Foreign, local investments on the rise as nation becomes investor-friendly
tries in economic reforms and attracting foreign direct investment, financial analysts say that picture is beginning to change.
Complaints from potential investors over the lack of a transparent business climate in Ukraine have persisted since the nation gained independence in 1991, but analysts say Ukraine has made some strides over the last 10 years to become more investor‑friendly. They say that despite numerous problems and a need to continue with reforms to achieve economic growth and prosperity, Ukraine’s private business sector has begun to see more rapid development with an increase in foreign and local investment activity.
According to experts, international financial institutions, which include donor organizations, foreign banks and investment funds, have played a major role in fueling the change.
“It is true that Ukraine is behind other European countries in its development,” said Gregory Jedrzejczak, head of the World Bank’s Ukraine office. “At the same time, Ukraine has achieved significant progress since its independence, and it continues to develop. I am optimistic about the future.”
“Corporate Ukraine is certainly making progress,” said Andrew Seton, director of the European Bank for Reconstruction and Development’s office in Kyiv. “Ukrainian firms are becoming more professional in their approach to funding institutions, and banks are developing in the direction of meeting their needs. I am positive about the future of the private sector in Ukraine.”
Following independence, donor institutions such as the World Bank, International Monetary Fund and the EBRD provided technical assistance to start up the country’s undeveloped private sector.
As Ukraine’s investment climate began to take shape, these organizations, along with foreign banks and investment funds, were among the first institutions to invest in the nation’s economy and provide much‑needed financing for its economic development. Analysts say that these institutions continue to provide a large part of Ukraine’s investment capital.
“In the ten years that the World Bank has been in Ukraine, the country has experienced significant economic development, and we believe that the World Bank has played a major part in this development,” Jedrzejczak said.
Serhy Triputen, deputy project manager of the corporate development project for Ukraine at the International Finance Corporation, an assistance organization and part of the World Bank, agrees.
“Institutions such as the IFC have assisted in the development of the private sector in Ukraine,” Triputen said. “Specifically, our projects have succeeded in introducing corporate culture to Ukraine’s privatized enterprises. Although a lot of work is still ahead, we have laid the foundation for creating a healthy business environment in the country and attracting more foreign direct investment.”
Analysts say the technical assistance that donor institutions provide has a number of elements. One is to advise the government on implementing policies and enacting laws that would make investing in Ukraine more attractive to investors.
“One of our functions is to create a policy discussion platform, whereby we can work with the government to create and implement the necessary policy framework,” Jedrzejczak said.
“A large part of our work is advising the government on enacting policies that will encourage sector development, said Roman Shynkarenko, deputy project manager of the IFC’s agribusiness development project. “Policy advice is a very important activity, since Ukraine’s policies are frequently poorly designed and implemented, and government bodies lack qualified policy experts.”
Experts say that technical assistance also includes helping Ukraine’s small‑ and medium‑sized businesses develop as an essential part of the country’s economic growth.
“Developing a thriving small and medium‑sized business sector is instrumental to sustained economic growth,” said Volodymyr Ivanov, project manager of the IFC’s small and medium enterprise toolkit project. “That’s the rationale behind our project, which will help small‑ and medium‑sized businesses get access to short‑term and long‑term bank financing.”
Ivanov said the project’s goal is to create an Internet information resource through which Ukrainian small businesses would be able to obtain financing. He said the IFC plans to connect all Ukrainian banks that make loans to small‑ and medium‑sized businesses to a Web site through which entrepreneurs can submit business loan applications.
Another element in financial institutions’ technical assistance is linking advice to investment.
“We quite often bundle technical assistance with our investment,” said EBRD’s Seton. “This way, both technical assistance and investment are more effective.”
Analysts say that more important than the technical assistance that financial institutions offer is their actual investments into the country’s economic development. They say the goal of the investments is not to provide aid, but to take advantage of profitable opportunities that the Ukrainian economy offers.
“Ukraine does have numerous opportunities for profitable business, and that is the reason why Citibank is in the country,” said Witold Zielinski, chairman of Citibank Ukraine.
Martin Leberle, deputy chairman of the management board at HVB Ukraine agrees. “Ukraine has a lot of potential for profitable business, and we are realizing this potential,” he said.
Bankers say they are placing their bets on the growing number of Ukrainian blue‑chip companies that export products.
“Export‑oriented Ukrainian companies are a promising segment for our bank, and we are developing that market,” Zielinski said.
“Blue‑chip Ukrainian corporations with the ability to generate hard‑currency cash flows are one very attractive market for foreign banks,” said Hans Broucke, deputy board chairman and head of corporate banking at ING Bank Ukraine.
Bankers say that the securities market and insurance sector are two other industries with high potential.
“Insurance and pension funds will certainly develop in the future, and will offer many profitable opportunities,” Broucke said. “Capital markets are also developing and will offer opportunities for debt products, such as corporate bonds, and the securities business.”
“With Ukraine’s capital market growing, the securities business, as well as custodian services, is promising, Leberle said.”
Financial institutions are also beginning to look at Ukraine’s retail banking sector as an attractive industry.
“Ukraine has tremendous potential for the retail banking business,” Zielinski said. “Since there is still limited demand and the market is not developed, we are not yet ready to enter this segment. However, it will certainly develop in the future, and when it does, we will consider building retail operations in Ukraine.”
