“Investment nanny” law alone is unlikely to improve business climate

21.07.21

The “investment nanny” initiative, which provides managers to help big businesses communicate with state officials, was launched in Ukraine with the adoption of the law on increasing state support for large investment projects. It came into force in February.

Five months later, it is still difficult to analyze its effectiveness in terms of enforcement. However, it is already clear that the law is ambiguously assessed by the business and legal community.

Some believe that it is a significant step to restore the investment climate, while others believe that it is another declaration that will have a zero or near-zero effect.

Among the most notable provisions, the law sets out to provide:

  • a list of forms of state support of investment projects, in particular, the provision of state- or communally owned land plots for use (lease), ensuring the construction of related infrastructure facilities at the expense of the state, local budgets and other sources not prohibited by law, the exemption from certain taxes and fees;
  • a possibility of choosing foreign law to regulate the investment contract;
  • a selection of a dispute resolution mechanism, including recourse to a court in Ukraine, mediation, non-binding expert assessment, national or international commercial or investment arbitration, including the seat of arbitration in a foreign country;
  • guarantees of compensation to the investor for losses caused by decisions of state or local self-government bodies that violate the rights of the investor;
  • guarantees against changes in legislation unless such changes improve the position of the investor.

The law also sets requirements for investment projects to receive state assistance and establishes the procedure for application submission.

On the one hand, ideally, additional guarantees, opportunities and privileges shall positively affect the investment climate in Ukraine. On the other hand, the adoption of this law, despite numerous progressive provisions, is clearly not sufficient to improve the investment attractiveness of Ukraine.

Some skeptics point to the lack of legal and political stability, the low level of confidence in the judicial and law enforcement systems and the insufficient level of protection of property rights.

The most notorious example is Motor Sich aircraft engine manufacturer, whose Chinese investors have been blocked from buying the enterprise for four years.

The new law does not specify details on providing guarantees to the investor. In particular, how shall the losses be calculated? Who and within what time frame shall compensate the investor for losses?

Even if a foreign court or arbitration is selected in the investment contract, disputes between investors and other public authorities that are not parties to the investment contract shall still be resolved in the courts of Ukraine, which could take a considerable amount of time.

Moreover, the guarantees of general investors’ rights have previously been included in other laws, yet they have been of little help. For example, law No.93/96-VR on foreign investment contains a number of guarantees for foreign investors, such as the continuous return of investment, guarantees of the business climate stability. Similarly, prompt, adequate and effective compensation to foreign investors for losses caused by public authorities was guaranteed, according to the old law.

In other words, a number of principles and guarantees were established by Ukrainian law long ago, but the lack of effective execution undermines their value.

Only time will tell how effective the implementation of the instruments provided by the new investment law will be. But it is more likely that the law itself will not drastically improve the investment climate.

No ‘investment nannies’ will be able to positively affect the economy of Ukraine and attract significant foreign investment without comprehensive changes to the “rules of the game.”

Such changes should include:

  • predictability of legal policy;
  • effective judicial practice;
  • effective fight against corruption;
  • constructive cooperation with international organizations;
  • predictability of the activities of state bodies;
  • Ukraine’s fulfillment of its obligations, including full payment of debts by state-owned enterprises.

Sergiy Benedysiuk, partner, head of Corporate and M&A, exlusively for KyivPost.