Veretelnyk O. O., Beschastna D. O., Rieznik M. A.

Oles Honchar Dnipropetrovsk National University

INVESTMENT ATTRACTIVENESS OF UKRAINE

The funds of foreign investors enable a state to develop in all spheres of socio-economic activities and solve many current problems. While Ukraine witnesses the growth of foreign capital, according to many domestic economists the investment attractiveness of Ukraine in the world is quite low.

According to the State Statistics Committee, a direct investment is an investment that means long-term relationships that reflect the long-term interest of foreign investors in the economy of another country. The direct investment means considerable influence of non-resident investors on the management of a resident enterprise in order to make a profit or achieve a social effect.

Therefore, to achieve long-term interest of foreign investors, the country should have an attractive investment climate in the long run.

The current economic situation in Ukraine complicates investment activities to a large degree. The volume of investment at present does not provide for the economic growth and the representation of the current situation. Any investor always considers the correlation between the size of a possible profit and the risk. Unlike the participants of the direct sale and purchase of goods, the investor intends to invest their capital expecting future results and should be certain about the reliability of transactions that they plan to conduct.

The number of countries that invest in the economy of Ukraine, as of January 1, 1996 amounted to 94 states, at the beginning of 2011 there were 125 of them. Direct foreign investment in Ukraine as of October 1, 2011 made up 48.47 billion U.S. dollars, it increased in comparison with the volume as of October 1, 2005 by 4.6 times and amounted to more than $ 1000 per person. Such countries as Cyprus, Germany, Netherlands, Russia, Austria, France, Great Britain, Sweden, the United States, Virgin Islands, Italy, Switzerland and Poland are the main investors in Ukraine. As of 01.10.2011 they give more than 88.6% of total direct investment in the economy of Ukraine.

As you can see from the table 1, there has recently been an increase in foreign direct investment in Ukraine. The negative factor is that the U.S. direct investment decreased in 2011 incomparison with 2005 by 13.2%, or 142.6 million dollars. This is quite negative for Ukraine's economy, because the U.S. is an economically developed state that owns substantial capital.

The rates of investment growth from such economically developed countries as the United Kingdom, Germany and France have been very low. This results from the significant risks of the loss of capital due to the economic and political instability in Ukraine in the long run.

The investment attractiveness of Ukraine in the world is quite low. The magazine "Newsweek" has conducted a research assessing the investment attractiveness of 100 countries. To make the rating there has been used the specific assessment methodology, estimating 5 categories: education, medical system, quality of life, economic dynamism and political environment. Ukraine has taken the 66th place, being inferior to such countries as Kazakhstan, Belarus, Azerbaijan, etc.

Table 1. FDI in Ukraine for the period of January-October 2005–2011, million dollars

Сountry

Year

2005

2006

2007

2008

2009

2010

2011

Cyprus

1456,5

2186,2

4957,6

8534

8201,7

9579,1

12089,1

Germany

628,2

5700,7

5759,3

6826,9

6580,8

7005,7

7287,5

Netherlands

589

1364,3

2173,7

3253,7

3814,2

4085,7

4914,4

Austria

350,5

1659,4

2010,5

2564,9

2564,8

2667,3

3447,8

Russia

555,6

925

1343,2

2097,4

2061,5

2956,3

3439,5

Great Britain

1046,8

1520,2

1820

2329,2

2348,5

2284,7

2504,4

France

-

763,2

1025,6

1266,1

1589,6

1751,6

2222

Sweden

-

-

876,7

1260,3

1256,4

1732,2

1755,6

Virgin Islands

708,8

786,9

943,2

1248,7

1340,5

1425,5

1561,4

USA

1224,6

1399,5

1421,1

1522,5

1381,5

1218,4

1082

Other countries

2972,2

3606,4

4525,7

6717,8

7452,1

7808,4

5190,3

Another reason why investors are afraid to invest in Ukraine is the high tax burden on the economy, mainly on the capital. During 1998 – 2007 the tax burden on the capital in Ukraine decreased from 51.99% in 1998 to 25.48% in 2007, particularly by reducing the profit tax rate from 30% to 25% in 2004. The tax burden on the income from capital reached its highest in 1998, when it amounted to 51.99%. No EU state has had such tax burden.

The profit tax gives about 70% of earnings from the taxes on capital. European countries have been reducing this tax to create stable conditions for attracting foreign direct investment and for the accelerated economic growth.

To attract investors economically developed nations are trying to reduce the state control of economic processes, simplify the tax system, stabilize the political environment in the country, they adopt the laws which attract more foreign investors, i.e., these countries assure the investors that they will make the right choice investing their capital in the economy of this state.

The unstable political situation in the country has quite a strong influence on investors. When a non-resident investor can see that there is an anti-democratic struggle for power, the persecution from the authorities and the constant change of laws and the government in the country, they consider all these factors to be an additional risk that may affect the profitability of their investments. In this case, the investor tries not to jeopardize their capital and looks for other countries with more stable political environment.

Ukraine has certain advantages which enable it to have the foreign direct investment and attract certain investors. Firstly, it is its resource potential, secondly, its high level of higher education, thirdly, the fact that the value of labor in Ukraine is significantly lower than in other industrialized countries. Ukraine is located in the center of Europe and many trade routes pass through it.

The study has identified the main reasons that prevent foreign investors from investing their capital in Ukraine, suggested the ways to improve investment attractiveness by eliminating the major factors that hinder investments. Improvement of the investment attractiveness of Ukraine using these methods will make it possible to attract a greater number of foreign investors in the future.