Is investment rate really growing in Ukraine?

Author : Oleksandr Okhrimenko

The growth of the index of capital investments in Ukraine for the first quarter of 2018 is just off scale. For a long time our country has not seen such a result
21:47, 5 June 2018

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Judge for yourself: for the first quarter of 2018, the index of capital investments in Ukraine increased by 37.4% compared to the same period last year. But it is worth recalling that for the first quarter of 2014, capital investments fell by 23.1%. What happened so that everything began to grow?

The growth of the index of capital investments in Ukraine for the first quarter of 2018 is just off the scale. For a long time, our country has not seen such a result. For the first quarter of 2017, this same index grew by 21.4%, and for the first quarter of 2016, only by 0.7%. Or maybe it is not a growth?

The index of capital investments is considered as a deduction of the price increase in Ukraine, although it is difficult to completely clear this index from the price increase, but, in general, the trend is correct. Yes, it’s really the growth. At the same time, in the industry, this index grew by 46.3%. Investments in IT services have doubled. Although investment in agriculture increased only by 10%. The drop in capital investments has not been reported in any segment of the Ukrainian economy.

In order to understand why such a large increase is reported, you should carefully look at the sources of financing. The Ukrainian business invested the biggest amount of money. About 76% of all investments for the first quarter of 2018. The share of the population in the total amount of investments is, as a rule, money for the purchase of housing, about 8%. But the state share in capital investments is 1%, and foreign investors share - 0.3%. Just do not ask how many and where were spent billions of hryvnia, which from the state budget of Ukraine were directed to economic development and invested in the real economy. Our authorities will be uncomfortable answering this question since the hands are constantly busy because it is necessary to spend most of the working time to recalculate "kickbacks". We talk a lot about the state which spends billions on investments in the Ukrainian economy, but if you look in more detail, the majority of this money is spent on conducting economic forums on attracting investment. And this trend cannot be reversed. Because all who are in the opposition, promise economic growth and honestly invest money from the state budget in the real economy of Ukraine. But as soon as they come to power, these most active oppositionists become the most active investor in offshore, and it all ends sadly.

Who can recall how many times our president and prime minister told us how the investment attractiveness of Ukraine among foreign investors has sharply increased? Here only the figures speak about something else. Back in the first quarter of 2011, and when the power was in the “hands of criminals” and no one has fought against corruption, the share of foreign investments in the total amount of capital investment was ten times more, in other words, 3% of the total.

The real economy of Ukraine is more pragmatic, and in this, it is not unusual that the population and Ukrainian business are the main investors in the economy, and thanks to them the Ukrainian economy has not completely collapsed yet.

But what is not enough for a real drive is that the investment growth is not situational, but regular and that everything grows at times. In Ukraine, there is no normal business lending. The share of loans in the total amount of capital investments for the first quarter of 2018 was 8.4%. In the first quarter of 2013, before the Maidan, this figure was 18%. And this is not enough. In normal countries, the share of loans that help businesses to develop is up to 50% of the total investment. Without a revival of normal lending, one should not even dream of a normal economic growth. Because the money of the population is not unlimited. But the hryvnia has stabilized, there is no risk of a big devaluation, businessmen, and ordinary Ukrainians have become more inclined to invest. In general, as soon as the hryvnia devalues, the population and business buy up dollars, but as soon as the hryvnia exchange rate is more or less stable, they start thinking about what to do with dollars. Just now, these same currency "stash" of the previous periods is used, when it makes sense to change dollars to a hryvnia and build a house for themselves or buy an apartment. Everything is moving, everything is changing.

The biggest risk is that the "stash" will run out, and lending will not start, and then the dizzying growth of capital investments will disappear as sharply as it appeared. All this talks about the fact that now Ukraine will defeat corruption and foreign investors will invest in Ukraine – it’s just a wish. No one is going to rush, and what corruption has to do with people investing? For any investor, the most terrible thing is different kinds of revolutions, a mess and a collapse of the hryvnia, which are so popular after political upheavals. And most importantly: money loves silence, not stupid reforms that only harm business and create problems for the population. We just need fewer reforms and run a normal business lending. And the economic miracle in Ukraine will flourish.

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