Investing in Ukraine can bring double-digit returns. But that won’t happen unless the country offers good conditions for investment, according to Nicholas Tymoshchuk, CEO of Ukrainian holding company UFuture.
“We must create a gold rush for Ukraine, and it’s not rocket science,” he said during Moving Business Forward in Ukraine — Investments Needed, an online webinar organized by the U.S.-Ukraine Business Council on Aug. 4.
Attracting foreign direct investment has long been one of Ukraine’s top goals — and its biggest challenges. To overcome its sluggish levels of investment, the country must create lucrative and preferential prices for businesses on a long term, Tymoshchuk said.
But preferential prices aren’t everything, according to John Patton, managing director of United Kingdom-based credit firm Argentem Creek Partners, which specializes in emerging markets. These preferential prices should go hand-in-hand with sound rules of the game and predictability.
“Consistency and transparency help a lot to attract investment,” he said.
Promising sectors
According to the panel’s expert participants, several sectors offer the most promise in Ukraine: pharmaceuticals, agriculture and information technology (IT).
Tymoshchuk said his company is focusing on the production of affordable synthetic blood plasma. Pharmaceutical companies use plasma to make treatments for conditions such as immune deficiencies and bleeding disorders.
He said the U.S. and EU countries control the lion’s share of the market, but their product is too expensive for lower-income countries. That’s where his company comes into the picture. It is developing a new facility in Bila Tserkva, a city of 200,000 people 80 kilometers south of Kyiv, where it plans to produce at least 1 million liters of blood plasma a year.
Tymoshchuk believes this could become Ukraine’s first biopharmaceutical unicorn, a company valued at over $1 billion in the future.
However, while the procurement system has improved in this sector, investors — especially Ukrainian ones — should be given preferential prices to compete on an international level, he said.
Patton said agriculture was a safe bet for investors, as it is poised to be the largest industry in Ukraine. After the Ukrainian parliament voted on April 28 to open the country’s land market, the agricultural sector will be even more promising, he added.
But Tymoshchuk said that Ukrainian agro-companies lacked incentives to produce processed foods in the country, meaning they miss opportunities to fulfill an increasing demand for that product.
He believes the government should help Ukrainian producers focus on processed food by regulating prices.
“Otherwise there will be no major investment in processing in Ukraine,” Tymoshchuk said.
Dennis Fulling, managing partner at New York-based investment company Da Vinci Capital, said that the IT sector was a good destination for investment.
Both his and Tymoshchuk’s companies have strong ties to the IT industry. Da Vinci Capital has invested in a Ukraine-based IT company dedicated to financial markets and UFuture is behind the UNIT.CITY complexes in Kyiv, Lviv and Kharkiv dedicated to IT technologies. Both men praised Ukraine’s talent pool in the tech sector.
Roman Nikitov, director of Kyiv-based company ICU Ventures, echoed them and pointed out that big IT companies tend to work in outsourcing, doing projects for foreign clients. That brings money to the domestic market. Some of the people employed in these companies go on to start their own businesses, increasing the number of homegrown firms in Ukraine.
But despite this, all three experts said that foreign investors still are hesitant to invest due to the country’s economic and political uncertainty.
Investor’s fears
Nikitov said Ukrainians don’t want to invest in their own country because they don’t feel their capital is safe.
Reforms must continue to maintain the independence of the National Bank of Ukraine (NBU), he added, and the government should ensure stability at all cost.
“Investment flows if there is a manageable risk, but this is the job of the government,” Nikitov said.
Recent events in Ukraine have not made the country look like a less risky destination. The resignation of Yakiv Smolii as NBU governor on July 1 sent a negative signal, because Smolii said he had come under political pressure that forced him to leave office five years before his term was scheduled to end.
Smolii was highly respected by investors, so his exit sent shockwaves through the business community, Patton said.
The bank was seen as a “lightning rod for investors, because of its stability and consistency,” he said. Smolii’s sudden exit left investors worried.
Since the central bank nationalized PrivatBank in December 2016, its former co-owner, billionaire oligarch Ihor Kolomoisky, has allegedly been waging a campaign of intimidation and lawsuits against the NBU. He denies this.
The bank was nationalized after an audit discovered that $5.5 billion had been siphoned through fraudulent schemes. The government was forced to replenish the bank with taxpayers’ money.
But Kolomoisky denies wrongdoing and is trying to wrest control over the bank from the government in court. Some believe he has influence over President Volodymyr Zelensky.
Patton said that any stark changes — for example, Kolomoisky regaining control over PrivatBank or changes to the NBU — could deter investment, which will lag until investors foresee stability and trust the government.
Distrust of the government is at the core of another long-running conflict over green energy, according to Tymoshchuk, whose company invests in the sector.
On July 18, representatives of Ukraine’s business community launched an appeal to the Verkhovna Rada — the Ukrainian parliament — to support a law aimed at solving a major crisis in the energy sector.
Some renewable energy producers accuse the government of not paying them for electricity since March and have threatened to take Ukraine to court.
Tymoshchuk said Ukraine faces international litigation that it is likely to lose. Despite the ongoing issue, he said he still believes in this sector.
“It is a very dynamic business, but I hope the government will stop messing around with it in the future,” he said.
