When do you think would be a better time to invest in Ukrainian assets?
4
20%
68%
12% After 2nd round of presidential elections on April 21, 2019
After parliamentary elections and formation of new government
No compelling investment opportunities in Ukraine in the nearest future
23%
68%
9%
22%
61%
17%
Direct investors Portfolio investors
All respondents
Sources: EBA, Dragon Capital, CES
7.7
7.6
6.5
5.5
4.9
4.5
4.4
4.0
0 1 2 3 4 5 6 7 8 9 10
Demonstrate effective anticorruption efforts
Appointment of credible reformers to key positions
Take visible steps to separate politics and business interests, reduce influence of oligarchs
Quick agreement with IMF on next loan tranche
Push for legislation to elect the next parliament based on open party lists
Legislative guarantees/incentives to foreign investors
Submit to parliament a bill on cancelling top officials' immunity from prosecution
New diplomatic initiatives to resolve the conflict with Russia
Q2. Which of the following potential steps by Ukraine’s next president in the next 3-6 months would have the biggest POSITIVE impact on your investment decisions
5
Sources: EBA, Dragon Capital, CES
Most positive
All respondents
Quick agreement with IMF on next loan tranche
Take visible steps to separate politics and business interests, reduce influence of oligarchs
Demonstrate effective anticorruption efforts
Submit to parliament a bill on cancelling top officials' immunity from prosecution
Push for legislation to elect next parliament based on open party lists
Legislative guarantees/incentives to foreign investors
Appoint credible reformers to key positions
New diplomatic initiatives to resolve conflict with Russia
Q2. Which of the following potential steps by Ukraine’s next president in the next 3-6 months would have the biggest POSITIVE impact on your investment decisions
6
Sources: EBA, Dragon Capital, CES
By type of investor All respondents Direct investors Portfolio investors
Demonstrate effective anticorruption efforts 7.7 7.8 7.0
Appointment of credible reformers to key positions 7.6 7.4 8.1
Take visible steps to separate politics and business
interests, reduce influence of oligarchs6.5 6.4 6.6
Quick agreement with IMF on next loan tranche 5.5 4.9 6.4
Push for legislation to elect the next parliament based on
open party lists4.9 4.7 4.9
Legislative guarantees/incentives to foreign investors 4.5 5.1 3.9
Submit to parliament a bill on cancelling top officials'
immunity from prosecution4.4 4.3 4.4
New diplomatic initiatives to resolve the conflict with
Russia4.0 4.4 3.8
7.2
6.9
6.6
6.2
5.3
5.2
4.0
3.7
0 1 2 3 4 5 6 7 8 9 10
Shift in Ukraine's geopolitical direction away from the west
Steps to undermine anti-corruption framework
Attempts to undermine NBU independence
Failure to reach agreement with IMF on next loan tranche
No efforts to separate politics and business interests, and cut influence of oligarchs
Political pressure on law enforcement agencies
Adoption of populistic rhetoric
Failure to prevent political impasse in parliament/government
Q3. Which of the following potential steps by Ukraine’s next president in the next 3-6 months would have the biggest NEGATIVE impact on your investment decisions
7
Sources: EBA, Dragon Capital, CES
Most negative
All respondents
Failure to reach agreement with IMF on next loan tranche
Attempts to undermine NBU independence
No efforts to separate politics and business interests, and cut influence of oligarchs
Steps to undermine anti-corruption framework
Adoption of populistic rhetoric
Political pressure on law enforcement agencies
Failure to prevent political impasse in parliament/government
Shift in Ukraine's geopolitical direction away from the West
Q3. Which of the following potential steps by Ukraine’s next president in the next 3-6 months would have the biggest NEGATIVE impact on your investment decisions
8
Sources: EBA, Dragon Capital, CES
By type of investorAll respondents Direct investors Portfolio investors
Shift in Ukraine's geopolitical direction away from
the West7.2 7.6 6.7
Steps to undermine anti-corruption framework 6.9 6.7 6.7
Attempts to undermine NBU independence 6.6 6.2 6.5
Failure to reach agreement with IMF on next loan
tranche6.2 5.9 6.5
No efforts to separate politics and business
interests, and cut influence of oligarchs5.3 5.4 5.7
Political pressure on law enforcement agencies 5.2 5.2 5.1
Adoption of populistic rhetoric 4.0 4.2 3.9
Failure to prevent political impasse in
parliament/government3.7 3.8 3.9
8.3
8.2
6.5
5.6
5.3
4.9
4.8
4.2
3.9
3.2
0 1 2 3 4 5 6 7 8 9 10
Widespread corruption
Lack of trust in judiciary
Markets monopolization & state capture by oligarchs
Military conflict with Russia
Oppressive law enforcement agencies
Unstable financial system and currency
Cumbersome and frequently changing legislation
Complicated tax administration
Restrictive capital and foreign exchange controls
Intensifying labor migration from Ukraine
Q4. Which of the following obstacles to investment in Ukrainian assets are the most important?
