Ukraine’s aggressive investment target of $50 billion by 2024 requires a world-class investment attraction strategy, and with over 30 years of experience in Ukraine, UkraineInvest Chairman Daniel Bilak is a key actor in bringing this target to reality. By first focusing on removing barriers for Ukraine’s existing investors, Ukraine has been able to unlock $1billion in investment from that existing investment pool and build on those success stories to attract new investors. Mr. Bilak sees energy, agribusiness, manufacturing and IT as critical industries with a significant investment opportunity. He highlights the new government’s reforms as paving the way for a stable, credible, and thriving Ukrainian economy
Can you tell us about your background as a lawyer and how it has helped you in your role at UkraineInvest?
As a lawyer, I’ve been in emerging markets for most of my career. I came here in 1991 for the first time. My background was in bankruptcy and insolvency. Over the last 30 years, it has been fascinating to work here because Ukraine is not like other countries. After the Soviet Union collapsed, there were no state institutions to fall back on. We are basically building a country from scratch and we started doing it in earnest five years ago, after the Revolution of Dignity. As a deal maker, this is a great opportunity for me to apply those skills. You have to take limited resources and leverage them into success stories and that’s what we’ve done at UkraineInvest. For the first two years, our primary focus was on making the environment better for existing investors. This was something my previous background working in the private sector gave me an appreciation for. I told the Prime Minister at the time that we could not attract new investors until the issues facing existing investors were improved. Through this work, we were able to solve a lot of systemic issues from the country’s Soviet legacy, which unlocked about $1 billion dollars of new investment from existing investors. From about a year and a half ago, we have been able to start telling the success stories of our current investors to new investors, especially in energy, manufacturing, agribusiness, and in innovation and technology. We now have almost $3 billion in new FDI and investment by existing investors.
How has digitization been a factor in the government’s current strategy?
Digitization is bringing a lot more transparency by taking the government to the people. The current administration wants to turbo-charge digitalization and “put the government in your smartphone”. We have a Vice Prime Minister for Digitization and another for European integration and institutions. Those are both huge signals to the market as to where the Government’s priorities are. ProZorro, Ukraine’s e-procurement site, introduced automatic VAT returns, which was previously a major cause of corruption. It eliminated this problem overnight. E-data allows the government’s payments and disbursements to be viewed publicly, which adds much more accountability. These measures have probably saved the state budget from $6 to $8 billion a year since 2015. While some people say Ukraine is not doing enough to fight corruption, I think it is all relative. The institutional battle against corruption has had really profound success and we’ve even been a model for other countries.
Which companies are you seeing most interest from in your work at UkraineInvest? Are there key sectors that are focusing on Ukraine at the moment?
Renewables have been a key sector and a catalyst in attracting big players in the market. It has put Ukraine on the map. The green tariff was never going to be sustainable and we’re now moving to an auction system, but it did provide a stimulus for reform of the electricity sector as a whole. Ukraine is one of the few countries in all of Europe that has gone to a system based on the Third Energy Package. We were helped along by the European Community Energy Secretariat. This is fundamental because it is a 180-degree shift, and the same was done with the gas sector. We went from a $6bn GDP deficit to $6bn in net contributions to the state budget. It brings us closer to integration into EU structures, with full economic integration being the aim. We are already part of the EU supply chain. We’ve seen an explosion of R&D as part of the IT revolution. In 2003, the sector was worth $110 million. In the last quarter of 2019, it represented $4.6 billion and today it is almost our second largest export. It is a growth driver in the economy. Ukraine has a highly trained workforce that is wage-competitive. It produces 130,000 engineers a year, around 20,000 of which are in IT. This is the ideal path to an Industry 4.0 economy. Ukraine’s biggest assets are grains and brains. We are one of the world’s biggest producers of cereal products and food products, but where we are trying to attract investment is in the food processing side as well as ag-tech. We have one-third of the world’s black earth and one-third of the agricultural land in Europe. We will continue to be an agribusiness and agri-food powerhouse and are becoming the food basket of the world.
The Ukrainian land market is poised to open up to foreign investors. What can prospective investors expect from this major reform?
The land market reform will provide stabilization in the market. This administration has really emphasized bringing stability and predictability to the market. People need to feel like their property is protected, and the land market reform will help solidify this perception. The land system must be fair and transparent and the process by which land is transferred from one owner to another an even playing field. At UkraineInvest, our role is to do as we have done for other investors and provide a one-stop-shop to guide them through the process. In terms of agribusiness, we view the buying and selling of land as probably one of the lower impact areas, as who owns the land likely won’t change what is being done on the property. We want to focus on the value of the product chain. We want people to do more processing, farm manufacturing, and R&D. We want Ukraine to be a cutting edge agri-country. Our job is to take investors by the hand and introduce them to the central government and to the local government where the real work takes place. We have representation throughout the country and networks across the government. We also help investors realize that they need to treat investors like guests in their own homes. We play the vital role of being a bridge to help ease the entry of investors into Ukraine as well as to ensure the local communities are comfortable with the investors entering their communities. This is critical to the success of the ecosystem.
The unbundling of Naftogaz has been praised by the World Bank and other global leaders. Can you describe the privatization program?
We have great hope that the unbundling of Naftogaz signals what will finally be the real privatization surge that we need. There are about 3,500 state-owned enterprises, some of which are of national strategic importance and won’t be privatized, but many more which need to be liquidated or sold off. I know that this government has great ambitions in this regard. It is important that the process is credible and accountable, as that builds trust. It feeds into the narrative we are trying to build a new Ukraine that is open, transparent, and prepared to play by the rules of the rest of Europe.
Do you have a final message for potential American investors and readers of Newsweek?
The most important message is that Ukraine has done more than any other country in the last five years to commence its reforms. However, to us, this is just the start. The government has made clear its desire to turbocharge the reforms and take Ukraine to the next level. The current government is targeting five to seven percent economic growth per year, and a 40 percent increase over the next five years leading to $50 billion in growth. I believe it is absolutely doable under the right conditions. Ukraine is the last big emerging market in Europe. It is not a frontier market anymore. It is stable, predictable and has rules, standards, and frameworks in which investors can work. Investors who get in now in the key sectors will do very well.