Is Ukraine ready for investment?

By Aussiegirl

The BBC reports that foreign investment in Ukraine is slow. Hat tip and thanks to The Fly of the blog "Thus Saith the Fly" for bringing this to my attention.
Sadly, if Yushchenko and Tymoshenko don't make some quick changes (and with the entrenched corruption and opposing forces that's not an easy task) the golden opportunity of the Orange Revolution may pass.

Tourists in Kiev are still snapping up souvenirs from Ukraine's Orange Revolution.

T shirts, caps and key rings celebrating the mass opposition protests last year continue to be sold from street stalls in the capital.

The demonstrations which swept the pro-European Viktor Yushchenko to power also led to a rush of interest from western investors about the potential of Ukraine.

But the reality hasn't lived up to the hype.

More than six months on from the Orange Revolution, foreign investment in Ukraine has only increased by 3%.

"The desire is there to improve the business climate, but achieving it will be a long and difficult process," says Christian Mol, executive vice president of International Retail at Rabobank after a recent trip to Ukraine.

The government is urgently trying to attract western funding, which the country needs if it is to meet its election pledge of raising living standards.

"An investor entering Ukraine should be looked after," says President Yushchenko.

"I have told the government many times, your mission is like that of a doorman at a hotel or restaurant. You should invite everyone walking down the street to the restaurant."

But the new leadership has left some people disappointed and others confused about its commitment to business.

People still want bribes and sometimes feels likes the only objective of bureaucracy is to stifle business

Investors at a recent World Economic Forum conference in Kiev called on Ukraine's new administration to use the momentum from the Orange Revolution to quickly make the necessary changes.

"Ukraine's well-educated, highly-skilled workforce and low labour costs provide an ideal environment for businesses to prosper," insists Silviu Popovici, general manager of Coca-Cola Beverages, Ukraine.

"This can truly happen only if it's supported by strong implementation of political and economic reform."

Ukraine's Soviet legacy means that it will be a big task.

Last week, opposition deputies in Ukraine blocked a planned debate in parliament on new laws that would pave the way for World Trade Organization membership.

Moreover, corruption is rife, bureaucracy is unwieldy and a great deal of the economy is controlled by oligarchs.

"We would like to show that the rules of the game for investors have changed in Ukraine," President Yushchenko told investors.
"Foreign business, from now on, will operate in accordance with the new rules of transparency and stability, no longer burdened with excessive regulations."

But not everyone is convinced.

"Nothing has really changed," says Pete McAndrew, a westerner who started investing in Ukraine two years ago.

"People still want bribes and sometimes it feels like the only objective of bureaucracy is to stifle business."

Since coming to power, the new authorities have been reviewing some of the controversial privatisations of the past.

Ukraine's largest steel works were recently taken back into state ownership after the government said the law was broken when it was sold and so it will be auctioned off again.

For months there has been talk about a list of other re-privatisation targets, but now the president says there will be no list.
This uncertainty is harming Ukraine's investment prospects.

But it should not put people off, according to former US Congressman John Conlan who links up foreign firms with Ukrainian companies.

"This is just a socially justified corrective measure," he says.
"The authorities are not going after business with western involvement."
Fantastic profit margins
Ukraine has one of Europe's fastest growing economies.

It occupies a strategic position on the edge of the European Union while also bordering Russia.

"We will definitely be keeping an eye on the market as there are bound to be good opportunities," says Christian Mol, executive vice president of international retail at Rabobank.

"We are certain that the focus of Ukraine is towards the west and greater democracy."
For the moment the risks are too high for many western investors, but for some the rewards make it all worthwhile.

"Ukraine is risky but fun," quips Techinvest's Roman Kyzyk, insisting that despite all the challenges encountered, there is no better place anywhere today in the former Soviet Union for emerging markets investors.

Kiev businessman Pete McAndrew agrees.
"It's so frustrating dealing with all the problems, all the red tape, but for all that trouble we end up with fantastic profit margins."