Problems in creating a favorable investment climate in Ukraine

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MINISTRY OF EDUCATION AND SCIENCE OF UKRAINE

NATIONAL AVIATION UNIVERSITY

Management of Foreign Economic Activity of Enterprises Department

TERM PAPER

on the subject “International Economic Relations”

Topic: “Problems in creating a favorable investment climate in Ukraine”

Performed by:

student of the 2^nd year of study, FML 203

Parkhomenko Alexander Alexandrovich

Direction 6.030601"Management"

Checked by: Ph.D. in Economics,

associate professor Lytvynenko L.L.

Kyiv - 2016



CONTENT

INTRODUCTION

PART 1. THEORETICAL ASPECTS OF INVESMENT CLIMATE IN UKRAINE

1.1 The essence of investment climate

1.2 Factors that forming investment climate

PART 2. ANALYSIS OF CURRENT INVESTMENT CLIMATE IN UKRAINE AND WAYS OF SOLVING PROBLEMS

2.1 Dynamics of foreign direct investment (FDI) in Ukraine

2.2 Ways of improving the mechanism of attracting foreign investment in Ukraine

CONCLUSIONS

REFERENCES



INTRODUCTION

It is not a secret that economy in our country, nowadays, is suffering from different factors, like aggressive policy of Russian Federation, Crimean occupation, corruption, military actions in eastern part of Ukraine etc. That's why the problem of creating a favorable investment climate in Ukraine is rather actual. Due to such situation, investments - is one of the most important remedies in making our economy more prospective and stable, `cause international investments facilitate integration into world economy of receiving country by transfer of technologies, capital, management experience, innovations and so on.

Unfortunately, we have to admit the fact that Ukraine losses competition with other post-communist states not only in Europe but in Asia too. We can say that situation with investments in Ukraine is not obvious. Amount of investments is increasing, from one side. But we also should mention that Ukraine is still in the list of the most non-attractive states for foreign investors. Situation with foreign investments directly related to the internal economic situation in Ukraine. Ukraine is still exporting low cost goods and 70% of these goods are going to the former USSR countries. It means that internal transformation of Ukrainian economy has not happened. For this transformation we need foreign investments that will bring new technologies and will allow to produce goods competitive on the world market.

The purpose of this work is to determine the role of investment climate of Ukraine for the development of Ukrainian economy and to find ways for making this climate more favorable.

To achieve this goal, in this work I've tried to solve several tasks:

Ш to define factors forming investment climate;

Ш to analyze current features of investment climate in our country;

Ш to investigate the role of foreign investments in forming favorable investment climate in Ukraine;

Ш to find out the features of attractiveness of some industries in Ukraine;

Ш identify possible areas of change in the investment climate of Ukraine in the near future.

The research is based on the use of methods of economic and historical analysis, systematization of theoretical approaches to the procedures and methods of forming the investment climate, statistical method, comparative and structural analysis of the volume of domestic and foreign investments.

In this work I have been analyzed the current status and trends in the investment sphere in Ukraine. Here shown particular areas of increased investment activity in Ukraine.

In today's dynamic world investments play an important role. They can take the role of core economy, the driving force of national production. However, internal resources of Ukraine for finance in the national economy lacks the proper amount. In this situation, the question arises about the attraction of investment from other sources, including from abroad. Ukraine's economy has significant resource potential, which many investors may want to invest their money. Instability, inconsistency and lack of transparency laws do not allow full use of existing investment potential. The problem of attracting foreign capital becomes more actual due to situation in our state [9].

Foreign investments contribute to economic growth of the host economy and its integration into the global economy through the transfer of production capacity, transfer of technology, capital, management experience, skills and innovation. According to the Law of Ukraine "On investment activity" investments are all types of property and intellectual values invested in business and other activities, which resulted in creating profit achieved or social impact [8].

There are several classifications of investments, including;

Ш property of investment;

Ш nature of participation in investment;

Ш period of investment;

Ш investor ownership;

Ш regional nature of investments;

Ш level of the risk [13].



