|The amount of foreign direct investment (FDI) of Ukraine in the first nine months of 2019 increased by US$1.8 million, representing a 5.5% growth / Photo by: Sviatimage via Wikimedia Commons|
The amount of foreign direct investment (FDI) of Ukraine in the first nine months of 2019 increased by US$1.8 million, representing a 5.5% growth. As of October 1, 2019, the country’s FDI totaled US$34.7 billion, reports Ukraine news source Ukrainian Independent Information Agency of News (UNIAN).
Foreign Direct Investment 2019
UNIAN, citing data from the State Statistics Service of Ukraine, shared that the new investment of the economy under the covered period reached US$1.7 billion while nearly US$1 billion was disinvested. Investing and finance platform Investopedia defines disinvestment as an action of a government or an organization of selling or liquidating assets or subsidiaries. This also means a reduction in funding.
The State Statistics Service of Ukraine also totaled a positive reassessment to US$1.1 billion. Top investors of Ukraine are those from Cyprus (US$ 761 million), Russia (US$220 million), the Netherlands (US$438), Germany (US$90 million), and Switzerland (US$133 million).
FDI and Its Role in Economic Development
FDI is an investment made by an individual or firm in one country into the business interests that are situated in another country. It usually takes place when an investor acquires foreign business assets or establishes foreign business operations in another country. In a 2016 study published in an international journal devoted to the dissemination of scholarly research Social Science Research Network (SSRN), authors Faruk Ahmeti and Halil Kukaj wrote that FDI is one of the most important contributors to the economic growth of a country.
They said that there are two main ways that FDI contributes to the economic development of the host country. One is that they include the augmentation of domestic capital as well as the enhancement of efficiency through a transfer of best practices, innovation, managerial and marketing skills, and new technology. Second, FDI’s impact is determined by the country’s conditions and policy environment.
|FDI is an investment made by an individual or firm in one country into the business interests that are situated in another country / Photo by: Eugeny Polivanov via Wikimedia Commons|
The Need to Intensify Ukraine’s Effort to Attract FDI
Financial group Investment Capital Ukraine LLC’s founding partner Makar Paseniuk has likewise recently said via business news platform Bdaily that attracting FDI continues to be an important task for Ukraine to accelerate its economic growth. He said that although the country boosts its economic growth and strengthened its competitive position in the world by having a low base GDP and a changing international trade platform, there is still a need to “intensify” the effort to attract foreign direct investment.
He noted how the world economy is facing uncertain times; the economic growth may slow down, the world trade is contracting, and business expectations are not improving. Paseniuk also mentioned how Brexit (the withdrawal of the UK from the European Union) and trade conflicts have affected investor sentiment and hamper capital flows. As a result, central banks have started cutting interest rates. This caused investors to search for other yields and invest in frontier and emerging markets.
Because of Ukraine’s high yields and gross domestic product growth potential, investors have flocked to the country. Paseniuk pointed out that the economic growth of Ukraine at present is mainly driven by consumption. However, consumption alone cannot support the sustainable growth of Ukraine’s economy for a long period, especially while facing a slowing global economy. ICU’s founding partner believes that there is a need to have structural and qualitative shifts to attract FDI.
Some of the biggest priority areas for foreign direct investment in the country considered by Paseniuk include agriculture, infrastructure, transport, and natural gas. This is because the agriculture industry accounts for 40% of the country’s export revenues and 10% of GDP. It has also become the basis to continue developing the services sector and processing industry.
|Because of Ukraine’s high yields and gross domestic product growth potential, investors have flocked to the country. Paseniuk pointed out that the economic growth of Ukraine at present is mainly driven by consumption / Photo by: Mykola Lazarenko via Wikimedia Commons|
Total FDI Inflows
Meanwhile, the Food and Agriculture Organization of the United Nations has shared Ukraine’s share of total FDI inflows in the following years: 2011 (7,207 million), 2012 (8,401 million), 2013 (4,499 million), 2014 (410 million), 2015 (2,961 million), 2016 (3,284 million), 2017 (2,601 million), and 2018 (2,355 million). FDI net inflows are the value of inward direct investment made by non-resident investors in the reporting economy.
Ukraine Economic Update
In the recent Ukraine Economic Update released by the World Bank, it further indicates that the country’s economy grew by 3.6% in the first half of 2019. The economic growth was attributed to a strong agricultural harvest as well as the services sectors. On the other hand, investment growth and manufacturing remained weak.
The World Bank added that some of the factors that helped reduce inflation in Ukraine are having sound monetary and fiscal management. It has also helped reduce the debt burden and interest rates in 2019.
To allow foreign direct investment inflows, it would be tantamount for Ukraine to have tailored policies of their own to overcome the domestic imperfections that may obstruct the smooth integration of foreign and domestic firms. To reduce restrictions on FDI, the country can provide for a transparent, open, and dependable conditions for all kinds of businesses, such as having flexible labor markets. The ease of doing business in the country should also be emphasized.