FDI inflows rise, investor confidence rebounds
by Volodymyr Mashchenko, Kyiv Post Staff Writer
Nov 02 2006, 04:19

http://www.kyivpost.com/business/general/25369/

Net foreign direct investment (FDI) into the Ukrainian economy more than tripled in the first three quarters of 2006 year-on-year, coinciding with a general improvement in the country’s economic indicators during this period.

In its recent monetary review, the National Bank of Ukraine (NBU) reported that  FDI between January and September of this year reached $3.6 billion, which is almost three-and-a-half times more than during the same period in 2005.

Experts say investment was higher than anticipated, as investments shifted into higher gear in response to a significant rise in GDP and relatively low inflation.

Ukraine’s unexpectedly vigorous GDP growth rate totaled 6.2 percent in the first nine months of 2006. The fastest growth was recorded in retail trade, industry and the transportation sector.

Inflation figures were surprisingly favorable – kept at below 5.9 percent.

“Foreign investors realize the improvement in Ukraine’s economic indicators and are getting to see enormous opportunities, especially in retail financing,” Edilberto Segura, chief economist at Kyiv-based private equity fund SigmaBleyzer, told the Post.

“Lots of Western investors have also come to Ukraine’s banking sector lately,” he said referring to a flurry of acquisitions in the past one-and-a-half years through which European banks have snapped up banking operations in Ukraine.

Steadily increasing personal incomes and the huge potential of retail banking in Ukraine, a country of nearly 47 million, are the main attraction in Ukraine’s underdeveloped but promising banking sector.

“Despite the current political uncertainty, the Ukrainian economy is doing very well,” Segura added.

FDI inflow rates were lower ahead of the March 2006 parliamentary elections, but have picked up since, as investors focused on long-term growth opportunities have stepped up efforts to enter the market.

According to government figures, total FDI inflows since independence now exceed $17 billion, which remains only a tiny fraction of the FDI inflows recorded in Central European countries such as Poland.

Last year, FDI surged to $7.3 billion, nearly five times more than in 2004. A significant part of the inflows in 2005 were the result of last year’s landmark $4.8 billion privatization sale of the Kryvorizhstal steel mill and the $1.1 billion sale of Aval Bank to Austria’s Raiffeisen Banking Group.