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      Despite the impact of Russia's full-scale invasion and the ensuing geopolitical and economic uncertainty, Ukrainian business has demonstrated unprecedented resilience and continues to grow, with a market that is more open to investment than ever. In such times, navigating the Ukrainian business landscape can be complex, but also rewarding.

      KPMG in Ukraine has prepared a comprehensive guide Your Business in Ukraine to help you deal with issues such as how to start a business in Ukraine, what you need to know about tax regulations, currency restrictions, war risk insurance, investment legislation, licenses and permits, and many other useful insights that will help you simplify your business decisions.

      While preparing the guide, we talked to the person who coordinates the development of proposals and implementation of decisions regarding the formation and implementation of state investment policy in Ukraine. Read the interview with Oleksiy Sobolev, the First Deputy Minister of Economy of Ukraine.

      1. Countries find themselves in increasingly competitive positions when trying to attract foreign investors. As a country that is currently defending itself against a war of aggression, Ukraine is obviously in a disadvantageous position compared to other countries. What can Ukraine offer for foreign investors in such a difficult situation, at least in order for Ukraine to stay in the game and take its deserved place in the global economic market?

      You're absolutely right that the situation is difficult and the ongoing war places Ukraine in a challenging position. However, despite these hardships, Ukraine offers compelling opportunities for foreign investors looking for both immediate engagement in the recovery process and long-term growth potential.

      One of the most significant factors is the massive need for reconstruction and development. According to the World Bank, the total cost of rebuilding Ukraine has already surpassed USD 542 billion over the next decade and public finances from both Ukraine and partner nations are insufficient to cover these expenses. As a result, Ukraine’s recovery plan emphasises creating incentives for private investors to contribute funds and participate in public procurement processes. With energy, infrastructure, agriculture, manufacturing, housing, and defence among the industries open to foreign investors, this situation presents a rare moment to help rebuild and shape an entire economy. The government of Ukraine is actively collaborating with its partners and financial institutions to create new mechanisms that will enhance the profitability and security of investments for both local and international investors. A key example of this effort is the Ukraine Investment Framework, which was set up by the EU in partnership with the Ukrainian government. This initiative is designed to attract more than EUR 30 billion of investment by 2027, supported by EU-backed guarantees and grants.

      Another significant advantage is Ukraine's cost effectiveness. Production costs in Ukraine are considerably lower than in the European Union due to the availability of cheap labour and abundant natural resources. This makes the country an attractive manufacturing hub, especially for industries looking to reduce costs while maintaining ready access to the European market.

      The Ukrainian government has pinpointed several key sectors for investment, including energy, IT, agrifood, and transportation and logistics. Ukraine also has vast reserves of strategic resources, being home to 22 of the 50 critical raw materials which are deemed economically essential for development by the EU and the US. These include lithium, titanium, uranium, and graphite; all of which are in high demand for the growing global clean energy and advanced technology sectors. Ukraine’s iron ore reserves and potential for green metallurgy also make it a prime candidate to replace Russia as a key supplier of iron ore and other ferrous metals to the European market.

      Ukraine also has vast reserves of strategic resources, being home to 22 of the 50 critical raw materials which are deemed economically essential for development by the EU and the US.

      Ukraine’s strategic priority to decentralise its energy infrastructure, driven by both energy security concerns and the need for a green transition, means that the country is exploring innovative solutions and the adopting of new technologies such as small modular nuclear reactors.

      The energy sector is another major area of focus. Ukraine is home to some of the largest natural gas reserves in Europe, with untapped shale gas and offshore hydrocarbon resources in the Black Sea. The country's gas transportation infrastructure is highly developed and its 31 billion cubic metres of gas storage capacity make Ukraine a critical player in European energy security for both natural gas and hydrogen in the future. Ukraine is also looking to expand its renewable energy capacity, with wind and solar energy projects offering great investment potential. Ukraine’s strategic priority to decentralise its energy infrastructure, driven by both energy security concerns and the need for a green transition, means that the country is exploring innovative solutions and the adopting of new technologies such as small modular nuclear reactors. Further development of existing nuclear capacities will position Ukraine as a long-term player in Europe’s energy landscape.