PART 1. THEORETICAL ASPECTS OF INVESMENT CLIMATE IN UKRAINE

1.1 The essence of investment climate

investment climate foreign

In modern literature, definition of investment is often simplified, `cause of focusing attention only on some of its essential features. The term "investment" affects many meaningful concepts. Under the “investments”, they often mean the purchase of shares or bonds with the expectation of some financial results. In broad sense, investments provide a mechanism needed for the financial growth and for the development of economy. In a more narrower sense investment means the realization of long-term capital investment in their own country or abroad in companies of different industries, business, innovation projects, socio-economic programs; and the investor - is a depositor - a person, organization or state that investing. So, public investments can be formed from the state budget or state funding sources; foreign - invested by foreign investors in other countries, foreign banks, companies; private, which formed from private sources, corporate enterprises and organizations [4;22].

We can also mention industrial investments that are directed to new construction or reconstruction, expansion and modernization of existing enterprises; and intellectual investments that are invested to create intellectual products. There can be control package of investments (direct investments that provide ownership of more than 50% of shares) and non-control (less than 50%). [12]

To have a full understanding of the nature of the investment, first we should consider the basic concepts, the structure of the investment process, its members, types of investors.

- Securities - a tool of financial investments that ensure the right to participate in the company as the owner, the right to buy or sell stake in company;

- Property investment - an investment in real assets of real or own property. Real assets - land, buildings and so on;

- Actual own property - is a gold, antiques, works of art and other collectible items;

- Options - are securities that give investors the right to buy a security or other asset.[10]

Investments may be:

· direct - a form of investment that provides direct ownership of the securities and property for the investor;

· indirect - set of securities or property values. This form of investment doesn't grant right to manage assets of the company.

Investments also differ by degrees of risk, namely high-risk and low-risk investments [23;3].

All above-mentioned types of investments and their volumes depend on the investment environment, i.e. the characteristics of the investment climate.

The term “investment climate” means the set of political, social, economic, organizational, legal and geographical factors inherent in a given country that attract or repel investors.

The main parameters that determine the investment climate in the country usually include political and social stability, the legal system, the economy, the system of receiving foreign capital, tax treatment, the value of customs duties and excise taxes, the procedure of registration of companies with foreign participation, etc.

The concept of "investment climate" reflects the degree of favorable situations, such as: [11]

Ш natural resources and the economy situation of the state;

Ш quality of the workforce;

Ш political stability;

Ш the level of development and infrastructure;

Ш quality of state management;

Ш property rights;

Ш macroeconomic stability;

Ш the level of monopoly in economy;

Ш the quality of the tax system;

Ш the level of compliance with the law and order;

Ш the quality of the banking system, credit availability;

Ш administrative, technical, informational and other barriers.

The most significant factors influencing the investment climate:

Ш macroeconomics;

Ш state debt;

Ш crime and corruption;

Ш taxes;

Ш intellectual property;

Ш bank system;

Ш monetary and trade policy;

Ш compliance with obligations mentioned in contracts.

These factors affect more negatively on the formation of the investment climate in Ukraine, so they require the development of complex measures for its improvement. Need a radical improvement of the investment climate, as long as it is not attractive nowadays.

Unfortunately, quick change of the situation is almost impossible. Many processes, such as ensuring reliable operation of the judiciary, fighting against corruption and other changes have long-term character.

A foreign investor with a large selection of countries where he has the opportunity to place capital, chooses the most favorable conditions, evaluates them, paying priority attention to these stable conditions and how long they persist.

Besides political stability, there are several important features like situation in the state economy and economic development policy. Constant growth of gross domestic product and constant growth of production (even small) - are pretty important factors.

Foreign investors also assess the level of prices for local raw materials, the degree of increase in wages, prices on local raw materials and so on. Important role is played by inflation and inflation expectations.

