Foreign direct investment (FDI) in Ukraine

FDI in Figures

On February 24th 2022, Russia initiated a military conflict on the Ukrainian territory, which profoundly upsets the current political and economic context in both countries and will have substantial ramifications on the investment climate. For the ongoing updates on the developments of Russia-Ukraine conflict please consult the dedicated pages on BBC News.

According to UNCTAD's World Investment Report 2024, FDI flows to Ukraine bounced to USD 4.2 billion in 2023, from 557 million one year earlier. At the end of the same period, the total stock of FDI stood at USD 54.2 billion. Russia’s invasion of Ukraine and the subsequent protracted war deeply deteriorated the business climate. Insecurity, political and economic uncertainty, supply chain disruptions and infrastructure destruction lead to capital outflows. Most of the investment stock is made in manufacturing (19.6%), wholesale and retail trade (15.5%), financial and insurance activities (11.8%), mining and quarrying (10.9%), and information and communication (8.5%). The main investors in Ukraine are Cyprus (26.1%), the Netherlands (22.6%), Switzerland (6.2%), the U.S. (5.1%), Germany (3.7%), and Austria (3.5% - National Bank of Ukraine, data as of Q3 2024). According to the latest governmental figures, FDI in Ukraine declined 14% y/y during the first 11 months of 2024. Data from the National Bank of Ukraine (NBU) shows that reinvested profits made up the majority of FDI—75% in 2023 and 64% by November 2024.

Despite the war, the government has launched a drive to attract foreign investment of up to USD 400 billion in various sectors including technology, the agro-industry, clean energy, defence, metallurgy and natural resources. Furthermore, the reconstruction efforts in Ukraine are expected to draw investments totalling hundreds of billions of dollars from governments, international financial institutions, and the private sector. In addition to political instability, investors pointed out before the war that the underlying inefficiency and corruption in the justice system were among the main obstacles to investment. Other serious impediments are the complexity of laws and regulations, poor compliance with contracts and poor governance. However, the country has a large internal market, proven agricultural potential, energy and mineral resources and a strategic geographic location, making it a transit hub and a gateway to Europe and Eurasia. Before the war, progress had been made in terms of obtaining building permits, connection to electricity, protection of minority investors and cross-border trade. Ukraine has also simplified and reduced the costs of the registration procedure for representative offices of foreign business entities. In recent years, the war significantly worsened the business climate: Russia’s occupation of large parts of Ukrainian territory, ongoing frontline battles, missile and drone attacks on civilians and infrastructure, workforce disruption, unexploded ordnance, and other environmental impacts pose challenges to investors. However, most of Ukraine remains unaffected by the frontlines. The country ranks 60th among the 133 economies on the Global Innovation Index 2024 and 105th out of 180 on the 2024 Corruption Perception Index.

What to consider if you invest in Ukraine

Strong Points

The key assets of the Ukrainian economy in terms of FDI include:

• Strategic geographical position, the country being located at the gates of Europe, Russia and Asia
• Abundant natural resources (iron ore and manganese reserves) and a large agricultural industry (55% of arable land)
• Strong international financial support from global institutions (IMF, World Bank, EU) and through bilateral agreements
• Association and Free Trade Agreement with the European Union (2016) which gives Ukraine preferential market access
• One of the largest markets in Europe with 43.5 million consumers and the emerging middle class
• Skilled and inexpensive workforce
• Good education system (large number of qualified specialists in the high-tech sector)
• Low level of private debt

Weak Points

The weak points of the Ukrainian economy in terms of FDI include: 

• High geopolitical risk and political instability severly aggravated by the escalation of the confict with Russia (large scale military invasion of Ukraine launched by Russia at the end of February 2022)  
• A weakly diversified economy which is highly dependent on Russia (its main trading partner and natural gas supplier) with which it has been in conflict since the 2014 crisis in Crimea and Donbass regions)
• Unstable economy, characterised by a high rate of inflation and exchange rate vulnerability
• Weak legal framework and business environment (endemic corruption, monopolies, weak property rights, inefficient public services)
• High public debt level (especially external debt)
• Declining demographics, regional inequalities, high level of poverty and of the informal sector

Government Measures to Motivate or Restrict FDI

In recent years, Ukraine has been trying to improve its business climate and attract foreign investors, as confirmed by the dozen laws passed by the government of President Zelenskyy in this regards, including several incentive programs (including a 5-year tax exemption for investments over USD 10 million in large-scale privatization projects, loans with reduced interest rates for SMEs, the collaboration of a government manager for investments over USD 100 million, higher depreciation rates for fixed assets, etc.).
UkraineInvest is the national investment promotion agency that works as a one-stop-shop for investors.

Bilateral investment conventions signed by Ukraine

To see the list of investment treaties signed by Ukraine, consult UNCTAD's International Investment Agreements Navigator.