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      On top of these sector-specific opportunities, Ukraine’s ongoing privatisation efforts continue to create a wide range of investment opportunities. More than 400 assets were made available for privatisation through transparent electronic auctions in 2024 alone, with a prime example being the United Mining and Chemical Company (UMCC). Ukraine's largest titanium ore mining and processing enterprise, UMCC was sold at auction for UAH3.94 billion. Furthermore, the new owner must invest at least UAH400 million in the modernisation of the company according to the terms of the privatisation agreement. This deal represents just one aspect of Ukraine’s broader efforts to streamline its economy and make it more investor friendly.

      Ukraine continues to actively integrate with the European Union and aims to be a full EU member within the next 5–7 years. This represents a significant enhancement of Ukraine’s existing Deep and Comprehensive Free Trade association agreement with the EU which currently provides access to one of the largest and most stable markets in the world. Ukraine is also positioning itself to be an integral part of EU supply chains, particularly for the aforementioned critical raw materials and as an integrated part of the wider European energy sector.

      Finally, the Ukrainian government has introduced incentive programmes to encourage foreign investment, including special economic zones, industrial parks, and initiatives like Diia City which is tailor-made to foster tech sector development. These programmes offer tax breaks, simplified regulations, and other benefits to investors, making it easier and more profitable to do business in Ukraine. The Made in Ukraine initiative is also helping to promote the country’s industrial output abroad, ensuring that products manufactured in Ukraine are recognised for their quality.

      While it’s true that the war has imposed significant challenges, Ukraine’s resilience and determination to rebuild its economy present unique opportunities for investors. By taking advantage factors such as strategic resource availability, cost-effective production, energy potential, and government-backed investment incentives, foreign investors can position themselves at the forefront of Ukraine's recovery and long-term growth.

      In short, Ukraine offers a rare chance to invest in a nation poised for significant economic transformation. For those who are willing to take on some of the risk now, the rewards in the years to come could be substantial.

      2. If you were asked to comment positively about support for foreign investors working in specific industries, what these industries would they be? What industries are the most welcoming in Ukraine from a foreign investment perspective and why? Finally, how does the government support or plan to support these industries?

      If I were to offer a positive message for foreign investors, I would emphasise the immense opportunities available in Ukraine's priority sectors which are aligned with the government's strategic goals for economic development. The Ukrainian government is focused on creating an investment-friendly environment and fostering growth in key industries that are vital for long-term stability. The sectors that are particularly attractive to foreign investors include energy, agri-food, transport and logistics, critical raw materials, processing industries, green steel, IT, and defence. These industries are crucial for Ukraine's economic recovery and growth.

      • Energy

        Energy remains a top priority for the Ukrainian government. Ukraine is home to some of the largest natural gas reserves in Europe, estimated at over 3.3 trillion cubic metres. Ukraine's aforementioned 31 billion cubic metres of gas storage capacity and its gas transportation system enable more than 140 billion cubic metres of annual gas exports. Ukraine has substantial renewable energy potential too, particularly wind and solar power whose commercial potential is estimated at 680 GW and 100 GW, respectively, and a combined generation potential of 2200 TWh per year. The Ukrainian government is focused on becoming a net energy exporter, supplying green energy to the European Union and helping to support the EU's green transition goals while reducing dependency on foreign sources of energy.

      • Green Steel

        Green Steel is another high-priority sector. Ukraine holds the largest iron ore reserves in, with over 6.5 billion tonnes of crude iron ore, making it an attractive destination for investments in the production of Hot Briquetted Iron, Direct Reduced Iron, and green steel manufacturing. These investments will not only help meet EU demand but also contribute to the decarbonisation of the European steel industry, once again aligning with the EU's green transition goals. Ukraine’s potential to replace Russia as a key supplier of iron ore and steel to the EU makes this sector highly promising for foreign investors.

