Investors await peace before re-entering Ukraine

Far from the sound of guns and artillery, an “invest in Ukraine” conference opened in London this week to lure the Western business community back once peace returns.

A few dozen investors, middlemen and promotion agencies are to meet until Thursday in the opulent rooms of an old building in the heart of the City of London financial hub.

Attendees from both Ukraine and the West agreed on the development potential of the former Soviet republic, which recently signed an association agreement with the European Union, but said investment can only begin once the guns fall silent.

“I am fairly optimistic about the future of Ukraine… once the ongoing conflict is resolved,” said Richard Segal, analyst at financial services group Jefferies International.

Economic activity in Ukraine has sharply contracted since the conflict began five months ago in the east of the country between pro-Russian rebels and forces loyal to Kiev, and Ukraine’s gross domestic product is expected to shrink 6-7 percent this year.

But Kiev is hoping for a slight rebound next year, and a faster recovery in 2016 and 2017, assuming that the fighting has stopped.

“Nobody wants to invest right now. Everybody is waiting for the war, to call it by its name, is over,” said Nazar Chernyavsky, a business lawyer with Sayenko Kharenko.

Nevertheless, he sees “Western funds eyeing Ukrainian enterprises in agriculture and infrastructure,” which “in the current situation, they can buy for a very good price.”

The two sectors are attractive for opposite reasons. Agriculture has hardly been affected by the conflict, while infrastructure, including in transport and energy, has been damaged by bombing in the east and is in urgent need of capital.

– Fight against corruption –

GESS Consulting Ukraine, a US company specialising in electricity and energy, has investments in the west and centre of Ukraine in areas less affected by the fighting. Moving eastward to less secure areas is out of the question.

“There aren’t the conditions to invest in eastern Ukraine,” said its chief executive officer Shaun Lee, adding that it could take five to ten years for investors to return.

Foreign investors who have interests in the east of Ukraine have seen their investments run into difficulty, according to a Ukrainian business professional who did not give his name.

Selling their stakes is difficult due to the difficulty of valuing assets in areas where there is ongoing fighting.

Even more peaceful regions have suffered due to the uncertainty over the future of the country, which has devalued the local currency the hryvnia, leading to a 60-70 percent rise on the price of imports.

International organisations the IMF and European Bank for Reconstruction and Development (EBRD) have provided liquidity to make up for the lack of private investment.

The EBRD is aiming to increase its investment in Ukraine by a quarter to one billion euros ($1.3 billion) this year, mainly in the form of loans and equities.

“We are keen to support the (Kiev) government, which is clearly committed to the path of economic reform,” said Sevki Acuner, head of the EBRD’s Ukraine operations, which has just provided $60 million (45.6 million euros) to help upgrade the terminal of the southern port of Odessa to handle grain exports.

Among the reforms agreed with the West, Kiev has promised to boost the fight against endemic corruption and cut back on complex bureaucracy.