One of Davos's key messages of this year's World Economic Forum has been economic recovery after the coronavirus crisis. Many factors are affecting the economic development of Ukraine, but in my opinion, the main one is the lack of sufficient investment.
Investment picture in numbers
According to the Ministry of Finance of Ukraine, we need at least 10 billion US dollars of annual direct investment for continuous economic development. Under the same Ministry's statistics, we have deplorable numbers for the last two years: 2019 – 3070 million US dollars, 2020 – minus 343 million US dollars. In 2020, there were no investments into Ukraine, as there was, and there is no faith in Ukraine.
Of course, skeptics will say: so first, there were elections, quarantine, lockdown, etc. It was not about investment. Sure, I agree, but in previous years the situation was not better: 2018 – 2355 million US dollars, 2017 – 2202 million US dollars, 2016 – 3284 million US dollars.
The last time Ukraine received significant investments was in 2005-2008, and everyone felt it. Over these years, the volume of direct investments into the Ukrainian economy reached 34.7 billion US dollars (an average of 8.675 billion US dollars per year). For comparison, over the past 12 years, direct investments into the Ukrainian economy were 45.3 billion US dollars (average 3.775 billion dollars per year).
Why will no investments be attracted into Ukraine?
In fact, it is obvious – there is no faith: faith in the future, faith in the judiciary, faith in authorities, faith in the ability of the Ukrainian government to protect investors from the arbitrariness of law enforcement, tax pressure, phenomena such as raiding and more. For any investor, the provision of investment is the provision of credit, i.e., the mandatory condition is the return of the credit and profit body, which can be expressed as interest accrued and paid on the body the growing capitalization of the company, etc.
Why is faith important? Investing and lending are actually based on faith. On the faith that our resources will grow in the future, and due to this growth, the investment will be returned, and respected interest will be paid. On the faith that the government will promote business development, ensure the stability and security of business, ensure the courts and police's proper functioning, which will promote and assist business, but not become racketeering instruments since the 90s.
Why are loans (investments) important?
This allows new businesses to emerge and grow, to grow and expand existing ones. And then "plays" the theory of Mr. Adam Smith: "increasing the profits of private enterprises leads to increased collective wealth and prosperity".
The role of the authorities in the absence of investments
It is clear that markets free from any political influence simply do not exist. But Ukraine is continuously threatened by the foneys and thefts and the government itself, although its primary function is just the opposite – to protect against fraud, theft, and violence. And the government must ensure this through sanctions against fraudsters, thieves, perpetrators of violence, through the creation and support of the police, courts, court enforcement system, faith in the future, faith in justice, faith in development. Unfortunately, this is not the case in Ukraine.
The situation with the IMF tranche is indicative. Let me remind you that in June 2020, Ukraine and the IMF signed a memorandum of cooperation under the 1.5-year stand-by program worth 5 billion US dollars.
We received the first tranche the same month – 2.1 billion US dollars. But no further tranches came. Among the reasons are the lack of a gas market, the abolition of anti-corruption reform, the judiciary's reform, and so on. But globally, it is again a lack of faith that the Ukrainian government can properly "cleansing" itself and fulfill its commitments.
When the government is unable to fulfill its responsibilities, properly regulate markets, ensure the rule of law, it leads to a loss of faith, reduced credit and investment, and, as a result, to the "economic depression". We all have to understand that investments are coming to the countries where is the rule of law, where the right to private property is respected, where the slogan "Law and Order" is not just a slogan on the emblem of a particular body, but the actions this body actually performs. And as soon as we realize, accept, and start working on it – faith will return, and after this investment will come, the business will develop, and the welfare of the country and the population will grow.
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