Nataliia Osadcha, in an interview for LDaily, talked about the nuances of investing in Ukraine during wartime, the behavior and expectations of domestic and foreign investors, and future prospects after victory.
LDaily: Please describe the current investment situation in Ukraine.
N. Osadcha: Today, Ukraine, more than ever, needs foreign investment. If before the war there was a significant need for foreign capital, now it is critical for the country’s survival. This is primarily due to the ongoing military aggression from russia. For more than 1.5 years, the country has been facing destruction — this includes critical infrastructure, industrial and private facilities, loss of human lives, and a massive migration of the population out of the country. The war is undermining Ukraine’s foundation – the safety of its people and, as a result, its economy and demography.
Currently, Ukraine is adapting to new realities: the country continues to function, albeit not in its usual mode. Of course, Western support (including financial and military) is the driving force that enables the country to operate. However, some credit should also be given to Ukrainian entrepreneurs and foreign businesses that, despite all the dangers, continue to work, pay taxes, provide jobs, and even carry out investment activities.
Throughout the war, President Volodymyr Zelensky and the Ukrainian government have actively encouraged foreign investors to enter the Ukrainian market and invest in its economic recovery. At the same time, as we see now, foreign businesses are more willing to provide financial aid (donations) for various needs of the military, medics, and government than to engage in the investment process themselves. As for new investment projects, currently they are only being discussed without any specific investment steps by potential players. And this is understandable: those who are not in Ukraine (especially now during hostilities) perceive the situation inside the country as excessively risky, so they find it prudent to wait for the war to end and only then invest.
LDaily: What are the current investment offers from the government? Is there demand for these offers, and who is ready to enter the Ukrainian market?
N. Osadcha: The government’s proposals currently lack clear guidelines. There isn’t a unified international governmental platform that encompasses various investment projects, both public and private. There are different venues and forums, but no consolidated database exists. Hence, all offers are predominantly internal and mainly accessible to those players already present in the Ukrainian market. Talking about significant investment processes, firstly, they mostly occur through M&A by consolidating existing foreign players. It’s indeed an interesting and quite profitable process, as many assets that are now up for sale would never have been alienated without the war. So, the opportunity for foreign players to acquire attractive assets at a “compelling” price is a significant advantage.
Secondly, there’s a significant redistribution occurring in all business sectors, especially those in which the russian component was present. A large number of establishments—from shopping centers to banks—have been subjected to the nationalization process, followed by them being put up for open sale. Additionally, changes have been made to Ukrainian laws governing the use of the country’s subsoil resources (including regulations related to the revocation of subsoil use licenses upon discovering russian roots in ultimate beneficiaries). Therefore, not only is there an active redistribution of assets in many sectors of the economy in Ukraine, but also a significant transformation and purging of all spheres from russian influence. Hence, from a financial perspective, this process is a unique opportunity for major investment players. Many understand this, and as a result, are rapidly increasing their assets in various fields. Such players are fully aware that after the cessation of hostilities, these assets will be worth multiple times their current value.
LDaily: What guarantees does the government provide to investors? In your opinion, is it important for new investors to receive governmental guarantees? And generally, what drives such investors to make decisions about entering the Ukrainian market?
N. Osadcha: I can’t assert that governmental guarantees are the primary driving force for attracting investments. The existing legislative base concerning governmental guarantees in the investment sphere was in place even before the onset of the full-scale invasion. The government’s guarantees did not extend to all investment projects. To obtain government guarantees, a project had to meet certain criteria (including the investment sphere, job creation, the amount of investment, etc.). Currently, amendments are being made to these regulations, especially regarding the working domain and the amount of the investment project (the sum is being decreased). However, I don’t believe that these changes will be the decisive factor in increasing the volume of investments, at least not now, during the war. Those players who are acquiring “interesting” assets right now, during the war, aren’t banking heavily on the government’s guarantees. Such guarantees are useful for “from scratch” investment projects, for which the current regulations have been developed. This process is actively functioning even during wartime, and on the government’s behalf, the company “Ukraine Invest” oversees the investment attraction process. It’s worth noting that most of the deals being signed through M&A currently do not fall under government guarantees. And those investors who are investing now clearly understand what they are doing, what they’ll gain from it post-war. And that’s sensible and wise. Such opportunities are quite limited worldwide.
