The stock of foreign direct investment (FDI) into Ukraine in 2018 grew 2.2% y/y to $32.3bn as of end-2018, a net increase of $0.69bn, the State Statistics Service reported on February 28, but investment needs for a full economic recovery are up to ten times higher, according to the acting Minister of Finance Oksana Markarova.
At the same time the increase in FDI in 2017 was revised upwards to $380bn, while the 2014-2016 drop in FDI stock was reduced $22.5bn.
Gross 2018 FDI inflow amounted to $2.87bn, while the outflow was $0.97bn. The agency wrote off $1.22bn from inflows due to exchange rate fluctuations, omissions, and changes in classification. In 2017, gross FDI inflow amounted to $2.51bn, while the outflow was $0.76bn.
In 2018, the Netherlands ($1.2bn), Cyprus ($0.5bn), and the Russian Federation ($0.5bn) were the leading sources of investment in Ukraine in 2018. The top recipients were the finance ($1.2bn), trade ($0.6bn), and real estate ($0.4bn) sectors.
“Investment inflow only slightly improved in 2018, with a long way left to cover the losses of 2014-2016. Unfortunately, FDI won't improve much in 2019 given the heightened political risks related to the presidential and parliamentary elections scheduled for this year. We expect gross FDI inflow this year will be close to last year's result of $2.9bn,” Evgeniya Akhtyrko of Concorde Capital said in a note.
The result is very disappointing as while inflows are welcome, the level of inflows is well below what is needed to rebuild the tattered economy. Pre-Crimea, experts estimated Ukraine’s investment needs to be on the order of $15bn, but since the start of a military conflict backed by Russia and a deep economic crisis economists put the needed funds at closer to $75bn now.
The acting Ukrainian finance minister said on February 18 that Ukraine needs about $10bn a year of investment, against the approximately $2.5bn it is actually getting, if it is to recover.
Markarova calledfor the effective privatisation of state property and a better business climate to attract such investment.
"Now we are attracting [$]1.5bn — $1bn — $3bn a year. This is not enough for a country and economy like ours. These investments should be plus $10bn," she said in an interview on Ukrainian TV.