Business-government dialog

The first government-organized business conference “ABC: Ukraine & Partners” has ended in Kyiv. It was attended by 3,500 business people, including a number of foreigners who never hesitated to ask Ukrainian officials embarrassing questions. The two-day debates showed that the international business community is still interested in Ukraine, but the unpredictable and unstable domestic market is holding back large scale investments. Most of those who took the floor believed Ukraine has to draw up its investments chart with the emphasis on three key sectors: agriculture, infrastructure, and renewable energy sources.

THREEFOLD AGRICULTURAL OUTPUT AND $50 BILLION’S WORTH OF INVESTMENTS

It was generally agreed that the agricultural sector is the most promising one. Ukraine’s role as a world food supplier has noticeably increased over the past several years. In 2012, every 11th ton of grain sold on the world market came from Ukraine that shares 9.2 percent of world grain turnover. Its agricultural exports in 2012 amounted to 18.2 billion dollars, or 40 percent more than the previous year’s. These optimistic statistics were announced by Agricultural Policy and Food Minister Mykola Prysiazhniuk. In other words, the exporters owe every fourth hryvnia to the agricultural sector. This year’s grain exports promise 22 billion dollars. Investments in this sector are increasing, registering a total of 191 percent over the past seven years. “Analysts predict that the Ukrainian agroindustrial companies may earn some 20-30 billion dollars in the next five to seven years,” said First Deputy Prime Minister Serhii Arbuzov, adding that the main thing is to retain positions on the traditional markets and expand the geography of Ukrainian exports.

Morgan Williams President/CEO of the US-Ukraine Business Council, said the world needs food and Ukraine can supply it; Ukraine can produce three times as much, but it needs 50 billion dollars’ worth of investments; four to five times more than Ukraine is receiving.

Oleh Bakhmatiuk, one of the top-notch agricultural experts, owner of the UkrLandFarming holding company, believes that Ukraine’s agricultural sector can attract considerable investments in the near future. He said Ukraine can comparatively easily receive 10-15 billion dollars by making China, Saudi Arabia, Japan, and the US its anchor investors. This can be accomplished primarily by carrying out simple and understandable projects: seaports, grain elevators, railroads, highways. There are a number of factors that can help implement such projects. In particular, the current system of taxation in the agricultural sector is among the world’s most attractive ones. If it survives the next five years, it will help increase the agricultural sector’s investment capacity.

The international business community is aware of this potential. Sevki Acuner, EBRD’s director for Ukraine, said the bank would substantially assist the Ukrainian agricultural sector. A total of some three billion euros has been allocated and 76 projects assisted in Ukraine. Each year the EBRD invests €200-250 million euros, and this includes investors’ money, he stressed.

Thomas Frater, managing director, Hussar&Co., said that the investment bank saw good prospects for a number of investment projects in the agricultural sector, and that this would help other foreign inland investments in Ukraine.

UAH 20 BILLION IN 600 INFRASTRUCTURE FACILITIES

Investors believe the development of infrastructure is the second important sector. Deputy Prime Minister Oleksandr Vilkul told The Day in an exclusive interview that the government’s current plans in this sphere are very ambitious: “…over 10 billion hryvnias’ worth of investments in infrastructure facilities in terms of central budget appropriations. This means more than 600 road construction projects, a bridge in Zaporizhia, bypasses around our cities that will increase this country’s transit potential.” Three billion out of the 10 billion hryvnias has been allocated, and that’s not the limit, he added. Vilkul’s estimates point to at least 10 billion hryvnias’ worth of investments in infrastructure facilities by private businesses. Partnership with the state will be implemented. Over the past 20 years some 30 percent of road construction projects in Europe have been implemented through private-business-state partnership. This year the Ukrainian government plans several investment tenders, something never practiced before. Vladyslav Kaskiv, CEO, Derzhinvestproekt, said the City Ring Road is part of the national project Air Express, when roads will start being built on a concession basis.

Renewable energy sources constitute the third most investment-attractive sector, says Gabriela Miranda, Project Manager, OECD Eurasia, Competitiveness Program. She believes that the attractiveness of this sector is determined by three factors: lots of biowaste in the agricultural sector; large areas for energy crops; the wind and solar potential. Ukraine should pay more attention to this sector, considering that its share is still small despite its great potential.

SOMETHING THE GOVERNMENT SHOULD KEEP IN MIND

Ukraine remains investment-attractive, as confirmed by the investment activity index. In May 2012, it remained stable, showing 4.4 points on a 10-point scale, says Yevhen Kopatko, founder of the Research&Branding Group that developed the index: “Now that the leading national economies are suffering from the lack of confidence on the part of investors, this can be regarded as an achievement. Our study demonstrates that an increasing number of investors are cautiously optimistic about the investment climate in Ukraine in the next six months. Over one quarter of the investors are waiting for it to improve; some one half believe it won’t get better or worse.”

Why aren’t foreign investors interested in the Ukrainian government’s encouraging initiatives?

EBRD director Sevki Acuner offers an informative answer to this question. Corruption and unfair business approaches are the main obstacles for investments in Ukraine. To overcome these negative phenomena, Ukraine needs a business ombudsman who will protect the business people’s interests. Executive authorities must be assigned clear-cut quantitative tasks; their fulfillment must be closely watched, leaving room for peaceful business growth. Acuner stresses that business should be regarded as the goose that lays the golden egg, not as a cow that has to be constantly milked. Business is no cow. You keep milking it today and there will be no milk the next day. Allow a business to accumulate capital and do not milk it every day. Another important thing is a different approach to the development of export policy. You won’t find diplomats in the embassies in Canada, rather businessmen who are working for the interests of their countries. Promoting one’s country is a business rather than diplomatic function. Ukraine may well use this experience. Acuner recites the investor’s golden rule: Protect the investment, not the investor. This will pave the way for further investments. Develop new powerful trends like agribusiness, stimulate SMEs to promote economic development. Create a predictable investment environment. The EBRD believes in Ukraine’s financial potential and it is the bank and the government’s joint task to use this opportunity.