Weird or Not? Why Investments Are “Fleeing” Ukraine

April 12, 2021

The net outflow of almost $870 million of direct foreign investments from Ukraine, as reported by the National Bank of Ukraine, is annoying news, however, it did not surprise anyone. Clearly, this is partly due to the Coronavirus crisis. But even in the pre-crisis period, direct investment in the world economy was very cautious. Specifically, investment volumes also decreased in 2018−2019, with average annual decrease by 10%, while the 42% collapse in global flows in the pandemic year of 2020 came as no surprise. It is also “natural” that the outflows occur from emerging or weakened economies to the so-called safe havens — developed countries with strong capital.

And escape of investment from Ukraine perfectly fits into global investment flows. However, foreign investment is only one side of multifaceted domestic investment losses that go far beyond the coronavirus. Much has been said and written about Ukraine’s investment climate. The government continues to declare its intention to attract investment, but its efficiency remains highly questionable.

Let me focus on the peculiarities of the investment environment in Ukraine in the recent period. First, the structure of the country’s GDP is of openly consumer nature, with the share of final consumption expenditure in 2019–2020 reaching 94–95% of GDP. In other words, almost entire created product is being consumed during the year. As a result, fixed capital accumulation was declining rapidly. In 2019, its share dropped to 12.6% of GDP, and in 2020 — to 7.5%. This means that the investment resource simply has no time to restore. For an investment recovery, this share should be at least 18–20% of GDP, which is probably unlikely in the coming years.

Second, domestic business remains virtually one-on-one with its investment needs. Accordingly, enterprises’ own funds account for two-thirds of the total for all sources of financing of capital investment. Instead, bank loans account for less than 7%. Therefore, it is useless to hope that government incentives to reduce the cost of credit will have any practical sense.

And why spend on real investment, if there is a risk-free and profitable OVDP market? Moreover, non-residents started returning to the market in late November 2020 — since then, their “net” purchase of bonds amounted to about UAH 30 billion, with the yield on annual bonds at 10–11%. With a fairly stable exchange rate, the currency yield is only slightly lower.

Third, government initiatives to attract investors based on promises of benefits look questionable. Broadly promoted so-called “investment nanny” that would provide individual investors with exceptional conditions have not interested any serious investors. On the one hand, it seems that the proposed preferential terms will be used primarily for lobbying purposes, and on the other, rule of law, low corruption and protection of property rights are much more important for domestic and international investors.

To start changing something, it is not necessary to create yet another major investment council or approve far-reaching decisions and regulations. Instead, it is expedient to begin with something small but clear, transparent and meaningful. And privatisation, which today is essentially “mothballed”, stands out among such small but real actions. It is important to make sure that this wasn’t another rewriting of the list of enterprises (not) subject to privatisation, but prompt opening of 2 or 3 demo competitions involving truly attractive enterprises with free access of all interested investors (except for those related to the aggressor) and minimisation of additional investment obligations. And the decisions on these competitions to become unconditional. Then domestic investors will start believing in the reality of possible changes, and international investors will catch up as well...

Vasyl Yurchyshyn

Director, Economic Programmes

Born in 1955 in Kamyanets-Podilskyi.


T. Shevchenko Kyiv State University, Department of Cybernetics (1977).

Institute of Public Administration and Local Government at the Cabinet of Ministers of Ukraine (1994).

Professor in Public Administration. Author of nearly 100 scientific works.


In 1977–1993, worked at the Kyiv University as an engineer, research fellow and senior research fellow;

1994–1999 — head economic researcher at the International Centre for Policy Studies, Fund for Banking and Finance Development;

1999–2004 — Assistant Professor, Department of Economic Policy of the Ukrainian (currently, National) Academy of Public Administration, office of the President of Ukraine;

1999–2004 — Research Director at the Agency of Humanitarian Technologies, later — Agency for Social Analysis;

2002–2003 — advisor to the Minister of Economy of Ukraine;

since April, 2004 — Professor, Department of Economic Policy of the National Academy of Public Administration, office of the President of Ukraine;

since June, 2005 — Economic Programmes Director at Razumkov Centre.

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