Ukraine Investment Environment: Current Problems And Government Policy

The research describes the development of Ukraine investment environment, analyzes the main existing problems of FDI in Ukraine, as well as suggests several measures to solve the mentioned problems.Since gaining independence in 1991, the total amount of the foreign direct investments (FDI) in January 1, 2010 reached the mark of USD 7.831 billion which is USD 583 million more, compared with the same period in 2009, when the total FDI amount was only USD 7.248 billion.According to the forecasts made by Ukrainian government the total amount of FDI in 2011 will grow up to USD 9.5 billion, and in 2012 will hit USD 10 billion.Main factors, stimulating FDI in-flow into Ukrainian economy are the following: Ukrainian market is one of the biggest markets in the world (46 million consumers) where the demand still remained not satisfied completely, substantial amount of underpaid but highly skillful workforce, the continuous development of the country's light industry, agriculture , technology and other important fields, developed infrastructure: rail, road and pipeline transportation network, sufficient mineral resources base, rapid large-scale process of privatization of state-owned enterprises, the rapid development of the real estate industry etc.In 1991, Ukraine has undergone profound changes in its economic and political system. A new Constitution promoted the development of democracy in the country. During the period of economic transition, Ukraine has successfully achieved some positive results in economic and industrial sphere, but production capacities continued to decrease, huge budget deficit keeps enlarging, the number of bankrupt enterprises increases and so on.So far, the foreign investors are most interested in the areas of investment (below given the data in USD and the percentage of the total): food industry (6.6240 billion, 20.4%), domestic trade (5.5770 billion, 17.2%), machinery manufacturing and metallurgy (3.5480 billion, 10.9%), fuel industry (1.8950 billion dollars, 5.8%). Most of these investments have been absorbed by Kiev, Dnepropetrovsk , Autonomous Republic of Crimea, Odessa, Cherkasy markets.In 2009-2010 FDI into Ukraine economy are mainly absorbed in the form of financial investments, a total of USD 3.5850 million (47.5%), investment in movable and immovable property– USD 2.1750 billion (28.8% of investment funds), securities investment– USD 1.1270 million (14.9% of investment funds).The largest non-domestic investors in Ukraine economy are: the United States (USD 5.8950 billion, 18.1%), Netherlands (USD 310 million, 9.3%), Russia (USD 2.8770 billion, 8.9%) , United Kingdom ( USD 2.4340 billion, 7.5%), Germany (USD 2.2950 billion, 7.1%), Cyprus (USD 1.9630 billion, 6.0%).From 60 - 70's of 20th century till nowadays the symbol of the modern world economic development has been the growth of multinational companies to the extent that some of them have become global companies.The list of the multinational companies which penetrated into Ukrainian domestic market includes: Coca-Cola, Samsung, Toyota, Nestle, Nokia, Metro Cash & Carry, Hewlett-Packard, British American Tobacco Company and others. Though it is worth to mention that large industrial companies such as Westinghouse Electric, Exxon Mobil or General Electric, have not entered the Ukrainian market yet.The biggest European and American companies continue establishing their enterprises and branch companies in Ukraine. Thus the effect of expansion of Ukrainian companies could be easily noticed. The most attractive industries for the multinational companies are food industry, domestic trade, financial services and pharmaceutical production.Ukraine's government policy towards the establishment of multinational companies in the local markets considers the economic environment (tax incentives, including the development of enterprises and regions, selective financial stimulation) to be strategic feature, its priorities is to enhance economic competitiveness, to ensure the development of domestic enterprises in order to avoid the "domestic producers" losing their competitiveness.the balance between foreign multinational companies and Ukrainian enterprises, the intensification of market competition will help both sides to meet consumer needs, improve the competitiveness of the national economy.Therefore, the most suitable for multinational companies in Ukraine are also military industry enterprises, aviation, space, rockets, metallurgy, chemicals, electronics, transportation, R&D, programming and web design.How to ensure the strong investment environment in Ukraine has become an important strategic issue for the government policy, and solving this problem depends on the social and economic development, the efficient integration of the country into the global labor division structure and modernization of the national economy.Nowadays, Ukraine has already established the Law system framework, which covers operations with FDI, including measures of control iinvestment activities ("investment activity", "foreign investment" and "protection of foreign investment in Ukraine", etc.), which are subject to the scope of legal norms of Ukraine. There are more than 10 presidential decrees, and resolutions and orders of the Cabinet of Ministers of Ukraine.Nowadays political situation in Ukraine is still in transitional stage, there is still lack of practical experience in the process of optimizing the investment environment, which has become a major negative factor, that limits the attractiveness of Ukraine to foreign investors, increasing investment risk.To improve the investment environment in Ukraine, the efforts should be focused on the economic and financial sectors. The main drawbacks of the national economy for the time being are: the privatization of Ukraine's state-owned enterprises by attracting foreign direct investment potential constraints, a substantial increase in the tax burden, regulatory standards and the complexity of the tax system, liberalization and low level of investor protection etc.In order to solve the problems and contradictions, which still exist in Ukraine's economy, the systematic measures focused on the improvement of Ukraine's investment environment and promotion of the normalization of the economic situation, increase the country's credibility in the international arena, thereby promoting foreign investment inflows and National bond investments into the global system.