EBA Investment Attractiveness Index Sees First Sharp Drop in Two Years

6 October, 2011

PRESS-RELEASE

EBA Investment Attractiveness Index

Sees First Sharp Drop in Two Years

Investors’ confidence in the Ukrainian market slumped to 2.56 in third quarter 2011, down from 3.39 the preceding period. The increased uncertainty stems from a combination of global economic worries and Ukrainian political and economic imbalance, according to the EBA Investment Attractiveness Index.

The European Business Association released the most recent results of its quarterly survey, which reflects investor sentiment and perception of Ukraine’s business climate, on October 6. The poll encompasses assessments provided by 122 CEOs of EBA member companies.

Investor confidence during third quarter 2011 sank to its lowest level in two years, equaling the score posted for third quarter 2009.

Key findings

The Index vividly points to a decline in Ukraine’s investment attractiveness:

- The current investment climate was ranked at 2.3.

- Changes to the investment climate during the last 3 months were pegged at 2.5 points.

- Further predictions and expectations of the investment climate received 2.7 on average.

When evaluating dominant market tendencies, respondents flagged negative trends on stream. Top investor concerns included continuous pressure from government agencies (12%), the detrimental impact of corruption (11%), taxation barriers, VAT refund lags and overall market instability (9% each).

Negative Changes in Investor Confidence

Third Quarter 2011

The rate of positive market trends and changes mentioned is still modest, feeding worries about a further economic slowdown. The downside of the businesses’ uncertainty, the absence of positive changes adverse index indicators points to the insufficient efforts made by Ukraine’s government to keep internal policies accommodative and to implement efficient structural reforms.

As the investors’ confidence evaporates, we clearly see that the policy steps already taken by the government should be more tangible and investor-friendly.

Positive Changes in Investors’ Confidence during the III quarter 2011

In addition to the generally unenthusiastic sentiment toward the nation’s business climate, more than half those surveyed (51%) feel that a further global economic recession is either a certainty or probable, heightening fear of a double-dip. Taking into account that the Eurozone’s markets are already losing their lustre, the risk and extend of a slowdown is a real question for Ukrainian and foreign investors.

Double dip expectations revealed by EBA’s latest Investment Attractiveness Index

The 13th quarterly installment of the EBA Investment Attractiveness Index unambiguously points to the necessity to deploy more business-friendly policies and implement structural reforms in order to offset further weakness and return the country’s market to normal. The measures taken should be matched by policies to restore growth and investor confidence.

Anna Derevyanko, EBA Executive Director:

“The downward trajectory of EBA Investment Attractiveness Index – from 3.39 points in the II quarter of 2011 to 2.56 points in the III quarter - is an alarming signal feeding worries about unprecedented uncertainty among Ukrainian investors’ community.

The outer reasons of the adverse Index level are intertwined with global market turbulence and concerns over the double dip fuelled by US and Eurozone’s debt crisis. It is still difficult to gauge precisely what will be the further scenario of global markets development on the cusp of recession. The inner reasons point to the lack of stable and efficient domestic policy measures and overwhelming impact of corruption.

To make the investment climate in Ukraine robust, the Government’s top priority is to rehabilitate the trust and confidence of investors’ community, as business is the driving force of country’s economy, which fuels and keeps the economy expanding. To gear up Ukraine’s potential and to attract FDI as a near-term goal, the efforts and the policy steps made by the Government should be closely allied and consolidated with the proposals voiced by business community, state and business should go hand in hand. All in all, we can use volatile times to reveal new opportunities and to make the most of them!»

Tomas Fiala, Chief Executive Officer, Dragon Capital, EBA President:

“Three months ago, when announcing a flat reading of the 2Q Index, we voiced fears that a correction was on the cards for 3Q as we observed a slowdown in reforms, very few tangible results trickling down to business from recently approved laws and little progress being made on the most pressing issues including the rule of law, corruption, deregulation, and fiscal pressure. Unfortunately, the final figure came in much worse than anticipated, depressing the Index to levels last seen in the recession year of 2009. A deteriorating international environment also played a role, obviously, and we do not expect it to improve any time soon. Under the circumstances, there remains very little room for further policy errors.“ 

Olena Zhytnyk, Marketing Director, InMind:

“The results of the most recent quarterly report of the EBA Investment Attractiveness Index mirror the stream of criticism and negative sentiment of the investor community, as well as the absence of any positive changes within the economic or legal sectors. The index’s slump also points to fears of a global double-dip recession that are prevalent among poll respondents.”

INFORMATION:

The Investment Attractiveness Index of Ukraine: The evaluation of the Investment Attractiveness Index of Ukraine is conducted by the European Business Association with the support of the research company InMind. The index is based on regular monitoring of the investment climate of Ukraine by the first persons of the EBA member-companies. Details of the Investment Attractiveness Index is available at the Association web page http://www. eba. /projects/index. html

European Business Association (EBA) - the premier organisation for foreign business in Ukraine - brings together over 850 European, Ukrainian and international companies. The EBA was established in 1999 as a forum for discussion and resolution of problems facing the private sector in Ukraine. This initiative of business people was supported by the European Commission. Being a non-profit Association of legal entities, the EBA sees its core mission as representing the interests of European and domestic investors in Ukraine, and improving the investment climate has been the EBA’s major concern since the moment it was founded. Please visit our web-site for additional information www. eba. .

The priority tasks of the EBA in 2011 are: reducing obstacles for investment, support for different instruments promoting economic integration with the EU and facilitating positioning of Ukraine as a country attractive for investment and business partnership.

Details on www. eba.

InMind, www. inmind. - full-research agency, a representative of the international network Factum Group in Ukraine. InMind provides a full range of services in marketing research and consulting: quantitative and qualitative market research, consumer product, and innovative analysis and research audit. InMind specialists have over 18 years experience in the Ukrainian market research.

For additional comments please contact Maria Savchenko EBA PR and communications manager by telephone: +38 (0, +38 (0, or by e-mail: maria. *****@***