In-depth | How Ukraine attracts international investment in Ukraine amid war with Russia, and what it goes for

Ukraine's recovery is impossible without private investment, its top officials have said more than once.

The primary responsibility for attracting investors in Ukraine rests with its ministry of economy. Or perhaps, more precisely, one man, deputy economy minister Oleksandr Hryban, and one tool, Advantage Ukraine.

Despite the active phase of war in Ukraine, the platform is working on sixty projects worth about USD 9 billion, including in the agricultural sector, woodworking, building materials, and wind energy.

LIGA.net spoke to Mr Hryban about the Ukrainian government’s role in attracting investment and the projects that have the best chance of being implemented. Below is a brief summary of our conversation.

What do investors want in Ukraine?

Despite the "positive emotions and sentiments towards Ukraine," investors have a pragmatic capitalist approach – a project must meet a certain set of criteria, Mr Hryban says.

The first criterion is financial hygiene, that is having an international financial audit for the last three years, previous experience with international financial institutions and commercial banks, and having passed the "know your customer" procedure.

The next step is economic feasibility, whereby the investor assesses whether the applicant's claims correspond to reality – for instance, what the situation with electrical grid connection is, whether all cost elements are sufficient, how they affect the final cost of the product, and so on.

The potential lender first wants to understand whether everything is in place to reach the KPIs [key performance indicators] that have been set.

What has the war changed?

Prior to the full-scale invasion, Ukrainian businesses seeking to attract foreign investment usually turned to investment banks for assistance. Those helped prepare an application, the necessary audit, and other similar procedures.

However, after Russia’s invasion of Ukraine, all international financial and credit institutions suspended operations in Ukraine because of force majeure clauses in their capital raising agreements.

Therefore, even those Ukrainian businesses that meet the requirements of financial hygiene and investment feasibility have ended up having very few opportunities to raise funds.

That is why Ukraine’s economy ministry launched the Advantage Ukraine project to promote Ukrainian businesses last year. Started as a purely marketing platform, its role has grown over time.

Advantage Ukraine founders believed that there was a great risk of arousing foreign investors’ interest in Ukraine – helped in particular by the global attention and good attitude to Ukraine – only to find them not satisfied when it came to the practical implementation of projects.

How does Advantage Ukraine work?

The platform receives applications from both those seeking investment and those looking for projects.

A team of experts in investment analysis verifies the applicants and communicates with them to sort out what they need. Then Advantage Ukraine experts decide whether to give the green light to a particular request.

To take an example, right now Ukrainian businesses are sending many requests for war risk insurance. Advantage Ukraine helps draft applications, prepare teasers for potential investors, explain what is missing in their request, etc.

On the other hand, the platform's members convince foreign investors that it is possible to do business in Ukraine even in times of war. 

Currently, the United States International Development Finance Corporation (DFC) is the most active in helping Ukraine, having committed USD 1 billion in various financial instruments, including war and credit risk insurance, loan guarantees, and direct loans.

Joint projects with DFC, therefore, are used as a guide. Ukraine’s ministry of economy expects them to be implemented as soon as possible to show that the country can attract and implement investments.

What are the first investments in Ukraine?

The projects are being developed through two instruments.

The first is war risk insurance. One of the projects within this instrument is in the woodworking industry in the Zhytomyr region, with a total investment of up to USD 300 million, which is about MDF and HDF [medium and high density fibreboard].

Ukraine’s economy ministry highlights the importance of this project: Since such products used to be imported, in particular from Russia, the project’s success will make it possible to "finally knock Russian producers out of the European market."

Other projects include a building material production plant to be set up in western Ukraine, and an expansion of an oil extraction plant in central Ukraine.  Those are all Ukrainian companies looking for foreign investment.

There is also a project exclusively by a foreign company that is looking for opportunities to insure against war risks to build a vegetable protein production plant. Another foreign company from Austria plans to build a building material production plant in Ukraine.  

The other investment instrument is USD 600 million in direct lending, which is also carried out with DFC. Ukraine’s economy ministry expects that the lending will help mobilise more than USD 1.3 billion into the economy. The projects include:

• Woodworking, with a plant for the production of sheet glass
• The agro-processing sector, namely the expansion of an agricultural farm, "a fairly large poultry farm" (a company with a foreign investor, Mr Hryban clarified)
• Another plant for the production of building materials
• Construction of a specialised warehouse for a major retailer
• A private Ukrainian postal operator that plans to build a distribution centre and buy out logistics centres
• A project to build housing in western Ukraine, to be allocated to internally displaced people

In total, Advantage Ukraine has more than 60 projects in the pipeline, totalling about USD 9 billion.

The specific projects listed above are at a more advanced stage, but there are others as well, including a request from a large foreign investor in the renewable energy sector that has already invested in Ukraine.

It provides for building a new phase of a wind farm, with USD 1.3 billion in investment, and the company is now looking for funds to insure against war risks.

Unfortunately, the institutions that are currently helping attract investment for insurance do not have enough capacity to cover the required amount, so the economy ministry wants to use donor funding to be put into a separate insurance trust fund.

What are the biggest obstacles to attracting investment in Ukraine?

The first is the war – in fact, the already mentioned war risk insurance.

Potential foreign investors are also "starting to remember our traditional chronic problems" with the rule of law and domestic corruption.

There are now fewer questions about corruption, Mr Hryban says, because there is an anti-corruption system, a business ombudsman, and assistance from the government office UkraineInvest.

While VAT refunds were a big problem, the situation has improved, the deputy economy minister assures.

Therefore, the key issues for foreign investment in Ukraine are the rule of law and the judiciary. While Ukraine’s economy ministry is not directly responsible for this, it sees its task as bringing this issue to the Ukrainian leadership.

What is the UkraineInvest government office?

Alongside Advantage Ukraine, there is a government office called UkraineInvest, but they have different tasks.

What Advantage Ukraine does is select projects and communicate with international lenders and investors who are yet to make up their minds on entering the Ukrainian market until they do.

Once investors and lenders agree and work in Ukraine on a specific project, they are handed over to UkraineInvest for support. In particular, the office ensures communication with local authorities, tax authorities, etc.   

International companies that already operate in Ukraine, like Bayer or Carlsberg, and decide to expand production do not need to turn to Advantage Ukraine; they work directly with UkraineInvest, which provides B2G communication.

Pavlo Kalashnyk

business desk correspondent, LIGA.net