Ukraine
Executive Summary
Ukraine offers a large consumer market, a highly educated and cost-competitive work force, and abundant natural resources. The government continues to advance legislation to capitalize on this potential. In March 2020, parliament passed a law to lift the decades-old moratorium on the sale of agricultural land, effective July 1, 2021. The World Bank projects that the establishment of the agricultural land market could attract $5 billion in investment. Ukraine has continued to pass necessary legislation on intellectual property rights (IPR), including a new patent law bringing Ukraine’s patent regime closer in line with EU patent conventions. The government also launched a new centralized body to speed up the review and issuance of patents. On March 30, 2021, the Rada lifted a block on large privatizations and is looking at ways to facilitate the privatization process.
Ukraine’s Association Agreement with the EU gives the country preferential market access and is accelerating its economic integration with the bloc. Many U.S. companies have found success in Ukraine, particularly in the agriculture, consumer goods, and technology sectors. Ukraine is an agricultural powerhouse and the world’s second-largest grain exporter. Ukraine has long had a skilled workforce in the IT service and software R&D sectors. In recent months the Ukrainian government has increased its targeted recruitment of high-level IT talent into Ukraine.
Despite Ukraine’s potential, foreign direct investment (FDI) remains low. Ukraine experienced a net outflow of investment in 2020. In addition to the pandemic, foreign investors cite corruption, particularly in the judiciary, as a key challenge to doing business in Ukraine. To attract foreign investment the government adopted a new law in early 2021 granting considerable financial and operational incentives to companies that make large investments in Ukraine.
The April 2019 election of President Zelenskyy raised hopes that Ukraine would make the breakthrough reforms necessary to unlock its vast economic potential. The government has worked to protect the gains of recent years and to implement many of the administration’s promises. Vested and corrupt interests, however, have resisted and even succeeded in rolling back some of the critical reforms enacted since the 2014 Revolution of Dignity.
Since 2014, Ukraine passed numerous reforms, including the launch of a number of anti-corruption institutions. In fall 2020, however, the Constitutional Court of Ukraine invalidated key provisions of laws underpinning two of these institutions — the National Anti-Corruption Bureau (NABU) and the National Agency on Corruption Prevention (NACP). These rulings have rolled back key provisions of prior IMF programs, preventing new disbursements of IMF, World Bank, and EU concessionary loans. The Constitutional Court is also reviewing cases challenging the constitutionality of the High Anti-Corruption Court (HACC) and the Deposit Guarantee Fund. The government and parliament are negotiating with international partners on legislation to reverse the effects of the rulings.
| Measure | Year | Index/Rank | Website Address |
|---|---|---|---|
| TI Corruption Perceptions Index | 2020 | 117 of 180 | http://www.transparency.org/research/cpi/overview |
| World Bank’s Doing Business Report | 2019 | 64 of 190 | http://www.doingbusiness.org/en/rankings |
| Global Innovation Index | 2020 | 45of 131 | https://www.globalinnovationindex.org/analysis-indicator |
| U.S. FDI in partner country ($M USD, historical stock positions) | 2019 | $596 | http://apps.bea.gov/international/factsheet/ |
| World Bank GNI per capita | 2019 | $3,370 | http://data.worldbank.org/indicator/NY.GNP.PCAP.CD |
9. Corruption
Ukraine has numerous laws to combat corruption by public officials, and following the Revolution of Dignity in 2014, the government launched new anti-corruption institutions, including the National Anti-Corruption Bureau (NABU), to investigate corruption by public officials, the Special Anti-Corruption Prosecutor’s Office (SAPO), the National Agency for Prevention of Corruption (NAPC), and the High Anti-Corruption Court (HACC).
