Investments in Ukraine: Key challenges of the coming years

Author : Olexandr Honcharov

Source : 112 Ukraine

Developing the national stock market and the infrastructure of the Ukrainian investment business is extremely acute today
18:52, 21 February 2019

Developing the national stock market and the infrastructure of the Ukrainian investment business is extremely acute today.

Therefore, it is necessary to promote such a process, in which the participants themselves, not the corrupt state bodies, would choose what they like thus developing the Ukrainian investment service. And actively offer financially wealthy citizens to invest their free funds in new financial instruments.

Related: Investment Climate of Ukraine: Business Forecasts

For the practical implementation of such a large-scale project, Ukraine’s Cabinet of Ministers should create a working group to implement specific measures of the National Strategy on the "Network of Development Projects."

The strategy could become the main driver of many companies and private investors. However, at the initial stage of the formation of such a market, a certain financial overhang should arise in Ukraine.

Only, in this case, private capital in large volumes will come to our country, as investors will notice the liquidity. And when other foreign investors see that you can earn money here, then everyone will come to our market tomorrow. This is clearly illustrated by world experience. There is no other way.

We need to come up with modern mechanisms and tools to infuse long investment money into the real sector of the economy and preserve the remaining savings of the population. We would prepare a roadmap for launching a “pilot project” for the creation and development of the National Direct Investment Fund, following the principles of public-private partnership, which will be a logical continuation of the reform of our capital markets.

And, as you know, financial and economic reforms always have three mandatory rules. First, these reforms must be fair. Secondly, resolute. And, thirdly, pretty fast.

In the face of fierce competition for investors and human resources, the question is: will we be able to fulfill at least one of these three rules this year?

Related: Ukraine could interest foreign investors with its citizenship

Would the underdevelopment of national capital markets, which still do not have their own legislative base, be a difficult challenge for the economy of Ukraine? Yes, the leading experts are actively discussing whether the crisis of our stock market is in the past or we are still experiencing it? I dare say: the crisis was in the past, we feel it now, and we will face it in the future.

For example, trade in Ukrainian stock markets in 2018 amounted to 8,7 billion USD, this is 26.8% more than a year earlier. It seems to be a positive trend, but let us reveal these numbers.

The volume of trading in domestic government bonds (DGB) has increased by 29.6% to 8,75 billion USD, the volume of trading in corporate bonds increased by 67.8% to 367,000 USD, other securities decreased by 27.4% to 135 million USD, shares decreased by 4,3 times - to 42 million USD.

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What does this mean? The investment money does not go to the enterprises of the real sector of the Ukrainian economy, and the Ministry of Finance is placing government bonds at record high-interest income (up to 20% per annum without taxation), primitively patching the "holes" in the state budget.

But a producing economy does not work.

Entrepreneurs seek to appear in front of their counterparties in the best possible light in order to effectively reorganize a joint stock company or raise capital with a successful entry into the market with an Initial Public Offering, IPO.

However, after Verkhovna Rada has rejected the draft Law on Capital Markets and refused to start the accumulative level of the pension system from January 1, 2019, we have almost zero involvement of private and institutional investors in the country's economic processes.

Related: Ukraine's actual place in world economy

According to preliminary estimates, in the case of full coverage of the cumulative system of all categories of insured individuals (under 40 years old) and the size of contributions (7% of the wage fund), the annual amount of income to the cumulative level could exceed 714 million USD.

Ukraine should increase the volume of trading on the organized stock market by at least 50-60 times by attracting domestic and foreign investors. Our economy really needs this long investment money.

We are constantly provided with technical assistance by experts and analysts from the United States Agency for International Development (USAID), the International Association of Swaps and Derivatives (ISDA), an organization uniting participants of the OTC derivatives market (headquarters in New York, unites more than 800 members from 56 countries the world), the National Futures Association (NFA, USA), the US Futures Trading Association (FIA), as well as representatives of the Commodity Futures Trading Commission (CFTC, USA) and the US Securities and Exchange Commission.

Finally, due to the lack of an International Investment Hub in Kyiv, we tail along the global financial centers. That is why the investment climate in Ukraine is not just bad, but terrible.

Related: Ukraine could disappear from economic map of the world

Our entrepreneurs are not ready to take risks, pool financial resources, and implement various investment projects.

What should we do then? Once again, we need to implement a National Strategy "Network of Development Projects" with a number of large-scale private investment projects.

At this stage, the main thing is to direct the movement vector to transfer savings of financially wealthy citizens to venture investment funds and step up lending to the real sector of the economy. Everything else is a just technical details.

And, of course, given that liquidity drives the stock market, not to rely on the optimistic forecasts of many politicians, but to choose only those investments where the return is clear and not connected with the market movement.

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This column does not necessarily reflect the opinion of the editorial board or 112.International and its owners.

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