In July Kyiv will host a Ukrainian-Russian forum on the post-election investment climate in Ukraine, following the agreement reached last April between Anatoliy Kinakh, president of the Ukrainian League of Industrialists and Entrepreneurs and the then secretary of the National Security and Defense Council of Ukraine, and Aleksandr Shokhin, president of the Russian League of Industrialists and Entrepreneurs. High on the agenda will be joint projects on energy conservation, mechanical engineering, power equipment, as well as the development of transport infrastructure.
The meeting of these two business elites is still some time away, and its format will largely depend on which rung in our governmental hierarchy Kinakh will occupy. Meanwhile, a similar event just ended in London. Participants and experts attending the Ukrainian Investment Summit say their meeting provided Ukraine with a good opportunity to attract potential investors.
Ukraine’s Ambassador to Great Britain, Ihor Kharchenko, believes that despite some remaining political troubles in Ukraine, the participation of British and European business circles confirms “Europe’s sustained, open, and permanent interest in cooperating with Ukraine.” Stephen Butler, Business Development Director at the Adam Smith Institute, thinks that the Ukrainian Investment Summit’s main goal is to establish a platform for potential investors to discuss the current changes and to project the image of Ukraine as an investor-friendly country.
Ukraine has already made some headway in this direction. In the nearest future the European Investment Bank (EIB) will be able to increase its project portfolio for this country to $3 billion. EIB vice-president Sauli Niinisto has announced his bank’s intention to begin large-scale investments, primarily in Ukraine’s transport and urban infrastructure, and the protection of the Black Sea basin area.
Today we can already take pride in certain accomplishments. Statistics show that direct foreign investments (DFI) in Ukraine increased by $922 million in the first quarter alone, up by 3.9 times in the same period in 2005. Although a year ago reprivatization rumors were inspiring little confidence in any improvement, by April 1, 2006, total DFIs in Ukraine reached almost $17.4 billion, up by 97.8 percent during the same period last year. However, the structure of these investments is hardly satisfactory: $389.7 million went to financial projects, $177.4 million to the real estate sector, and only $195.7 million to industry.
By the end of this year, the Ministry of Economics expects to secure a $4.5-billion growth of DFIs in Ukraine, compared to last year’s record $7.3 billion, achieved thanks to the privatization of Kryvorizhstal and the partial sale of the Aval Bank. Will this process continue along the same lines this year? Unofficial sources are still warning about an unreliable investment climate.
According to Rostyslav Ishchenko, vice-president of the Kyiv-based Center for Corporate Relations Research, “Ukraine’s investment climate is undergoing changes stemming from the new European integration policy of this country’s leadership.” The main threat to investment attractiveness is still the incompetence and corrupt nature of government officials.
The International Financial Corporation (IFC) has also reached some conclusions in its survey Business Medium in Ukraine-2005. Yet this did not prevent it from announcing its intention to invest over $200 million in Ukrainian projects in 2006. The situation seems to be changing for the better.
There is still no final opinion among experts. The European Business Association (EBA) in Ukraine has also completed a study of the investment climate, but is delaying its publication. During my interview with EBA vice-president Jorge Intriago, he revealed that the delay is caused on the one hand by the lengthy process to form a parliamentary and governmental coalition and, on the other, by uncertainty about how Ukraine will reform its totally corrupt law-enforcement and judicial systems. The interview made it clear that these reforms can be a real catalyst for tangible investments in Ukraine.
