Ukraine needs foreign investors more than ever. Are we doing enough?

After Russia's invasion of Ukraine, our economy has suffered greatly. Foreign direct investment will be key for the economic recovery and development of the country. However, foreign investors are in no hurry to enter Ukraine. Not only the war, but also the risks associated with corruption and insecurity of their funds stop them. UNN tried to figure out why this is happening.

The full-scale war with Russia, which has been going on for more than two years, is causing irreparable damage to Ukraine: the best of us are dying at the front, millions of Ukrainians have left the country to escape the occupiers, and shelling destroys homes, infrastructure, and businesses every day. International experts have estimatedthat Ukraine will need almost half a trillion dollars for reconstruction and recovery alone.

The government should already be actively encouraging foreign investors to invest in Ukrainian business, and thus in the development of Ukraine's economy.

A foreign investor's willingness to invest is based on a balance of risks and possible profits. However, due to the war, the risks in Ukraine are too high, while the economic downturn, mass migration, and other factors do not favor forecasting large profits in the medium term. In addition, a foreign investor wants to be sure that by investing his money in Ukrainian business he will help develop it, and not face another fraudster or corrupt official who wants to line his own pockets.

This does not mean that all investors have turned their backs on Ukraine and our economy is doomed. Even in the current environment, foreign investment is coming here, and the government continues to look for new ways to develop.

In particular, in April, Prime Minister Denys Shmyhal visited the United States, where he met with American business together with U.S. Special Representative for Ukraine's Economic Recovery Penny Pritzker .

"The main topic is attracting American companies and investments to Ukraine. We want the United States to be one of our key partners not only in the defense sector, but also in the economic sector.  We have many promising projects. The US Export-Import Bank provides $3 billion to finance contracts and projects in Ukraine.  I spoke about the most promising areas: energy, agriculture, defense, extraction and processing of critical raw materials, and IT," the Prime Minister said on his Facebook page.

Of course, every time the negotiations involve the allocation of funds, the partners demand that Kyiv take real action to fight corruption and guarantee the protection of investments from all kinds of encroachments by dishonest entrepreneurs. The Ukrainian government tried to find a way out and, together with its US partners, created a supervisory board for the government office for attracting and supporting investments, Ukraine Invest, which included representatives of American companies.

 "This will improve our cooperation, attract new American investments to our market and facilitate the operational work of American companies in Ukraine on a daily basis," Shmyhal said. 

After the Prime Minister's trip to the United States, U.S. Secretary of State Anthony Blinken visited Kyiv. During his meeting with Ukrainian President Volodymyr Zelenskyy, in addition to the crucial issue of security guarantees and a $2 billion aid package, they also discussed attracting investment. The parties discussed both risks and mechanisms for protecting investments in Ukraine.

Most likely, the Head of State managed to convince Blinken of the reliability of the US-Ukrainian business partnership. After the meeting, it became known that the United States would accelerate the attraction of private investment in the Ukrainian economy.

"Ukraine's economic transformation will ultimately be led by the private sector. That's why we are accelerating our efforts to help Ukraine attract more private investment, especially in dynamic sectors like technology, energy, agriculture, and defense," quoted US Secretary of State Pritzker on social media X.

This is a momentum that Ukraine should capitalize on. Improving investor confidence is vital to increasing domestic investment. However, there are still cases in Ukraine that demonstrate that foreign investors still face significant challenges when investing in the country.

For example, the story of a Canadian investor, TIU. In 2017, Canadians built a solar power plant in Nikopol. The company invested $60 million in the project, which was the largest foreign investment in the region.

However, in March 2020, according to TIU director Vlad Lizunov, the plant was illegally disconnected from the grid by the Nikopol Ferroalloy Plant, owned by Ukrainian oligarch Ihor Kolomoisky, and also to businessmen Hennadiy Boholyubov and Viktor Pinchuk. The plant was disconnected allegedly because of a proposal to repair and replace power lines that the plant was supposed to carry out.

The Canadians claimed that they were being pressured and subjected to a raider attack. When the station was de-energized for some time, and the losses began to run into millions of hryvnias, TIU received an offer to sell the facility for a pittance.

The Canadian company refused and went to court. The investors in Ukraine lost the first instance court, but the company is not giving up and is ready to go to the Supreme Court if necessary, although, according to Lizunov, "it is difficult to find justice in the courts of Ukraine.

Another vivid example of the problems and fraud faced by foreign investors in Ukraine is the case of Iryna Novytska, whohad been attracting investments in construction for 15 years. According to media reports, Novytska embezzled at least half of the money, which amounted to millions of dollars, through a group of companies and pocket investment funds associated with GALUA INVEST LLC and by taking advantage of weaknesses in the system. Since 2006, only one investment fund, GILLETT HOLDINGS LIMITED from Cyprus, has transferred more than $70 million to GALUA INVEST, almost half of which was simply stolen. Law enforcement officers are investigating these facts under the article of fraud.

One of the more recent examples is the Olimpiyskiy grain terminal in Odesa, which is one of the key players in ensuring the operation of the grain corridor.

The conflict has been going on for several years and is related to the fact that the company of businessmen Serhiy Groza and Volodymyr Naumenko, GNT Group, misappropriated $95 million from two American investment funds allocated to create a civilized grain market in Ukraine and build the relevant infrastructure.

In addition, according to law enforcement, Groza and Naumenko did business with the sanctioned company Agiros, which belongs to the well-known smuggler Vadym. Alperin, who has been under sanctions since 2021, according to the decision of the National Security and Defense Council and a presidential decree.

GNT Group is also suspected of gray exports and embezzlement of grain stocks stored at the Olympex terminal. On February 8, the High Court of England and Wales confirmed  the Worldwide Freezing Order (WFO) on the assets of Odesa businessmen Serhiy Groza and Volodymyr Naumenko. According to Bloomberg, the arbitration decision states that it is highly likely that "the grain left the terminal on ships that were associated with GNT Europe".

Recently, journalists have also learnedthat GNT Group has ties to Russia. In particular, one of the directors of the Swiss company GNT Europe SA, Mikhail Ipatov, is also the managing partner of the online school Algorithmics Central Europe. This online programming school is considered the leading one in Russia.

According to investigators, the Russian Algorithmics is linked to oligarch and billionaire Vladimir Potanin, who is very close to Russian President Vladimir Putin. His company Winter Capital previously invested $10 million in this school.

Protecting vital assets from organized crime, strengthening the rule of law, and enhancing public-private partnerships will be fundamental steps to make foreign investors feel comfortable and safe investing in Ukraine again. We must act now to ensure a better future for our country.