Page 3 - bne OUTLOOK 2022 Ukraine

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1 Executive summary
Ukraine’s economy bounced back strong in 2021 following a deep recession in 2020 caused by the coronavirus (COVID-19) pandemic, but by the summer that growth was slowing more than expected as the low base effects wore off.
Ukraine’s economy is still working well below potential due to the low investment, lack of progress with reforms and the ongoing conflict with Russia that is hurting the business climate and dissuading investors.
Ukraine has attracted very little foreign direct investment (FDI) as although incomes are now rising much more quickly the country risks remain very high, as illustrated by the talk of war with Russia in the last two months of the year and the free reign given to the country’s oligarchs.
FDI fell from a recent peak of $5.2bn in 2019, the last year of strong growth, to a mere $215mn in 2020 and remains depressed due to the political instability. The government’s poor treatment of investors into the renewables sector – one of the only sectors to have attracted substantial foreign investment – has also weighed on the investment climate and has stymied the investment into green power that was ongoing.
The two areas where Ukraine has successfully attracted some foreign investment is in retail where several large multinational retailers like Sweden’s IKEA and Germany’s METRO have moved in. These companies are early movers in transition economies and their arrival is an encouraging sign as it says they believe that Ukraine is at the beginning of long-term sustainable recovery. However, the pace of that recovery continues to disappoint.
Renewable energy investors were attracted by the generous green power tariffs offered by the Poroshenko administration. However, the tariffs proved to be too generous and the government has failed to meet its obligations, running up a $1bn debt for unpaid power bills. That was settled finally in the fourth quarter of 2021 with the issue of a Eurobond by the state-owned power company Ukrenergo, but the failure to pay and the government’s attempts to retroactively renegotiate the tariff hurt Ukraine’s already poor investment image.
The problems lead to various downgrades for Ukraine’s growth outlook.
The government downgraded its official forecast for 2021 from 3.4% from 4.1% predicted in April. Economic growth in 2022 was also downgraded slightly to 3.6% instead of 3.7%. According to the Ministry of Economics, the revision of
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