Back to the Cafe in Shanghai

Back in November 2009 I wrote an opinion piece in the magazine “Investgazeta” called “The Cafe in Shanghai”.  In the article I imagined hard-bitten investors sitting in Shanghai wondering where in the world to invest their money, from China to India to Germany to Bahrain to Brazil to the United Kingdom and elsewhere.  I said that: “For the sake of Ukraine I hope that the Ukrainian authorities – including whatever administration emerges after the presidential election next January [2010] – can implement the measures needed to persuade all investors, whether in the UK or in that cafe in Shanghai, that this week, this month, this year, Ukraine is one of the best places in the world to invest their money.”

Unfortunately, the news on the investment climate since then has been mixed.  The closely-followed Investment Attractiveness Index published by the European Business Association in Kyiv recently reported that investors’ confidence had fallen dramatically in the third quarter of 2011 from 3.39 to 2.56 – its lowest level since 2009, when Ukraine was feeling the impact of the global economic crisis.  Shortly afterwards, the annual World Bank Doing Business Report for 2012, published in October, placed Ukraine at position 152 out of 183 countries, ahead of Afghanistan at number 160 but behind Tajikistan at 147 or Sudan at 135.

The World Bank ranking makes clear that there have been some positive steps in Ukraine but that the country needs a more determined and consistent effort across tax policy, customs policy, regulatory policy and in the area of enforcement of contract and property rights.  This is all true: unfortunately, while a number of British businesses are keen to do business in Ukraine and we are always keen to support them, achieving a major upturn in inward investment into Ukraine will require a wholesale change in the way the rule of law operates here.  That will include ensuring that business interests with close links to the authorities are not able to use the institutions of the state to put pressure on competitors in order to secure assets.  I was pleased to hear recently Prime Minister Azarov announcing that he planned to take action against action of this type, known locally as “Raiding”.  This is good news – the key thing will be to demonstrate convincing results.  Without those results, international investors – whether in Shanghai or anywhere else – will continue to be reluctant to give Ukraine the attention it deserves.