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Ukraine: Foreign Investors Signal Cautious Optimism

  • Nikola Krastev

Ukrainian President Viktor Yushchenko (file photo) Expectations of the new Ukrainian administration led by President Viktor Yushchenko are high. But participants in a recent global investors' conference in New York suggested that the government ushered in by the Orange Revolution must complete ambitious reforms in order to attract investment. They include reining in regional business groups, reducing government regulation, and fighting corruption.

New York, 21 March 2005 (RFE/RL) -- Hundreds of investors gathered at a conference recently in New York to assess business prospects for Ukraine in the aftermath of dramatic political changes signaled cautious optimism.

They pointed to steps to reduce market regulations, improve the tax code and prosecute political and economic crimes. But they also cited obstacles to foreign investors in Ukraine, the largest being closely intertwined political and economic interests and the considerable power of regional business groups.

Among the participants was Natalie Jaresko, who heads the Western NIS Enterprise Fund, a private equity fund with more than 150 million dollars invested in Ukraine and Moldova. She told the conference that conditions in Ukraine appear finally to be changing.
"For the longest time, many of us looked at Ukraine and Deutsche Bank's and others' road studies that talked about whether Ukraine was a land of opportunity, whether you can make money there. And the glass was always half-full, [or] half-empty depending how you looked at it. Today I can say with great confidence that that glass is beginning to fill up."


"For the longest time, many of us looked at Ukraine and Deutsche Bank's and others' road studies that talked about whether Ukraine was a land of opportunity, whether you can make money there," Jaresko said. "And the glass was always half-full, [or] half-empty depending how you looked at it. Today I can say with great confidence that that glass is beginning to fill up."

Jorge Zukoski, president of the American Chamber of Commerce in Ukraine, said Ukrainian consumers are accumulating disposable income and are becoming more sophisticated in their choices.

Zukoski said agriculture is among Ukraine's more promising sectors for potential investment.

"This is one sector of the economy that Ukraine by far has competitive advantages," Zukoski said. "We are seeing our members and new investors getting involved in everything from input provision, seeds and chemicals, to equipment, managed farming, commodities trading, grain elevators, port infrastructures, as well as food processing."

Zukoski also pointed to opportunities in light manufacturing, fast-moving consumer goods, and the construction industry.

Ukraine's economy has grown for each of the past five years. Last year, growth was more than 12 percent, which compares favorably with other emerging markets.

Jaresko of the Western NIS Enterprise Fund described the changes that are under way: "What the post-revolution has done [is that it] has offered us not only a different mindset of business managers to deal with, but it has offered us a much better liquidity situation for getting out and exiting, realizing these investments both, with new strategic investors coming into the country in the next 12, 18, 24 months, and the opportunities for potentially doing IPO's (initial public offerings of stock) on a very high-demand stock-market which didn't exist five [or] 10 years ago."

Despite the optimism, some experts warned that doing away with the old mindset in Ukraine will be a considerable challenge for the new government.

Kyrylo Kryve is head of research for the Ukrainian MFK Investment Bank, one of the country's largest. He said current regulations do little to protect the interests of minority shareholders, for instance.

"You must be aware that business groups controlling over 75 percent of any company [in Ukraine] can do virtually anything to this company regardless of the interest of the minority shareholders," Kryve said.

Kryve said there are significant ownership risks in Ukraine and that companies can easily be targeted for hostile takeovers and asset stripping.

Other participants in the conference noted that Special Economic Zones in Ukraine -- 11 in total -- were originally designed to boost economic activity in certain regions and attract investments. But, they said, those areas have de facto became loopholes for money-laundering and tax evasion.

The new government -- headed by Yuliya Timoschenko -- is said to be reviewing the legality of hundreds of privatization deals. The news sent out ripples of concern. But Jaresko, for one, said she believes the government was only targeting a few high-visibility cases. She said she thinks there is no intention to reopen the entire privatization process.

Conference participants suggested that the streamlining in administrative reform of the government is already visible. It is important, they said, because with the result will be fewer opportunities for regulatory obstacles and less room for corruption. They say the streamlining also makes pay-scale reform possible, thus allowing for wages for civil servants that make them less prone to corruption.
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