Investment incompatibility

Western capital, unlike its Russian counterpart, is leery of entering Ukraine. This was one of the results found by an expert survey conducted by the Horshenin Institute.

The Institute reminds that in the first half of 2010 several big enterprises in Ukraine were purchased by Russian investors. For example, one Russian business acquired two big metallurgical companies ISD and Zaporizhstal, the company Luhanskteplovoz, one of the key machine-building assets, and also Ukraine’s biggest broker’s board PFTS. At this, experts of the Institute single out that Western capital is steadily becoming less inclined to invest in Ukraine.

The main factor favoring the growth of Russian capital in Ukraine is the renewal of political and economic relations with Russia, after the change of government in Ukraine in January 2010. This is the opinion of Iryna Vasylieva, an analyst from the TEKT Group. “The beginning of gradual recovery in the economies of both countries has also had a positive impact on the investors’ activity. Besides, financing the purchase of ISD and Zaporizhstal by the predominantly Russian state-owned Vneshtorgbank demonstrates a direct interest of the Russian government in consolidating the position of Russian capital in Ukraine,” the expert is cited in the press-release of the Institute. Vasylieva believes that the prospects for Russian investors’ active participation in mergers and acquisitions in Ukraine will depend directly on the further development of state-level relations between the two counties. However, the consequences of the active expansion of Russian capital in Ukraine can be negative, Vasylieva warns. “If we speak about the national interests of Ukraine, the concentration of the biggest domestic enterprises in the hands of Russian owners risks threatening our country’s independence, given Russia’s ambitions regarding the consolidation of its influence on post-Soviet territory,” she stated.

Nevertheless, in the opinion of the head of the Center for Political and Economic Analysis Oleksandr Kava, there are no substantial risks for Ukraine at the moment. “Everything will depend on the state, and the conditions it creates for the work of foreign business in Ukraine, as well as the way this business fulfills tax obligations and contributes to the budget,” the expert said.

However, the rest of the surveyed experts are sure that politics can hardly be avoided. For example, the director of the Institute for Economic Research and Political Consultations Ihor Burakovsky believes that until capital remains just capital and is involved in production and commercial activity, the risks are traditional: observing or breaking laws. “But it deals with the presence of the capital which is supported by the Russian state, and we know what strategy Russia keeps to,” highlights Burakovsky. “Therefore some options of political guarantees of the interests of the Russian capital cannot be excluded, and this can influence the political course of the country.” Moreover, Burakovsky claims that the problem of the Russian capital became worse because no conditions were created for Western companies to enter Ukraine.

Expert predictions for the future don’t provide any particular hope of improving the situation. For instance, the vice president of the Center for Corporate Relations Research Viacheslav Butko supposes that in the near future one should expect a decrease in the activity of Western capital and further consolidation of the positions of Russian companies in Ukraine. “The current government doesn’t create conditions for capital from different countries, including Russia and some countries of the former USSR, to compete for assets in Ukraine,” the expert said. According to him, the conditions which have been formed allow only Russian capital, and also capital from some CIS countries, to enter Ukraine. “The rules of conducting business in our country are relatively normal or usual only for Russian and other CIS investors,” states Butko. “The conditions for conducting business in both Ukraine and those countries are equally bad. Western and Asian capital fears entering our market. There are plenty of risks in Ukraine which are just too high for Western companies.”