COMMENT: Landmark General Electric $1bn locomotives deal shows Ukraine is picking up steam

COMMENT: Landmark General Electric $1bn locomotives deal shows Ukraine is picking up steam
COMMENT: Landmark General Electric $1bn locomotives deal shows Ukraine is picking up steam
By Yuliya Kovaliv in Kyiv March 5, 2018

Ukraine has seen rising interest from investors in the past few years. However, cash has been harder to come by than warm words. Too many investors have come and gone without actually bringing money into the country and the investment potential of the state remains unrealized.

The deal signed at the end of February in Kyiv with General Electric (GE) shows that Ukraine is moving from potential to reality in the eyes of the world’s most discerning investors. The $1bn agreement with General Electric foresees the production and modernization of around 300 locomotives with up to 40% localization of works in Ukraine. Analysing` this process it turns out it’s not rocket science and boosting investment attractiveness comes down to several key components:

Leadership and trust

The Ukrainian authorities have been working closely with GE on this deal for about two years. Both sides embraced a partnership approach with GE Senior Vice-President Jamie S. Miller joining the National Investment Council. The GE team demonstrated trust in Ukraine and commitment to support overarching needs of technological improvement in a wide range of sectors. Together, GE and the National Investment Council shepherded this project from inception to signature. Our commitment to ensuring the deal’s success will not stop there.

Patience and perseverance

Bureaucracy is a part of any major investment but we are cutting red tape and pushing forward with deregulation. In this regard, it is necessary to mention a $370mn Holtec project on constructing a nuclear waste facility. The company had been struggling for ten years and many people even lost faith in the project. But just recently we managed to solve all the major issues and move on to project implementation. Other examples such as Cargill and Bunge also show that just when bureaucratic problems begin to seem insurmountable a breakthrough is pushed through and generates a positive outcome.

Involvement and cooperation of all key stakeholders

The GE deal required the involvement of the Ministry of Infrastructure, Ministry of Economy, National Bank of Ukraine (NBU), Ukrainian state railway company Ukrzaliznytsia, state-owned Ukreximbank and my own team at the National Investment Council. Ukraine continues to focus on reforming the public sector and developing corporate governance at state-owned companies to ensure investors and other stakeholders get proper transparency and international best practices. Involvement of so many parties requires not only commitment and cooperation, but technical and professional capacity from all sides for all the pieces of the puzzle to fit into place.

Addressing key economic challenges

Even though it sometimes takes longer than expected, Ukraine is doing its best to comply with all international best practices and standards, as well as trying to find an individual approach to each foreign investor, keeping opportunities equal for all. At the same time, addressing the key needs of a recovering economy (whether it’s improvement of logistics and infrastructure, energy security, technological improvement or export growth) means foreign investors can count on solid returns in the long run. The current lack of locomotives is one the key bottlenecks in the Ukrainian agriculture sector, heavy industry and metallurgy. So, by striking the deal GE not only develops its business in a new market, but also helps to unlock the export potential of our country. Another important facet of the deal with GE is localization of works in Ukraine. It’s not only about integrating Ukrainian producers in the global supply chain, but also bringing the best technologies and creating jobs in Ukraine.

Timing

Our economy has bottomed out and has entered a period of strong growth by recent European standards. The IMF and World Bank foresee further rises in the coming years. This means that the time to invest is now. Examples of recent deals include the recent $150mn investment by Cargill and $350mn project by ArcelorMittal. But there’s still enough room for newcomers amid an improving investment climate. We have vast opportunities in agriculture, energy, industry, infrastructure and IT. Just recently we adopted a new law on privatization, cut gas royalties by half, introduced changes in tax administration, adopted a new law on limited liability companies and drafted a new law on concessions. This and other efforts resulted in improvement of Ukraine’s positions in international ratings. A recent survey among managers of investment companies by Institutional Investor showed that Ukraine is the most attractive country for investment and travel among the countries of Europe, the Middle East and Africa.

Ukraine improved its position in the World Bank’s “Doing Business” ranking by four positions and now takes 76th place. According to the indicator “obtaining building permits”, we advanced by more than 100 points at once: from 140th to 35th place. And according to the indicator “payment of taxes” - from 84th to 43rd place. All of this is a far cry from my time as Deputy Minister of Economy in 2015-2016 when the crisis was so deep that it was a challenge to convince existing investors not to exit Ukraine. More needs to be done in the fields of regulation, privatization, fight with corruption, rule of law and deep sectorial reforms to create more "room to invest" and to implement international best practices of doing business.

Ukraine’s Deep and Comprehensive Free Trade Agreement (DCFTA) with the EU means our access to the world’s second largest economy is almost seamless. Add to this labour, which qualified and with highly competitive wages and this means Ukraine is an opportunity not to be missed. For new production facilities recently built by German, Japanese, and French companies, there is every chance that the output of such investments will be carried over the EU border on a locomotive newly-produced by GE and its highly-skilled Ukrainian partners.

Yuliya Kovaliv is the Head of Office at National Investment Council to the President of Ukraine in Kyiv

Opinion

Dismiss