Infrastructure - also one of the important factors that affect the foreign investor.

The negative effect on the investment climate causes a lack of transparency, lack of clear, easily understandable and generally accepted methods of doing business in global markets and in the national economy.

Experts of Price Walerhouse Coopers (auditing company) have made the evaluation of the capital that have not come to the state. This evaluation method is performed on five criteria: the level of corruption, non-transparency of the legal system, economy and financial policy, accounting standards and relationships in business. For each of the criteria for every country was given a certain number of points - from 0 to 150 (where 150 - absolute opacity). [24]

This evaluation can be interpreted as: a country that intends to stimulate the inflow of foreign investments must create on its territory favorable conditions for investors, including lower tax burden.

Great value foreign investor pays on the specific country agreement on promotion and mutual protection of investments and how the country fulfills its contractual obligations. The most important thing - the presence of legal stability. Investor should clearly know the "rules of the game" and be sure that they will be kept unchanged.

To sum up the above said, we can conclude that the state investment policy must constantly respond to the economic state of the environment, continuously adapting to the changes not only in the country but also around the world. Particular attention should be given to the stability, predictability and transparency of the economy.



1.2 Factors that forming investment climate

Creating a favorable investment climate depends on several factors.

The legal environment is one of the most important factors in forming favorable investment climate. The experience of many countries shows that the balanced budget, modern technology and strong NBU not enough to guarantee normal investment activity. There should also be effective courts; contracts with legal force; fair laws; protection of property rights; predictable rules and procedures. Countries where legality is not the basis of life are remaining as "countries with great potential" and nothing more. The development of law is also the key to a successful fight against corruption.

Businessmen in all countries have problems with taxes, customs procedures and other requirements. But the attractive investment climate offers entrepreneurs certain rights and guarantees.

In this area, "clarity" is the key word. Each country creates its own legal system, and they are quite complex. But the lawyer should explain investor about risks, in simple examples, that he will meet. In other case, it will mean a lawyer mistake or a mistake or imperfection of laws that are poorly formulated because of political compromises or lack of time.

Availability of these features are very important for investors: [16]

Ш civil, contract and corporate law (corporate law in Ukraine is especially imperfect);

Ш ownership of land and property, because no one wants to invest if the law can be repealed;

Ш reliable system of land registration;

Ш the right to use land as collateral for a loan that gives the bank or lender;

Ш guarantees in case of insolvency of the debtor.

However, foreign investors identify existing barriers to investment in the Ukrainian economy, which form the unfavorable investment climate: unstable and excessive government regulation, strict legal system, corruption, high tax burden, problems in establishing clear property rights, low income, lack of physical infrastructure etc.

Creating a climate conducive to business development, strengthening rule of law, increase transparency - a key factors to give more economic opportunities for Ukrainians. Our state should also work on other key tasks.

Another very important factor in creating a favorable investment climate is the financial stability of the country. This factor increases the urgency of reform, so Ukraine should make the order in its economy, lower interest rates to attract much-needed investment.

Interest in Ukraine from US and other foreign investors - is essential, and the reasons for this are clear:

Ш Ukraine is a market of more than fifty million consumers;

Ш Ukraine occupies a strategic position in Europe, so products can be easily delivered to Central Europe and so on;

Ш Ukraine has the most fertile agricultural land in the world and is rich in other natural resources;

Ш Ukraine has a well-educated and skilled workforce (this fact comes from statistic about number of Ukrainian citizens moved to another states and received good workplaces (especially in IT sphere)).

But despite all this the actual foreign investment in Ukraine is low.

Ukrainian economy has significant resource potential. Especially I wanna mention land, forest and water resources; rich mineral resources, soils. More than 60% of agricultural lands are represented by black-earth of very good quality. In most regions in Ukraine there are sufficient quantity of precipitation, favorable temperature, solar energy - these facts allow to carry out business activity with minimal costs in different economical spheres. Besides that, human resources is one of the key competitive advantages of economy of Ukraine. Our country has one of the most favorable density indicators, comparing to other countries (for January 1, 2013 population density was 75.5 people per 1km²) [10].

