Investing in Ukraine under Crisis Conditions

Financial Crisis today is one of the most actual questions of Ukraine economy.

The decline of economy which was accompanied by a sharp production and investment recession affected most of the world.

According to the UNCTAD’s report the global volume of foreign investment in 2009 reduced for 39% or up to 1 trillion USD. For comparison, this indicator in 2008 made up 1.7 trillion USD.

Falling of global investment also has affected Ukraine. According to the State Statistics Committee the net increase in foreign direct investment for 9 months of 2009 totaled to 2.972 billion USD. It is in 2.7 times less than the same indicator for the 9 months of 2008. In 2009, foreign investors have invested in the Ukraine economy 5.634 billion USD of direct investment; which amounted to 51.6% of investments in 2008. (Fig.1)

Fig.1. Volume of the foreign direct investment 2008-2009.

The State Statistics Committee informs that EU countries have invested 4.016 billion USD (71.3%), CIS countries – 1.064 billion USD (18.9%), other countries – 0.533 billion USD (9.8%). The main countries investors are Cyprus – 8.593 billion USD, Germany – 6.613 billion USD, Netherlands – 4.002 billion USD, Russian Federation – 2.675 billion USD, Austria – 2.604 billion USD, United Kingdom – 2.375 billion USD.

However the Ukraine investment attractiveness begins to grow after the prolonged financial collapse.

According the Bleyzer Foundation 53.7% of investors are going to invest in Ukraine in the following six months, 24.4% are completely ready.

It is important to note that Standard & Poor’s raised the national scale of Ukraine sovereign credit rating from uaBBB to uaA.

Although higher credit ratings can’t be considered as a “green light” for investing in Ukraine, but it can be estimated as creditworthiness. So Ukraine is expected to have the reviving of investment activity.

Crisis is a rather multifaceted phenomenon. It is a time of great losses and a time of great opportunities. Despite its paradoxical nature, crises are progressive in spite of all soreness. The main functions of crisis are destructive and creative. During the crisis outdated elements of the system are eliminated. It is a kind of “way clearance” for the new cycle system. This crisis set free a number of niches in Ukraine economy and opened hidden investment opportunities.

According to the State Statistics Committee Ukraine industrial production in 2009 reduced for 21.9%. Recession in extractive industry was 10.7%, in processing – 26.6%. Decrease in machine building in 2009 was 45.1%, in metallurgical production – 26.6%, chemical industry – 23.2%, light industry – 25.9%. (Fig.2)

Fig.2. Recession industrial production by industries.

For the most investors, who want to invest in Ukraine, the major risks are legal-political instability and a precarious financial system. It is possible that the inflow of foreign investment in the country will increase from the beginning of   reforms which was promised by the Government. For example, the law granting privileges for the hotel business was registered in the Verkhovna Rada of Ukraine. MAYGER LLC also strives to support business to overcome financial recession. MAYGER has submitted the concept of Import Substitution Program to Ukraine Government in order to implement the program for overcoming the crisis in Ukraine.

The most attractive sectors for the foreign investment are agriculture, food processing, hospitality, IT, energy and pharmaceuticals. Also growth of investments is expected in the sphere of infrastructure. It is connected with the EURO 2012 in Ukraine.

National Bank of Ukraine reported on growth of deposit base. If in 2009 the passive base of banks has decreased by 45.78 billion UAH, from the beginning of 2010 investment began to increase. It means that the financial sector of Ukraine is stabilizing.

With the emerging positive preconditions one can say that 2010 will be investment thawing for Ukraine.