Corruption Still Holding Ukraine Back, Investors Say

KIEV, Ukraine -- Ukraine's government has fallen short of promises to clamp down on corruption, a survey of foreign and local investors showed, undermining efforts to return the former Soviet republic's economy to pre-crisis levels.

The survey published on Thursday by the European Business Association, a lobby group, found its members were less pessimistic about the investment climate in Ukraine.

"We are glad that the government has not lost the will to continue reforms," Tomas Fiala, EBA President and managing director of Dragon Capital brokerage, told reporters.

"(But)... there have been no improvements and there even may have been some deterioration in the areas of corruption and the ability to defend one's rights in courts."

Ukraine struck a $15 billion deal with the International Monetary Fund last July, pledging to cut its budget deficit by raising energy prices for households, overhauling the pension system and implementing other painful reforms.

According to EBA data, 79 percent of those surveyed now saw the dynamics of fighting corruption in Ukraine as "rather unfavourable" or "definitely unfavourable". Eighty-four percent had the same views regarding to judicial reforms.

A recent U.S. State Department report, meanwhile, cited businesses saying customs officials routinely seek bribes to expedite the clearance of goods, and the European Union said last month it had suspended some financial aid on transparency and accountability grounds.

Net foreign direct investment in Ukraine grew 5.6 percent last year to $4.7 billion after dropping by more than 20 percent a year in 2008 and 2009.

Andrey Bespyatov, head of research at Dragon Capital, saw net FDI at $5.5 billion this year." If there are real reforms and the issues raised by the investment community are addressed I think this figure has good upside potential," he said.

Ukraine's economy, dominated by steel exports, grew 4.2 percent in 2010 after shrinking by almost 15 percent in 2009. The government expects growth of 4.5 percent this year.

Ukraine ranked 134th among the 178 countries covered by Transparency International's Corruption Perception Index last year, putting it on a par with Nigeria and Zimbabwe.

Source: TrustLaw