Investment attractiveness: legislative decisions and key factors for the economy of Ukraine


The investment attractiveness of Ukraine after the beginning of a large-scale war in all spheres has significantly deteriorated due to high risks and instability of profitability. Thus, according to InVenture data, the volume of announced and completed merger and acquisition (M&A) deals in Ukraine, including corporate and venture, in particular in the technology sector, by the end of 2022, amounted to $305 million. This is 9 times less than in 2021 ($2.7 billion). Ukraine is an important exporter of agro-food products. In recent years, we have become the world’s second largest exporter of grain after the United States and the largest supplier of sunflower oil. Also, Ukraine is a powerful supplier of raw materials, including grain, iron ore and a number of goods, such as ferrous metals, sets of ignition wires, etc., but for further improvement and development of new sectors, we need direct foreign investment. However, the large-scale war started by Russia against Ukraine brought severe difficulties for the country’s economy as well.

In particular, as of February 2023, the total amount of direct damage caused to the economy of Ukraine, including the destruction of residential and non-residential buildings and infrastructure, reached $143.8 billion (as of February 2023), Ukraine’s reconstruction needs amount to $411 billion (World Bank estimates). The total financing needs of the “Ukrainian Reconstruction Plan” are estimated by the Government of Ukraine at $750 billion for 2023-2032. However, during the full-scale war, foreign and Ukrainian companies announced many investment projects. Therefore, investments are one of the key elements of the development of the economic reconstruction of the country. Foreign direct investment is important now to ensure the sustainable development of the national economy, create new jobs and ensure long-term stability. Our state has significant potential to attract investment, including developed infrastructure, access to markets and advanced technology.

Ukraine sees great potential for investment, especially in such sectors of the economy as processing of agricultural products, production of construction materials, logistics, decarbonization and green technologies, as well as transport production and the IT industry.

The peculiarity of investment attraction is that today reconstruction aims not only to restore Ukraine, but also to transform and modernize production facilities, thus attracting foreign capital and modern technologies. This will lay the foundation for long-term growth and contribute to Ukraine’s integration into the global economy. The fact that Ukraine is in the zone of influence of the EU provides access to European markets and also helps to attract foreign investments. In addition, companies that are ready to invest in Ukraine and localize production here should be aware that it is not only the Ukrainian market, but the EU market in general, as the Constitution of Ukraine establishes the irreversibility of Ukraine’s European course.

In turn, private international investments can become the nucleus for the reconstruction of Ukraine, which opens up opportunities for receiving more investment requests and business scaling.

Sources of recovery of Ukraine

Foreign direct investment is the most necessary form of capital investment for the reconstruction of Ukraine. Alternative sources of funding for the reconstruction of Ukraine after the end of the war can also be the confiscation of Russian funds in Ukraine and the world; funds from international partners, including international financial organizations; directly funds from the state budget of Ukraine, as well as funds from international funds/organizations and the private sector. Therefore, encouraging and creating conditions for investors in Ukraine is a timely task.

Key factors for starting investment projects

It is obvious that now the main risk for investors, which prevents them from sending funds to Ukraine, is a large-scale war. But there is also another factor that arose long before the war — the corruption risks of doing business in Ukraine. The key thing for the state now is to establish a transparent operation of the customs, tax, judicial and all necessary permit systems. Their functioning is a strong incentive for investors to plan and start their activities in Ukraine. In addition, the effective activity of law enforcement agencies is also an important incentive for encouraging investors.

War risk insurance

The issue of insurance is now extremely important and timely, because few people will invest significant money in a new factory, where a Russian missile or a drone may arrive at any moment. This is a common international practice, for example, war risk investment insurance is available in many other countries around the world, including Great Britain, Japan, Germany, France, Canada, Australia, Israel, etc. In these countries, public institutions that provide insurance for investments against war risks are usually linked to the national ministry of finance or are independent organizations created specifically for this purpose. Military risk insurance programs for investment projects in Ukraine. A clear example is the Multilateral Investment Guarantee Agency (MIGA), which is part of the World Bank Group. They are preparing an insurance program and are already considering relevant investment projects. In advance, there is a condition that insurance is possible only for foreign investors who use foreign funds and implement a foreign project on the territory of Ukraine.