      • IT sector

        The IT sector remains a key area for investment. Ukraine has established a strong reputation for its highly skilled workforce in software development and IT services, making it an excellent location for global tech companies to expand operations. The Ukrainian government continues to support the IT sector by aligning regulatory frameworks with EU standards and providing financial incentives for innovation, particularly in IT infrastructure and technology modernisation.

      • Agri-food

        Agri-food is one of the most important sectors for Ukraine. As one of the world’s largest agricultural producers, Ukraine has well-developed infrastructure to support agri-food production. The Ukrainian government is focused on modernising this sector too: expanding export opportunities, particularly in organic farming and value-added food products, and attracting foreign investment to enhance productivity and sustainability.

      • Transport and logistics

        The transport and logistics sector also offers significant investment potential, particularly with Ukraine's strategic location as a transit hub between Europe and Asia. As such, the Ukrainian government is heavily investing in infrastructure development to improve logistics efficiency and connectivity, making this an area of interest for foreign investors.

      • Defence industry and dual-use goods

        Finally, the defence industry and dual-use goods have naturally become increasingly important given the current geopolitical climate. Investments in these sectors not only contribute to Ukraine’s defence capabilities but also create new opportunities in other high-tech industries, mutually supporting technological advancement and security.

      The Ukrainian government has implemented several measures aimed at attracting foreign investment to support these industries. The Law on State Support of Investment Projects with Significant Investments in Ukraine provides significant incentives, including tax and customs concessions of up to 30% of capital expenditures, simplified licensing and administrative procedures, and compensation for infrastructure-related costs. The Ukrainian government is also developing risk mitigation tools and financial incentives to support large-scale projects and SME development. Ukraine’s ongoing improvements to its regulatory environment to align with EU standards also make it an increasingly attractive destination for foreign investors.

      In conclusion, I strongly encourage foreign investors to explore Ukraine’s dynamic and diverse sectors such as energy, green steel, IT, defence, and agri-food. The country is committed to supporting these industries through comprehensive government programmes, regulatory reforms, and significant incentives, ensuring a stable and rewarding investment environment. Ukraine's strategic location, abundant resources, and governmental commitment to modernisation offer vast opportunities for long-term investment growth.

      3. Every nation is first and foremost its people. Despite the fact that many Ukrainian citizens left the country after the outbreak of the Russian full-scale invasion, these people could make a significant contribution to the Ukrainian economy. Many industries and companies have also noted an acute shortage of both skilled and unskilled personnel. How can foreign investors develop successful businesses in Ukraine in light of such circumstances? In other words, is there anything that the Ukrainian government can do or is planning to do in the short and long term to incentivise Ukrainian citizens to return to their home country?

      The full-scale invasion has significantly affected the labour market in Ukraine. According to various estimates, more than 6.8 million Ukrainians have been displaced abroad by the conflict. Ukraine is simultaneously faced with structural unemployment issues, with employers unable to find suitable workers and workers unable to find suitable jobs.

      In order to support Ukraine’s reconstruction, the “Skills Alliance for Ukraine” programme was announced during the Ukraine Recovery Conference on 11 June 2024. The Skills Alliance for Ukraine initiative was founded as a multilateral alliance bringing together nearly 70 countries, donors, and international partners, as well as representatives of the business community. Over the next three years, the Skills Alliance will cover various training programmes for new professions and retraining for more than 180,000 Ukrainians both in Ukraine and abroad. The scheme will also enable internally displaced persons, youth, veterans, people with disabilities, and Ukrainians returning home to better integrate into the domestic labour market.

      Over the next three years, the Skills Alliance will cover various training programmes for new professions and retraining for more than 180,000 Ukrainians both in Ukraine and abroad.

      Given the challenges presented by the current state of martial law, the Ministry of Economy of Ukraine is focusing on supporting women's entrepreneurship and implementing programmes aimed at training and retraining women, particularly as part of the Reskilling Ukraine project as well as with support from USAID, GiZ, the UK Government, and other international partners.