So, many foreign investors, in theory, can and want invest their capitals. But, unfortunately, unstable situation and not transparent legislation in our country do not allow to use the whole potential. We should not forget about the problem of so-called net investment. Ukrainian economy is characterized as shadow at least on 50%.

Capital stocks in Ukraine are pretty worn. The degree of deterioration is about 76% (by the end of 2013); In industry - 57,3%; agriculture - 34,6%; transport communication - 96%. These indexes are growing every year, but this doesn't mean something bad for foreign investors, `cause even small technical upgrade, made by investors - leads to bigger productivity, revenues etc. That's why purchase of machinery, equipment, construction of craft buildings - are the most widely-spread forms of investments [7].

Sad but undeniable fact is that Ukraine is losing in this competition, and losing much. Foreign investments in Romania about four times higher per capita than in Ukraine. In Slovakia - five times higher. US foreign investment in Hungary higher per capita in the twelve-eighteen times than in Ukraine.

Many potential investors are interested in the large market of Ukraine, its generous resources, its skilled workforce, but are not in a hurry to make this step. Prospective US investors fear such negative factors of the investment climate as excessive regulation; complex, confusing and high taxes; constantly changing rules. All this creates a non-favorable environment for business and investment. Ukrainian businessmen call the same list of negative factors.

Economists like Grabenko O.V. and Gubskiy B.V. have defined other important factors of a favorable investment climate:

Ш Taking money abroad. As already noted, the exchange rate is one of the main economic risks that exists in the world, except for the euro area. National Bank of Ukraine, trying to defend the hryvna, has introduced a significant number of restrictions on the transfer of money abroad and from abroad. Worse, these restrictions are changing daily and this fact makes investors to reconsider their ideas about investing capitals in our economy.

Ш Labor legislation. Investor wants to know the principles of conduct with employees in the event of collapse of business and the volume of its obligations. The harder it is to stand off people from jobs, the more investor will be careful in hiring workers.

Ш Opacity of business. Unreliable annual reports on the balance of income and expenditure provided by Ukrainian companies. Banks were established western accounting standards, but they still remain unknown to many businesses. Of course, it inhibits the desire of foreign investors to cooperate with Ukrainian companies.

Ш The high level of crime. Crime threatens the security, welfare, health and even the lives of people. In economic terms, it is a major factor influencing investor behavior. He is forced to worry about protection, payment for this protection. It is clear that a safe environment for businesses is an important task of the government.

Ш Government intervention in business activity. Despite promises to develop a market economy, the Ukrainian government is constantly interfering in the affairs of business. This is particularly noticeable in the banking sector, where the impact on banks is obvious.

So it is clear that investment (especially abroad) - is risky. Some types of risks inherent in business (competition) are healthy, so they stimulate innovation, progress and prosperity. Other types of risk, with the efforts of the government or other organizations, can be removed, providing a favorable investment climate in Ukraine. To increase investors Ukraine must first analyze and eliminate the barriers to foreign investment. This will contribute to the Ukraine's prospect.

Companies when investing in a country also take into account secondary factors:

Ш cooperation in as more countries as possible;

Ш the level of competition;

Ш the level of import duties or transportation costs.

However, they will not invest if there will not be profits, moreover relatively higher than in other country. Why do companies invest in Ukraine if it is able to earn more in, for example, US, Germany or Singapore? So, Ukraine competes in the investment market with other world countries. And even when in Ukraine there will be created good conditions for investment, they may not be quite favorable compared with other countries. And this factor, unfortunately, must be taken into account.

Companies that plan to invest in Ukraine should understand that investment - is always a risky business, so it should be properly assessed.

The degree of commercial risk affecting the following points:

Ш demand for the product;

Ш creditworthiness of customers;

Ш the behavior of competitors;

Ш opportunity to export their products from Ukraine to other states.

