US investments in #Ukraine: A source of easy money for Ukrainian authorities

| July 25, 2016 | 0 Comments

A pro-Russian man holds a Russian flag behind an armed servicemen on top of a Russian army vehicle outside a Ukrainian border guard post in the Crimean town of BalaclavaUkraine is eagerly continuing its efforts to become a Western state. Ukraine’s blind admiration of the European Union, official adoption of the pro-European political course, close allying of the Kiev’s political elite with the US’s top authorities and the common intention of both the US and Ukraine to confront Moscow – all of these factors have turned Ukraine into a convenient tool for the United States. Although the Western states are in no hurry to bring Ukraine into their circle, regular financial aid to Kiev lets the West easily manipulate Ukrainian authorities like a marionette and achieve its political ambitions in the region, writes Olga Malik.

However, there are number of serious risks US investors have to face when doing business in Ukraine. The country’s political elite is rotten, the current authorities have no interest in either developing the Ukrainian economy or in raising the country’s living standard. Let’s face the fact: the Petro Poroshenko’s team care about raising as much money as possible and get away with it. Lucky they are that the US intends to double its investments in Ukraine in 2016. Let’s look at the real picture and see where the foreign money sinks.

Good’ intentions

It all started with ‘good’ intentions and ambitious goals when the U.S. investment agency OPIC have officially announced its decision to double the investments in the Ukrainian economy reaching the point of $400 million. Earlier this year the former U.S. Ambassador to Ukraine Geoffrey Pyatt signed a $100 million investment package for a construction of the grain terminal in the Ukraine’s seaport Yujnyi, claiming Ukraine should have become an agricultural empire. Pyatt added that the country owns about one quarter of the world’s black soil.

Indeed, according to some experts, Ukraine’s black soil volumes are about 32 million hectares. Due to good weather conditions, enormous croplands and cheap labor Ukraine’s economy poses brilliant opportunities for foreign investments in its agriculture sector. However, the economic efficiency of such investments remains blur. The political and economic crisis of the modern Ukraine is likely not only to disappoint investors but to topple local farmers.

Corrupt state

The main obstacle to Ukraine-US investment projects is the never-ending corruption of the Ukraine’s political elite. Ukrainian citizens face extortions at all levels of the state power. For instance, the recent parliamentary elections were the perfect example of “public trust gain” by Ukrainian Prime Minister Arseniy Yatsenyuk when the cost of a deputy vote comprised of $1 million. Another example of impunity of the Ukrainian authorities is given by Josh Cohen, a former USAID project officer and a current Foreign Policy columnist who in his recent article investigated the “loss” of $1.8 billion from the Ukraine’s budget due to some scam smartly performed by one of the Ukrainian oligarchs. It’s been 2 years since the Ukrainian maidan and toppling of the former Ukrainian President Victor Yanukovich took its place, yet Ukranians are still waiting for a promised European-like way of governance. Unfortunately, Ukrainian public officers are rarely liable for their crimes. Because of that Ukraine has dropped to the point of 130 out of 168 in the Transparency International ranking system.

Stagnation of Ukraine’s agriculture

Another reason of why the U.S. government may never return its investments back is stagnation of the Ukrainian agriculture sector. With an unstable political situation in the country and sudden drop of the Ukrainian currency against the U.S. dollar American investors would merely have to start some production processes from the ground up.

Moreover, as the tension between Moscow and Kiev has heightened within the las 2 years Ukraine has lost the biggest market for exporting its agriculture products. At the same time Kiev failed to fulfill its losses by exporting goods to the EU market. Regardless of the Association Agreement between Kiev and Brussels that allows Ukraine to export its goods to the EU, the country has quite limited export quotas (only 10% tax free) for the European market.

Finally, there is an emerging risk of foreign investments for local farmers in Ukraine. The projects launched by investors and focused to increase the exports of the country’s goods could simply leave Ukrainian farmers jobless.

Where will US investments go?

Nevertheless, there are some grounds that Geoffrey Pyatt could have followed his own interests while signing the new investment agreement. It was him who turned out to be the biggest player in the recent scandal when more than $2 million aimed to reform the Ukrainian public prosecution was simply stolen. Perhaps this scandal played the key role in Pyatt’s early dismissal.

Unfortunately further budget “losses” are yet to occur as Poroshenko still keeps his large share in the country’s biggest sweets producer, ‘Roshen’.

However, despite all these factors that create very gloomy perspectives for the US investments there is still some light in the darkness. In case of US investors being placed in charge of logistics and sales of the produced goods in Ukraine, Washington may well benefit from the investment projects with Kiev.


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Category: A Frontpage, EU, Ukraine, US

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