AmCham Ukraine: “The Rotten Court System is the Main Reason why FDI has Kept Away”
During the quarantine period, the American Chamber of Commerce in Ukraine conducted several surveys to find out the impact of Coronavirus on business in the country. According to Ukraine’s COVID-19 Business Impact Survey, conducted together with the chamber member-company Deloitte at the beginning of quarantine, 65% stated that their organization would not be able to fulfill their 2020 business plans. A joint survey with the AmCham member-company Citi Ukraine on doing business after lockdown showed that 64% of members saw a decrease in revenue, 80% of companies managed to retain all their employees, and 49% of companies plan to decrease investment in the country.
“We are all in this together – civil society, the business community, and the government. We all feel the significant impact of the spread of the virus and need to remain united to be strong. The Ukrainian government has taken measures to safeguard the Ukrainian people as much as possible during the COVID-19 pandemic. Still, due to the lockdown, a number of businesses will not be able to fulfill their business plans this year. We see that the pandemic affected many industries, for example, aviation, tourism, and hotels, transport, and media. There are still a lot of things the government should do to help the business community on the ground,” Andy Hunder, President of the American Chamber of Commerce in Ukraine (AmCham Ukraine) and Treasurer of AmChams in Europe, told Forbes Georgia.
According to Hunder, in a recent survey, conducted jointly with Citi Ukraine, companies highlighted that it is vital to keep people safe and reopen the economy in general; continue the bold reform agenda: ensure the rule of law, a strong legal and court system, fight corruption, improve investors' and creditors' protection rights, put an end to oligarchic privileges and monopolies; support and help SMEs; consider economic stimulus and incentives to spur investment as well as maintain employment.
What would you suggest the government do to speed up economic recovery after the pandemic?
The top three highest priorities for business now include cooperation with the IMF to ensure macroeconomic stability, combating the COVID-19 pandemic to save more lives, and economic recovery to protect employment. In order to make Ukraine's economy demonstrate accelerated growth after the COVID-19 outbreak, boosting Foreign Direct Investment is a must. AmCham Ukraine developed a strategic document entitled '10 Steps for Ukraine's Economic Growth', which can help achieve this goal. The steps include: the rule of law; macroeconomic stability and cooperation with the IMF; fair, predictable and transparent tax policies and a decrease of the shadow economy; secure investment and property rights, including intellectual property rights, and land reform; increase of governmental spending on healthcare significantly and enhancement of food safety; export promotion and improvement of trade facilitation; development of vital infrastructure; transparent privatization; reduction of talent outflow and Ukraine's energy independence.
What are your expectations regarding how the global pandemic will change the culture of businesses?
At the beginning of the lockdown, AmCham launched the ‘Leadership in Times of Crisis’ project on social media to support businesses during these challenging times for Ukraine. We wanted to show how AmCham member companies were turning challenges into opportunities, what they were doing for their employees, and how they help the Ukrainian people. I spoke to more than a hundred CEOs of companies from different sectors. All of them emphasized the importance of proper, sincere communication with their team and with clients, the importance of showing support and empathy, and the ability to handle uncertain situations. The crisis shows us that together we can overcome uncertainty to build a bright future. Obviously, after Coronavirus we will live in a new world; where building trust takes place online, where one has to adjust to unique circumstances, and reacting quickly will be crucial.
There seems no end to the global pandemic yet, but still every country is trying to get over it with minimum economic impact. What would you suggest to businesses in this regard, what are the steps that are required to be taken in order to return to pre-pandemic economic conditions?
According to our latest survey on doing business after the COVID-19 lockdown in Ukraine, the anticipated time when companies' revenue will return to "normal" differs, but the vast majority forecast the end of 2020 to the beginning of 2021 with 17% in Q3 2020, 24% in Q4 2020, and 16% in Q1 2021. Digitalization of processes and implementation of online services, returning to "business as usual" as soon as possible, saving workplaces, and retaining talent are the main focuses of AmCham member companies' post-COVID-19. I think that for every business nowadays, it's vital to be agile, adapt quickly, and be helpful to their customers. I always say that we live in truly historic times. All businesses are learning how to work differently nowadays and to adjust quickly by creating new business models and introducing smart strategies. It's time to be ready for both small and big challenges every day – take new opportunities, use new channels, create online services, and new products. Coronavirus has shown us that the future is tightly connected to digitalization – from remote working to digital payments. Businesses today have to build relationships online, sell and buy online, communicate, and create online. It's a new reality. A successful company today is the one that adapts to the new reality and gets maximum opportunities out of it.
What are the main concerns for investors willing to invest in Ukraine?
The rule of law is a critical factor in fostering Ukraine's economic development, enhancing business and the investment climate. The rule of law is critical for business, as it serves as a crucial precondition for investors' trust and creates the confidence to put significant capital into Ukraine. It is also the number one concern for investors. No one should be exempt or above the law. Investors are not looking for privileges; they merely want justice. According to Ukraine's Business Climate Survey, conducted by the American Chamber of Commerce in Ukraine in partnership with Citi Ukraine in October 2019, 74% of businesses said that the courts are the biggest obstacle for business in Ukraine. 85% of companies believe that fixing this will greatly help to improve the business climate in Ukraine, thereby attracting Foreign Direct Investment.
While talking about your three Ps – prevent, publicize and punish – you have been claiming that work remains to be done on the final P – punish, and that's why you have been supportive of the establishment of an anti-corruption court and consider it as extremely important. The High Anti-Corruption Court of Ukraine was established on 11th April 2019. How did it change the business environment of Ukraine, and what was the number of appeals by U.S. companies to the above-mentioned court?
The rotten court system is the crucial reason why FDI has kept away, and this has led Ukraine to become the poorest country in Europe. There is a definitive correlation between the rule of law and prosperity: countries that adhere to principles of good governance attract and develop top-calibre companies that are better equipped to make long-term investments, create jobs, pay taxes, enact high labour and environmental standards, and put down roots in the communities where they operate. We look forward to the President of Ukraine taking responsibility and pushing for the rule of law. The High Anti-Corruption Court of Ukraine must show tangible results. But apart from that, AmCham Ukraine members have a view on four crucial elements of judicial reform that will help to unleash a new era of transparency and fair justice in Ukraine. Namely: the work of the High Council of Justice and the High Qualifications Commission of Judges of Ukraine should be renewed; the independence and the integrity of judges should be strengthened; courts should be screened, finally a Specialized Independent Judicial Body and a new International Arbitrational Institute should be established.
What are the main advantages of Ukraine compared to other countries in the region? What makes the U.S. interested in Ukraine? What are the most attractive business sectors for U.S. investors in Ukraine, and how will the picture change after the pandemic?
"Brains and grains" are the most valuable assets Ukraine possesses. Ukraine's geographical location also gives a lot of advantages, as it is located at the crossroads of the most important directions of world trade transport routes in the Eurasian region. According to our survey, Ukraine's top five most attractive characteristics for investors are talent, low labour costs, considerable access to the European market, low production costs, and the growth rate of businesses. Also, by European standards, Ukraine has enormous land resources. Over 70% of the country's total area is agricultural land. Ukraine also possesses a significant amount of rich fertile black soil representing 25-30% of the world's reserves. According to the results of 2019, agricultural products hold leading positions in the ranking of goods exported from Ukraine. According to our Business Climate Survey, Ukraine's most attractive industries to invest in are agriculture, energy, and renewables.