The current investment situation in Ukraine
Today, Ukraine is in dire need of foreign investment more than ever. While the need for foreign capital was significant before the war, it is now critical for the country’s survival. This is primarily due to the ongoing military aggression from russia. President Volodymyr Zelensky and the Ukrainian government have been actively calling for foreign investors to enter the Ukrainian market and invest in its economic recovery throughout the war.
At the same time, as we see now, foreign businesses are more willing to provide financial aid (making donations) to various needs of the military, medics, and the government than to engage in the independent investment process. As for new investment projects, they are currently only being discussed without any specific investment steps from potential players. And this is understandable: those who are not present in Ukraine (especially now, during active combat) perceive the internal situation in the country as highly risky. Therefore, they find it prudent to wait for the end of the war and only then invest.
Investment proposals from the government
At the moment, the government’s proposals lack clear guidelines. There is no single international governmental platform that would encompass various investment projects – both governmental and private. There are various platforms, forums, etc., but no consolidated database exists. Therefore, most proposals exist mainly within the country and are accessible predominantly to those players already in the Ukrainian market. Regarding significant investment processes, firstly, they mostly take place through M&A by consolidating existing foreign players. This is indeed an interesting process and quite profitable, as many assets currently for sale would never have been alienated if not for the military actions. Hence, the opportunity for foreign players to acquire attractive assets at an “interesting” price is a significant advantage.
Secondly, there’s a significant redistribution happening across all business sectors, especially those where the russian component was present. A rather large number of entities—from shopping centers to banks—have been subject to nationalization, followed by being put up for open sale.
Governmental guarantees for investors
I can’t claim that governmental guarantees are the primary driver in attracting investments. The current legislative framework concerning governmental guarantees in the investment sector existed even before the onset of the full-scale invasion. The government’s guarantees did not extend to all investment projects. To obtain governmental guarantees, such a project had to meet specific criteria (including the investment sector, job creation, investment amount, etc.). Currently, changes are being made to these regulations, especially concerning the scope and the investment project amount (the amount is being decreased). At the same time, I don’t think that these changes will serve as a decisive push to increase the volume of investments, at least for now during the war. Those players who are buying “interesting” assets now, during the war, are not counting much on the government’s guarantees. Such guarantees are useful for “ground-up” investment projects, for which the current regulatory framework was developed.
Main challenges for potential investors
For those players who are already operating in Ukraine, all the challenges do not hinder conducting business and making a profit, even now, during the war. Moreover, in some sectors, profitability has even increased multiple times during the hostilities. One of the challenges is corruption. However, based on my experience, it doesn’t exist at all levels, and where it does exist, effective mechanisms are being formed to stop or eradicate it. Understandably, corruption hasn’t disappeared; it was there before the war, and the war further “shed a light” on the sectors that should be protected to eliminate this issue forever. Detailed legislative regulation of contentious issues can significantly reduce corruption.
Ukraine’s investment uniqueness and its manifestations
Ukraine is an intriguing field mainly because even before the war, we didn’t have firmly established market players (unlike developed countries where each industry is firmly held by specific industrial groups or holdings). Investing in Ukraine primarily means investing 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 were investments exceeding $100 million). Ukraine is incredibly rich; it’s the largest agricultural country in terms of fertile land in Europe (with unique black earth soils that no other country possesses in such quantities).
We are also first among European countries in terms of mineral resources. However, there is almost no processing in Ukraine, which offers significant opportunities for large foreign players. I should note that many multinational corporations have been working in Ukraine for a long time and very successfully in various sectors of the economy. So, Ukraine is not a new or unknown third-world country market for them. However, this and other information is not widely disseminated, largely due to the commercial interests of these corporations, which is entirely understandable. Thus, before the war, Ukraine was (and remains) an attractive market: the population was about 40 million, which is, of course, a sizable market for retail and consumer goods manufacturers (furniture, clothing, services, etc.). So, I not only believe but know for certain that Ukraine will become a new investment target for many businesses and investors from around the world. Additionally, Ukraine will offer attractive investment opportunities for private funds, private pension funds, and private investors looking for a stable high return in the real sector of the economy.
