Who Invests In Ukraine In A Time Of Turmoil?

Ринки 24.11.2014    19:06 A year after Ukraine’s anti-government protests ousted corrupt president Viktor Yanukovych, the crisis in Ukraine continues with a Russian invasion in the country’s East and a nationwide political system that so far hasn’t proven it’s capable of fighting corruption and bringing about much-needed reforms. Nevertheless, some consider Ukraine an opportunity.

“I think that Ukraine remains an attractive investment destination,” said Varel Freeman, Executive Advisor at the European Bank of Reconstruction and Development (EBRD) during an interview with Forbes at the “Invest in Ukraine” conference New York this month. “And that may be paradoxical because of the coverage that the conflict gets.”

Freeman said the Russian military invasion in Ukraine’s eastern industrial region, Donbass, that’s been taking place since spring, is not dramatically affecting the balance of the country and that Ukraine’s new administration is substantially reform oriented. “There is a blast there, that’s not appreciated by many who simply look at the headlines,” he adds.

EBRD has been investing in Ukraine for 20 years – focusing on long-term financing of equity and debt – and has so far bet about $10 billion in the eastern European nation. The main part of the bank’s portfolio in Ukraine is financial institutions (34%) as well as infrastructure and energy. The bank – the largest financial investor in the region – is designed to support a transition to market economy in countries like Ukraine and works with private investors and local authorities on public projects. Freeman sees Ukraine’s investment’s potential in projects that require intellectual capital, precision manufacturing and anything that requires trained engineering staff. “You can find opportunities in putting together teams that are competitive worldwide.”

But today Ukraine’s economic situation is risky. The estimated real GDP for the 3rd quarter of 2014 shrunk by 5.1%, on its way to it’s 7% contraction this year, according to SigmaBleyzer macroeconomic report.


Ukraine’s central bank’s reserves were at $12.6 billion in October, with JP Morgan forecasting a drop to $7.4 billion by year’s end. According to the International Monetary Fund, Ukraine’s budget deficit was at 10.1% of GDP the last summer, while Consumer Price Index grew to 17.5% in September.

The International Monetary Fund approved $17 billion bailout program for Ukraine, however the country is unlikely to receive a second tranche – an expected $2.7 billion – this year.

Anders Aslund, an economic expert in Eastern Europe and a senior fellow at the Peterson Institute for International Economics in the US, foresee a major problems for the country moving forward. In his recent assessment of Ukraine’s economic situation, he said Ukraine is entering a depreciation-inflation cycle which, if not taken care of by austerity measures and structural reforms immediately imposed by the government, would lead to a financial meltdown.

Although bad news for Ukrainians, this may be a big opportunity for foreign investors. “We’ve seen that when the countries collapse, it’s the best time to invest,” said Rodolfo Amoresano, Chief Investment Officer of Asset Management Group at  Empire State Capital Partners, a full service investment company that focuses on Ukraine.

Nine month ago, Amoresano opened an office in Ukraine to work with investors interested in emerging markets. “We are trying to attract clients that have basically seen this movie before,” he said, referring to investors who’d made money laying bets on Greece, Russia, Argentina, Mexico, and Asia during crisis. He said he doesn’t mean that “tomorrow Ukraine is going to be Switzerland,” but from a risk-reward point of view, one has some great changes taking place in Ukraine, creating compelling potential.

“It’s not so much driven by sectors, but driven by individual companies—individual opportunities”, Amoresano said, pointing to agriculture and machinery industries among attractive ones.

Capital has been fleeing Ukraine since the turmoil started, but this could also mean opportunities opening for those who are willing to take risks.  ”A lot of the money is going out of Ukraine so there are opportunities for foreign money to go into Ukraine,” said Anders Corr, principal for Corr Analysis, specializing in international political risks. “But they are higher risk opportunities.” To justify the risk, the return on investment has to be high, he said. Agriculture and the IT sector have potential in Ukraine, he said, and risks can be mitigated either by having local partners or partners like EBRD, as well as using political risk insurance.

Ukraine’s difficulties – political instability, corruption – become a flip side for those who want to be first in the emerging economy and seize the opportunity. The economic part of the Association Agreement with the EU has been postponed for another year, till December 2015, but when implemented it would gradually establish a free trade area between Ukraine and EU countries.


“You should have some look-ahead period,” said Iaryna Grynkiv, Vice President of Algo Trading at Barclays, stating it’s never terrible time to invest. “Even though right now it doesn’t look like a bright period to realize the profit, it’s the bright time to enter the country. There is no such thing as positive return with no risk.”

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