Investment climate in Ukraine 2025: challenges and expectations

Ukraine had a rather difficult year in 2024. There were many disappointments related to the situation at the front, the ongoing war and mobilization. There were also difficult decisions by the authorities regarding tax increases, tariff increases, etc. Oleksiy Volokhov, PhD in Law, Partner at SLA Attorneys, spoke about the challenges facing Ukraine and potential opportunities in an article for UNN. 

Nevertheless, according to a study conducted by the European Business Association together with NEQSOL Holdings, the Investment Attractiveness Index of Ukraine in 2024 increased to 2.49 points (out of a possible 5), which, compared to 2.44 points in 2023, indicates a slight improvement in the investment climate in Ukraine. 

Among the main factors that had a positive impact on Ukraine's investment attractiveness in 2024, respondents noted the granting of Ukraine's candidate status for accession to the European Union, the abolition of duties and quotas on Ukrainian exports, as well as transport visa-free travel with the EU, significant progress in the digitalization of public services, and Ukraine's accession to the EU's integrated energy system.

At the same time, respondents pointed to some negative factors that have had a negative impact on Ukraine's investment attractiveness. These include Russian military aggression, corruption, a weak judicial system, the shadow economy, and attacks on the country's energy system. In addition, 81% of respondents believe that restrictions on foreign exchange operations have a negative impact on Ukraine's investment attractiveness. 49% of experts expect further deterioration in the investment climate, and 38% of them believe that it will be unprofitable for new investors to invest in Ukraine over the next 6 months.

Of course, the Investment Attractiveness Index of Ukraine is a rather specific study, which is more of a survey and does not reveal Ukraine's investment potential in any way. The assessment of respondents, including a significant number of top managers, is often emotionally colored and depends on many factors, including the situation at the frontline. Nevertheless, some conclusions can be drawn from this Index, especially if we compare this data with other international rating studies.

Thus, The Corruption Perceptions Index (CPI), which ranks countries by the level of corruption developed by Transparency International, showed little progress in Ukraine in 2023, as our country received 36 out of 100 possible points and ranked 108th out of 180 countries. Although Ukraine received 3 additional points in 2023 compared to the previous year, Transparency International experts believe that the government should work more actively to improve the effectiveness of the fight against grand corruption, effectively use confiscated assets of corrupt officials, and launch reforms of the Accounting Chamber and the State Audit Service.

Noteworthy The Rule of Law Index, which allows to assess the level of compliance with the rule of law principles in the world and is determined by the World Justice Project (WJP) to study the state of legislative development, in 2024 ranked Ukraine 88th, improving its performance by one position compared to 2023. According to WJP experts, the main problems of Ukrainian legislation remain in the area of anti-corruption and judicial proceedings.

We can also note the rating study International Property Rights Indexprepared by the International Property Rights Alliance, which demonstrates the achievements of different countries in the field of property rights protection. In 2024, Ukraine is ranked 102nd in this list of 125 countries, which means that it has lost 2 positions compared to last year's result. The International Property Rights Alliance points to problems in anti-corruption legislation, judicial independence, and a deteriorating situation with property registration, which is likely due to restrictions imposed by the new mobilization legislation. At the same time, the International Property Rights Index is a fully operational tool, and its data is often used to assess the investment attractiveness of a country.

As you can see, all international ratings and indices show that the judicial system is not functioning properly, that the fight against corruption is not being sufficiently addressed, and thus they can be characterized as systemic problems that affect Ukraine's rating and, as a result, its investment attractiveness. I would like to believe that the authorities are studying and evaluating this data to organize effective reforms and changes to legislation. 

As for the legislative changes in 2024, there were quite a few of them and they were usually implemented both as part of the Ukraine Facility plan and as part of the implementation of the Memorandum with the IMF. At the same time, some changes to the legislation can be called questionable and negatively affecting investors' interest in our country.

Innovations such as the introduction of a "white business club" or, as defined in Law 11084, a "club for taxpayers with a high level of voluntary compliance with tax laws" involve de facto formation of lists of unfair taxpayerswho pay less taxes than others in a particular industry, which a priori means discrimination and tax pressureand therefore carries financial risks for investors. 

For example, we can take the specifics of the IT business, where a startup that is promising for attracting investment may have low performance until it reaches a certain level of payback and attracts funding. At the same time, such a business will become an unfair taxpayer, as its performance will be lower than that of other companies in the industry.

In fact, we have received discriminatory tax legislation, where the State Tax Service will determine who is good and who is bad and can be punished accordingly. Such reforms are definitely not about investment security.

Everyone is also worried about the risks of returning well-known business "masked shows" and outright pressure from law enforcement, which, in a weak judicial system, can stop and close any business. To put it mildly, it is sometimes simply impossible to protect the right violated by a search or illegal seizure of accounts and property in court, as the judicial system works more in the interests of the investigation than in protecting business. The Business Ombudsman and "investor nannies" are not a sufficient guarantee for investors to keep their money safe, because most serious companies have a clear understanding that any out-of-court remedies are only alternative and that only a court or arbitration can be sure.

At the same time, the government continues to try to "reset" and elect new BES management to fulfill the IMF's requirements to increase budget revenues. It is difficult for me to imagine how the BES can increase budget revenues in 2025 without interfering with or hindering business. At the same time, the results of an all-Ukrainian survey for the European Union Advisory Mission to Ukraine show a critically low level of trust in the BES in 2023: only 27% of respondents trust the activities of this law enforcement agency against 32% who expressed their distrust.

Recently, some rather unexpected risks have been added to cybersecurity and the protection of public registries. The Russian hacker attack has brought businesses to a standstill, paused bank lending and more public services, but it has also made investors nervous. Over the past week, I have had dozens of calls from foreign clients who were quite frightened by the prospect of losing their real estate and companies registered in Ukraine. Of course, I believe in the restoration of state registries in the near future and try to convince my clients of this, but the issue of security of the real estate register and the Unified State Register is not only a matter of state security, but also a matter of protection and attraction of investments.

As for the positive trends in investment attractiveness, it is worth noting a significant number of new interesting IT projects, in particular in the field of Defense Tech, which are actually innovative in the market. After all, there are few analogs in the world that can be tested in real high-intensity combat operations. The work of certain clusters for the development of Defense Tech in Ukraine, such as Brave1, is positive. In fact, Defense Tech has trends for development in 2025 and I believe it has great potential for attracting investment. 

Energy remains another potentially promising sector of the economy for attracting investment. The development of "green" energy, increase in generation and domestic energy production, etc. will have prospects for investment in 2025. Investments in the agricultural sector are also worth mentioning, which, among other things, are planned to be attracted through the functioning of the newly created State Land Bank LLC and the lease of agricultural land at market rates. Despite loud statements about rather high land lease rates achieved at the State Land Bank's auctions, I hope for transparency and timely payment of these lease payments and further targeted use of land by the Land Bank's subtenants.

Therefore, the government should focus more attention on problem areas that require better legislative regulation, such as judicial reform and the fight against corruption. The fact is that investors trust international rating studies and assessments more than official government data or guarantees of assistance from "investment nannies." Separately, it is worth noting that Ukraine has a significant investment potential that can be unlocked after the end of the war through consistent and transparent legislative reforms.