Ukraine is an open economy with a free market. It has a competitive business climate, a skilled and technically competent workforce, and plentiful natural resources. Of the many competing opportunities in Europe, foreign direct investors increasingly look to Ukraine as a location for high-value-added export-related production activities.
The economic situation in Ukraine is stable and favorable. The development of the country’s economic system to a large extent depends on the effectiveness of government investment policies and the creation of a strong investment climate. While Ukraine has much to offer in this regard, political and legislative instability, deficiencies in the banking system and the stock market, and the lack of established practices for project finance hamper efforts to obtain loans for developing promising investment opportunities.
Ukraine has the potential to be one of the region’s leaders in terms of the volume of foreign direct investment and portfolio investment. The country can also boast a large domestic market, considerable industrial and agricultural potential, and the geopolitical advantage of being located at the crossroads of trade routes between Europe and Asia.
This convenient location makes Ukraine a convenient transit point from which traders can export westward and eastward.
Foreign investors have been discouraged in the past by state intervention in the functioning of the markets and administrative barriers, as well as imperfect and frequently changed legislation. To promote greater investment inflows and to raise the efficiency with which capital is used, the government has created a strong body of investment regulations, which is continuously being improved.
Ukranian Law “On Foreign Investment Regime” adopted on March 19, 1996, established a set of nationwide guidelines for foreign investors, ensuring that the conditions under which they operate are aligned with those of domestic enterprises.
Crucially, the law offers state guarantees for protecting foreign investments. Foreign investments may not be subject to nationalization and their requisition may only be made in the case of a natural disaster. But even in these situations, the law permits legal appeals and claims for compensation. If successful, foreign investors would be reimbursed for their expenses and losses directly from the state budget or other sources defined by Ukraine’s Cabinet of Ministers.
The level of compensation – which comes either in the currency in which the original investment was made or in another currency acceptable for the investor – would be based on current market prices as determined by independent auditors.
Regulations concerning the treatment of foreign investment entities in Ukraine are consolidated in intergovernmental agreements titled “On Facilitation and Mutual Protection of Investments.” These agreements – which serve as the guarantee of equitable status for investments and their protection on the territory of another state – have already been signed with 70 countries around the world.
To further enhance the protection of foreign investors, in 2000 Ukraine ratified the Washington Convention of 1965, which outlines procedures for the settlement of investment disagreements between the governments and foreign nationals. In addition, in 2007 Ukraine’s Cabinet of Ministers reinstated as a standing advisory body a commission responsible for fostering the pretrial settlement of conflicts between investors and state bodies.
One of the most significant steps toward optimizing foreign investment and improving Ukraine’s investment climate was taken in 2005, when the government set up a special body called the Ukrainian Center for Foreign Investment Promotion. This special body, generally known to investors as InvestUkraine, was subordinated to the State Agency of Ukraine for Investments and Innovation in 2006.
Providing all of its services free of charge and basing its activity on the best practices of investment promotion agencies worldwide, InvestUkraine is a logical first point of contact for foreign investors in the country.
The size of current investment volumes suggests that Ukraine is able to compete successfully in international capital markets. InvestUkraine’s primary goal is to push standards even higher, helping the economy become more productive and globally competitive by increasing foreign investment flows.