OECD Investment Policy Reviews: Ukraine 2016 (eBook)

Table of contents 7
Acronyms and abbreviations 11
Executive summary 15
Assessment and recommendations 17
Ukraine’s policy framework for investment 17
The role of FDI in the economy of Ukraine 19
The status of infrastructure and finance 20
Ukraine’s investment regime and the OECD National Treatment instrument 21
Responsible business conduct and the OECD Guidelines for Multinational Enterprises 22
The road ahead 25
Box 1. Policy recommendations 27
Box 2. Recommendations on responsible business conduct 29
Chapter 1.The role of FDI and multinational enterprises in Ukraine’s economic development 31
Introduction 32
Recent developments of the Ukrainian economy 33
Table 1.1. Percentage of real GDP per sector (System of National Accounts 2008) 34
Table 1.2. Trade profiles – Ukraine compared to Poland and Turkey 35
Figure 1.1. Structure of Ukrainian exports 36
Ukraine is not integrated in global value chains 37
Box 1.1. Global value chains and investment policy: key OECD messages 38
The role of foreign direct investment in Ukraine’s development 40
Recent FDI trends 41
Box 1.2. Ukraine’s foreign direct investment statistics 42
Figure 1.2. FDI Inflows, outflows and net inflows (2004-15) 43
Figure 1.3. FDI inflows (gross) as a percentage of GDP in Ukraine, Poland, and Turkey for selected years 44
Figure 1.4. FDI inward stock per capita, 2014 44
Table 1.3. Value of announced Greenfield FDI projects 2004-14 (USD million) 45
FDI by country of origin 45
Box 1.3. The Cyprus* – Ukraine investment relationship 46
Figure 1.5. Inward FDI stock by country of origin (October 2015) 47
Table 1.4. Outward FDI stock positions of selected OECD countries excluding SPEs 48
Figure 1.6. Employment and turnover by foreign affiliates from OECD countries in Ukraine (2012) 49
FDI in Ukraine by sector 50
Figure 1.7. Inward FDI stock by sector (October 2015) 50
Table 1.5. Major foreign M& A deals in Ukraine, 2005-15
Table 1.6. Ownership of Ukraine’s largest companies by turnover (USD million) 52
Notes 52
References 54
Chapter 2.The policy framework for investment in Ukraine 57
Box 2.1. The Policy Framework for Investment 58
Overview of national investment-related legislation 59
Establishment procedures and permits – complex but progressively simplified 60
Efforts to reduce administrative burden are producing results and should be pursued 61
Problems persist with ownership registration for land and other forms of property 63
Enforcement of contracts is affected by the poor state of the judiciary 64
Expropriation has been rare 65
State-owned enterprise reform is a priority, privatisation programme gaining new momentum 67
New policies are being enacted for the purpose of creating a more transparent and efficient environment for public procurement 71
International investment agreements 74
Further specification of investment protection provisions would help to better reflect government intent 75
Box 2.3. Common features of international investment agreements 75
Table 2.1. ISDS cases against Ukraine 78
Box 2.4. Two approaches to specifying and limiting the FET provision 80
Box 2.5. Public scrutiny of international investment agreements 81
Treatment of domestic and foreign investors 81
Ukraine’s international investment agreements are starting to be used by policy-makers to foster investment liberalisation, sustainable development goals, and responsible business conduct 82
Ukraine’s legal framework for investor-state dispute settlement 84
Box 2.6. Claims for reflective loss 85
Box 2.7. Transparency of arbitral proceedings 88
Table 2.2. ISDS cases by Ukrainian investors against their host states 89
Decisions about review and possible renegotiation of existing investment treaties should take account of their temporal validity 90
Table 2.3. Ukrainian international investment agreements and their temporal validity 90
Investment promotion and facilitation 93
Persistent political and macroeconomic instability have endangered promotion activities 93
Institutional framework for investment promotion 93
Box 2.8. Reforming an investment promotion agency – the case of Chile 95
Dialogue with investors 96
Box 2.9. Addressing problems faced by businesses: The Business Ombudsman Council of Ukraine in practice 98
Investment incentives and the tax system 100
Inventory of incentive regimes 100
Special economic zones 102
Industrial parks 103
Evaluation of the cost of investment incentives 104
