Ukraine ranked 18th among FDI-attracting countries

[stepanstas]

Study: Ukraine ranked 18th among FDI-attracting countries

Ukraine has attracted record amounts of foreign direct investment in recent years but lags far behind other countries where inflows are significantly higher.

Ukraine ranks 18 out of 20 top FDI-attracting countries, according to the United Nations Conference on Trade and Development. UNCTAD’s World Investment Prospects Survey for 2007-2009 was presented in Geneva last week.

The survey, which described Ukraine as a “newcomer” among top FDI-attracting countries, is based on responses from 191 transnational corporations regarding their investment strategies for 2007-2009. The survey found that the majority of investors plan to increase FDI expenditures in the coming years, but competition for inflows will be tight.

“The worldwide upturn observed since 2003 should thus continue at least until the end of 2009,” according to the report. Its authors believe that global financial instability and some countries’ protectionist policies will not buck the trend. Global FDI exceeded $1.3 trillion in 2006.

For comparison, since gaining independence in 1991, Ukraine has attracted around $24 billion in foreign direct investment, with significantly larger amounts pouring in since the Orange Revolution of 2004. FDI inflows totaled $3.3 billion in the first half of 2007, the country’s central bank reported last month. That figure represented nearly 24 percent growth year-on-year.

China leads the list of countries poised to attract the most foreign investment in the next two years, with India, the US, Russia and Brazil rounding out the top five. Along with growing investor interest in Southeast Asia and the 12 new EU member states, experts note a growing interest in Eastern European and CIS states.

“The major motives behind the growth of FDI remain market-seeking and, to a smaller but growing extent, resource-seeking – mainly skilled labor, but also raw materials and finance,” according to UN experts.

Ihor Zaglada, deputy director for investor services and regional cooperation at the Kyiv-based Ukrainian Center for Foreign Investment Promotion, said that Ukraine can offer both market and resource opportunities to investors.

“We have a relatively large market. The purchasing capacity of a population numbering 47 million people is growing. The financial market is also growing dynamically,” said Zaglada.

“Bordering with the EU, Ukraine has the advantage of qualified and relatively cheap labor resources. Raw material resources are not a problem for Ukraine as well,” he concluded.

However, Ukraine will have to make the most of its geographical advantages to maximize its share in global FDI, because the number of countries attracting investment from abroad is growing, according to the UN survey.

In addition to access to markets and resources, companies are also seeking a stable investment environment and government effectiveness in potential host countries.

Zaglada noted that the formation of a governing coalition and resolution of the land sale moratorium issue will largely determine Ukraine’s prospects in terms of attracting FDI in the coming years.

“Much depends on the steps taken by Ukrainian authorities toward integration into the world economy. When Ukraine joins the WTO, its FDI attractiveness will grow,” Zaglada concluded.

Kyiv-based investment bank Dragon Capital reported that the financial sector and processing industries of Ukraine were the main beneficiaries of FDI in the first six months of this year, with Germany, Cyprus and Austria leading the way as the largest contributors.