No matter how developed an economy might be, and in spite of the modernizing nature of the global economy, the production of goods and services remains tied to essential raw materials. Here the Ukraine has a clear and present advantage, particularly in the agricultural sector. However, margins in primary industries are small as a percentage of overall global profitability, the money lies in the refining and processing of such raw materials and the production and sale of finishes goods.
Ukraine would do well to take advantage of this reality, gearing investment incentives towards industries with high added value, such as agri-tech, green energy, the chemical industry, and electronics. In the ever-waging regional battle for crucial foreign investment, the adoption of legislation tailored towards stimulating activity is a prerequisite for remaining competitive.
A law introducing so-called “investment nannies” has already been implemented with the hope that the measure increases Ukraine’s appeal to domestic and foreign investors. Investment nannies, in short, are aides appointed to large-scale investors that assist in navigating Ukraine’s bureaucratic quagmire. This vital law aims to revitalize the Ukrainian economy by boosting employment and increasing government revenues, local budgets, pensions, and other social insurance funds.
But, while the passage of this law has long been promised by the Ukrainian president, finally materializing less than a year ago, will it really be enough to encourage investors in making the necessary leap of faith?
The law requires that a strict list of criteria is met before investors receive preferential treatment, including a benchmark investment amount of at least 20 million euros. Furthermore, the actual impact “investment nannies” have on procedural implementation, especially regarding discretionary powers invested in authorities, is questionable at best.
The past two decades since independence have seen successive Ukrainian governments pay lip-service to the overseas investment community. Our leaders have repeatedly declared their support for investors, signed memoranda, and held many meetings, their “support” often ended there. However, the truth has clearly been quite different. and the businessmen our country seeks to attract are no fools, they are not so easily seduced by simple words. It is far from mere broken promises and inaction that are the problems of Ukraine’s recent past when it comes to credibility within the international business community. The much-hyped “green tariff” with its history of non-payment and allegations that the policy was written for special interests rather than the nation’s benefit has left a lasting scar on Ukraine’s reputation – the program proved to be ruinous for the nation’s energy sector and furthermore saw investors lose significant sums of money. The Motor Sich privatization showed unreadiness to play on the global stage, and what should have been a simple revenue raising privatization saw Ukraine get embroiled in a Washington vs Beijing powerplay, and by the time the dust settled Ukraine has found itself staring at Chinese demands for compensation mounting to over $3.5billion – with more than 10% of the national budget of Ukraine being demanded it remains unclear how or even if this could ever be repaid, casting a stain on Sino-Ukrainian relations at a crucial time in our development.
I believe that all of this negative history cannot be erased or undone simply be a limited system of mentorship offered to a select group of large overseas companies or investors. I do acknowledge that it is a symbolically important piece of legislation in so far as it makes a statement on the international stage that Ukraine is keen to engage in facilitating inflows of capital from abroad and assisting foreign businesses who wish to locate within our borders. However, I think there is a serious danger that by passing the President’s law we have put our own domestic businessmen and women at a disadvantage – who do they turn to in order to navigate the bureaucracy that burdens all businesses in this country. By limiting the program to those businesses investing over 20 million euros I cannot help but wonder whether this is the area of highest need – companies and investors with 20 million euros to spend in Ukraine are generally companies with the funds available to hire the best advisors and law firms and such who are already adept at providing services similar to those offered by the investment nannies, so I have heard people ask whether the State is now simply providing for free a service that these investors would have engaged anyway. Would the resources not have been better directed assisting both existing and potentially new small businesses who have the same needs to understand and navigate the forms and regulations they are burdened with but who perhaps lack the resources to engage specialist help.
Of course, all of this is set against the backdrop of all the other challenges faced by Ukraine in attracting investment. All the well-intended steps made, as welcomed as they may be, will be in vain if we cannot tackle the root causes of low investment rates in to Ukraine – namely corruption, our weak judiciary, inconsistent decision making and a general set of fiscal policies that are not as business-friendly as they need to be.
Hence, while important steps were made to attract and aid international investment in entering the Ukrainian market, at this time these improvements remain largely symbolic and perhaps poorly directed. If we want to get serious about attracting global investment, we must first implement reforms that grant the investor enough stability, protection, and confidence to enter the fold.