In fall 2020, Ukraine’s Constitutional Court struck down certain provisions of the Law of Ukraine about NABU and the Law on Corruption Prevention (in particular, provisions on e-declarations and on the powers of the National Agency on Corruption Prevention (NACP) related to their verification) as unconstitutional. The Constitutional Court is also considering cases challenging the constitutionality of the HACC and the Deposit Guarantee Fund. These rulings have been criticized by the government as corruptly influenced; they have also created new obstacles to new disbursements under the IMF, World Bank and EU assistance programs. The government and parliament are in discussions with international partners on draft legislation that would restore those aspects Ukraine’s institutional anti-corruption infrastructure struck down by the Court.
The government began drafting legislation to criminalize the falsification of customs records, and is preparing to launch an agency-wide reform initiative to detect and address internal corruption. Beginning in 2017, the State Border Guard Service (SBGS) reformed ten of its border crossing points, including five along the Polish border and five international airports, using a personnel and process reform model that has been expanded to SBGS Command Staff promotions and is being considered within the State Customs Service. The National Police of Ukraine is also redesigning its approach to addressing corruption nationwide and within its ranks by standing up a new General Inspectorate Unit.
Foreign businesses, including U.S. companies, continue to identify corruption in many sectors as a significant obstacle to FDI. Reform of public procurement has been a relative success story, with the introduction of the online ProZorro system providing transparency for most procurement. Parliament is currently reviewing draft legislation to reform the defense procurement process, pending amendments made to the Law on State Secrets, which will declassify the process. The energy sector has seen some improvements, including reforms at the large oil and gas SOE Naftogaz, but participants in the sector continue to raise concerns. Government interference in the corporate governance of Naftogaz is a persistent concern and has now spread to Ukrenergo, Energoatom, and Ukrhydroenergo, among others. There are allegations of corruption at specific SOEs in a variety of sectors, as well as allegations that external corrupt forces interfere regularly in SOE operations.
There are several NGOs actively involved in investigating corruption and advocating for anti-corruption measures.
Resources to Report Corruption
NABU, established in October 2014, is the appropriate resource for the reporting of high-level corruption.
Government of Ukraine contact for combating corruption:
National Anti-Corruption Bureau
3, Vasyl Surikov St, Kyiv, Ukraine 03035
Hot-line: 0-800-503-200
info@nabu.gov.ua
Corruption Reporting eForm: http://nabu.gov.ua/povidomlennya-pro-kryminalne-pravoporushennya
Contact at Transparency International:
Mr. Andriy Borovyk
Executive Director
Transparency International Ukraine
37-41 Sichovykh Striltsiv Street, 5th floor,
Kyiv, Ukraine 04053+38(044) 360-52-42
borovyk@ti-ukraine.org
office@ti-ukraine.org
10. Political and Security Environment
Russia’s military aggression entered its eighth year in the eastern oblasts of Donetsk and Luhansk, as did its illegal occupation of Crimea. Residents of Russia-controlled areas are subject to political violence at the hands of Russia’s proxy authorities. Civilian casualties in eastern Ukraine from landmines, shelling, and small arms fire have decreased steadily since 2017, but continued to occur. Infrastructure for water, gas, and electricity remained at risk of conflict-related damage, and fighting routinely disrupted maintenance of aging facilities, thereby threatening essential service delivery to populated areas. Russia-led forces control approximately 400 km of Ukraine’s international border with Russia through which Russia supplies and equips its proxy forces, which receive logistical and command support from Russian Army soldiers. Russia continued its illegal occupation of the Autonomous Republic of Crimea and the City of Sevastopol, and reports of political violence, repression, and religious persecution continue.
Since the 2019 Ukrainian presidential and parliamentary elections, the new administration’s efforts to take measurable steps toward peace, anti-corruption initiatives, and integration into Western institutions have faced push back from vested interests However, the government has demonstrated its commitment to reform in the face of adverse court decisions overturning key reform legislation. The president has rallied his party’s majority in parliament to adopt laws to address many of these court decisions, but more needs to be done. Protests in support of judicial reform drew up to 10,000 people in late February 2021.