Opening Ukraine to investment is the best way to free the country

Preliminary signing of the Canada-Ukraine Free Trade Agreement in Toronto 2016. Photo: Mykola Swarnyk wikimedia.org

If Western governments are truly interested in seeing a reformed and pro-Western Ukraine, then improving the country’s investment climate must be a strategic priority. Despite periods of reform and flirtations with the West, the country remains a rare destination for large scale international investment. Linking Ukraine more closely to the global economy could become a guarantor of stability in Eastern Europe.

Perhaps there is no greater friend of Ukraine than Ilya Ponomarev. Despite this, his own experience in Ukraine offers a stark lesson for international investors. In 2014, Ponomarev was the sole member of the Russian Duma to vote against the annexation of Crimea. As one might imagine, such bold thinking is not exactly the best career move for a Russian politician. Ponomarev subsequently moved abroad and decided to focus on business opportunities. Looking at Ukraine, he thought that he had discovered a potential opportunity in the oil and gas sector. Whilst he presented a clear business plan and funding, the government supposedly threatened to offer the same terms to a major oil giant. 

“I said call them, here I have their phone numbers”, Ponomarev recalls telling the government that none of the major oil companies would be interested in the opportunity. The former politician felt confident passing out the phone numbers of serious players in the oil industry partly because he knew few companies would jeopardise their relationship with Russia, one of the world’s most important petroleum producers, in order to gamble on Ukraine.

He also said that “The government of Ukraine is well-intentioned but, their inexperience and actions can at times be unhelpful.”

Ponomarev’s experience is not the only example of a well-intentioned energy project in Ukraine going wrong.

Last year, a controversial unilateral and unjust decision was made by the Nikopol Ferroalloy Plant to disconnect TIU Canada from the electricity grid, which brought solar energy to Ukraine and was being developed by TIU Canada. What should have been a real win for both countries has turned into full-blown dispute, with critics and Canadian officials crying foul over the courtroom drama that led to the project’s current battle in the courts. Moscow naturally appears to be enjoying these developments.

The political and economic case for the project was solid. A solar plant offers Ukraine the chance to diversify its energy sources away from Russia in an environmentally friendly way. It was one of a handful of important business projects between Canada and Ukraine in recent years. Another key joint venture is Black Iron’s pursuit of a massive iron ore project at Shymanivske, which received some 100 million US dollars in international funding last year. That project continues to go from strength to strength.

A spokesperson for this project told the author that “Despite the country’s current volatile socio-political climate and tense security reality, Ukraine will continue to be a serious investment option for organizations interested in engaging a resource rich emerging economy filled with a young, educated and talented workforce”.

Indeed, Canada is after all a staunch, long-standing ally of Ukraine. In 2016, the BBC even wondered aloud if Ukrainian-Canadian ties run as thick as blood.

Next year, a Canada-Ukraine Free Trade Agreement (CUFTA) was signed, some 26 years after Canada became the first Western nation to recognise Ukraine’s independence. Of course, Canada is home to roughly 1.3 million Canadians of Ukrainian heritage out of a total population of 37.5 million. The Canadian government has sent some 785 million US dollars in aid to Ukraine since 2014 and many civilians have made personal donations. Canada has also sent 200 advisors to the country and leads the NATO Enhanced Forward Presence in nearby Latvia. Canada is part of “the Quint”, along with the United States, the United Kingdom, Poland, and Lithuania, which has taken the lead in improving Ukraine’s defence capabilities.

Given Canada’s strong ties this judicial decision is not only mysterious it appears to benefit the Kremlin the most. Indeed, I have previously written about the similar situation in Western Balkans for New Eastern Europe. While this project was designed to provide energy diversification and shift power away from Russia, it ultimately came up short for various reasons. In circumstances similar to the ones we have seen above.

“It’s unfortunate this move by the Ukrainian government and inexplicable,” says Antalya Popatia, a research analyst with the NATO Association of Canada, “Ukraine must work with NATO allies on cooperation that goes beyond the battlefield to bring true stability to the country”.

Seven years ago, Ukraine needed the West’s help to maintain its freedom from military attacks. Today, its Western allies must help the nation ensure a fair and level playing field for international investors. Only then will Ukraine take its rightful place in the global economy and among its neighbours in Eastern Europe.

Joseph Hammond is a former correspondent for Radio Free Europe and a freelance writer. He has written for The Economist and the International Business Times, amongst other publications.

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Canada, investment, Ukraine, Ukraine reforms