Ukraine started promising attractive "perks" from the state to large investors four years ago.

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In January 2020, at the World Economic Forum in Davos, Ukrainian President Volodymyr Zelenskyy said in his speech:

"We have prepared a new program called Investment Nanny. We will provide each investor, each company that brings $100 million plus to Ukraine, with a separate contract with the state. The state will protect you, you will have an investment nanny who speaks five languages. This manager will work with you 24/7. Any question, any problem – you will have contact with the manager, and there will be no problem."

Already in May 2020, at a meeting with journalists, Zelenskyy lowered the bar significantly. He talked about state care, that is, an "investment nanny" for investors who are willing to invest $30 million or more in Ukraine.

Eventually, at the end of December 2020, the Ukrainian parliament adopted the Law "On State Support for Investment Projects with Significant Investments" No. 1116-IX, introduced by the President, the "law on investment nannies." It provided for state support to investors whose investments exceed 20 million euros.

In February 2021, the government designated the Investment Promotion Office – UkraineInvest – as the authorized institution to support and assist investors from the start of the project and throughout its duration.

In August 2023, the Rada approved amendments to the Law on Investment. They lowered the threshold for significant investment to 12 million euros. A month later, the president signed the bill into law.

The government announced the launch of the updated mechanism of state support for projects with significant investments in March 2024. UAH 3 billion ($76.9 million) has been budgeted to support such investors.

On March 22, First Vice Prime Minister and Minister of Economy Yulia Svyrydenko signed an order "On Approval of the Model Form of a Special Investment Agreement."

As Ihor Marchuk, a member of the parliamentary committee on economic development, noted on his Facebook page, this is the last regulatory act to open the application procedure to potential investors with significant investments.

Laying the groundwork

Until recently, Serhiy Tsivkach, director of UkraineInvest and now managing partner of the Chicago Atlantic Trident special investment fund, called the current mechanism of state support for large investors an improvement of the "law on investment nannies" in a comment to LIGA.net.

"UkraineInvest began working on these improvements in March 2022, when we realized that we would need to attract a large number of private investors to rebuild Ukraine. That's how we came up with a proposal to lower the investment threshold, allow a project to start before applying for state support, introduce reimbursement of costs to investors for connecting to utility networks, and much more. The prime minister and the Ministry of Economy supported this initiative. The Ministry of Economy added a number of improvements and submitted the bill to the Rada. The draft law was finalized there. It was sort of a collective collaboration of all government agencies involved in this process," said Tsivkach.

Regarding the "law on investment nannies" itself, according to Tsivkach, three investment projects were submitted in December 2021 worth more than 150 million euros.

"But they were not implemented due to the outbreak of full-scale military aggression," he notes.

The updated mechanism now allows large investors, through UkraineInvest, to receive several types of support from the state – up to 30% of the investment project amount:

  • preemptive right to use state-owned or municipal land plots;
  • reimbursement of the costs of construction of engineering and transport infrastructure facilities and the costs of connecting to engineering and transport networks;
  • tax benefits;
  • duty-free import of necessary equipment;
  • exemption from compensation for losses in forestry production.

Projects should include the construction, modernization, technical or technological re-equipment of the relevant investment objects and the creation of new jobs.

The investor must create at least:

  • 10 new jobs with a salary at least 50% higher than the average salary in the region for the same type of activity;
  • or 30 new jobs with a salary at least 30% higher than the average salary in the region for the same type of activity;
  • or 50 new jobs with a salary at least 15% higher than the average salary in the region for the same type of activity.

Will investors come to Ukraine?

According to Tsivkach, investors are interested in the types of state support now offered.

"They are ready to apply. As of December 2023, UkraineInvest was supporting four companies with a high readiness to apply for more than $500 million, and a number of other projects that were awaiting the introduction of bylaws to evaluate the system," he says.

According to Tsivkach, the key issue that has always been there is the speed of application processing and the criteria for investment project requirements.

"After amendments to the legislation and bylaws, the system becomes more flexible and favorable to investors," he notes.

"Israeli business will definitely carefully study the new Ukrainian mechanism of state support for investment projects ‘with significant investments’ with the help of its experts," Oleksandr Pavlov, Chairman of the Board of the Ukraine-Israel Business Council, tells LIGA.net.

Among the questions that potential Israeli investors may have, the chairman of the Board of the Ukraine-Israel Business Council names the following:

  • What is the "right to use" land plots? Why not "ownership"?
  • What is "cost compensation"? What is the mechanism, terms, international guarantees, penalties for the Ukrainian customer and the Ukrainian state?
  • What are the powers and responsibilities (monetary, financial) of Ukrainian state bodies and local governments?
  • What is a Ukrainian SIA (special investment agreement) under Israeli and international law? Who will act as its guarantor, and what are the guarantees (in Ukraine, in Israel, abroad)?
  • - Who will act as an expert, an arbitrator in resolving issues of compensation, its terms, amounts in terms of currency, and investor's risks in case of disputes? Who will act on the investor's behalf from the state and local government?
  • Will the industries proposed by the government be profitable, high-margin, or is it even possible to calculate the profitability of the business in the current conditions of Ukraine ("...in the areas of processing industry, extraction of minerals for further processing or enrichment, transport, logistics, education, research, healthcare, waste management, art, culture, tourism, sports, electronic communications")?

Obviously, investors from other countries may have similar questions.

Pavlov names two areas that may be of interest to Israeli business under the investment support mechanism:

  • Opening branches/representative offices of IT companies in Ukraine;
  • Opening businesses using modern agricultural technologies and agro-processing, such as drip irrigation, greenhouses, energy and resource saving, storage of agricultural products, etc.

"But the Ukrainian government needs to make specific, serious efforts to attract such companies, to actually guarantee the requirements and working conditions, to support and protect them (not the investment nannies)," Pavlov said.

At the same time, financial expert Oleksiy Kushch calls the government's program's approach "by the volume of investments" conceptually incorrect in a comment to LIGA.net.

"Such projects should not have thresholds by the volume of investments at launch. It should be based on the areas of investment. For example, if we need to develop the processing of agricultural raw materials, then the state should introduce these projects to stimulate investment in the agricultural processing industry. Otherwise, the amount of investment in mining and exporting minerals abroad can be large. This will leave nothing in the economy. This is wrong," he says.

There are also questions about the UAH 3 billion ($76.9 million) budgeted for the program.

"The amount could be useful if these UAH 3 billion were focused on processing agricultural raw materials. But if it is spread thinly over all projects, it will actually do nothing," says Kushch.

"UAH 3 billion of support is not such a large amount, even within Ukraine. Especially for large foreign investors with significant investments. At today's exchange rate, this is about 75 million euros. For the entire pool of future investors. In hryvnia. In addition, add the rate and risks of inflation in Ukraine," says Pavlov.

He calls the real inflation rate in Ukraine phenomenally high – 10.2%.

"If an investor produces goods or services in hryvnia, it is unclear when he (who brings the currency here) will break even and when he will receive the planned profit? How, to whom and when, and for what price will he be able to sell his business? Will this sale be unprofitable?" says Pavlov.

Sergiy Tsivkach calls the UAH 3 billion budgeted to reimburse investors' costs an important step toward facilitating project implementation.

"We all know that connecting to the grid and other engineering infrastructure for projects can be very expensive and difficult in Ukraine. The combination of investor support by a government agency in this matter to reduce costs and speed up processes, combined with reimbursement, is a progressive step that is needed to implement investment projects," he concludes.