It would seem that Ukraine has been slipping in its efforts to create a business-friendly environment, if a recent rating by the United States-based think tank Heritage Foundation in cooperation with The Wall Street Journal is to be believed.
According to the Foundation’s 2007 Index of Economic Freedom, which was released on Jan. 16, Ukraine scored 53.3 on a 100-point scale, ranking 125th out of the 157 countries rated.
According to Kyiv Post, a score between 50 and 59 percent means that a country’s economy is “mostly unfree.” Higher scores label a country as “free” while lower indexes indicate that a country’s economy is not “free,” and that significantly more barriers face businesses and entrepreneurs.
In this year’s 13th annual Index of Economic Freedom, Ukraine scored 2.2 percentage points lower than last year, partially reflecting new methodological detail that was used in research, the Heritage Foundation reported.
In the 2006 Index of Economic Freedom, Ukraine was ranked 99th out of 161 rated countries.
The Foundation rated Hong Kong, with an overall score of 89.29, the most economically free country in the world, with the United States trailing behind in fourth place at 81.98.
Ukraine’s fellow former Soviet Republic Estonia came in 12th place with 78.13. Even lackluster Armenia did surprisingly well – 69.43 – earning it a claim as the world’s 32nd most “economically free” country.
In addition to Ukraine, Russia (120th), China (119th) and Poland (87th) all fell into the rating’s “mostly unfree” category.
The Index rates countries’ levels of business, monetary, financial, investment, trade, labor and fiscal freedom. Freedom from government and corruption, as well as the strength of property rights, is also measured.
This year, Ukraine scored well in trade freedom with “an average tariff rate that is low.”
The Foundation rated Ukraine’s fiscal freedom as high, with a relatively low personal income tax of 15 percent, top corporate income not exceeding 25 percent, and overall revenue from taxes not compromising a high percentage of the nation’s gross domestic product.
However, Ukraine was considered weaker in freedom from government, monetary freedom, investment freedom, property rights, and freedom from corruption.
“The overall freedom to start, operate and close a business is restricted by the national regulatory environment,” according to the Foundation’s findings.
Investment freedom was assessed as very low due to complex regulations, corruption and weak protection of property rights, which are major deterrents to foreign investors. The country’s financial system was estimated as small but growing, with more purchases in the banking and insurance sectors.
“Ukraine has 166 licensed banks, most of which are very small, including 28 wholly or partially foreign-owned banks. Despite 338 registered insurance companies, the insurance sector is small. Capital markets are underdeveloped and poorly regulated,” the report reads.