We have all heard the saying “There is no such thing as bad publicity.” The thought behind this proverb was expressed even earlier by Oscar Wilde: “The only thing worse than being talked about is not being talked about.”
If you believe this to be true, Ukraine should benefit immensely from the significant media attention that the country has received recently.
Is Ukraine still dealing with a legacy of corruption pre-dating Soviet Union times?
Yes.
Has Ukraine launched landmark anti-corruption institutions to prevent, investigate and prosecute corruption in recent years, and with the launch of the anti-corruption court last September, is now accelerating efforts to ensure perpetrators receive jail time and deter corruption?
Absolutely.
Does Ukraine offer compelling investment opportunities for value-focused investors willing to look past the headlines?
Definitely.
Sifting between perception and reality on the ground is no small feat, particularly for global investors. Those who do business in Ukraine entered 2020 with cautious optimism. Normandy Format talks among Germany, France, Ukraine and Russia have resumed with renewed commitments to peace and de-escalation of the conflict made.
Ukraine’s economy has grown for 15 consecutive quarters.
Central bank reserves are at record highs, in excess of $25 billion.
The International Monetary Fund confirmed a new $5.5 billion, three-year program with Ukraine in December.
Inflation dropped to mid-single digits.
The hryvnia was the fastest-appreciating currency last year and macroeconomic stability has been achieved.
Non-resident investors are piling into local currency-denominated government debt (increased from $200 million to more than $4.3 billion within one year). Global companies are pursuing bolt-on acquisitions of Ukraine-based, cost-competitive platforms (Fairfax, Stada, Sarantis, among others). International players are investing in brand-new production plants to capitalize on Ukraine’s strategic position as a hub to the European Union, Middle East and Asia (Jabil, HEAD, Bayer, Fujikura, Prettl Kabel, and many more).
A survey conducted in October by the American Chamber of Commerce in Ukraine found that 82% of members plan to expand their businesses this year, 88% expect to increase revenues and 85%, 73% and 45% believe agriculture, IT and energy, respectively, are the most attractive sectors to invest in.
My perspective is that of an expatriate living and working in Ukraine for over 26 years, and as co-founder and CEO of the leading private equity firm in Ukraine, Horizon Capital – investing in over 150 companies and putting to work over $700 million in Ukraine and the near region to date.
The U.S. and European institutional investors, including international financial institutions, pension funds, endowments, foundations, and family offices who back us, count on our team at Horizon Capital to seek out compelling opportunities with the potential for outsize returns to compensate for risks assumed. In a world of record liquidity and astronomical valuations, investors seeking value and long-term returns would be wise to look at Ukraine.
The 2019 political reset, which saw a landslide victory of over 73% of the vote by President Volodymyr Zelensky and his party winning an absolute majority in Ukraine’s legislature, has created a mood of “now or never” for Ukraine.
Key reforms that were too difficult or politically challenging – including land reform, large-scale privatization, paving the way for public-private partnerships and concession projects, and much more – are all now under way.
In October 2019, Prime Minister Oleksiy Honcharuk announced his government’s economic growth plan to attract $50 billion in foreign direct investment (FDI) by 2024. Structural reforms have been accelerated and are in rapid implementation mode. Privatization of circa 2,900 state-owned enterprises has started with legislation adopted and roadshows underway to conclude the first block of 21 large privatizations via the State Property Fund and smaller assets sold to the highest bidder through the electronic platform ProZorro. A new concession law has been adopted, creating the necessary conditions for major infrastructure investments to proceed. Two seaports are the first to be offered as concession projects, Olvia and Kherson ports, generating interest from over 40 interested parties in more than 10 countries. Next up will be four regional airports, five railway stations, Kyiv S-Bahn railway, two new bridges and much more.
We have always encouraged investors to look past the headlines and understand that investing where others may be reluctant can offer outsize investment opportunities with a high return potential. Contrarian investors seek out value and opportunities irrespective of the business climate and often “go where others do not” as limited competition provides even great impetus for success.
Ukraine truly offers an unparalleled ground floor investment opportunity powered by the country’s “brains, hands, and grains.”
This is the largest country in Europe. Yet in 2008, Ukraine had a nominal GDP of about $180 billion, which shrunk to circa $120 billion, then dropped to $90 billion in 2015. Ukraine’s nominal GDP has risen since then to about $135 billion with more room to grow before even reaching 2008 levels.
If Ukraine gets it right, the country may very well emulate the post-reform economic rebound story of Columbia – growing 13% annually for 10 years from 2004; Philippines – growing 9% per annum from 2001-2014; Slovakia – surging 17% annually from 2000-2014, and other success stories, driven by focusing on structural reforms, attracting considerable FDI and substantially growing exports.
It is truly “now or never” if you don’t want to miss one of Europe’s last great investment opportunities.
Lenna Koszarny is a founding partner and CEO of Horizon Capital, Ukraine’s leading private equity firm, managing four funds with assets of more than $850 million. Horizon Capital is a co-organizer of Ukraine House Davos and Koszarny is a member of the Ukraine House Davos Organizing Committee.
