FOREIGN INVESTMENT IN UKRAINE: THE STORY BEHIND STATISTICS
Much has been said, written, and speculated in recent months about foreign investment in Ukraine — about who is investing and where they invest. Here are some facts: American companies continue to be the biggest investors in Ukraine. Their investments are bringing capital and technology to modernize Ukraine’s economy. And with sustained progress toward an open and competitive economy, far more is possible.
In sheer numbers, US direct foreign investment in Ukraine’s economy since 1991 comes to $664 million. That figure is 81% more than the amount invested by the Netherlands, which is ranked as the second most important source of foreign investment for Ukraine. It is also 85% higher than direct investments from Cyprus, 113% higher than those from Great Britain, and 133% higher than direct investments from Russia. As a whole, US direct investment represents 16% of the nearly $4 billion that foreigners have invested in Ukraine since its independence.
Quality, not just quantity, matters. Ukraine inherited the obsolete infrastructure of a bankrupt Soviet state. Hardly would it be in Ukraine’s interest to seek investment in old, large- scale enterprises that tie Ukraine to a reincarnation of a defunct past. Ukraine now faces the challenge of catching up to a global marketplace. Foreign investment is one of the keys to integrate a market-oriented and democratic Ukraine into Europe.
A number of the US companies that have invested in Ukraine since 1991 are among the most successful multinational firms in the vanguard of the twenty-first century’s new economy. These are knowledge-based industries that focus on fields such as the Internet, software development, network logistics, and the burgeoning service industry. These companies include Boeing, Lucent Technologies, Westinghouse, Proctor & Gamble, Motorola, Coca-Cola, Cargill, McDonald’s, the AES American energy group, and others.
Small and large American firms from the hi-tech sector have rapidly increased their presence in Ukraine and focused on tapping Ukraine’s rich pool of qualified engineers, technicians, and computer programmers. Take Boeing: together with the Ukrainian and Russian space agencies and Norwegian investors, these partners have transformed rockets of destruction to launch vehicles that put satellites — the very infrastructure of twenty-first century commerce — into space. Still, such investments reflect only part of the engagement of American companies in Ukraine.
For example, while American hi-tech firms tap the potential of Ukraine’s highly educated work force, US food and agricultural processing companies have invested in the tremendous potential of Ukraine’s agriculture sector. These firms, together with other US companies engaged in manufacturing in Ukraine, have also recognized the potential of Ukraine’s highly developed manufacturing sector, and its developing communication and transportation infrastructures.
Equally as important as dollars, American companies bring priceless intangibles in modern, international business know-how. As part of their standard operating procedures, US companies help Ukrainian managers jump into the present with modern management techniques, personnel and training practices, and international standards for finance, accounting, purchasing, and marketing.
Invariably, American firms invest in modern production facilities, as well as in state-of-the art information and office communication technology that help improve the qualifications and skills of their workers. Equally important, American companies bring an understanding of the rules of the game in international markets, which is transferred to Ukrainian managers and employees who gain a better understanding of Ukraine’s potential and advantages in both the European and world marketplace.
US companies also stand for corporate citizenship. Either directly, or through the American Chamber of Commerce in Ukraine, American companies have supported attempts to improve the quality of life of the citizens in their communities or elsewhere in Ukraine. Cargill has modernized and renovated primary and secondary schools in the towns where the company’s production facilities are located. Since 1994 Motorola has worked closely with the Kyiv Polytechnic Institute, providing over $100,000 in assistance in the process. Proctor & Gamble, meanwhile, has worked with Ukrainian law enforcement agencies to reduce the circulation of counterfeit goods in the country, thereby raising the safety and quality of products that Ukrainian consumers purchase.
Taken together these examples are indicative of the scope and value of private-sector American investment and involvement in Ukraine since independence a decade ago.
Studies show, however, that no matter how great a country’s potential, it will not attract significant foreign investment if does not provide transparent, simple, and stable conditions for investors. Experience, backed up by analytical studies, demonstrates that countries in transition, such as Ukraine, should above all liberalize and deregulate business activities, provide a stable and predictable legal environment, protect intellectual property, strengthen corporate governance and reform its public administration if it wants to fully utilize its potential to attract foreign investment. Countries with transparent and stable rules governing privatization and business activity succeed. Countries with weak laws governing the rights and responsibilities of shareholders and unreliable courts simply do not interest Western investors.
The United States understands the difficulty Ukraine faces due to the legacy of 70 years of Soviet rule. One of our chief goals is to support Ukraine’s efforts to define itself as a European, market-oriented, and democratic state. A key component of this effort is to improve the investment climate, because only through foreign direct investment will Ukraine be able to attract the capital it needs to reform and modernize the economy, increase the standard of living of its citizens, and become a competitive economic force in European and world markets.
The recent successful privatization of six oblenerho enterprises, even if not perfect, shows Ukraine can successfully attract foreign investment. Obvious attempts to undercut this promising beginning, such as the recent backdoor privatization of Donbasernerho, will only undermine Ukraine’s credibility with Western and US investors if energetic steps are not taken to stop them. I laud the important steps that both President Kuchma and Prime Minister Kinakh have taken, which, if effectively implemented, will prevent such attempts to stall the reform process and impede future foreign investment.
I am convinced that taking these and other measures to deregulate business and reduce corruption in the economy and in public life can rapidly lead to accelerated growth of US and other Western investment in Ukraine. Increased foreign investment will lead to higher growth rates and increased tax revenues, which can be used to increase the well being and living standards of all Ukrainian citizens.
Through their investment in Ukraine, US companies have demonstrated their faith in the country’s future. If Ukraine takes faith in itself and does what is necessary to improve its investment climate, more American investors will follow.
