Investment Reform

 

April 6, 2011 the Investment Reform in Ukraine was considered and adopted involving of the President of Ukraine Viktor Yanukovych.

The main objective of this reform is:

• active attracting of foreign direct investment in Ukraine;
• creating a positive investment image of Ukraine in the world;
• positioning of Ukraine as a financial, political and business center in Eastern Europe.

The President of Ukraine established an experimental platform for practical customizing of the new economic approaches, where the key principles are the project management, the personal responsibility, the priority of investment funds over the budget funds, the partnership with the best global companies, which are executed ny new team which is not labeled by the old bureaucratic experience.

 

This platform is the State Agency for Investment and National Projects of Ukraine.

The Agency will be the main responsible institution for the investment reform, aiming to:

• drastically  change the procedure of managing  of the state development expenditure;
• limited usage of the state resources as an instrument for the partnership with the private capital;
• creation of infrastructure required to attract investment;
• creation of the conditions for a drastic incensement of the investment flows.

The result of the reform   is expected to  be a radical improvement of the investment climate and the formation of the high-quality investment proposals. Another important direction of reform activity is implementation of the National projects – the so-called “growth points” of our economy, attracting of investment resource centers.

“National Projects” are large-scale economic projects having the strategic importance for the entire sectors of Ukrainian economy targeted at resolving of the specific social problems or radical economic renewal of the entire regions.

“National Projects” are aimed at the improving of the quality of life, energy conservation, enhancing of the human resource level and dramatic increasing of the inflow of the direct investment.

Each of these projects actually means creation of a new industry in Ukraine. These are LNG-industry, waste processing sector and renewable energy sector, etc.

The state has assumed the function of preparation of start-up projects (financing of feasibility study, land allocation, elimination of regulatory obstacles, and in some cases – also provided the state guarantees).

National Projects are promising and profitable business projects. Their implementation involves the systemic changes in terms of market access; doing business, simplify procedures for obtaining permits and their minimization, transparency of the legal framework.

Over 80% of funds for the “national projects”, even taking into consideration their social component, will be involved from the market.

We are convinced that implementation of the national projects, (there are 11 projects at the current moment) is inexhaustible. Now we are under way of creating of new national projects .

The structure of the Investment reform provides 5 key blocks.

1. InvestPROPOSAL – foresees the designing of the mechanisms for participation in Ukrainian investment projects on the international investment market.

National projects are the essential constituent of this component.

An important mechanism here is the “Stock of investment projects“. It covers preparation and promotion of the investment proposals from various forms of ownership on the investment market. The basic idea is that due to the Stock Ukraine carries out projects on the international market.

2. InvestINFRASTUCTURE providing creation of a system of institutions and mechanisms  facilitatating  investor’s actibity in Ukraine.

The mechanism of implementation of the investment projects by “One-stop-shop” principle will be introduced till the end of this year. It will enable to significantly reduce for the investors “time of access to market”, provide support for the investment projects and their post-investment maintenance.

The Ukrainian Development Bank (UDB) is a key element in optimizing of the usage of the budget expenditures development, performed on repayable basis. The UDB is intended to become an effective mechanism for the managing of the budget expenditures development that can change the procedure of usage of the numerous state target programs (STP).

The Regional Development Fund (RDF) has to ensure the implementation of the comprehensive plans for the regional development and manage costs in their implementation of the state budget. The main function of the RDF will be support of creation of the integrated business plan of development of the “investment model” of each region of Ukraine based on the analysis of the economic capacities, natural and human resources, geographical location, etc.

The Fund of financing the project documents. The Fund aims to solve the systemic problem of lack of the quality investment projects on the market (prepared according to international standards). We often hear a lot of various interesting ideas, even the investors are interested in their development but very rare these ideas implement into a high-quality project documents. This is a unique tool because it can help us to solve a very complicated problem of the project documents financing for state, municipal and private investment projects, but on a repayable basis.

Particular attention is paid to the government guarantees. The Government guarantees should be used only to provide strategic directions of economic development and implementation of National projects. They should not be a hidden budget deficit, that’s why they should be targeted only at the projects which are implemented on a repayable basis.

 

3. InvestPARTNERSHIP – the new mechanisms of cooperation of the state and private partners for mobilization of the state assets and multiplication of the state development funds.

Creation of a practical mechanism for the Public-private partnership (PPP). It is probably the only way to upgrade the strategic state assets and to start their modernization. This is also a way of efficient usage of the state property without any loss of the property rights.

The main logic of the implementation of the PPP involves the development of the professionally prepared proposal by the state. That is why this process should be administrated by the PPP Centre whose primary purpose is to find the effective ideas.

 

4. InvestMARKETING – implementation of a coordinated marketing campaign that will significantly improve the investment attractiveness of Ukraine in the world.

The Section of the Invest MARKETING prepares an annual International Investment Forum of the high level.

Topics of the Forum should be limited by the range of the specific economic subject matters that are of the interest not only for Ukraine but also for the states of European region and the world, but in the areas where Ukraine has significant competitive advantages or influences the global (regional) processes.

The forum is held involving the heads of the states, members of governments and parliaments, heads of leading companies and investment funds.

Holding of  Road Show in the world’s financial centers. Ukraine has still never used this very efficient mechanism for attraction of the investment because of the lack of quality offers. Implementation of the “national projects” provides creation of portfolio of proposals from 4 to 6 for autumn 2011. The road show will be held since this autumn. The presentation will take place in 25 world financial centers (for example: Singapore, Tokyo, Seoul, London, Dubai and others) for the leading members of the investment environment and companies, sovereign wealth funds, officials.

Also Media campaign will be held through a substantial positioning in the global leading business periodicals and branding in the world’s leading electronic media.

InvestMARKETING involves launching of the unified informational 5-language Webportal, which will contain updated information about Ukraine, its investment capactities and opportunities for the investment. Integral part of the portal will be an interactive electronic version of the “Stock of the investment projects” that has been mentioned earlier.

A separate unit – «Invest Ukraine» (the Investment Promotion Agency – the Agency of the FDI attraction)similar to the most ot successful countries  will be established for the implementation of the system of information and marketing investment activity in system of the Agency  .

 

5. InvestCLIMATE – development of an appropriate legal framework which is in many cases initiated by the President of Ukraine or is under consideration in Parliament:

The Law of Ukraine “On Industrial Parks,” The Law of Ukraine “On National Projects”, Law of Ukraine “On investment activity” (ammendments), Law of Ukraine “On state guarantees Administration”, Law of Ukraine “On the Applying  of International accounting standards.”

 

Expected Results

We believe that the Investment reform within the next 3 years will provide accession of the value of the investments up to $ 80 billion, to improve the sovereign ratings of Ukraine (Doing business the World Bank up to 100 from 145 rank; the Global Competitiveness Report World Economic Forum up to 50 from 82 rank) and reduce the annual outflow of the FDI from 15% to 10%.

All the components of the Investment reform are based on the international practice but are adapted to Ukrainian conditions.

Moreover– the term of the deployment of the Investment reform is quite short and can be implemented by the end of the year.

Implementation of the new approaches within framework of the investment reform breaks the fixed system of corruption, bribery and parasitism on the state budget. So we are faced with a clear task to break the range of this system and not only due to the strict punitive measures, but due to the system solutions abolishing the core conditions for corruption.