Foreign direct investment (FDI) in Ukraine

FDI in Figures

On February 24th 2022, Russia initiated a military conflict on the Ukrainian territory, which profoundly upsets the current political and economic context in both countries and will have substantial ramifications on the investment climate. For the ongoing updates on the developments of Russia-Ukraine conflict please consult the dedicated pages on BBC News.

According to UNCTAD's World Investment Report 2023, FDI flows to Ukraine fell to USD 848 million in 2022, down from USD 7.3 billion one year earlier, due to the effects of the Russian invasion of the country. In the same year, the total stock of FDI stood at USD 51.1 billion. Multinational companies hold assets in steel, information and communication technology, pharmaceuticals and agricultural commodities. Arcelor Mittal is the largest investor, with assets of USD 6.5 billion (UNCTAD). In 2022, Russia’s invasion of Ukraine and the subsequent protracted war deeply deteriorated business climate. Insecurity, political and economic uncertainty, supply chain disruptions and infrastructure destruction lead to capital outflows. Most investments are made in manufacturing (23.3%), wholesale and retail trade; repair of vehicles and motorcycles (16.3%), mining and quarrying (11.5%), financial and insurance activities (7.6%), and real estate activities (7.3%). The main investors in Ukraine are Cyprus (33.1%), the Netherlands (19.5%), Switzerland (5.1%), Germany (5%), and the UK (4.8% - National Bank of Ukraine, 2022). The EU as a whole accounts for 74.4% of the total stock. In Q1 2023, Ukraine attracted USD 1.1 billion in FDI, comprising USD 128 million in capital, USD 1.1 billion in reinvested funds, and a debt component of USD -64 million. As of March 31, 2023, the cumulative direct investment in Ukraine reached a total of USD 53 billion, as reported by the Ukraine Invest agency.

Despite the war, the government has launched a drive to attract foreign investment of up to USD 400 billion in various sectors including technology, the agro-industry, clean energy, defence, metallurgy and natural resources. Furthermore, the reconstruction efforts in Ukraine are expected to draw investments totalling hundreds of billions of dollars from governments, international financial institutions, and the private sector. In addition to political instability, investors pointed out before the war that the underlying inefficiency and corruption in the justice system were among the main obstacles to investment. Other serious impediments are the complexity of laws and regulations, poor compliance with contracts and poor governance. However, the country has a large internal market, proven agricultural potential, energy and mineral resources and a strategic geographic location, making it a transit hub and a gateway to Europe and Eurasia. Before the war, progress had been made in terms of obtaining building permits, connection to electricity, protection of minority investors and cross-border trade. Ukraine has also simplified and reduced the costs of the registration procedure for representative offices of foreign business entities. Overall, the war significantly worsened the business climate: challenges such as Russia's deliberate destruction of Ukrainian civilian infrastructure, the occupation of a significant portion of the territory, disruption of the workforce resulting from the invasion, the presence of unexploded ordnance, and other ecological consequences of the war hinder both new and existing investors. It is worth noting that while these challenges exist, the majority of Ukraine's regions are not directly on the frontlines. Ukraine ranks 55th among the 132 economies on the Global Innovation Index 2023 and was not ranked in the 2023 Index of Economic Freedom due to Russia’s ongoing invasion.

What to consider if you invest in Ukraine

Strong Points

The key assets of the Ukrainian economy in terms of FDI include:

• Strategic geographical position, the country being located at the gates of Europe, Russia and Asia
• Abundant natural resources (iron ore and manganese reserves) and a large agricultural industry (55% of arable land)
• Strong international financial support from global institutions (IMF, World Bank, EU) and through bilateral agreements
• Association and Free Trade Agreement with the European Union (2016) which gives Ukraine preferential market access
• One of the largest markets in Europe with 43.5 million consumers and the emerging middle class
• Skilled and inexpensive workforce
• Good education system (large number of qualified specialists in the high-tech sector)
• Low level of private debt

Weak Points

The weak points of the Ukrainian economy in terms of FDI include: 

• High geopolitical risk and political instability severly aggravated by the escalation of the confict with Russia (large scale military invasion of Ukraine launched by Russia at the end of February 2022)  
• A weakly diversified economy which is highly dependent on Russia (its main trading partner and natural gas supplier) with which it has been in conflict since the 2014 crisis in Crimea and Donbass regions)
• Unstable economy, characterised by a high rate of inflation and exchange rate vulnerability
• Weak legal framework and business environment (endemic corruption, monopolies, weak property rights, inefficient public services)
• High public debt level (especially external debt)
• Declining demographics, regional inequalities, high level of poverty and of the informal sector

Government Measures to Motivate or Restrict FDI

In recent years, Ukraine has been trying to improve its business climate and attract foreign investors, as confirmed by the dozen laws passed by the government of President Zelenskyy in this regards, including several incentive programs (including a 5-year tax exemption for investments over USD 10 million in large-scale privatization projects, loans with reduced interest rates for SMEs, the collaboration of a government manager for investments over USD 100 million, higher depreciation rates for fixed assets, etc.).
UkraineInvest is the national investment promotion agency that works as a one-stop-shop for investors.

Bilateral investment conventions signed by Ukraine

To see the list of investment treaties signed by Ukraine, consult UNCTAD's International Investment Agreements Navigator.