KYIV -- The way Mykhaylo Gambashidza sees it, it’s a very good time to start a business in Ukraine: he’s just opened a gym in the western city of Lviv.
Ihor Balaka, who is involved in real estate investments in Kharkiv, a city of 1.4 million near the Russian border, begs to differ.
"Even those investors who planned quite serious investments are now leaving," Balaka told Current Time, the Russian-language network led by RFE/RL in cooperation with VOA.
Even before the deployment of more than 100,000 Russian troops near its borders set alarm bells clanging, Ukraine was struggling to improve its business climate, to attract private investment and diversify its economy.
The country’s famed “black earth” has long made agriculture a driver of economic growth, propelling Ukraine to the No. 2 spot on the list of global grain exporters. Substantial energy resources have long been seen as a major potential source of revenue and investment.
But Ukraine’s business climate has also long been hobbled by rampant corruption, a compromised court system, and the powerful interests of oligarchs who hold outsized sway in key sectors.
And then there’s the war that has been churning on in eastern Ukraine since 2014, casting a pall over any wide, sustained effort to attract investment. The International Monetary Fund has pumped billions of dollars into the country, to help stabilize it, but has also made reforms a condition for some of that aid.
Like in many countries, the COVID-19 pandemic has also put a brake on economic development, according to the World Bank. The economy contracted in 2020 and saw a net outflow of investment the same year. It’s expected to report near-negative growth for 2021, according to forecasts.
Mixed Investment Climate
Months of threats and uncertainty over Russia’s military intentions have put a damper on private investment, though not as drastically as some have predicted.
The mixed investment climate is reflected partly in a recent survey from the European Business Association, which says its membership includes more than 1,000 Ukrainian companies.
The survey found that 58 percent of its membership plan to keep current staff levels. Another 14 percent said they are actively recruiting new employees, while an identical number said they plan some layoffs.
In the capital, Kyiv, where much of the country’s investment wealth is concentrated, the survey found that 45 percent of businesses planned to continue operations despite the conflict, but 15 percent would move to western Ukraine in the event of a wider war.
Another 10 percent said they planned to move out of Ukraine but maintain control of operations that remain in the country. Just 7 percent of respondents said they would close their business entirely.
Lviv, near the Polish border, is a city that few consider to be a likely target for any potential Russian invasion, which helps explain why small business owners like Gambashidza are investing.
“If you don’t allow your emotion to creep in, then in principle, there’s no fear,” he said. “There’s no fear, there’s confidence. You have to learn to live with a hurricane.”
The uncertainty over Russian intentions, and the increasingly dire warnings from U.S. officials, have taken a toll on the national currency, the hryvnya, which has slipped nearly 10 percent since November. It has recovered slightly over the past two weeks.
The currency fell “not because there were economic reasons, but because there was strong fear among investors,” financial analyst Serhiy Fursa said.
"When the fear passed, when there was a certain verbal de-escalation, the currency rate returned to certain levels set by economic factors” rather than fear, he said.