According to the latest report of the State Statistics Service, direct foreign investments (equity share capital) from countries around the world into the Ukrainian economy are as shown in the diagram below (in percentages).
Unfortunately, information regarding investments into the agribusiness sector is not so public, as the State Statistics Service does not keep a separate record of investments into the agricultural business complex. However, according to our country’s leaders, investments into the Ukrainian agricultural business complex amounted to approximately $1 billion in 2015, and, according to the results from 2016, the investments are expected to double.
Along with that, it can be stated that today’s Ukrainian market is ready for investments more than ever. Taking into account Ukraine’s great potential and low prices during the crisis and devaluation of the hryvnia, the national economy is rather attractive for foreign investments.
According to the Ukrainian Foreign Investor Sentiment Index, a joint project of the Ukrainian Credit and Rating Agency and TRDATA Ukraine, investments into agriculture continue to rank first among the leading areas for investments. The next most attractive sector for investments into Ukraine is IT. At the same time, there are no doubts that these areas of investment are closely tied, due to a rapid introduction of innovations into national agricultural companies. A lot of today’s agrarians have already realized that by investing funds into the technological development of their companies, it is possible to not only decrease the quantity of physical load for themselves and their employees, but to also increase the efficiency of production and therefore receive supplementary income.
In addition, we see active development in the process of attracting foreign investments into IT projects, which are directly connected with the agricultural sector. For example, a recent startup created innovative solutions for the agricultural sector (in regards to the collection and monitoring of data related to cropped land, as well as by creating a navigation system for controlling the quality of agricultural equipment performance) was able to attract $150,000. Many experts believe that, in order to develop the agricultural sector of the economy, there is a need for approximately $100 billion. In other words, the ground for investing—and for attracting investments—is huge.
In practice, we also see that investments into the agricultural sector increase. For example, during the past six months, we have been approached by several clients to advise on the restructuring of agricultural holdings for the purposes of attracting investments.
What are the key sources of attracting investments?
- Bank loans
- Separate financing programs of companies or groups of companies
- IPO on international stock exchanges
- Loans from the European Bank for Reconstruction and Development (EBRD)
- Financing by the International Finance Corporation (IFC)
- Attracting funds from private investment funds and/or investors (Ukrainian and foreign)
Use of a particular source for attracting funds is individual and depends upon many factors. However, in practice, the first thing that each investor pays attention to is the existence of a clear and transparent corporate structure of the company (for example, one company can easily manage 20,000 hectares of land. This is a rather pragmatic example, but in Ukraine, there are a lot of instances when a holing composed of 20 companies works with 20,000 hectares—and those are just extra expenses) and an easy-to-understand ownership structure. Along with that, it is also very important to have professional management that is able to arrange the work in a way that will attract funds. In addition, it should be understood that the investor is not a philanthropist and expects the invested money will be returned and therefore should be aware of the clear business development plan.
It is obvious that the investment climate depends upon many factors, but one of the key factors is the willingness of the country’s leaders. It should be noted that our country cares about attracting investments into agribusiness and takes decisive steps in that direction.
Thus, during past years, the leaders of the country passed a number of acts that significantly deregulated and simplified the process of attracting investments. In particular, they regulated certain aspects of land relations (for example, they established a minimum seven-year lease term for agricultural land), cancelled the certification process for pesticides and agricultural chemicals, cancelled the need for obtaining veterinary documents when moving feed grain outside of Ukraine, cancelled and/or limited more than 20 licensing procedures and requirements in respect to carrying out-of-business activities in areas of plant cultivation, livestock breeding, fishing, exploiting of natural resources, etc.
One other issue that usually raises concerns for investors is the opening of the land market. Today this issue can be characterized as follows: officially there is no land market; non-officially there is. There are a number of mechanisms that actually make it possible to “own” land plots without entering into sale and purchase agreements—one of such mechanisms is an emphyteusis agreement. In addition, while understanding that opening the land market may become one of the most effective methods for attracting investments, the Ministry of Agrarian Policy and Food of Ukraine together with the Cabinet of Ministers of Ukraine are actively working on opening it.
Lately the leadership of our country has made a lot of steps to ease the conditions for doing business in the agricultural sector, which will help attract new investments. This is not evidenced by populist reports of officials, but by independent international projects, such as Doing Business in Ukraine, which evaluates a country’s regulatory function in an unbiased manner. During the past five years, Ukraine climbed from 142nd to 83rd. It is satisfying to know that work continues in this direction, and even today there are predictions that Ukraine will climb at least another 10 places in the Doing Business rating in the next year.
At present, the most popular sources for attracting funds include cooperation with EBRD, International Finance Corporation, private funds, and offering shares on stock exchanges. The country is making steps to attract investments, but agribusiness needs to understand that in order to attract funds, it is necessary to be properly prepared by having a transparent ownership structure, efficient management system, and good financial indices reflected in consolidated statements.
Today a lot of agribusiness owners are concentrating on proper arrangement and structuring their businesses for attracting the abovementioned external financing. Given modern tendencies of development within the agricultural sector, which gradually shows its willingness to implement innovation processes, attraction to investors should become one of the factors that will make it possible for this sector to develop. In the near future, the competition to attract external investments will grow significantly. If you fail to prepare your company today, you risk being left out of the game tomorrow.
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