But skeptics say money coming in from offshore is not necessarily a sign of renewed investment interest
yprus becoming the country’s second-largest investor. The latter, analysts said, may be a sign the local money is making its way back into the economy.
The volume of investment Ukraine attracted in January-June was 58 percent more than in the same period last year, according to the State Statistics Committee. That brought the total foreign investment Ukraine received since independence in 1991 to $3.59 billion as of July 1. Investors brought $420 million in the first half of this year and withdrew $80 million, the statistics agency said.
Some $127 million, or more than a third of Ukraine’s total foreign investment in the first half of this year, arrived from offshore accounts in tiny Cyprus, making the island Ukraine’s second-largest foreign investor after the United States. The total of $337 million was invested in Ukraine from Cyprus as of July 1 this year.
Analysts said the sudden growth in investments from Cyprus is hardly a sign that foreign businesses are increasingly choosing Ukraine as a place to invest.
“That’s definitely an indicator that the local money is coming back,” said Valery Antonov, head of research at Alfa Capital brokerage.
Cyprus’ offshore accounts are believed to harbor much of the funds that were brought out of Ukraine in recent years to save them from economic instability and high taxation. Ukrainian companies have used various schemes to pump profits into offshore accounts abroad.
Economists said the improved economic policy and political stability associated with the recently appointed government of Viktor Yushchenko have helped somewhat reverse capital flight.
“Those who used to take their capital out of the country have understood that they can now make more money at Ukrainian enterprises with lower risks,” said Hlib Vyshlinsky, economist at International Center for Policy Studies.
However, Vyshlinsky noted that investment from Cyprus and other offshore zones is less valuable for Ukraine than that of other countries since it doesn’t bring the latest technology and new management practices to Ukrainian companies.
The official statistics seem to prove that, showing that most of the cash that arrived from Cyprus in January-June went into retail trade and the financial sector.
And unlike Cyprus, the developed Western economies so far prefer to stay away from Ukraine, with some even opting to pull out their money.
The United States pumped about $40 million into Ukraine in January-June to remain the country’s largest investor with the total of $629.3 million. However, some countries, such as Russia, Germany and South Korea, saw the their investment in Ukraine fall slightly during the first six months of the year.
Ukraine has attracted a meager $3.59 billion in foreign capital over the last 10 years, while smaller Poland and the Czech Republic boasted more than $30 billion and $15 billion in foreign direct investment respectively as of last year. Analysts have named slow pace of economic reforms, frequently changing legislation, and corruption in the government as the main factors discouraging foreign investors.
The government’s failure to negotiate resumption of International Monetary Fund aid also helped keep investors’ negative wariness alive. The fund froze its $2.6 billion aid package to Ukraine last September and so far has given no indication when it may resume lending.
