Mizik Y.I.

Kharkov national academy of municipal economy, Ukraine

Ways of region investment attractiveness facilitation in developing countries

Region stable economical development is based on sufficient investment recourses attraction aiming at production reconstruction, basic production assets re-equipment, and new technologies implementation. Investment allows promoting national economic new sectors development and stimulating functioning ones. Investment climate is known to affect investment objects selection both enhancing investment risks minimization and individual enterprises investment attractiveness empowering regionwide. Investment climate can be determined as historical environment existing on the certain territory and investment processes administrative management within the territory.

Investment climate is influenced by region investment attractiveness factors and subjective state investment policy. The former consists of phenomena and processes not being managed statewide and determined region territorial particularities. The latter is investment processes efficient administrative management. Objective factors are due to the following factors: geographic location, natural resources potential, economical and social development, political situation, demographic status, infrastructure, ecological safety and environment pollution extent. State investment policy involves legislation base elaboration, its upgrading and updating, privileges and preferences provision for investment activities stimulation statewide and developing investment service infrastructure for successful practical investment projects application. [3] Thus, natural fostering efficient investment conditions having not been created, current economical-organizing mechanism regarding enterprises investment attractiveness facilitation is to be developed. The economic-organizing mechanism is assumed to actuate investment processes statewide, attract sufficient foreign and domestic investment recourses into national economic sectors to foster Ukrainian sustainable social-economic development. Proper acting mechanism can be developed according to essential principles of special investment regime implementation in Special Economical Zones (SEZ) and Territories of priority development (TPD).

The first SEZ and TPD appeared in the world since the beginning of the 50s to the end of the 60s. [1] Currently more than thousands of these zones and territories have been located worldwide. The first SEZ and TPD appeared in Ukraine in the end of the 90s in order to attract foreign and domestic investors’ free financial resources into priority economical activities kinds, increase national enterprises investment attractiveness, provide employment growth and labour remuneration. Moreover, TPD have gained special validity in investment attractiveness emergency. TPD is a territory within the city or the district where fostering efficient investment conditions have not been created. Today 11 SEZ and 9 TPD have been functioning in Ukraine. Special investment regime to be provided the implementation of financial, custom, fiscal, administrative privileges and preferences has been applied for investors implementing their projects in SEZ and TPD. Financial privileges have been provided in the form of cut rate for public utilities and cut leasing charge, budget assignments and preference state credits. Fiscal bonanzas are connected with investment activity taxation stimulation  via  getting free from such taxations as profit tax, real estate tax, land tax, investment tax, ad valorem tax and etc. or tax abatement provision. Custom preferences have been implemented for simplification of order for pursuing foreign-trade operations and canceling export-import duties. Administrative privileges are afforded by authority for simplifying the process of foreign companies’ registration and custom office regulations of foreign investors.

Two conceptual approaches to SEZ and TPD creation have been developed: territorial and functional feature. [2] Despite common principles of providing privileges and preferences located on isolated territory firms and companies can implement special investment regime according to territorial approach. In accordance with functional approach privileges and preferences are applied to economic activities certain kinds regardless enterprises location. Approach selection depends on achieving SEZ and TPD creation aims. Territorial approach is applied to solve problems of depressing region development. Functional approach can be implemented for basic economic adjustment. The former approach, i.e. territorial approach, can be visualized by creation of China SEZ and TPD, and the latter (functional approach) can be illustrated by mentioning offshore zones.

All the SEZ and TPD are alike in achieving their creation targets, but they commit different functions. Scholars have highlighted about 30 types of SEZ and TPD. Economists have offered SEZ and TPD taxonomy on economic specialization. [4] Thus they have focused four basic groups of the zones: trade SEZ, industry-and-production zones, research zones and service zones. The former group consists of Free Trade Zones, including duty-free, Foreign Trade Zones and Free Custom Zones. The second group involves export-import-production zones and Enterprises zones. Research zones connected with technoparks, technopolis, innovation centers, are created in the vicinity of scientific centers with a certain infrastructure of providing innovative technologies implementation into industry production. The most world wide-spread types service zones are offshore zones and “tax harbours”. Their creation aim is to invest in minimum taxation conditions not breaking current tax legislation. Immense tax bonanzas and preferences have been provided at offshore zones.

SEZ and TPD have proved their efficiency worldwide. Presenting economic-organizing mechanism of enterprises investment attractiveness enhancement they give opportunity to inject activity in investment domain, direct sufficient investment resources into national economic sectors. Despite positive effect of special investment regime implementation expected results have not yet been achieved in Ukraine. Therefore they have been canceled. Firstly, the problems concerning SEZ and TPD implementation were connected with limited vague varying legislative regulation. Taxation stimulation mechanisms employed did not compensate political risk extent and unsustainable legislation of developing countries. Secondly, investors have not facilitated unprofitable economic sectors remaining in aggravating economic conditions and requiring huge investments for pursuing long-term investment programs aiming at basic production assets re-equipment and new technologies application. Essential disadvantage of SEZ and TPD is not proper implementation, being verified by a financial criminal evidence statistics.

Thus, in order to develop economic-organizing mechanism of enterprises and companies investment attractiveness facilitating via elucidating differences and commonalities in special investment regime implementation in Special Economical Zones and Territories of priority development the following tasks are to be put forward:

·  To analyze different approaches to fostering investment climate creation and choose acceptable one to implement in developing countries, particularly in Ukraine;

·  To expose factors affecting investment processes regionwide;

·  To elaborate, upgrade, update legislation base, provide privileges and preferences for investment activities stimulation;

·   To develop investment service infrastructure for successful practical investment projects application.

    

  References:

1. Â.Ï. Óäîâè÷åíêî. Íîâ³òí³ ìîäåë³ ñîö³àëüíî-åêîíîì³÷íîãî ðîçâèòêó ì³ñò â óìîâàõ ôîðìóâàííÿ ðèíêîâèõ â³äíîñèí òà ãðîìàäñüêîãî ñóñï³ëüñòâà. – Ê.: ÓÀÄÓ, 2003. – 340 ñ.

2. Zvi Bodie, Alex Kane, Alan J. Marcus. Essentials of investment. – Boston: Irwin, McGraw-Hill, 1998. – XXIV, 611 p.

3. Corrado Charles J., Brandord P.J. Fundamentals of investments: valuation and management. – Boston: Irwin, McGraw-Hill, 2000. – XXIV, 594 p.

4. Sones Sally M. Principles of taxation for business and investment planning. – Boston: Irwin, McGraw-Hill, 1998. – XXIV, 477 p.