What Are the Pros and Cons of Ukraine’s Business Field?

Yuriy PLOSKY, deputy general director of WICOM Technologies Ltd:

“The major downside to Ukraine’s business field is the gap between declared support for investors and the realities faced by businessmen who start to work here. The rift between declarations and reality is staggering. They promise investors a great deal but are in no hurry to make good on even half of their promises. This applies to almost everything. The government and ranking officials haven’t stopped lobbying for their own interests and assisting those businessmen whom they consider necessary or who can reciprocate. As a result, they thwart even active investors who specifically intend on doing business in Ukraine. Therefore, we will be able to talk about the importance of investment to the country only when some real efforts are undertaken along these lines.

“Tax legislation is a separate topic. There’s no denying that the Tax Code is perfect, and everything in it is correct. However, the existence of parallel bylaws that nullify many norms contained in the Tax Code overshadows all its positive aspects.

“The only advantage of the Ukrainian business field is the fact that most markets are unstructured and have plenty of niches that can be successfully occupied by Western companies. In this respect Ukraine is a businessman’s dream. What else could you want? We have a free market with little competition. But there is a drawback: government interference takes all the appeal out of the market. There would have been far fewer problems without it.”

Serhiy LYTVYNOV, general director of Minolta Ukraine:

“There is no place in the world where you can make as much as a company working in Ukraine. The earnings of companies in the West are no longer measured in percentage points but fractions of a percentage point, and the competition for these market shares is intense. This is our main advantage. Where, for example, can you find a deposit rate of 10%? Our life is dynamic, and it is possible to earn money, build a business, and create yourself. This is what’s attractive about Ukraine.

“As for the downsides, the hardest thing is explaining the specifics of the country to foreigners. This applies to all spheres of life. Ukraine is not what they imagine it to be. Notably, almost everyone has these misconceptions. Western businessmen are not accustomed to our rules; they have to reform and adapt to our conditions. It’s hard to name specific things that make us very different from the West. We are used to thinking that we have high taxes and brutal pressure from the authorities, but my business partners say that in many countries the situation is far more difficult. Foreigners are quite unperturbed by this. They are only amazed at how things are done. Our business sphere, with its corruption and foot-dragging, is the only potentially shocking experience, but it seems to me that it’s an open secret anyway.”

Serhiy LOKTIONOV, director of Kyiv operations of the Ukrainian-British JV Poltava Gas and Oil Company:

“I attribute the failure of most investment projects to the fact that investors were welcomed in the airport by the so-called ‘Ivan Susanins.’ Investors were viewed exclusively as a source of easy money. For this reason only a few of the numerous investment projects that were launched in the country have reached their goals. Investors are not aware of what they should know about our country.

“People who used to make decisions about the future of business did not care about the prospects and further growth of businesses. Almost nothing has changed. The reason is that our laws do not correspond to the usual European rules of doing business. All business regulations are contained in EU directives, and since we are headed that way, we have to bring our laws in line with them. Meanwhile, we are constantly inventing new things that no one needs. This incompatibility is our main problem.

“I believe that what drives foreign businessmen here is that we have no money but lots of unoccupied territory for doing business. They are in the opposite situation.”

Vadym BODAYEV, director of Kyiv operations of Sigma Bleyzer:

“Among the positive aspects I can single out the growing economy, which enables companies to work effectively. Rising GDP and expanding production are making it possible to significantly expand markets, and are proof of the potential growth of the population’s purchasing capacity. These are all signals for major investors: they see that it makes sense to invest capital here. The workforce is skilled and cheap enough, which makes it possible to open new plants here and relocate production to Ukraine. The third important aspect is that a transition economy can generate high profits, which no company can earn while working in the EU or in other stable economies. But this entails risks. All of this attracts attention to Ukraine. The new political situation is also attracting the attention of investors who have decided to start exploring Ukraine.

“There is a downside, though. Ukraine’s main problem is its unstable legislation, which enables the government to manually control the economy and intervene in market relations. The government’s handling of the meat and petroleum markets has alerted those who intend to open enterprises here. Tomorrow everything might change, causing the loss of capital. Another major problem is the talk of reprivatization. I can assure you that the privatization controversy that has been stirred up in parliament and the print media has caused some of our partners who were intending to start working here to mark time and see how it ends. Finally, political risks make it impossible for many companies or banks to invest in our economy. Our risks eclipse the customary risks they face in their home countries.”

Valeriy LANOVENKO, director of Microsoft Ukraine:

“After working for many years in various countries, I can say with certainty that complaints about the disadvantages of our business field and taxes are greatly exaggerated. There is a wealth of positive aspects that other countries lack. Proof of this is the intense interest of Western entrepreneurs in Ukraine. There are many such pluses, beginning with separate tax aspects, which are criticized most of all. Perhaps it is in the nature of businessmen always to want lower taxes. The 13% income tax is a plus. Of course, Ukraine’s social taxes are somewhat higher than those in other countries. But the positive aspects of the tax legislation certainly outweigh the negative ones.

“As for legal issues, the laws are somewhat behind the standards and realities of the present-day market and processes underway in the country. But this is a problem in most countries, where legislators cannot keep pace with the changing market. There is room for improvement and progress. A case in point is the copyright and intellectual property laws. They are way behind the demands of the market. Therefore, when a Western company enters our market, it should bear in mind such specifics of our legislation. The laws will catch up with the market, but in their own time.”

Serhiy CHERNYSHOV, president of LEMMA Insurance Company:

“The advantage of the Ukrainian insurance field for market operators is the current simplified taxation system, which provides for a 3% flat income tax. Companies that come to do business here must know that the Ukrainian insurance market has a surplus supply of traditional insurance services. They can succeed only by dumping prices or offering complex integrated and multifaceted products combined with investments.

“Speaking of the Ukrainian business field as a whole, its advantages are due to the fact that it has not been divided among individual players, which means there are many new opportunities. A major problem is the considerable pressure from law enforcement services and inspection authorities.”