      The Ministry of Economy is also creating the necessary conditions for the return of youth talent. The Create Ukraine programme has provided more than a dozen young Ukrainians with positions in the Ministry of Economy of Ukraine who will work alongside government officials on implementing economic reforms and addressing the challenges posed by the war.

      The Ministry is also developing an Employment Strategy to create incentives and infrastructure for Ukrainians to return and to ensure a sustainable workforce. We are undertaking a systemic upgrade of Ukraine’s vocational training system and building up new reskilling and upskilling programmes on a national level.

      Creating the necessary conditions for the return of Ukrainians from abroad is ultimately one of the key priorities of the Ministry of Economy. Many short- and long-term initiatives and projects have already been implemented and we are constantly working with national stakeholders and foreign partners to launch new ones.

      4. Insurance against war risks is one of the key points of consideration for foreign investors. How far is Ukraine from adopting legislation that provides concrete mechanisms for investors to insure against risks related to the full-scale invasion? What can the Ukrainian government propose to protect foreign investors from war risks right now? What existing mechanisms and methods are currently used in practice by foreign investors (or can be used by potential investors) to protect themselves against risk?

      Ukraine is actively working to create a comprehensive framework for war risk insurance which is critical for foreign investors concerned about protecting their assets amid the ongoing conflict.

      Ukraine continues to develop a full-scale war risk insurance system and the country is making significant strides in this area.

      Ukraine continues to develop a full-scale war risk insurance system and the country is making significant strides in this area. In August 2024, the draft law On the System of War Risk Insurance was approved by the Financial Stability Board and sent for review by both the European Commission and the US Department of State. Discussions with public participants were facilitated by the Ministry of Economy with involvement of the Regulator. As of 30 December 2024, the law was officially registered with the Ukrainian Parliament and is expected to contribute to the creation of a comprehensive national system of war risk insurance for both the Ukrainian population and businesses.

      Once fully implemented, this system will provide war risk insurance coverage to foreign investors, specifically covering physical damages caused by external aggression, such as the military destruction of property, infrastructure, and assets. However, the initial mandatory coverage is currently drafted to be limited to certain types of property, such as residential buildings and bank collateral, with further expansion to sectors like agriculture, business properties, and transportation planned for the future​.

      The system will operate through a state-backed agency which will oversee the underwriting, risk assessment, and claims processing. The state agency will initially carry the majority of the responsibility for war risk coverage within its own financial limits, with the potential to involve international reinsurers at a later stage​. The Ministry is now actively working with various experts to set up the state agency with proper corporate governance and efficient operational frameworks that would ensure its long-term viability and credibility.

      For foreign investors looking to mitigate risks right now, there are several mechanisms already in place:

      1. Insurance Providers: Ukraine currently has eight registered insurance companies offering war risk coverage, although the market is limited and coverage is only available on a case-by-case basis. These companies are mainly top-tier insurers but often lack the capacity to cover larger risks due to international reinsurers generally pulling back from the market​.
      2. State-Supported Mechanisms: For certain sectors, particularly agriculture and transportation, the Ukrainian government has created programmes like the Unity Facility which offers insurance for vessels transporting goods through Ukraine’s maritime Black Sea corridor and is operated through private sector backing​.
      3. Export Credit Agencies (ECAs): Several ECAs, such as those from France, the UK, and Germany, offer guarantees and insurance for investments and trade with Ukraine. These guarantees can cover up to 90% of investment risks, especially for foreign companies engaged in large infrastructure and industrial projects​. Ukraine’s ECA has also implemented several products for insuring direct investments and investments in processing industry and exports of Ukrainian products against war and political risks.
      4. MIGA and DFC Agreements: Options for coverage of investments have been introduced by MIGA (the Multilateral Investment Guarantee Agency) and the DFC (U.S. International Development Finance Corporation). These institutions provided war risk insurance for several projects, such as the Lviv Superhumans Centre, ensuring protection against political and military risks​.
      5. Reinsurance Facilities: The European Bank for Reconstruction and Development has also stepped in to provide reinsurance for war risks to Ukrainian insurers, with coverage of up to EUR2 million per insured object and EUR5 million per contract. This enables local insurers to offer more comprehensive coverage to businesses in Ukraine.

