Investment climate: Why businessmen are afraid to invest in Ukraine?

Author : Andriy Korneyev

Source : 112 Ukraine

Ukraine's business attractiveness grows, the military risks receded into the background, while the dollar remained stable over the past three months. But unstable finance system and ineffective fight against corruption
17:41, 13 July 2016

For the first time in the last two years, Ukrainian and foreign investors are optimistic. According to a survey of the European Business Association participants, in the first half of 2016, investment attractiveness index was 2.88 points out of 5 possible. This is about 0.31 more points compared with the previous six months.

This is the highest figure since 2008. Why are the investors so optimistic? First of all, inflation has decreased to 7% in the first half; according to the government forecasts, this year inflation might reach 12%. Investors agree with the Cabinet of Ministers.

But the main positive change (voiced by 22% of respondents) is stabilization of the national currency. Head of Dragon Capital investment company Tomas Fiala predicts that the rate will not fall below $27 per dollar. "If Ukraine gets international aid, it will not happen," he noted. IMF, the main donor of Ukraine, might provide the next tranche of $ 1billion or even $1.7 billion and it might take place in the end of this summer.

Related: European Commission believes Ukraine’s retaliatory sanctions for Russian goods’ transit are economically deleterious

Current business investments are higher than the last year ones. According to the State Statistics Service, in 2015, Ukraine has received $3.76 billion of investments. According to Dragon Capital analysts, this year the country has received at least $4 billion. But the real figure could be much higher. According to the State Statistics Service, in January-April, Ukraine has got about $2 billion investments.

However, it is too early to celebrate victory. This year, about 80% of the total investment in the Ukrainian market falls on the financial sector. Many financial institutions intend to sell their business, but they cannot do it. Negative news about the work of the bank in Ukraine could affect the value of shares of the whole company, because foreigners maintain even the unprofitable departments," says deputy chairman of a major bank, who requested anonymity.

Related: Italy's good lesson for Ukrainian economy

Now mainly small and medium businesses develop in Ukraine. For example, new shops: Danish network Jysk, children's clothing Steiff, Anabel Arto and more. Unilever Company opened its factory of packaging tea bags of Lipton, Brooke Bond, and "Besida". The amount of investment was 8.3 million euros. Even a relatively small amount of investment attracted the attention of top government officials - President Petro Poroshenko and his administration head Boris Lozhkin met with the company leadership.

Large foreign investors are ready to invest in the agricultural sector, the pharmaceutical business, and infrastructure; buy the largest Ukrainian companies. According to the European Business Association, 91% of the respondents have not noticed changes in the judicial system, and they are dissatisfied with the results of the fight against corruption. Another 79% do not see signs of stabilization of the financial system, 65% do not believe in changing the land reform, 51% find customs procedures ineffective.

Related: World Bank: Ukraine’s economy to grow by 1 percent this year

Executive Director of the International Fund Blazer Oleg Ustenko considers that the Ukrainian government is not ambitious, because it predicts GDP growth of 1.5%, while the world economy is growing at 4% per year.

Related: Ukraine’s economy ministry expects stable growth

Related: Ministry of Economic Development predicts Ukraine's economy shrink 3.5% for 2017

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