LDaily: What are the main issues for potential investors today?
N. Osadcha: Once again, I repeat: for those players who are already working in Ukraine, all the problem issues are not an obstacle to conducting economic activities and making a profit, even now, during the war. Moreover, in some areas, profitability during military operations has even multiplied. One of the problem issues is corruption. However, I can say from personal experience that it does not exist at all levels, and where it does exist, quite effective mechanisms are being formed to stop or destroy it. Of course, corruption has not disappeared, it was there before the war, and the war has further “highlighted” those areas that should be protected so that this phenomenon disappears in them forever. Precise legislative regulation of controversial issues can significantly reduce corruption. The tool of transferring administrative functions to online systems is working very productively. Precisely automatic systems (without the possibility of physical interference) have shown how powerfully this process can eradicate the corrupt component.
The tool of public opinion (which practically did not work before the war) has also started to work quite well. People have begun to take an active part in public and governmental processes (from analyzing public procurements, specifically, what exactly the government funds are spent on, to collective petitions to the president and the government regarding the dismissal of ministers and heads of certain government structures). Public control is an important way to fight corruption and change the management system, and currently, we are already at this stage. Everyone wants to know where the paid taxes are directed, wants to see officials, law enforcement officers, military personnel, or judges who steal the government budget or make money on bribes held accountable.
LDaily: For which investors can Ukraine be an interesting market? Is there any investment uniqueness of Ukraine and in what does it manifest?
N. Osadcha: Ukraine is a very interesting platform precisely because even before the war there were no firmly established market players (unlike developed countries, where each industry is firmly anchored to certain industrial groups or holdings). Investments in Ukraine are mostly investments in the real sector of the economy with very high profitability (for example, before the war, most investment projects paid off in 3-4 years, and these are investments over $100 million). Ukraine is incredibly rich, it is the largest agricultural country in Europe in terms of fertile land (with unique black soils, which are not found in such quantities in any other country in the world). We are also the first among European countries in terms of mineral resources. At the same time, there is almost no processing in Ukraine, which opens up significant opportunities for large foreign players. I note that many transnational corporations have been successfully working for a long time in Ukraine in various sectors of the economy. Therefore, Ukraine is not a new market or an unknown third world country for them. However, this kind of information is not widespread because there are certain commercial interests of such corporations, which is quite understandable. Thus, before the war, Ukraine was (and remains) a rather interesting market: the population before the start of hostilities was about 40 million, which, of course, is a large market for retail and consumer goods manufacturers (furniture, clothing, services, etc.). Therefore, I not only believe, but I know for sure that Ukraine will become a new object for investment for a very large number of businesses and investors from all over the world. In addition, Ukraine will provide attractive investment opportunities for private funds, private pension funds, private investors looking for stable high returns in the real sector of the economy. Especially in the agro-sphere, because most startups that are currently offered on this market as projects with particularly high profitability do not fulfill their obligations, and some of them simply go bankrupt. A good example is the case of WEWORK (activity in the real estate sector). The WeWork co-working network resounded loudly around the world, so it had a fantastic valuation of $47 billion. Investors actively pumped money into the company: SoftBank alone invested over $10 billion. In mid-April, it turned out that the New York Stock Exchange NYSE sent a message to the management of WeWork about a potential delisting of the company’s shares from the exchange. According to the rules of the exchange, if the shares of the company are traded below $1 per piece for a certain time, a forced delisting occurs. This happened with WeWork: the company’s shares are now traded at $0.46 per piece. The company’s capitalization has decreased to $334 million. The pandemic and the remote form of work have greatly changed the profitability of office real estate not only in the USA but also around the world.
LDaily: What does a foreign investor need to be successful in Ukraine?
