You're reading: Nation has yet to convince investors they are welcome

Legend has it that when Catherine the Great traveled to Crimea her minister Grigory Potemkin built fake villages and lit camp fires along the way, reassuring the monarch that her conquests were indeed valuable and not just barren wastelands.

Such a strategy was honed under communism and has since been used repeatedly by many former-Soviet states, who promise investors much but deliver little.

Ukraine’s State Agency for Investment and National Projects, spearheaded by its Invest Ukraine program, wants to make a clean break with such practices. But it will take more than lofty plans and speeches short of substance to convince investors.

After a road show of close to two months, spanning 15 cities in 10 countries, the investment agency returned to Kyiv to report on the results and announce plans for the future.

In line with the newly established tradition, the agency’s head Vladyslav Kaskiv quantified the achievements: Ukraine’s investment projects were mentioned 3,500 times in the media, with 500 in leading international or electronic media and 30 televised segments.

Moreover, Kaskiv noted, a deal has already been struck with the Chinese state bank Exim Bank to invest up to $370 million in a high-speed train connection between Kyiv and the airport Boryspil. The first stone is to be laid on Dec. 28, he claims. “The aggressive marketing campaign is already producing results,” Kaskiv said.

Asked about the related expenses, he said the image campaign cost roughly Hr 47 million (nearly $6 million) and operating costs were close to Hr 9 million (more than $1 million). Hr 355 million is available for co-financing national projects.

Another Hr 100 million is designated for feasibility studies. The exact numbers will be available in February, Kaskiv noted, highlighting that the agency would be the first executive public institution to conduct a full financial audit and disclose the results.

Vladyslav Kaskiv, head of Ukraine’s State Agency for Investment and National Projects.

Nonetheless, the orientation of the promotional campaign raises some eyebrows.

Far from all the materials on the agency’s website are in English, and the quality of the translations leaves much to be desired. Similarly, much advertisement has been internally focused (on Ukrainian language websites), while most of the international publications targeted have been in-flight magazines and three major business journals in Germany, Austria and Spain.

The agency’s spokesperson, Oksana Kononko, said a full list will be available on Jan. 25.

The biggest problem, however, is an unfavorable business environment, rife with legal uncertainty and a lack of transparency.

At the investment conference on Dec. 9, the president of the European Business Association and Dragon Capital CEO Tomas Fiala highlighted the fact that investors have yet to see a proper, transparent privatization tender conducted by the Yanukovych administration.

Fiala has since given up hopes that the media campaign and promotional activities will produce any results. “As long as the business climate does not improve there will be no results,” Interfax-Ukraine quoted Fiala as saying.

Jorge Zukoski, president of the American Chamber of Commerce in Ukraine, said the initiative to create a platform for investment promotion was a good idea, but that its success ultimately depended on major improvements. Without them, media campaigns won’t work.

“Businesses talk to each other,” Zukoski emphasized, explaining that any investors interested in Ukraine would first talk to companies on the ground. “Forget the spin and create the substance.”

Jorge Zukoski, president of the American Chamber of Commerce in Ukraine

Meanwhile, the business climate in Ukraine continues to deteriorate. Investor sentiment took an unprecedented hit in the fourth quarter of 2011, according to the European Business Association’s investment attractiveness index, which is based on the assessments of CEOs of 162 EBA member companies. The index dropped for a third quarter in a row, falling by 0.37 to 2.19 on a five point scale.

The main problems, according to managers, were the deterioration of the current business climate as well as future predictions and expectations.

“The ebb in investor confidence and trust in Ukrainian market, uncertainty in Ukraine’s geopolitical choice coupled with cloudy economic outlook gives the government a clear sign that consolidation and solving the most challenging domestic policy issues are needed more than ever now,” said Anna Derevyanko, executive director at EBA.

Tomas Fiala, president of the European Business Association and Dragon Capital CEO

She warned that failure to act could lead Ukraine to “sleepwalk into recession.”

Ultimately, the project will, and should, be judged by its outcome. “The criteria of our success are not meetings, papers or presentations, but only the investments we attract,” Kaskiv said.

But even if it fulfills its goals, the business environment will remain toxic unless systemic changes are made, particularly for smaller companies which lack the connections and resources to make their voices heard.

“At present there are no instruments to support small and medium enterprises in Ukraine,” said Oleg Dubish, vice-chairman of the Polish-Ukrainian chamber of commerce.

Nonetheless, Dubish has high hopes for the investment agency’s work.

“What Kaskiv is doing is a shining light in the darkness,” Dubish said.

But will it continue to burn once the monarch has passed?

Kyiv Post staff writer Jakub Parusinski can be reached at [email protected].