The current situation in Ukraine is of great concern to foreign investors and the business community. The recent resignation of the NBU chairman and the political pressure that has led to his resignation, raising questions about the transparency of the policy, which is a required condition for attracting foreign investments. Alexander Lopatin, the founder of ITW Systems, even before the above-mentioned situation, in the material for Economichna Pravda defined the basic conditions for creating an attractive investment climate. Among them - the rule of law, fair competition, protection of investment, business and business reputation, real business support. Unfortunately, recent events have not strengthened confidence that the necessary conditions for an attractive investment climate will be created in the near future.
Here is the original text of the publication for Economichna Pravda.
The Office of the National Investment Council named the most promising areas of the Ukrainian economy for attracting foreign investments. According to their analysis, now in Ukraine, it is most profitable to invest in textile and clothing production, pharmaceuticals, computers, electronic and optical products, electrical equipment, furniture, growing annuals and biennials, telecommunications, computer programming. However, having more than ten years of investing in Ukraine, I see a much wider range of opportunities to attract foreign investment. However, some prerequisites must be met, given the current reality in which business operates in Ukraine.
Investing in Ukraine after COVID-19: to be or not to be?
Our American-Ukrainian company ITW Systems specializes in the production of energy-efficient solutions, in particular, its subsidiary Inteltech Ukraine is manufacturing LED solutions. Of course, like almost every business, we felt the impact of the crisis: a general decline in the number of orders and a decline in production. However, every crisis is also an opportunity. We already see opportunities for developing new business. In particular - expanding the product line and adding new features to existing products. Besides, we develop new products that will help our customers not only save energy but also maintain a clean environment, free of bacteria and viruses. And all this requires additional investments. However, dealing with challenges during the crisis, we learned that in Ukraine there are not enough practical means for investors to protect their investments - we realized this while having to deal with default on payments for completed work and cases of unfair competition (including the decimation of false information in the media and the pressure of some government agencies). These concern us and influence our decisions about further investment more than the impact of the epidemic and the crisis itself. So now, like the rest of the investors, I ask myself a question whether to continue investing.
“A must” for the state: what investors expect
It is necessary to act quickly and competently. It is necessary to begin with "a must", i.e. with the most important and necessary. It is critical for Ukraine, especially now, to create an attractive investment climate for international donors, creditors, and investors. The main conditions for this are:
- the rule of law;
- fair competition;
- guarantees of investment, business and business reputation protection;
- real business support
A clear indication of the existing distrust towards the Ukrainian judicial system is the IMF's demand for the adoption of a "banking law" as a pre-condition for new credits to Ukraine. Although some Ukrainian politicians are trying to present this as IMF imposing unfavorable terms, it should be understood that the IMF is not a charitable organization. The International Monetary Fund is an investment institution that expects loans to be used for their intended purpose and requires guarantees of its return, rather than money ending up in the pockets of odious oligarchs. The IMF requirement is a harsh but necessary condition. It is a reaction to specific previous court decisions. And the actions of the IMF, in turn, are always a good indicator for other investors.
In addition to ensuring compliance with laws and regulations, the state also should provide assistance and support to the business. After all, one of the main functions of the state is the economic and organizational function. This includes defining strategy, developing industries, and creating the most favorable conditions for business growth. Such business support tools in Ukraine can be, for example, the exemption of business from income tax on revenue and its replacement by a tax on realized profit. So the business will have more money that will be reinvested in the expansion and development of production. Another very effective tool to support business is the infusion of liquidity by the state (NBU) into banks, which, in turn, will provide preferential/affordable business loans.
COVID is not the root cause: the economic downturn began in mid-2019
The depth and duration of the crisis, as well as the beginning of the economic recovery from the recession, depends on both the effectiveness of coronavirus control measures and the government's efforts to prevent large-scale corporate bankruptcies, job losses, and critical financial sector problems. But it should also be understood that the problems in the Ukrainian economy began long before the epidemic- signs of decline have been observed since mid-2019. And COVID-19 only made the situation worse.
I have no doubt, for example, that the American economy will recover and become even stronger. After all, in my opinion, the fact that the recession we are witnessing now is the result of the epidemic (external factor) and not the weaknesses and problems within the economy. Before the epidemic, the US economy was in excellent condition by all accounts. Yes, after the external factor disappears, America will face the challenge of restoring what worked well before.
If we look at Ukraine, then if we do not create favorable conditions for the preservation of the existing and development of new business, after the external factor (the pandemic) disappears, the Ukrainian economy, at best, will return to the level of 2019-20. There are simply no basic premises for its growth: the causes of the recession remain unchanged. So we need to radically change the approach.
However, it should be said that Ukraine was in no less, but most likely, in a more difficult situation after the events of 2014, with an empty treasury and a full-scale war. However, since 2015, there has been growth from quarter to quarter. So even now the situation is not hopeless.
The economy is cyclical - there is hope
COVID-19 will likely lead to fundamental changes in the global economy and behavioral changes in people and corporations. We cannot predict how long the pandemic will last and how it will ultimately affect the economy and business. But the economy is cyclical, each recession sooner or later accompanied by recovery.
The economies of most countries have already begun to emerge from COVID-19. Carefully, step by step, but still coming out. Besides, the crisis should not be seen only as an economic downturn. Any crisis is also a new perspective and opportunity. Therefore, it makes no sense to wait until everything returns in its place, but we must adapt the business to new realities and move forward. I see good new business opportunities for Ukraine, Ukrainian companies. One conclusion for businesses from this crisis is that it makes sense to geographically diversify some key business functions, such as supply chain, manufacturing, and even development. I believe that Ukraine, with its highly educated workforce, industrial experience, and capabilities, can easily attract international business, as China did some time ago.
There are more than enough opportunities and prospects. It is only necessary to create favorable conditions for their implementation. Then Ukraine will become an attractive place for new business, investments, and Ukrainians, who will be able to realize themselves in their homeland.