Investors look for opportunities in Kharkiv

Around 120 people attended the conference, which was sponsored by Ukrainian oil and gas extractor Burisma Holding.
23 квітня 2018

KHARKIV, Ukraine – Kharkiv, Ukraine’s second largest city with a population of 1.4 million, was once Soviet Ukraine’s capital and a major economic center.

Last year, however, Kharkiv region only took 12th place in investment growth, according to Ukraine’s Economy Ministry.

But despite the region’s history of low investment attractiveness due to bureaucracy, corruption, lack of rule of law and Russia’s war against Ukraine, Kharkiv could yet blossom into a world-class economic hub, according to experts gathered for an economic conference on April 17 at the Kharkiv Premier Palace hotel. The conference was organized by the Atlantic Council, a think tank based in Washington, D.C.

Around 120 people attended the conference, which was sponsored by Ukrainian oil and gas extractor Burisma Holding.

Yulia Svitlychna, governor of the Kharkiv Regional State Administration, told attendees that there are positive factors that could draw investors. For example, since the launch of Ukraine’s decentralization process in 2014, Kharkiv Oblast’s budget has almost quadrupled.

“This allowed us to stimulate development not only in Kharkiv, but also in other districts of the region, where people have not seen proper manufacturing equipment over the past 10-20 years,” Svitlychna said. “Since 2014, no foreign investor has left the region, proving that it’s beneficial to conduct business here.”

In 2017, Kharkiv region internal investment amounted to $640 million.

Just recently, the city is building two new metro stations on the line leading towards Kharkiv International Airport, using financing from the European Bank of Reconstruction and Development and the European Investment Bank. In partnership with international investors, the city also built Ukraine’s first modern waste treatment complex, with a capacity of 400,000 tons per year.

Then on April 3, global food corporation Nestle invested Hr 700 million, or $27 million, into modernizing its instant noodles factory in Kharkiv. In addition, international conglomerate Schneider Electric and Malteurop, a malt producer, are to transfer their head offices from Kyiv to Kharkiv, and U.S. nuclear company Holtec and private equity firm SigmaBleyzer both operate in the region.

“One of the reasons that Ukraine can succeed in future is because it has a wealth of human capital and highly educated people,” said John Herbst, the director of the Atlantic Council’s Eurasia Center and a former U.S. ambassador to Ukraine.

Defense industry

But another reason why Kharkiv region is gaining more attention is because of its close proximity to Russia’s war in eastern Donbas, as it borders both Luhansk and Donbas oblasts.

Since 2014, the U.S. has committed almost $1 billion to helping Ukraine defend its eastern border, train soldiers and purchase military equipment, said Evelyn Farkas, former deputy assistant secretary of defense for Russia, Ukraine and Eurasia. In addition, Ukraine will receive $150 million to strengthen its security as part of Washington’s $4.8-billion European Deterrence Initiative to counter Russia’s military aggression on the continent’s eastern border.

But that also has to be combined with Ukraine’s own fight against corruption.

“In order for Ukraine to be truly sovereign, to really join the West, Ukraine needs to work harder to beat corruption – this is an issue of national security,” Farkas said. “Ukraine needs to increase transparency and to reform the justice system to strengthen civil society. If this doesn’t happen, Ukraine will fail.”

To attract investors, Farkas also advised Ukraine’s Defense Ministry to be more transparent in its sale of assets such as those belonging to state-owned defense industry enterprise Ukroboronprom.

Ukraine also needs more investment, receiving less than $50 billion since it regained independence in 1991. The economy is only $100 billion, making it the second-poorest nation in Europe after Moldova.

Foreign direct investment, however, rebounded somewhat to $2.3 billion in 2017, finally “moving in the right direction,” said Morgan Williams, president of the U.S.-Ukraine Business Council.