What a foreign investor needs to be successful in Ukraine
Firstly, one must understand the implementation of investment projects. Secondly, analyze the Ukrainian market (which has its specifics). Thirdly, enter Ukraine with (or develop one’s own) an investment plan. When talking about M&A, a detailed audit (legal, financial, and risks) is required. I understand that doing this alone is not only difficult but virtually impossible. So, let me be frank: to implement any investment project in Ukraine (as in any other country in the world), you need to assemble a team of top professional specialists with a significant track record. Then everything will work out best.
Common mistakes made by foreign investors in Ukraine
The main mistakes are basic: firstly, an over-reliance on governmental guarantees. Governmental guarantees are good, but due diligence in legal, financial, and other areas is still required.
Secondly, trust in partners is essential. Proper legal agreements are the foundation of good partnership relations (especially with the Ukrainian side).
Thirdly, many investors lack specialists, especially in management and risk detection. This is a mistake because Ukraine is a high-risk country, and these risks must be studied and identified before making an investment decision.
About the Ukrainian Recovery Fund
For a long time, my partners and I discussed the need to create an investment fund that would provide an opportunity for both large corporations and private entrepreneurs to invest successfully in Ukraine, especially 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 returns, and Ukraine lost economically.
Having over 20 years of successful experience in implementing large-scale investment projects in Ukraine has given us a unique opportunity to introduce interested market players who did not have sufficient experience for such investment specifically in Ukraine. The main goal of the Ukrainian Recovery Fund is to create opportunities for any market players (from multinational corporations to individuals) to be part of the Ukraine recovery process, facilitating access to effective environmental and high-profit projects.
The Fund serves as a platform and partner for its investors, guaranteeing deep expertise and market knowledge, and ensuring profitability within the limits set for each project. The primary goal is to restore Ukraine’s economy and establish environmental business practices.
Investment directions of the fund
The fund’s main investment focus, unsurprisingly, is agro-industry (cultivation, storage, processing, and marketing of agricultural produce). Given the increasing global population, climate change, and limited arable lands, a food crisis is both projected and inevitable. This is where Ukraine, with its 42 million hectares of land (of which black soils or chernozems account for 24 million hectares, making up 30% of the world’s total chernozem), will play and continue to play a crucial role in sustaining life and preventing global hunger.
The second area of the fund’s activity is exploration and extraction of minerals. It’s no secret that Ukraine is rich in natural resources, particularly in terms of mineral diversity and volume. Ukraine has identified and developed deposits of oil, gas, coal, peat, shale, and uranium; iron, manganese, chrome, nickel, titanium, magnesium, and also aluminum, copper, zinc, and lead. The subsoil also contains gold, silver, mercury, beryllium, lithium, zirconium, hafnium, tantalum, niobium, cobalt, tin, tungsten, molybdenum, vanadium, yttrium, and lanthanides as well as dispersed elements of germanium and scandium.
The third focus of the fund’s activity is energy-saving technologies. In the face of an energy crisis, there’s a pressing need to change the energy production processes, hence the fund has several intriguing projects in this domain.
Role of the S&P Agency in the fund’s activities
The role and functions remain consistent with what we have been performing over the last 20 years: to identify potential risks of a future investment project (financial, legal, political, among others), design an optimal structure that meets the investor’s needs, ensure maximum profit, and provide protection against any unlawful actions. Broadly speaking, our role is to oversee the investment process in Ukraine, aiming to address any contentious issues during the implementation of an investment project.
Main step-by-step tips for potential onvestors entering the Ukrainian market
Entering a new market without understanding its structure, specifics, and pitfalls is quite challenging. Thus, the first and most crucial advice is to find experienced advisers in investment activities, finance, legal matters, and risk analysis. Assembling such a team in Ukraine, comprising professionals with significant experience and effective collaboration, is not easy. However, choosing the right partners and advisers is the key factor for a successful market entry.
Additionally, even before entering the market, it’s essential to conduct a genuine risk analysis of projects proposed for investment, both from the side of the Ukrainian business community and the government.
Only when an investor has received appropriate conclusions from seasoned specialists, which confirm the investment’s profitability, verify the model, and guarantee the absence of risks, then one can invest.
