Corruption Tops War as No. 1 Hurdle to Ukrainian Investments

Updated on
  • Investment Promotion Office head says ‘success stories’ needed
  • Government planning to attract $4.5 billion of FDI this year

The conflict in eastern Ukraine has been rumbling on for almost three years.

Photographer: Viktor Drachev/TASS via Getty Images

The almost three-year-old conflict in eastern Ukraine has weighed on efforts to remake the former Soviet economy. But when it comes to investments, it’s not been the biggest drag.

“Investors see three main problems in Ukraine: corruption, corruption and corruption,” said Daniel Bilak, chief investment adviser to Prime Minister Volodymyr Hroisman. To rebrand itself, the country needs to highlight “success stories” rather than “permanent conflict and graft,” he said Monday in an interview in Kiev, the capital.

While Ukraine has won praise for initiatives to overhaul its banking and energy sectors, progress in tackling corruption has fallen short, delaying payments from a $17.5 billion bailout. Top officials, even from the pro-Kremlin administration ousted in protests in 2014, have escaped censure. The nation gained just two places in Transparency International’s annual ranking, reaching 131st place alongside Russia. Neighboring Poland is 29th.

The government plans to attract $4.5 billion of net foreign direct investment this year, up from $3.4 billion in 2016. Bilak, a 56-year-old former managing partner at law firm CMS Cameron McKenna’s Ukrainian practice, leads the Investment Promotion Office, known as UkraineInvest, which aims to unlock $1 billion, including $400 million of capital expenditure from ArcelorMittal.

Most investor complaints concern Ukraine’s fiscal service, according to Bilak. But there could be some positive news on the horizon as the central bank plans to relax capital controls imposed in the wake of the revolution, a move that would allow the repatriation of dividend payments, he said.

While consumer spending power was decimated by the economy’s more than 15 percent slump in 2014-2015, the Novoye Vremya magazine reported last month that clothing retailer Hennes & Mauritz AB may be seeking to open in Ukraine. Bilak said he “understands” the company is considering opening, and that Hroisman or he himself would be ready to assist.

While Ukraine is an “interesting” market, H&M said by e-mail that it doesn’t have “any concrete plans” as to when or where it may open stores in the country.

While battling a pro-Russian insurgency in its easternmost regions since 2014 has taken its toll on Ukraine’s metals and mining industries, sectors such as technology and agriculture have seen their fortunes improve, according to Bilak, whose office was set up in October. Areas such as these can form the basis of the nation’s investment goals, he said, naming its western provinces as the most favorable for foreign investors.

“Ukraine’s strategy should be to focus on leveraging its two greatest assets and drivers: brains and grains,” Bilak said.

— With assistance by Kim McLaughlin

(Updates with investor complaints, capital controls in fifth paragraph.)
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