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Ukraine: Investors Recognize Potential And Problems

Prague, 4 March 1998 (RFE/RL) -- Ukraine is at the center of a paradox, namely that international interest in investment there is running hot, while the actual conditions for investors are abysmal.

On the one side of that equation is the enthusiasm being shown for a business seminar taking place this week (March 5 and 6) in the Austrian capital Vienna. Organizers of the conference, called "key operating and investment issues in the Ukraine," say there is a high level of interest among senior representatives of multinational companies.

According to conference organizer William Crisp some 60 executives are paying the substantial participants' fees from industries which include food processing, agricultural chemicals, electronics and computing, telecommunications, banking, health care and other industries.

They will hear speakers who have first-hand knowledge of what it's like to do business in the Ukraine, one of the least transformed of the former European communist countries. Among the speakers are managers from big players like Coca Cola, IBM and Ericsson.

The seminar, which is run by the influential British magazine the Economist, in association with Kyiv's VABank, comes at a bleak time when the Ukraine economy is still contracting and uncertainty is peaking because of this month's parliamentary elections (on March 29). The left, which opposes further reform and is already the biggest grouping in the parliament, is expected to emerge stronger from the election. The economy continued to shrink by some three percent or more last year, privatization has lost its momentum, corruption remains omnipresent and foreign investment is generally low. The population is tired and discouraged, and is owed thousands of millions of dollars in back wages and pensions.

Despite everything, not all investors' views are pessimistic. For instance a key Bank of Austria subsidiary (Creditanstalt) recently told RFE/RL that it is going into Ukraine this year convinced that it can make a profit.

However Robert Gale, Global Business chief for East Europe of the Austrian-based agricultural chemicals company Dow Elanco, says he has a daunting message to deliver to the Vienna seminar. He says that as far as agriculture goes, Ukraine is now in a very poor state, with production having generally fallen by about 50 percent compared with 1988.

He says that in his estimation, no marked improvement can be expected in the near to medium term, largely because of the country's political situation. Gale says this grim outlook prevails despite the great effort the United States has been making to get the Ukraine authorities to improve conditions for the operation of private companies.

In his remarks to RFE/RL, Gale acknowledged that wide Western investment interest exists.

And recalling that Ukraine was once the breadbasket of Europe, and still has very good soils, he says the potential is huge. Ukraine could regain its place as the breadbasket -- if there is the will on the part of the government to embrace free market principles. Gale says that while President Leonid Kuchma talks about wanting to create a free market economy, the actions of his ministers, particularly those ones dealing with agriculture, indicate that the practice is completely the opposite. And he says that in his estimation the business atmosphere has further worsened this year. He points out that the agro-industry is carrying a huge debt burden, and that it is "extremely difficult" to do business in Ukraine without first extending new credit, which many companies are reluctant to do. Under these conditions, Gale points out the advantage of appointing Ukrainians to handle local business, as they know how to get things done in this situation.

Summing up, Gale says that his experience is that Ukraine is now by far the most difficult country in East Europe or the CIS in which to do business -- much worse than Russia and worse even than Belarus.

So what are the conclusions which can be drawn from all this? They are that international money is waiting eagerly to flow into Ukraine -- if the government there is willing to or capable of creating the right conditions. Without those conditions, however, investment is likely to remain modest at best.