9
Most important
All respondents
Sources: EBA, Dragon Capital, CES
10
Q4. Which of the following obstacles to investment in Ukrainian assets are the most important?
By type of investorAll respondents Direct investors Portfolio investors
Widespread corruption 8.3 8.1 8.4
Lack of trust in judiciary 8.2 8.2 8.0
Markets monopolization & state capture by oligarchs 6.5 6.0 7.1
Military conflict with Russia 5.6 5.7 5.8
Oppressive law enforcement agencies 5.3 5.0 5.9
Unstable financial system and currency 4.9 5.2 4.4
Cumbersome and frequently changing legislation 4.8 5.0 4.4
Complicated tax administration 4.2 4.6 3.8
Restrictive capital and foreign exchange controls 3.9 4.0 3.8
Intensifying labor migration from Ukraine 3.2 3.2 3.3
Sources: EBA, Dragon Capital, CES
Major obstacles to foreign investment in Ukraine: 2016-2019
11
Sources: EBA, Dragon Capital, CES
0
1
2
3
4
5
6
7
8
9
10
11
0
1
2
3
4
5
6
7
8
9
10
11
2016 2017 2018 2019
Low consumer purchasing power
Weak prospects for economic recovery
High tax rates
Widespread corruption
Lack of trust in judiciary
Market monopolization and state capture by oligarchs
Military conflict with Russia
Oppressive law enforcement agencies
Unstable currency and financial system
Cumbersome and frequently changing legislation
Restrictive capital and foreign exchange controls
Complicated tax administration
Intensifying labor migration from Ukraine
Investment in Ukraine: Key Facts
Gross fixed capital formation (% of GDP)
13
25.4%
17.2%
10%
15%
20%
25%
30%1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Emerging & Developing Europe*
Ukraine**
Notes: *Emerging & Developing Europe includes Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Hungary, Kosovo, FYR Macedonia, Montenegro, Poland, Romania, Serbia and Turkey; **excluding changes in inventories. Sources: IMF, SSS.
Capital Investment in Ukraine: Financing ($bn)
14
Source: SSS.
29.5
44.1
51.5
24.7
19.9
26.6
30.628.9
17.1
11.5 12.815.5
19.4
0
10
20
30
40
50
60
70
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Own funds of enterprises Budget spending
Foreign investment Loans
Other Total capital investment
Net FDI inflow to Ukraine
15
Source: NBU
0%
2%
4%
6%
8%
10%
12%
0
2
4
6
8
10
121995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
$bn (lhs)
% of GDP (rhs)
FDI Inflows to Ukraine: Breakdown ($bn)
16
Source: NBU
5.2
3.8
5.5
3.4 1.4
1.71.1
1.7 1.4
6.5
7.2
8.4
4.5
0.4
3.03.3
2.6 2.4
(2)
0
2
4
6
8
10
2010 2011 2012 2013 2014 2015 2016 2017 2018
Round-tripping Debt-to-equity swaps
"Genuine" FDI Total FDI
17
$1,153
$2,326
$2,363
$4,482
$4,765
$6,081
$6,142
$6,752
$7,708
$7,981
$8,775
$8,839
$9,551
$9,601
$14,453
$17,675
$0 $5,000 $10,000 $15,000 $20,000
Ukraine
Albania
Bosnia & Herzeg.
Romania
Serbia
Lithuania
Poland
Bulgaria
Slovenia
Croatia
Montenegro
Latvia
Slovak Republic
Hungary
Czech Republic
Estonia
FDI stock per capita
Note: as of end-2017. Source: UNCTAD
GDP per capita based on purchasing power parity (PPP)
18
Notes: *Emerging & Developing Europe includes Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Hungary, Kosovo, FYR Macedonia, Montenegro, Poland, Romania, Serbia and Turkey. Source: IMF
27,358
9,283
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Emerging and Developing Europe* Ukraine
GDP per capita, current prices (Purchasing power parity; international dollars per capita)
Importance of sustainable economic growth
19
Note: 2001-2017 data for Montenegro and Kosovo, 1999-2017 data for Serbia. Source: IMF.
Albania
Poland Kosovo
Belarus
Lithuania
Slovak Rep.
Montenegro
Hungary
LatviaEstonia
Macedonia
Slovenia
Bulgaria
Serbia
Russia
Romania
Czech Rep.
Moldova
Croatia
Ukraine
0%
1%
2%
3%
4%
5%
6%
0 1 2 3 4 5 6 7 8 9
Number of years of real GDP decline (1996-2017)
Avera
ge r
eal G
DP g
row
th (
1996-2
017)
Contacts
20
Dragon Capital
+38 (044) 490-7120
phone
Centre For Economic Strategy
+38 (044) 492-7970
phone
European Business Association
+38 (044) 496-0601
phone