Vitali Klitschko has a well-worn yet crowd-pleasing line he likes to use at conferences and business roadshows. The former world heavyweight boxing champion, who is now the mayor of Kiev, declares he personally will be “the bodyguard” of any investments that come into his city.
Enthusiastic applause – and endless requests for selfies with him – tend to follow. Though there are limits to the protection that even a bruiser of a mayor can provide in a national investment environment that is still evolving, reforms at the city level in Kiev give at least a fighting chance of improvement.
“Kiev is at the vanguard of making Ukraine more investor friendly,” says Susan Kosinski Fritz, regional mission director to Ukraine, Belarus and Moldova for US agency USAID.
Mr Klitschko has pursued open-government initiatives as a means of reducing opportunities for corruption. “It is our main goal to change the system, which is big, inflexible, old and corrupt. It’s the biggest challenge for us. Through transparency we destroy corruption. To do everything in the open, to make it understandable for everyone, for every citizen, for every investor, it’s good for us and it’s a great chance for us to present Kiev as a modern city,” he tells fDi.
“And that is why we are very happy to be in the family of the ‘Smart City System’ network. We [do this] together with [software company] SAP, which implements the system and that is why we felt the benefits immediately, because we received much more income in our budget. All income, all spending from our budget, is open for the public, journalists – every citizen; there is no space for corruption because corruption works in the shadows.”
A law passed in November 2016 set about slashing corruption in the murky area of Kiev's construction permits. This replaces a previously opaque and subjective ‘shared participation’ payment with a streamlined online process and a flat rate; applicants can now pay either 4% of general construction costs or by the number of square metres times Hrv400 ($15). There is also now an equal tax rate (also 4%) for residential or non-residential property builds.
It is hoped that the improvements to procedures can bring in support from multilateral institutions as well as private investors. “Having addressed the liability issues on the municipal side, we can now bring in the International Finance Corporation, European Bank for Reconstruction and Development [EBRD] and others in infrastructure deals,” says Oleg Mistuque, director-general of Kiev’s investment agency.
“On some projects that are not lucrative for investors, the city must step in. We’re looking at projects where international private investors could step in, along with the EBRD, etc, which would give a good return considering Ukrainian risk.”
Mr Klitschko acknowledges there is still a “complicated economic system” in Kiev, just as there is nationally. “Obviously, the conditions are very difficult,” he says.
Hearts and minds
Kiev also faces two challenges when it comes to investment promotion: changing the hard realities on the ground and changing investor risk perceptions. There is an acknowledgement that progress must happen at both layers in tandem. With the capital city set to host the popular European song contest Eurovision in May, millions of eyes will be on Kiev – an opportunity Mr Klitschko hopes to use to showcase the city’s changing face and boost tourism.
Of course, there is a big difference between deciding to spend a few days in the city to watch a live event, and investing millions of dollars in a long-term project. But the mayor says he will not stop fighting to change investors’ minds about the city.
“There are still people scared of investing in Kiev, who think it’s too risky. Poland is a good example for Ukraine. We were in a similar position [to Poland] 20 years ago, and now Poland is no different from Germany in terms of infrastructure and many other qualities,” says Mr Klitschko. “My job is to show we are serious and trustworthy partners.”