About a month ago, during a Washington round-table on Ukraine hosted by the US-Ukraine Business Council (USUBC), someone asked me what do my colleagues and I expect from the new President of Ukraine and his administration? My answer, which was picked up by the Voice of America and other publications, was essentially – I have no idea. But since we have been and continue to be bullish on the Ukraine for almost twenty five years, our strategy is to move forward despite the political climates, as we always hope for sunny investment weather, but carry a sturdy umbrella in case it starts to rain.
Well, it is raining now. Raining hard and much sooner than expected.
The events of this passed week have created a vicious firestorm with “Ukraine” being mentioned practically non-stop. In this post I will not address the politics of the situation, as this has been done by practically every major media outlet in the world ad nauseam. My focus will be on business opportunities and financing tools available to those wishing to invest into the Ukrainian economy, as despite this week’s “torrential downpour” nothing has fundamentally changed to make Ukraine a less attractive place to invest.
First, some basic assumptions under which we have been operating in Ukraine for almost quarter of the century:
- Massive institutionalized corruption exists in Ukraine and it will probably take two-three generations for it to be rooted out;
- Ukraine is a very risky place to do business;
- Many people who accumulated capital in the ’90’s played by the “fast and loose rules” and cut multiple corners;
- As business in the country evolves, most astute business people understand that by playing by the transparent and well-defined rules set out by the western markets they can unlock the value of their holdings, obtain access to low-cost financing and protect their assets for the generational asset transfer;
- Ukraine has fantastic potential for economic growth in multiple sectors;
- Terrific opportunities exist for US, Canadian and European companies to supply goods and services to Ukraine and to bring world-class Ukrainian goods into the Western markets;
- Ukraine has a superb pool of smart and educated labor force;
- Country is of a strategic geopolitical importance and will always be a subject of political pressure and outside influence;
Given the above, it is important to take a long view and not be terribly concerned with current politics, because by definition Presidents, Ministers, Ambassadors and Senators change every few years. Once such long-term philosophy is accepted, then it is necessary to construct one’s proverbial umbrella. Namely, risk mitigation, corruption resistant mechanisms must be incorporated into one’s approach to doing business in the country. What this means in practice is the following:
- Targeting for investment and financing primarily those sectors where corruption is either low or non-existent. From our standpoint exports of Ukrainian natural foodstuffs, renewable energy, electro-transport production, IT, nuclear waste containment are some of those.
- Utilizing US Government financing tools, such as those offered by OPIC and US-EXIM Having these tools part of a business transaction not only provides low-cost, long-term financing, which improves economics of practically any project, but having government-backed financing in a deal, also improves quality of due diligence and acts as fantastic corruption deterrent and protection for investors.
- Obtaining political risk, trade credit, or breach of contract insurance for every significant deal or trade transaction. US Government and certain well-rated global insurance companies offer protection to investors from such perils as expropriation, creeping expropriation, currency inconvertibility, non-payment for goods supplied, or services rendered and for breach of contract. Such insurance is not terribly expensive, but de rigueur for anyone looking to invest into the Ukraine, or into any foreign market, for that matter.
- Creation of a so-called Grey2White® program to allow investment where original capital, or business formation had murky roots, but can be fully re-mediated with application of strict compliance procedures, financial restructuring and accounting oversight.
- Finally, despite of the current rainy weather, we are moving hard to add one more extremely effective tool, which has been missing in Ukraine’s economic development. Creating a safe umbrella for individual American-Ukrainian, Canadian-Ukrainian and members of Ukrainian diasporas in other countries to invest into the future of Ukraine.
What this means is a focused investment platform listed on a stock exchange and subject to a recognized US, or Canadian authority such as Securities Exchange Commission (USA), or Canadian Securities Administration (CSA). Such platform would will further be secured by protection of the political risk insurance and will, for the first time since Ukraine’s independence, allow individual investors with as little as $500! to invest, to participate in Ukraine’s economic development, while having the umbrella of protection of the western laws, rules and regulations. We call this platform “Develop UA”™ and expect to formally roll it out to the world in the middle of October, 2019 regardless of whether it is raining, or sunshine in Kyiv and Washington, DC.