N. Osadcha: Firstly, understand the implementation of investment projects. Secondly, analyze the Ukrainian market (because it has its specifics). Thirdly, find an investment plan in Ukraine (or develop your own). If we are talking about M&A, then a detailed audit is needed (legal, financial, and risk). I understand that it is not only difficult to do this alone, but also practically impossible, so I will be frank: to implement any investment project in Ukraine (as in any other country in the world), it is necessary to assemble a team of professional top specialists with a significant track record. Then everything will work out for the best.
LDaily: What typical mistakes do foreign investors make in Ukraine? What should be paid special attention to?
N. Osadcha: The main mistakes are banal: first, it is excessive trust in the government’s guarantees. Government guarantees are not a bad thing, but legal, financial, and other work has not been canceled.
Second, trust in partners is needed. Competent legal agreements are the guarantee of good partnership relations (especially with the Ukrainian side).
Third, it is the absence of specialists in investors, especially in management and risk identification. This is a mistake because Ukraine is still a country with high risks, and they must be studied and identified before making a decision on investment.
There are many mistakes, but I think I have listed the most important ones.
LDaily: Recently (including with your participation), the Ukrainian Recovery Fund was established. What was the purpose of creating this fund, its primary goal, values, and objectives?
N. Osadcha: My partners and I have long discussed the necessity of creating an investment fund that would provide opportunities to successfully invest in Ukraine for both large corporations and private entrepreneurs looking for high returns in the real sectors. We understood that the lack of practical experience and knowledge about the Ukrainian market made the investment process almost impossible for such players. Investors missed out on high profits, and Ukraine lost economically. Having over 20 years of successful experience in implementing significant investment projects in Ukraine gave us a unique opportunity to bring interested players to the market, who lacked sufficient experience to invest in Ukraine specifically. The primary goal of the Ukrainian Recovery Fund is to create opportunities for any market players (from multinational corporations to individuals) to be a part of Ukraine’s recovery process, facilitating access to effective ecological and highly profitable projects.
LDaily: What is the primary idea and purpose of the fund?
N. Osadcha: The fund serves as a platform and partner for its investors, guaranteeing profound expertise and market knowledge, ensuring a return within the parameters defined for each project. The main goal is the restoration of Ukraine’s economy, establishing environmental business practices. Ecological projects primarily aim at restoring the fertility of our lands and introducing innovative technologies, all while guaranteeing high profitability and fair rules of engagement for everyone who joins the fund. A prosperous and fertile Ukraine is a guarantee of sustenance for everyone, as Ukraine is the world’s breadbasket.
Regarding the interaction with governmental authorities, the fund acts as a guarantor of proper dialogue and close cooperation with Ukrainian governmental bodies for its investors. Within this initiative, the fund has already signed a Memorandum of Cooperation with the Ministry of Agrarian Policy and Food of Ukraine, outlining the main directions of activity in the framework of the fund’s investment projects.
LDaily: What are the main investment directions of the fund, and why were they chosen?
N. Osadcha: The main directions for investments that the fund has chosen for itself are, of course, the most important ones for the whole world today – the agro-industrial complex (cultivation, storage, processing, sale of agricultural products). With the increase in the Earth’s population, climate change, limited amount of fertile land, the food crisis is predictable and inevitable. Therefore, Ukraine, which has 42 million hectares of land (of which black soil is 24 million hectares, which is 30% of all world’s black soil), plays and will play a key role in preserving life and avoiding hunger on Earth. Therefore, everything related to the agricultural sector has a huge potential in Ukraine. In particular, the country plays a key role in ensuring global food security.
However, this direction is key for the fund not only due to high profits and the shortest investment payback periods (payback periods in this industry are incredibly short even during wartime – up to 5 years,) but also because this sector is responsible for ecological and food security. Moreover, investing in raw materials processing will allow a quick recovery of the Ukrainian economy, increase the number of jobs, and transfer the country from the status of a raw material exporter to the long-awaited status of a high-quality finished product exporter.
