Ukraine offers a large consumer market, a highly educated and cost-competitive work force, and abundant natural resources. The government continues to advance legislation to capitalize on this potential. In March 2020, parliament passed a law to lift the decades-old moratorium on the sale of agricultural land, effective July 1, 2021. The World Bank projects that the establishment of the agricultural land market could attract $5 billion in investment. Ukraine has continued to pass necessary legislation on intellectual property rights (IPR), including a new patent law bringing Ukraine’s patent regime closer in line with EU patent conventions. The government also launched a new centralized body to speed up the review and issuance of patents. On March 30, 2021, the Rada lifted a block on large privatizations and is looking at ways to facilitate the privatization process.
Ukraine’s Association Agreement with the EU gives the country preferential market access and is accelerating its economic integration with the bloc. Many U.S. companies have found success in Ukraine, particularly in the agriculture, consumer goods, and technology sectors. Ukraine is an agricultural powerhouse and the world’s second-largest grain exporter. Ukraine has long had a skilled workforce in the IT service and software R&D sectors. In recent months the Ukrainian government has increased its targeted recruitment of high-level IT talent into Ukraine.
Despite Ukraine’s potential, foreign direct investment (FDI) remains low. Ukraine experienced a net outflow of investment in 2020. In addition to the pandemic, foreign investors cite corruption, particularly in the judiciary, as a key challenge to doing business in Ukraine. To attract foreign investment the government adopted a new law in early 2021 granting considerable financial and operational incentives to companies that make large investments in Ukraine.
The April 2019 election of President Zelenskyy raised hopes that Ukraine would make the breakthrough reforms necessary to unlock its vast economic potential. The government has worked to protect the gains of recent years and to implement many of the administration’s promises. Vested and corrupt interests, however, have resisted and even succeeded in rolling back some of the critical reforms enacted since the 2014 Revolution of Dignity.
Since 2014, Ukraine passed numerous reforms, including the launch of a number of anti-corruption institutions. In fall 2020, however, the Constitutional Court of Ukraine invalidated key provisions of laws underpinning two of these institutions — the National Anti-Corruption Bureau (NABU) and the National Agency on Corruption Prevention (NACP). These rulings have rolled back key provisions of prior IMF programs, preventing new disbursements of IMF, World Bank, and EU concessionary loans. The Constitutional Court is also reviewing cases challenging the constitutionality of the High Anti-Corruption Court (HACC) and the Deposit Guarantee Fund. The government and parliament are negotiating with international partners on legislation to reverse the effects of the rulings.
|TI Corruption Perceptions Index||2020||117 of 180||http://www.transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report||2019||64 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2020||45of 131||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, historical stock positions)||2019||$596||http://apps.bea.gov/international/factsheet/|
|World Bank GNI per capita||2019||$3,370||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Toward Foreign Direct Investment
The government of Ukraine (GoU) actively seeks to attract FDI. In 2014, the GoU established the National Investment Council as a consultative and advisory body under the president, and in 2016 the Ukrainian government established an investment promotion office UkraineInvest, with a mandate to attract and support FDI. UkraineInvest’s mission is to provide a one-stop shop for investors by helping them find and/or initiate a project and then guiding them through any necessary regulatory processes. UkraineInvest is also the primary point of contact for companies applying for tax and operational benefits under the newly enacted investment incentive law, “On State Support of Investment Projects with Significant Investments.”
The Business Ombudsman Council of Ukraine is as an advisory body under the Cabinet of Ministers that provides a forum for domestic or foreign businesses to file complaints about unjust treatment by government officials and state-owned enterprises. In June 2020, a draft law #3607 “On the Establishment of the Business Ombudsman Institution in Ukraine” was registered, which would significantly expand the institution’s authorities to investigate complaints.
Limits on Foreign Control and Right to Private Ownership and Establishment
The regulatory framework for the establishment and operation of businesses in Ukraine by foreign investors is generally similar to that for domestic investors. Registering a foreign investment is governed by “The Law on Foreign Investments” (1996), although according to the Law “On amendments to some legislative acts of Ukraine to abolish the obligation of state registration of foreign investments” (2016), registration is not mandatory. However, Article 395 of the Economic Code of Ukraine states that unregistered foreign investments will lose key legal guarantees. These guarantees include, the transfer of profits and income resulting from investment in Ukraine, the right to issue a permanent residence permit, a ban on nationalization, etc. Before registering their business, non-Ukrainian citizens must register with the Office of Immigration in the Ministry of Foreign Affairs and receive a taxpayer identification number through the State Fiscal Service. Legislation adopted in October 2019 reduced the cost of accreditation for foreign representative offices (excluding Russian businesses) from $2,500 to one minimum monthly wage (which in 2020 was approximately $180) and the timeframe from 60 to 20 days. The Ministry of Economic Development, Trade, and Agriculture issues these accreditations.
