Attracting investors with "bags of money" to Ukraine

Author : Oleksandr Okhrymenko

Very often you can hear from Ukrainian politicians, ministers, and various experts that foreign investments will soon be pouring into the state
10:00, 12 July 2017

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Very often you can hear from our politicians, ministers, and various experts that foreign investments will soon be pouring into Ukraine. It remains only to prepare "bags for money." The naivete of certain politicians and state officials is striking when they talk about how to attract foreign investors and what needs to be done for this. As they say, naivety is their destiny. In fact, in order to attract real foreign investors to Ukraine, one must first answer the simple question: "For what foreign investors will invest money in Ukraine?"

In fact, real investors are greedy and cynical people. They are only interested in one thing: income, and for that they are ready to be friends with the "last dictator of Europe", and invest money in countries with unusual attitude towards freedom of citizens. Real foreign investors never pay attention to ratings such as "Ease of doing business" or "Investment attractiveness," and they never consider that corruption is an obstacle to investing in the country. On the contrary, foreign investors easily invest in those countries where corruption is off scale, and where there are clear rules "whom to negotiate with."


Related: EU Council extends ban on investment to Crimea

For any real foreign investor, Ukraine can be interesting, only when it can offer an object for investment with a higher yield than another similar country. European or American, and Chinese investors are far from talking about "European integration" and "fighting against corruption", they only consider money, and if it is profitable to invest in Honduras, they will exactly invest in Honduras, not in Ukraine.

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Let us answer the trivial question: how much foreign investors want to earn in Ukraine. Now any real foreign investor can buy Ukrainian Eurobonds with a yield of 8-9% per annum in US dollars. And although Ukrainian Eurobonds are inferior in terms of reliability to Polish, and, especially, Hungarian, but the foreign investor understands that Polish Eurobonds will never bring him as much income as Ukrainian ones, and he is willing to risk. Investments and Eurobonds are the simplest and easiest for any foreign investor, and therefore he will never invest money in business in Ukraine if he is promised an income of 10% or so. Why should he waste his time and energy to get a little more income than he can easily get with the help of Eurobonds of Ukraine? A real foreign investor may be interested in investing money in the economy of Ukraine, if he can get an income of 15% or more. The optimal option for the current situation, taking into account all the risks that the investor bears when communicating with Ukraine, is 20-25% in the currency of annual income. If Ukraine can offer foreign investors facilities for investment, which will bring them such a return, then we can expect an influx of investment from abroad. If not, then there will be further "fighting corruption schemes", stories about mythical investors, and all sorts of stupid slogans like "they truly love us".

Related: Poroshenko, US Secretary of Commerce discuss investment in Ukraine

As one of the main reasons, why foreign investors are not in a hurry to invest into Ukraine is that the country cannot offer them such objects for investment. Earlier it was profitable to invest money in the metallurgical business in Ukraine, but now the cost of energy resources made it unattractive. Earlier, foreign investors stopped investing money in Ukrainian banks. And after the "reforms" Ukrainian banks are even free to give someone for free. It is not interesting to invest in petrochemical and chemical industry in Ukraine, since raw materials are imported. Investments in energy can be of interest if Ukraine has a market for services for the population in the energy sector, and in general for housing and communal services. No market - no investors. While in Ukraine there is a state monopoly in the housing and utilities market, there can be no question of investors in this area. They talk a lot about investing in Ukrainian engineering. But it's not that simple. Mechanical engineering can be interesting for foreign investors because of the low cost of labor. But the trouble with Ukraine is that we have low wages, but high labor costs. Since the cost of labor, especially in machine building, depends not only on the size of the salary, but also on the quality of the work of workers. Our working cadres are losing competition to workers from China or Indonesia. As a rule, our employees are lazy, they make a lot of messing up, they steal and generally have a bad habit of considering their boss's salary, and not working well and qualitatively. Therefore, any smart investor will quickly open an engineering plant in Bangladesh or Nepal than in Ukraine. As a result, foreign investors are ready to invest, and invest money in small machine-building enterprises that make wires or large-scale assemblage of washing machines and dishwashers from spare parts supplied from other countries. But trusting Ukrainian workers to make smartphones or planes is very dire, and therefore foreign investors take this kind of investment projects as an inappropriate joke.

Related: Poroshenko discuss more active attractive investment with World Bank President

We should not forget about agrarian business and food production. Indeed foreign investors show interest in this investment object in Ukraine. But for this, at a minimum, you need to launch a land market. Without this, one should not expect a large inflow of investments. For foreign investors are afraid to deal with the lease of land, but want to own land in their own property so that they can build silos, farms, ports, and dairies without fear. This line of business can really attract foreign investors. But it is not yet available, and there is no investment. But instead there are talks about negotiations with foreign investors, and myths that tomorrow investors will break into Ukraine bringing their money.

Related: National Bank of Ukraine eases conditions for cross-border investment

Related: EU Ambassadors prolong prohibition of investments to Crimea

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