Interview | Mykhailo Bechkalo, Executive Director, UkraineInvest

30 September 2019

UkraineInvest is the Ukrainian government's investment promotion agency created in 2016 to attract and support foreign direct investment in Ukraine.

 

UkraineInvest plays an essential role in attracting new investments to Ukraine. Which sectors of the economy are of most interest for foreign investors?

We are presently pursuing a 1+4 sector strategy focusing on key drivers of Ukraine’s economy: we emphasize Innovation Technology as the main added-value ingredient to the development of the Agribusiness, Manufacturing, Energy, and Infrastructure sectors. It is worth noting that Ukraine’s IT industry is among the country’s fastest growing industries - the sector has grown by nearly 40 times over the last fifteen years, from $110 million in 2003 to about $4.5 billion in 2018, achieving an impressive cumulative average growth rate of 25%.

 

Energy has been listed as one of the sectors of opportunity in Ukraine. Where specifically do you see most room for investment presently?

The energy sector has been deeply transformed and liberalized since 2014. This led to an end of illegal schemes and transition from large budget deficit to profits of state gas company Naftogaz. Consistent steps towards energy self-sufficiency and diversification have been made, and Ukraine has been increasing domestic gas production and has departed from exclusive reliance on Russian gas. This makes Ukraine’s energy sector as one of the most attractive options to invest in Ukraine.

The Ukrainian government views the expansion of domestic production as a strategic priority and there are three main factors which support the belief that Ukraine could boost its gas production. Firstly, we have a very promising reserves base, in fact Ukraine is ranked among the top-three European countries for gas reserves. Almost all production comes from onshore fields, although plans are underway to explore the offshore waters of the Black Sea. Secondly, we are able to offer attractive prices (which are driven by the German liquid gas hub NCG) and extensive mid-stream infrastructure with surplus capacity that could allow for the rapid monetization of new petroleum discoveries.

 

What about renewable energy? Do you expect it to play a strategic role going forward?

Until now, the only type of energy that saw foreign investments in Ukraine was renewable energy. Relatively high feed-in tariffs, calculated in euro and correspondingly protected from the risk of deflation was the main reason for this. Growth in this sector is already impressive - the Energy Post rates Ukraine as having the best biomass/biogas power production potential in the entire region. Meanwhile, the International Renewable Energy Agency, an intergovernmental organization supporting countries in their transition towards a sustainable energy future, estimates that Ukraine also has particularly large potential for solar and wind energy.

Current plans envisage an increase in the share of renewables within the country’s overall energy mix to 25% by 2035, with some industry observers estimating that higher percentages are entirely feasible. Ukraine is now switching from the so-called “green” or “feed-in” tariff – currently one of the most profitable in the world for energy companies – to a new auction-based quota system coming into force in 2020.

 

What do you find more challenging in the process of attracting foreign investment in the country?

One of the main challenges for us as an investment agency is to show investors what is really going on in Ukraine. Because of events in 2014 Ukraine has a wrong perception as a corrupted and monopolized country in conflict. When in fact, those accusations are overestimated and it is our mission to show investor and world community that Ukraine is stable, transparent and modern economy.

In 2014, Ukraine launched unprecedented structural reforms with EU convergence policies to tackle the above mentioned obstacles and create a solid platform for future sustainable growth. Since 2014, Ukraine has climbed 41 positions up in Doing Business rating (from 112th place in 2014 to 71st place in 2019). According to World Bank, Ukraine has done more to improve its business climate than any post-communist country.

Also, the Ukrainian parliament has recently approved a new pro-business government led by the youngest Prime Minister in the history of Ukraine – Oleksiy Honcharuk, a 35-year-old free-market reformer. The new Prime Minister sets the task of accelerating economic growth of 5-7% annually as the target for the new government. In fact, main macroeconomic indicators have already been significantly improved: for instance, Ukraine’s GDP grew 4.6% in second quarter 2019 - the most rapid growth in almost a decade (and this happens at the time when EU economies are slowing down).

 

UkraineInvest seems well positioned to assist the country through this internationalization process. What are your goals as an organization for the coming two to three years? 

We believe that global supply chains and existing investors can benefit from the competitive advantage of the innovation and opportunity offered by Ukraine’s greatest assets. Accordingly, we are pursuing the government’s objective of building a modern 21st century economy. At UkraineInvest we welcome foreign direct investors from all over the world but our primary focus are big strategic investors in high-value added industries from France, Germany, USA, Scandinavian countries and Gulf countries.

As of 2018, foreign direct investment in Ukraine amounted for $2.8 billion. We believe that Ukraine can attract much higher amounts, two or even three times the 2018 figure, as the Government announced ambitious plan of reaching 5-7% of GDP growth annually. This type of growth is not possible without attracting foreign investment and it is our mission as an investment agency to do everything possible to help Ukraine achieve its goal.

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