Foreign and domestic private entities can engage in all forms of remunerative activity, with some exceptions: foreign companies are restricted from owning agricultural land, producing bioethanol, and some publishing activities. In addition, Ukrainian law authorizes the government to set limits on foreign participation in state-owned enterprises, although the definition of “foreign participation” is vague, and the law is rarely used in practice. Certain critical infrastructure, especially in the energy sector, is precluded by law from private ownership and therefore not available to foreign investors. This includes the gas transmission system, electricity grids, and various plants and factories. While the authorities currently review merger and acquisition investments on competition grounds, the government is developing a mechanism for investment review on security grounds. On February 3, 2021 a draft Law # 5011 “On Foreign Investments in Economic Entities of Strategic Importance for the National Security of Ukraine” was registered in the Parliament. If enacted, the bill is expected to introduce a system for assessing the impact of foreign investments on national interests and security of the state.
Other Investment Policy Reviews
The Organization for Economic Cooperation and Development (OECD) and the World Trade Organization (WTO) conducted formal reviews in 2016, and can be found at OECD: http://www.oecd.org/investment/oecd-investment-policy-reviews-ukraine-2016-9789264257368-en.htm; WTO: https://www.wto.org/english/tratop_e/tpr_e/tp434_e.htm.
Ukraine has taken major steps to improve the ease of doing business over the past five years, helping it move up seven spots in the World Bank’s 2020 Doing Business Ranking from 71st place in 2019 to 64th. This was Ukraine’s largest annual leap since 2014 and the highest ranking the country has ever received. Ukraine demonstrated improvements in six out of the ten indicators the World Bank assesses, scoring the highest in categories such as “starting a business” and “dealing with construction permits.” However, an investor sentiment survey conducted by one of the largest private industry associations in Ukraine at the end of 2020 found a majority of its member company respondents felt the overall investment climate in Ukraine was declining. Companies cited corruption as one of the top reasons for this perceived downward movement in Ukraine’s investment climate. (Please note that the World Bank has put the 2021 Doing Business Rankings on hold until at least mid-2021).
The investor sentiment survey can be found at: https://eba.com.ua/wp content/uploads/2020/11/2020_ForeignInvestorSurvey_Presentation_en.pdf
Private entrepreneurs and legal entities can register online at https://poslugy.gov.ua/ and https://online.minjust.gov.ua/dokumenty/choise/. These online registrations systems are not commonly used because it is difficult to submit the required documents online. Once a company is registered with the State Registrar, its data is transferred by the registrar to the relevant state authorities, such as the State Committee of Statistics of Ukraine, the State Pension Fund, State Fiscal Service, the Employment Insurance Fund, the Social Security Fund, and the Fund for Social Insurance. Registering a joint-stock company or a limited liability company takes approximately six days.
As of January of 2020, Ukraine’s investments in foreign countries totaled approximately $3.5 billion, according to data provided by the National Bank of Ukraine. Outward investment for legal entities and private entrepreneurs registered in Ukraine are capped of EUR 2 million ($2.2 million) per year.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
|Host Country Statistical source*||USG or international statistical source||USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other|
|Host Country Gross Domestic Product (GDP) ($M USD)||2019||$142,071||2019||$139,100||www.worldbank.org/en/country/ukraine/overview|
|Foreign Direct Investment||Host Country Statistical source*||USG or international statistical source||USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other|
|U.S. FDI in partner country ($M USD, stock positions)||2018||$489||2019||$596||BEA data available at|
|Host country’s FDI in the United States ($M USD, stock positions)||2018||$ 0.6||N/A||N/A||BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data|
|Total inbound stock of FDI as % host GDP||2018||29.4%||2019||33.9%||UNCTAD data available at|
* Source for Host Country Data: State Statistics Service of Ukraine
|Direct Investment from/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||$48.934||100%||Total Outward||$2,881||100%|
|“0” reflects amounts rounded to +/- USD 500,000.|
Source: State Statistics Service of Ukraine
|Portfolio Investment Assets|
|Top Five Partners (Millions, current US Dollars)|
|Total||Equity Securities||Total Debt Securities|
|All Countries||152||100%||All Countries||78||100%||All Countries||74||100%|