These problems concern any investor.

Specific additional risks arising when investing in a foreign country, it is very difficult to estimate, but they must be taken into account. It is, for example, differences in mentality and culture of different countries. In most cases, the language problem is an additional complication.

Specific economic problem investing abroad is the risk associated with exchange rates. For example, the company will invest in dollars or euros and profits from Ukrainian investment receives in national currency. The question arises: what is the difference in rate of hryvna against the major currencies at the moment when the investor wants to get at least dividends? To reduce the risk of certain exchange rate was the introduction of the euro in the European Union. However, in other countries this type of risk is still present, in some states more, in others less.

Economic reforms - the third important factor in creating a favorable economic environment. It is not easy to implement economic reforms `cause one of the key requirements of economic recovery - an investment. On the one hand economic reforms - the key to improve investment climate, on the other - economic reforms require investment.

Table 1.1. Dynamics of main economic indexes in Ukraine [1]

Indicator	2011	2012	2013	2014
GDP(USD bln)	163,6	175,78	183,31	131,81
GDP growth (annual %)	5,2	0,2	0,0	-6,8
GDP per capita (USD)	2084,77	2094,11	2098,88	2081,04
Inflation, %	8,0	0,6	-0.3	12,2
Unemployment %	7,9	7,5	7,2	7,7
USD/HRN exchange (average)	7,97	7,99	7,99	11,89
Direct foreign inv. (USD bln)	43,8	49,4	53,7	57,0
External debt (USD bln)	34,7	37,4	38,6	37,5

European Business Association presented its data on investment attractiveness of Ukraine for 2009-2013. Was done a survey of 105 CEOs to determine the index of investment attractiveness - evaluation of investment attractiveness of Ukraine, detailed information described in Pic.1.1

Pic 1.1 Dynamics of investment attractiveness of Ukraine [3]

In case of the situation in Ukraine and on the Crimean peninsula, most businessmen refrain from investment in the Ukrainian economy. Situation in the country is very dynamic. Every day we can expect the most improvident events and their consequences. For the first time in the history of observations experts called no positive changes in the investment climate.

Ukraine's economy to foreigners - an object of world economy, in which can and should invest. Foreigners show great interest to invest in Ukraine's economy. The next logical step in attracting investment resources must be decisive action from the side of the recipient. Like solution problems with current situation, stabilization of hryvna to the world currencies, reducing the damaging effects of corruption etc.

Language and geographical barrier are increasingly losing its relevance, to the potential economic and social benefits. Some sectors of the economy dramatically need funding as investments. Even small financial resources may cause significant economic and social benefits.

PART 2. ANALYSIS OF CURRENT INVESTMENT CLIMATE IN UKRAINE AND WAYS OF SOLVING PROBLEMS

2.1 Dynamics of foreign direct investment (FDI) in Ukraine

The change in the investment climate of the state most clearly demonstrates the dynamics of foreign direct investment, which is considered as changing indicator in the level of trust and country rating.

Foreign direct investments (FDI) play a significant role in the economy of Ukraine. Comparing with them loans and credits of the state are less important.

We can add, that saturation of the economy of Ukraine with FDI is quite small, comparing with European countries and CIS (Commonwealth of Independent States). Thus, it must be mentioned that it is important to formulate economical attractiveness of Ukraine to foreign investors (TNCs).

Table 2.1. Dynamics of foreign direct investments (FDI) to Ukraine (2004-2015) [2]

	Years
	2004	2005	2006	2007	2008	2009	2010	2011	2012	2013	2014	1015
FDI, blns. USD	6.8	9.0	16.9	21.6	29.5	35.6	39.2	43.8	49.4	53.7	57.0	45.9
FDI growth rate, %	_	32.4	87.8	27.8	36.6	20.7	10.1	11.7	12.8	8.7	6.1	-19.5

According to the information in the Table 2.1, we can add, that amount of FDI increased up to 2013. It was able thanks to the privatization processes within the state boarders.