Legislative activity

The state, as part of its legislative activities, must take concrete steps to improve the business climate and attract global investors. Creating a favorable legal environment, reducing bureaucratic obstacles, the corruption component, and improving investment legislation are some of them. On April 10, 2023, the Verkhovna Rada of Ukraine adopted in the first reading the draft Law on Amendments to the Law of Ukraine “On State Support of Investment Projects with Significant Investments in Ukraine”, under registration number 8138. The draft law provides for a reduction of the minimum required volume of significant investments, directly from from 20 to 12 million euros. Also, a reduction in the minimum required creation of new jobs (from 80 to 50). It is assumed that the applicant and the investor with significant investments can be one legal entity. In addition, the possibility of including fees for connecting to electricity, gas supply networks, etc. to the volume of significant investments.

That is, the draft Law is aimed at improving the legislation on providing state support for investment projects with significant investments in Ukraine. Currently, the issue of improving the legislation on providing state support for investment projects with significant investments, as well as eliminating difficulties for the implementation of investment projects with significant investments and obtaining state support, is an urgent issue. Also, the project on amendments to the Law “On Financial Mechanisms for Stimulating Export Activity” was developed with the aim of ensuring the necessary conditions for scaling up investments in Ukraine in the context of military operations and post-war recovery. War risk investment insurance is an important tool for promoting investment and economic growth in many countries around the world. Because by providing investors with protection against losses due to military action, governments help create a more stable and secure investment environment, which ultimately benefits the economic development of the country as a whole. As international experience shows, the governments of many countries provide insurance for investments against war risks through specialized institutions.

Our country also operates the Law “On Industrial Parks”, which provides financial, infrastructural and institutional incentives for the creation and development of industrial parks, which in turn significantly strengthens the economy of Ukrainian regions. The Law on Industrial Parks regulates a number of issues, in particular: the right to create an industrial park, requirements for land plots on which they can be located and for objects on their territory, the procedure for creating and liquidating such parks, the rights and obligations of the parties in in the process of creating industrial parks, carrying out economic activities as part of industrial parks and their state support in the process of creation.

soinvestments play a key role in strengthening the economy of Ukraine and ensuring its growth.

In my opinion, the following factors can be attributed to the main components of investments after the end of hostilities:

  • First, this is a regional development strategy. Ukraine has a State Strategy for Regional Development for 2021-2027. The strategy should become the basis for planning various public investments, taking into account the peculiarities of regions and territories. By its very nature, it performs a coordinating role, which involves the coordination of sectoral investments, the interests of the state with the interests and needs of the regions. Within this framework, clearly defined territorial communities in Ukraine are necessary.
  • Second, a tax reform is necessary, which should be aimed at making Ukraine competitive among other Eastern European countries, in particular, in the context of the fight for foreign investors. The Ukrainian authorities are currently actively discussing the taxation model, the so-called “10-10-10”, which will provide for the introduction of a single rate for three main taxes: on profit, on the income of individuals and on added value. In my opinion, we don’t need to wait for the end of the war to pass this tax reform. It is imperative to start acting now.
  • Third, these are state guarantees. In this context, I mean the so-called “shoulder of the state”, which includes an effective judicial system and law enforcement agencies, as well as additional incentives. The very functioning of the connection between law enforcement agencies and the court is a powerful incentive for Ukraine’s investment attractiveness, planning and initiation of attracting investments to Ukraine, and is a safeguard against raiding of businesses.

In addition, legislative initiatives and benefits from the state within the framework of a comprehensive approach to the formation of Ukraine’s investment climate also remain an important factor.

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