Two years of foot-dragging on reforms is endangering Kyiv’s relations with
its most committed trade partners. That includes France, with whom Ukraine did
more than $1.2 billion in business last year, making it Ukraine’s 13th biggest
trading partner.
Ukraine’s investment environment is better than two years ago, after
disgraced ex-President Viktor Yanukovych abandoned office, according to French
economic and business representatives.
Corruption
But three issues remain unresolved, they said: corruption, timely refunds
of value-added tax and the lack of rule of law.
“You need growth of the market, you need progress in the fight against
corruption,” Vincent Falcoz, French economic counselor to Ukraine, Belarus and
Moldova Falcoz, told the Kyiv Post.
And to have a vision of medium- to long-term growth, investors need to see
that there is “respect for the rule of law” within the country, he added.
None of the 160 French companies working in Ukraine left the country last
year, while one entered in 2014.
Biocodex enters Ukraine
Biocodex, a French pharmaceutical company, opened an office in Kyiv a yeag
ago, reporting €1.5 million in revenues. Previously it had worked through a
distributor.
Aude Bocle, Biocodex Ukraine country manager, said the decision to enter
the market was a difficult one given the unstable environment, but that the
future potential gains seem to outweigh the short-term costs.
“Since we were thinking about Ukraine in the long run, we chose,” the
option of setting up operations without the distributor at the end of October
2014, Bocle told the Kyiv Post.
Problems
Although the company hasn’t encountered problems with Ukraine’s customs
service as many foreign firms do, Biocodex feels the weight of the weak
economy. Bocle said that since pharmacists have low salaries, they are
motivated to accept bribes from local pharmaceuticals to prescribe their
cheaper drugs.
But the issue of unfair competition takes a backseat, according to the
Franco-Ukrainian Chamber of Commerce and Industry’s 115 members, to getting VAT
refunds and having access to dividends.
Chamber president Thomas Moreau said that eight members are still owed a
total of Hr 200 million (roughly $8 million) in refunds.
“Unfortunately, even if we spend a lot of time with the French ambassador,
if we speak a lot with the ministry, and send a lot of letters… we still can’t
solve anything today,” Moreau said.
This, of course, creates an even more negative image.
“When you’re not sure 100 percent that you will get a VAT refund on your
investment, it’s just impossible,” Moreau said. “At this moment, when Ukraine
is waiting for new investors, they have to do something, because it’s a real
problem to develop a business in Ukraine.”
French businesses also spend a lot of time in court with tax authorities who initiate litigation on spurious grounds.
“They start making some problems and then they immediately start to tell
you that we will open a criminal case against the general manager and the chief
accountant,” Moreau said. “And you don’t see the end of this conflict.”
Falcoz often attends trials in which French enterprises are involved.
“Honestly, when we’re present, many judges are more professional,” Falcoz
said. “The behavior of some of the judges changes dramatically.”
Progress
But Jean-Jacques Herve, vice president of the French chamber of commerce in
Ukraine, says that corruption has declined.
"It really has, and we can see it,” Herve told the Kyiv Post.
Moreau’s strategy for 2016 is to set up a better business image of Ukraine
in France. “The image is very poor actually because, for them, Ukraine is war,”
he said.
But Herve said graft is the biggest obstacle and still the number one
complaint. “Corruption is still huge and we really need an improvement in that
field. We feel really uncomfortable with the pressure of strong corruption,” he
said.
Falcoz says that all sides must apply pressure to reform the country: the
government, business, international financial institutions and the public.
“Countries are like people - we don’t change without pressure, and the
pressure in Ukraine has never been so huge,” Falcoz said.
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