In 2014, FDI growth rate started to fall.

As of January 1, 2015 amount of FDI in Ukraine was 45 bln.916mln.USD. This quality is less on 19.5% than in 2014 (1072 USD per capita in 2015, in the previous year - 1328 USD). [2]

The flow of FDI was from 125 countries of the world. There are following states -investors: Cyprus, Germany, Netherlands, Russia, and Austria. They make up 65% of total FDI (Pic.2.1).

Fig.2.1. The structure of FDI to the economy [4]

The main cause of reduced amount of investments was in withdrawal of assets, mainly from banking sector.

TNCs do a great impact on the economy of Ukraine. So, there are global companies on some sectors of Ukrainian economy:

Ш Tobacco products - TNC “Japan Tabacco International”, “Imperial Tabacco Group”, “Philip Morris”, “B.A.T.”;

Ш Soft drinks industry - “Coca-Cola”, “Pepsi”, “Orangina Group”;

Ш processing of oilseeds and grains - “Bunge” (redemption of elevators, control of grain);

Ш milk processing - TNC “Groupe lactalis”, “Bel Group”, “Danone” (France); “Unimilk” (Russia);

Ш confectionery production - TNC “Nestle” (“Svitoch”, “Craft Foods”, “Corona”);

Ш production of household chemicals and perfumes - TNC Procter&Gamble (USA).

Mentioned above companies have built or bought specific production capacities, started to act as a part of Ukrainian regional households. They act with local companies (provisors of raw materials), have an aggressive advertisement and eliminate internal competitors.

In order to successfully compete with other countries in attracting foreign investment, you must first determine what the strengths and weaknesses of the investment climate in Ukraine exist.

To do this, it is advisable to use a SWOT-analysis - the method to identify the factors of internal and external environment, which in this case may affect the investment attractiveness of Ukraine.

Below I have made the analysis to understand weak and strong sides of Ukrainian investment climate for TNCs. I suppose that this analysis can help to understand what problems do we have and in what way we should move to increase the attraction of our state for huge companies, foreign investors and so on.

Table 2.2. Factors of the investment climate for the development of TNC in Ukraine

Strong sides	Weak sides
Resource potential. Attractive geopolitical location. The level of trust of foreign companies to Ukraine. Openness of the economy for foreign states. International greements about stimulation and protection of investments, exchange of regulations in the sphere of investment policy.	High inflation level. Corruption. Weak state support. Shadow economy. Monopolization of different branches of the economy. Lack of trust of foreign companies.
Opportunities	Threat
Minimal interference of the executive bodies to the activity of the enterprise. Availability of the law basis. Increase in manufacturing and service industries. Transparency in decision-making area. Attraction of investors. Reduced taxes. Availability of corruption. Stimulation of investments to the scientific, technical and innovative activities.	Probability of investment costs and income of them. The lack of an effective mechanism of protection of rights. Administrative control and bureaucratic obstacles. Pure transport structure and shortcomings of energy complex. Lack of competitive advantages in attracting of foreign investments and high tax rates. Difficult financial position of some enterprises. Low purchasing power and the lack of trust of buyers. Instability in economical and tax policy.

So, as we can see in the table, despite the fact that our state has very huge potential we can't realize it, due to some factors. Today in our country there is the problem of inadequate use of investment potential, which is associated with political instability, excessive state intervention in the regulation of foreign investments, constant changes in the current legislation, the large number of "gray incomes".

Foreign direct investment for us will only have positive effects. With foreign investment creates the opportunity to modernize production base, job creation, development of important sectors of the economy and so on. Thus, we save the national budget that can be spent on any other important sectors of the economy, social security.

2.2 Ways of improving the mechanism of attracting foreign investment in Ukraine

Ukraine has a large consumer market. In terms of industrial production Ukraine takes one of the leading places in the world, including ore mining and steel production. Promising are ferrous and nonferrous metals, which make up almost a quarter of all industrial production, mechanical engineering, chemical and petrochemical industry, light industry.