      While Ukraine is still in the process of finalising its legislative framework for war risk insurance, there are already a variety of options for foreign investors to mitigate risks through both state-backed programmes and international insurance mechanisms. These initiatives are critical to attracting continued investment during this period of uncertainty and, with the planned launch of the national war risk insurance system, Ukraine is taking important steps towards creating a more secure environment for foreign investments in the future, where insurance products will play a major part.

      5. Current restrictions on repatriation of profits are often named as a major concern for those considering investment in Ukraine. Despite recent steps taken towards easing currency regulation restrictions, this matter is still seen as a significant obstacle to investing in Ukraine. Can you elaborate on the specific challenges and limitations faced by foreign investors when seeking to transfer profits abroad? Furthermore, what measures are being taken to address these restrictions and facilitate foreign investors being able to repatriate profits so as to attract more investment into the country?

      The specific challenges faced by foreign investors included:

      1. Restrictions on Profit Repatriation: Until recently, foreign businesses faced significant barriers in repatriating profits which hindered the free flow of capital and posed a liquidity challenge.
      2. Currency Transfer Limitations: Companies operating in Ukraine faced limitations in transferring foreign currency to their parent companies, particularly through representative offices, which made it difficult for multinational corporations to manage funds efficiently across borders.
      3. High Transaction Costs: Restrictions also led to higher costs for companies engaged in international trade, particularly in relation to the repayment of external loans and the import of services, as companies had to manage these payments within a constrained foreign exchange market.

      However, there has been a significant shift towards easing these currency regulations over the previous year. The National Bank of Ukraine (NBU) has been gradually lifting restrictions since May 2024, and key steps taken to facilitate the repatriation of profits include:

      1. Repatriation of Dividends : Starting from 1 January 2024, businesses can now repatriate “new” dividends. This is a crucial step, allowing foreign investors to transfer profits back to their home countries and thereby enhancing confidence in Ukraine’s market as a place to reinvest.
      2. Relaxation of Currency Transfers: There has been a relaxation of the limitations on transferring foreign currency from representative offices to parent companies. This move is aimed at ensuring smoother capital flow within multinational operations.
      3. Gradual Liberalisation: The NBU is implementing its broader strategy to ease foreign exchange (FX) restrictions with a view towards greater exchange rate flexibility and the eventual return to targeting inflation once macroeconomic conditions stabilise. This would envisage simplifying deadlines for mandatory settlement on foreign exchanges and facilitating better access to currency markets for businesses, as well as possibilities to repay old debts and repatriate dividends on older investments in the future.

      The Ukrainian government and the NBU are closely monitoring macroeconomic preconditions such as inflation, FX reserve levels, and market stability, with an eye to further relaxing capital controls. While the central bank is understandably cautious, there is a productive dialogue between the Ministry and the NBU on the priority steps in the direction of FX liberalisation.

      BIO:

      Oleksii SOBOLEV, the First Deputy Minister of Economy of Ukraine

      Extensive work experience in the investment and financial sector. Worked as an Asset Manager at Dragon Asset Management.

      In 2015-2016, as an Adviser to the Minister of Infrastructure of Ukraine, coordinated projects to increase transparency of activities, open data and improve corporate governance of state-owned enterprises. 

      In 2016-2018, managed the Prozorro.Sale project at Transparency International Ukraine, coordinated the development of IT solutions for the transparent sale of state assets.

      Since 2018, he has been the Head of Prozorro.Sale SE.

      Was President of CFA Society Ukraine, Head of the Consulting Supervisory Group of CoST Ukraine.