VAT refund 105
Ongoing tax reforms 106
Benchmarking Ukraine’s business environment 107
Figure 2.1. Distance to frontier: Significant progress 107
Figure 2.2. Average distance to frontier: A regional benchmark 108
Figure 2.3. Ukraine: Distance to frontier across indicators (Doing business 2016) 109
Notes 110
References 121
Chapter 3.Infrastructure, financial development and natural resources in Ukraine 125
Little progress with regard to concessions, but reform ongoing 126
Box 3.1. Key challenges for developing Public-Private Partnerships 128
Attracting investment in infrastructure is one of Ukraine’s key priorities but there are still legislative and other regulatory constraints on private sector participation 129
Electricity generation, transmission and distribution 130
Natural gas 131
Transport and communications 132
Figure 3.1. Ukraine’s score across the six dimensions of the Logistics Performance Index (2014) 133
Telecommunications 137
Financial sector development 138
Banking 139
Table 3.1. Ukraine: Structure of the banking sector 140
Figure 3.2. Ownership structure of the banking sector 140
Box 3.2. Legal and regulatory framework of access to finance: highlights from the SME Policy Index: Eastern Partner Countries 2016 142
Score for the legal and regulatory framework of access to finance (sub-dimension 6.1) 143
Insurance 145
Natural resources 147
Notes 149
References 153
Chapter 4.Ukraine and the OECD National Treatment instrument 155
Box 4.1. The Declaration on International Investment and Multinational Enterprises 156
Exceptions to the National Treatment instrument 157
Exceptions at national level 158
Measures reported by Ukraine under the National Treatment instrument for transparency 160
Measures at the level of national government 160
Rationale for the existing restrictions and plans for phasing them out 170
Ukraine’s position under the instrument of the OECD Declaration on Investment Incentives and Disincentives 171
Ukraine’s position under the instrument of the OECD Declaration on Conflicting Requirements 172
Ukraine’s FDI Restrictiveness Index 172
Box 4.2. Calculating the OECD FDI Regulatory Restrictiveness Index 172
Figure 4.1. 2015 FDI Indices by country 174
Figure 4.2. Ukraine’s regulatory restrictiveness index by sector (2015) 174
Notes 175
References 178
Chapter 5.Supporting responsible business conduct and the OECD Guidelines for Multinational Enterprises in Ukraine 179
Understanding responsible business conduct 180
Understanding the OECD Guidelines for Multinational Enterprises 181
Box 5.1. International convergence and coherence on RBC expectations 182
Box 5.2. How responsible agricultural supply chains can contribute to sustainable development 183
Ukraine’s National Contact Point 184
General policies for promoting responsible business conduct in Ukraine 185
Policies in specific areas covered by the OECD Guidelines for Multinational Enterprises 189
Disclosure 189
Human rights 191
Employment and industrial relations 195
Environment 197
Combating bribery, bribe solicitation and extortion 199
Box 5.3. Promoting integrity in the private sector – anti-corruption strategy of Ukraine 201
Consumer interests 202
Science and technology 203
Competition 204
Taxation 205
Notes 207
References 207
Annexes 213
Annex A.Ukraine’s exceptions to national treatment in the meaning of the OECD Declaration on International Investment and Multinational Enterprises 213
A. Exceptions at the national level 213
I. Investment by established foreign-controlled enterprises 213
II. Official aids and subsidies 214
III. Tax obligations 214
IV. Government purchasing 215
V. Access to local financing 215
B. Exceptions at the territorial subdivisions 215
Annex B.Measures notified by Ukraine for transparency in the meaning of the OECD Declaration on International Investment and Multinational Enterprises 216
A. Measures reported for transparency at the level of national government 216
I. Measures based on public order and essential security considerations 216
II. Other measures reported for transparency 218
B. Measures reported for transparency by territorial subdivisions 219
C. Private or mixed monopolies 219
At the national level 219
I. Public monopolies 219
II. Private monopolies 219
III. Concessions 219
Annex C.Statistics 221
Table C.1. Estimated turnover of OECD affiliates in Ukraine (2012) 221
Table C.2. Estimated number of employees of OECD affiliates in Ukraine (2012) 222