Scientific-Technical Complex Ukraine in scope and potential is one of the largest in Europe and second after Russia among CIS countries. The country has the status of nuclear and space power.

Therefore, to convert these favorable factors in the advantages of Ukraine in the creation of high investment attractiveness of the state, primarily the implementation of necessary measures.

First, to stimulate investment provides:

Ш reduce state regulation of business and ensure the stability of relevant legislation;

Ш eliminate ambiguity interpretation of regulations and complete judicial reform;

Ш improve the regulatory framework for property rights;

Ш complete administrative reform, to ensure publicity and transparency in decision-making bodies and eventually overcome bureaucracy and corruption;

Ш to establish effective corporate governance;

Ш promote the sophistication of capital markets, especially banking, securities and insurance markets;

Ш reduce the tax burden and provide stable political environment;

Ш step up efforts to establish a positive image of the state.

Among the main objectives, I should mention such as:

Ш liberalization of business activity;

Ш creating an attractive investment environment;

Ш completion of a stable regulatory framework which would be based on the principles of equality of all investors;

Ш improving the efficiency of bankruptcy procedures;

Ш increase the investment attractiveness of privatization.

Achieving these goals will contribute to:

Ш establishment of joint investment institutions;

Ш increased amount of foreign investment;

Ш development of non-bank financial institutions;

Ш creation of workplaces.

To effectively attract quality investments required permanent coordination of foreign investors. But this is not enough to achieve the necessary level of investment in the economy, to attract strategic investors. For these purposes in host countries, special organizations, agencies are made. Their work is that in different countries of strategic importance for the host country, placed special bodies. The general direction of the main body is set, located in the host country. Thus, a network of specialized institutions can be created, whose main task - finding and attracting strategic investors.

The main advantage of this method of active strategies to attract FDI is to have direct contact with possible investors. There are a number of studies on the effectiveness of such activities. Currently in Ukraine there is no single body regulating the activities of foreign investors - one of the main points, which will attract foreign investors and increase foreign direct investment.

An important tool of state regulation of foreign investments in Ukraine is a tax system. In this sphere we should intensify work to make the tax rules according to international standards. It is necessary to complete the first stage of the reform of the tax system by reducing the number of taxes and simplifying tax legislation, ensuring its stability, significantly reduce the tax burden on producers and introduce a tax to encourage investment.

It should expand the scope of fixed taxes and eventually transfer tax entrepreneurs at a single fixed tax.

An important step in the activation of foreign investment in Ukraine's economy will be the introduction of effective mechanisms of privatization of strategic foreign investors, which primarily include transnational companies (such as the US, Germany, South Korea, etc.).

Such TNCs are aimed at the widest possible use of a powerful resource potential and achieve profit from investment in Ukraine by adjustment of own production, dealer network and exports. These companies tend to enter into agreement with state authorities for a specified period of exploration and extraction of natural resources. For such investors the most important fact is political and social stability in the country, clearly defined their powers. These companies are sometimes willing to go to considerable costs for the future promotion of the market in case of improved investment climate.

Investments FDI through privatization as convincing international experience, is one of the most common and effective forms of foreign investment.

The majority of domestic firms after the selection of foreign direct investment becomes more competitive; asset sales to foreigners makes immediate cash flow and ultimately leading to further investment, reinvestment of profits and so on.

Great prospects in the deployment of investment, including foreign investors, has leasing operations.

Leasing offers several advantages over other types of investments. Leasing allows to provide efficiency and flexibility in solving production problems through the use of temporary facilities and not purchase the whole property. Leasing also provides access to the most advanced technologies. According to international experience, is accelerating the pace of scientific progress is initiating a rapid development of leasing.

For the development of this kind of investment necessary to create a network of leasing companies and specialized funds.

