We are one month away from an international investment forum called Free Economic Zones, Priority Development Areas, and Technoparks of Ukraine: Achievements, Problems, Perspectives, to be held in Kharkiv. The forum is viewed as one of the means to approach the innovation model of development for Ukraine’s economy.
Other countries where the model has long been implemented treat Ukraine as a schoolboy. For example, addressing a seminar in Kyiv on Tuesday called International Practice and Analysis of Credit Risks, Canadian Ambassador Andrew Robertson declared that his country, Ukraine’s second major technical aid donor after the United States, expects that the new Verkhovna Rada will adopt legislation attracting foreign investments to Ukraine. Most probably, the diplomat meant the ill-fated law On Innovation Activities vetoed by President Kuchma and sent back to parliament for revisions alongside with his proposals. One can assume that, given budget revenue shortfalls, the chief executive will propose to trim tax and customs breaks to be given to innovation companies under this law. It is difficult to say today when Verkhovna Rada will consider the bill but there is a suspicion that, lying in limbo in the parliament, this law, even given its shortcomings, will be of much less use than if it were passed.
At the late February Kyiv international conference on investments in high tech branches foreign venture financiers were acquainted with the investment requirements of Ukrainian high tech companies which amount to $500 million.
Can there be hope that these requirements will be met? A month after the conference a representative of the Western NIS Enterprise Fund said that she does not regard the high tech sector a priority one. “It is a high risk sector and there are few projects which can bring profits,” she explained. The fund’s portfolio allocates 42% of investment to the food industry, 14.7% to construction materials industry, 12.9% to financial companies, and 11.5% to agricultural enterprises.
All this indicates the reluctance of Western investors to provide money for Ukrainian enterprises with a high degree of their own added value. Meanwhile, it is the high tech branches with their high share of added value and remuneration of labor in the end product that contribute most to raising the quality of life.
It seems that the government of Ukraine is aware of large challenges for itself in the areas of investment and innovation, as any mistakes or procrastination will result in Ukraine losing its battle with other countries for investment. That Ukraine is waking up to this problem has been recently evidenced by the creation of an interagency group to implement the program for attracting investments in 2002-2010 headed by Minister for the Economy and European Integration Oleksandr Shlapak. One of the group’s tasks is to get the word out via the media about success stories of attracting investment in the national economy. At the same time, the president of Ukraine signed an edict aimed at raising the efficiency of the consultative board for foreign investments whose role is to improve the climate for foreign investors in Ukraine.
The government tries to use domestic investment to push forward its investment and innovation agendas. As Prime Minister Anatoly Kinakh recently remarked, domestic investments is regarded as the backbone of the country’s economic development and for reducing economic and political dependence on foreign markets. He stressed that the volume of domestic investment in 2001 has increased by 17% from 2000. “This is way over the much debated IMF tranches,” he said, adding that until domestic capital is invested more effectively, foreign investors will not come to Ukraine en masse.
The fact that the government emphasizes domestic investment can be regarded as a sign of uncertainty in the face of the government’s possible failure to attract large foreign investment to Ukraine. Many experts maintain the international investment markets are jittery. As the result, Ukraine has suspended the privatization of Ukrtelekom and oblast electricity companies, with the State Property Fund refraining from setting tentative sales deadlines.
Faced with this status quo, Ukraine is trying to speed up the domestic innovation process. On April 10 the government named Volodymyr Ryzhkov, who has extensive experience of working for the Presidential Administration and the Ukrainian Union of Entrepreneurs and Industrialists, to head the Ukrainian State Innovation Company. USIC former head Viktor Tkachuk has plans to continue his efforts to put Ukraine on the fast track to innovation using private capital. However, he told The Day that no conditions have been created in Ukraine for a transition to the innovation model, something needed badly in the areas of technologies and management of innovations. The state does not possess either the know-how or experience needed to implement the innovation policy, the USIC former head believes. Incidentally, the USIC has survived five attempts to liquidate it in the last four months. In Tkachuk’s opinion, it was merely due to its employees and those people in the government and the National Defense and Security Council who realize the importance of this organization as any liquidation or restructuring would mean the loss of debts due the USIC. Its antecedent, the State Innovation Fund, used to hand out funds without insisting that they be reimbursed, and it was common knowledge that the SIF money was misallocated. By contrast, the USIC’s financial record is clean, Tkachuk maintains. Now Ukraine has a high reputation innovation company which will make it possible to build a new economic model by investing in high tech rather than throwing innovation money away to patch holes elsewhere in the budget.
There is one vital thing to be done, building confidence in the state. This might prove the knottiest issue for any investment or innovation models implemented in Ukraine.
