EBA Investment Attractiveness INDEX II 2012 Conducted by the EBA with the support of InMind research company

Project summary The results of the 16th wave of investment climate in Ukraine tracking research. Methodology: EBA Investment Attractiveness Index is assessed as the mean value based on the following five questions: What do you think about the investment climate in Ukraine? How would you estimate the investment climate for your company in Ukraine at the moment compared to the previous three months? What are your expectations of the investment climate in Ukraine over the next three months? In your opinion, would it be profitable for new entrants to invest in Ukraine over the next three months? What are your expectations of the business environment of your primary industry over the next three months? Participants: 115 CEOs of EBA members companies Timing: July 18-29, 2012 Survey Implementation: the Survey was conducted by the EBA with the support of InMind research company

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Key findings III/08 IV/08 I/09 II/09 III/09 IV/09 I/10 II/10 III/10 IV/10 I/11 II/11 III/11 IV/11 I/12 II/12 Investment Climate in Ukraine 3,1 2,3 2,0 2,2 2,1 2,7 3,8 3,6 3,5 3,7 1,8 1,7 Investment Climate Dynamics: last 3 months 2,8 2,5 2,6 3,2 3,4 Investment Climate Dynamics Expectations: next 3 months 3,0 Profitability for new entrants: next 3 months 2,4 2,9 3,3 Investment Climate of Primary Industry: next 3 months General EBA Index 3,14 2,22 2,64 2,56 2,57 3,08 3,25 3,20 3,28 3,40 3,39 2,19 2,18 5

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EBA – Index: Components

Investment Climate in Ukraine + The Investment Climate in Ukraine is… (5 point scale) – Mean 3,1 2,3 2,0 2,2 2,1 2,7 3,8 3,6 3,5 3,7 1,8 1,7 8

Investment Climate Dynamics: last 3 months + The Investment Climate in Ukraine is… (5 point scale) – Mean 2,8 1,8 2,1 2,7 2,5 2,6 3,2 3,1 3,4 3,6 3,5 2,2 2,3 9

Investment Climate dynamics expectations: next 3 months + The Investment Climate in Ukraine is… (5 point scale) – Mean 3,1 2,2 2,8 2,6 3,4 3,0 3,2 2,7 2,3 10

Profitability for New entrants: next 3 months + Profitability for New Entrants … (5 point scale) – Mean 3,4 2,3 2,4 2,7 2,6 2,5 2,9 3,3 3,2 2,1 11

Investment Climate of primary industry: next 3 months + Investment climate of primary industry… (5 point scale) – Mean 3,3 2,5 2,4 2,7 2,9 2,8 3,2 3,1 3,0 12

Positive Changes in Investment Climate during the last 3 months On the question about positive changes that have occurred over the past 3 months, almost three-quarters of respondents (73%) noticed the absence of such shifts in the investment climate. 10% of investors indicated a positive change for EURO-2012, such as construction of infrastructure facilities, informing the international community about Ukraine and successful adoption of tourists. 7% believe the positive change is - simplification of customs procedures. 6% note positive changes in certain areas: oil gas producing area (3%) and IT business (3%). 3% of investors still find the positive maintenance of a stable national currency rate. On further simplification of tax procedures indicate 2% of market experts 13

Negative Changes in Investment Climate during the last 3 months Investors eagerly and with great indignation discussed negative changes. The most discussed topic was the pressure on business and general business conditions, corruption and favoritism and excessive taxation. The next group, the negative trend - the overall situation in the country, both in economic and political sphere 14

Estimation of the situation with solving issues In respect of seven key issues that was raised by EBA, the situation remains relatively unchanged from the previous quarter. The exception applies to customs procedures, where the average score was significantly better - with 2.0 average increased to 2.7, that changed from negative "rather unfavorable situation" to the neutral evaluation 0,1 0,0 -0,1 0,7 0,2 Changes: 1,7 1,6 2,3 2,5 2,2 2,7 Mean: 15

Estimation the value-added of the legislative amendments New EBA’s question was related to the impact of legislative reforms on business conditions, such as new Customs and the Criminal Procedural Codes, the Tax Code and amendments to the Law on permits. Largely negative assessment of investors made changes to the Tax Code (19% positive ratings to 49% negative) and the new Criminal Procedural Code (15% positive ratings to 29% negative). On the contrary, the Customs Code and amendments to the Law on permits received overwhelmingly positive reviews (36% positive versus 23% negative, and 33% positive versus 17% negative). 16

The 2nd wave of the economic recession expectations The probability of the second wave of crisis in the field where investors work in Ukraine is estimated as very high. Comparing with the previous quarter, expectations of a new crisis is growing. 17

Summary The integral index of investment attractiveness and its components have not changed during the second quarter of 2012, and for 3-quarters has been staying as lowest as possible for the entire period of measurement. Assessing positive and negative changes in the investment climate over the past 3 months, most experts tend to negative expectations, which are also repeated for several waves of measurement: the deterioration of business conditions and general economic and political situation in the country. Only a quarter of the experts called positive developments during the quarter: the first Euro 2012 and the associated infrastructure changes, continued improvement of customs procedures and improvements in the areas of oil and gas industry and IT industry. In respect of seven key issues that was raised by EBA in context of business and relationships with the government, estimates remain largely unchanged: the current situation is considered by experts almost not conducive to solving the problems of corruption and the judiciary, rather unfavorable for land issues, currency regulations, VAT and technical barriers trade. Experts think that the most positive change is an impact of Customs Code and the Amendments to the Law of permits on the business. Most negative – is impact on business by the Tax and Criminal Procedure Codes. 18

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