An important step towards to collective infrastructure investments are becoming private pension and mutual funds, which will involve public funds. These funds have to become an effective instrument for collective investment in priority sectors of the economy.

Expedient is also opening offices in Ukraine of first class foreign banks, the establishment of commercial banks with foreign capital and private investment banks.

Improving the investment climate in Ukraine is largely driven by the creation of a reliable system of insurance against the risks of foreign direct investment, which today is sometimes difficult to predict. For this goal law regulations of such risks should be done.

One of the most promising foreign capital in Ukraine should be a network deployment of investment funds and companies. In this context, great importance is the flow of venture capital. Venture capital associated with financing innovations and scientific progress. It is different from other sources of funding by three elements: investment usually takes the form of participation in the authorized capital of the company; investment is long-term; investors are active in the company, which they finance.

The main sectors in Ukraine that need investments more than others are agriculture, energy, transport and communications. This capital required for the implementation of scientific and technological developments of Ukrainian scientists and designers.

We also should strengthen legal guarantees for foreign investors. Without that, it would be hard for Ukraine to compete even with their closest neighbors in the former Soviet Union to attract foreign investment.

To attract large-scale foreign investment in Ukrainian economy in the form of venture capital we should do a lot of work.

The starting point of state regulation of foreign investment is to determine regulatory purposes. The general objectives of state regulation of foreign investment are:

Ш procedures to grant favorable investment climate;

Ш intensification of foreign investment.



CONCLUSIONS

The theme of this term paper, which is devoted to research investment climate in Ukraine, is very actual.

In the course of the research we concluded:

1. Under the investment climate they usually mean state of the legal, financial, socio-economic and socio-political environment within the country, which leads to a particular degree of attractiveness for investment.

2. Nowadays, scientists, experts, academics give negative assessment of the investment climate in Ukraine. This requires a deep scientific study of the investment climate, develop and implement a number of measures to improve it.

3. The investment climate in Ukraine today are still insufficient, and therefore control the investment process in the country is extremely difficult.

4. Flow of investment processes, their character, intensity and effectiveness, as well as management depends on the investment climate formed in the country.

5. Foreign investment - it values invested by foreign investors into objects of investment activity according to the legislation of Ukraine for profit or achieving social effect. Foreign investments are made in the form of direct and portfolio investment. The main forms of foreign direct investment is the establishment of the enterprise or its structural unit; purchase of shares; reinvest profits from foreign investment in the recipient country; inter-corporation transfer of capital.

6. The basis of motivation of foreign investors for the placement of capital abroad are: comparatively lower costs (labor costs, especially the tax system, subsidies, quality of infrastructure, including financial markets); the possibility of sales (local market characteristics, including its growth potential, international openness); the culture, language, political risk in the country. The effects of foreign investment in the country should be considered in terms of positive and negative effects. By means of minimizing the negative impact of foreign investment is economic regulators of national policy.

So, the investment climate is unfavorable for Ukraine to encourage foreign investors to invest their financial resources in the national economy. Therefore, to improve the investment attractiveness of Ukraine in this work were suggested measures to improve the tax climate and reform of tax incentives. They should provide incentives modernization of funds, implementation of new technologies and increased investment in innovative projects and support small business investment activity. An important area of work in the context of improving the favorable tax climate for business is to continue to simplify the tax reporting and accounting, as well as reduce the tax burden on the business sector.

We can conclude that the state investment policy must constantly respond to the economic state of the environment, continuously adapting to the changes not only in the country but also around the world. Particular attention should be given to the stability, predictability and transparency of the economy.

Foreign direct investment for us will only have positive effects. With foreign investment creates the opportunity to modernize production base, job creation, development of important sectors of the economy and so on. Thus, we save the national budget that can be spent on any other important sectors of the economy, social security.

So, main sectors in Ukraine that need investments more than others are agriculture, energy, transport and communications.

With all the staff which is mentioned above we can achieve the goal which is in making investment climate of Ukraine more favorable.



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