The second direction of the fund’s activity is the exploration and extraction of minerals. It is no secret that Ukraine’s natural resources are rich, especially the volumes and types of minerals. Ukraine has discovered and developed deposits of oil, gas, coal, peat, shale, uranium; iron, manganese, chromium and nickel, titanium, magnesium, as well as aluminum, copper, zinc, lead… There are also gold, silver, mercury, beryllium, lithium, zirconium, hafnium, tantalum, niobium, cobalt, tin, tungsten, molybdenum, vanadium, yttrium and lanthanides, and dispersed elements of germanium and scandium in the subsoil. Therefore, this area is very attractive for investment. Currently, Ukraine is changing its regulatory framework to identify specifically the russian business element in the field of mineral extraction and to cancel licenses for the use of subsoil of those companies whose ultimate beneficiaries are russian businesses. Therefore, this market is in a state of active transformation and now, as never before, is financially interesting for investment.
The third direction of the fund’s activity is energy-saving technologies. In the conditions of the energy crisis, it is necessary to change the processes of energy production, so we have several interesting projects in this area as well.
LDaily: What are the main functions of the fund? How did you select the team and partners?
N. Osadcha: The main function of the fund is to analyze the market, find highly liquid investment directions, develop investment projects with the highest degree of protection, minimal risks, and the longest investment return periods for our investors. Our team, which has been successfully implementing the most ambitious investment projects of transnational corporations in Ukraine for over 20 years, forms the basis of this fund, and many years of practical experience in the Ukrainian market is a guarantee for the implementation of the most daring projects. We did not search for team members; we simply worked together for many years for transnational corporations and one day realized that we could do it for a larger number of investors, with different levels of investment capabilities. We just want to provide access to high-yield investments for both private and corporate investors, help them become part of an important process not only of making money but also of rebuilding Ukraine after difficult times and losses.
Regarding our team, it includes leading financiers, analysts, risk managers, lawyers, investment advisors, marketers, journalists, PR specialists… Our team consists of specialists located both in Ukraine and the USA. This allows us to have direct dialogue with potential investors, quickly implement projects, and carry out all business processes.
LDaily: What is the role of S&P Agency in the fund’s activities?
N. Osadcha: The role and functions are the same as we have been performing for the last 20 years: to identify potential risks of a future investment project (financial, legal, political, and others), create an optimal structure that meets the investor’s needs, ensure maximum profit, and form protection against any unlawful actions. In general, it is the support of investment activities in Ukraine with the aim of resolving any controversial issues during the implementation of the investment project.
LDaily: What are the main step-by-step tips for potential investors entering the Ukrainian market?
N. Osadcha: It is very difficult to enter a new market without knowing its structure, specifics, and pitfalls. Therefore, the first and most important piece of advice is to find experienced advisors in investment activities, finance, law, and risk analytics. It is not easy to assemble such a team in Ukraine, with specialists having a good experience and effective interaction. However, the choice of partners and advisers is a key factor for successful market entry.
Government guarantees, although a good tool and can be a guarantee for future communication between the investor and the government, do not ensure the smooth implementation of investments.
In addition, before entering the market, it is worth conducting a real risk analysis of the projects proposed for investment, both from the side of the Ukrainian business and the government.
And only when the investor has received the appropriate conclusions from experienced specialists, confirming investment profitability, supporting the model, and guaranteeing the absence of risks, then one can invest.
LDaily: What are your expectations for the post-war recovery of the country?
N. Osadcha: Our expectations are very positive. Ukraine is becoming a very attractive investment site with high business opportunities. The short-term return on investment combined with government guarantees, the desire of businesses worldwide to join the process of Ukraine’s restoration, which not only declared its values but is fighting for them on the battlefield, paying an incredibly high price, the lives of its citizens, will all be a guarantee that entirely different businesses will come to Ukraine. And it is not only about money (although it is also about them), but about the noble mission of helping to create a new Ukraine, with a stable economy and European rules of the game. Ukraine needs help to change and flourish, and it will definitely receive it, and in return will provide access to its abundant resources and the opportunity for fair profit.
