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For over a year, Ukraine has faced unprecedented challenges due to
full-scale military aggression against our country. Nevertheless, we remain
steadfast in our defense of territories and continue to conduct business.
UkraineInvest, the government’s investment promotion office, has continued its operations throughout this period without interruption.

Currently, we are supporting 17 investment projects worth over $2.3 billion
and providing ongoing business support to both Ukrainian and foreign
companies operating in Ukraine.

Promoting investment opportunities is a top priority for us. Investors can
start planning their investments today. There is no need to wait until the
end of the war.

Our message to the international business community is clear: Ukraine is
not only strong and free, but open for business.

We proudly present the UkraineInvest Guide, an essential source of
analytical information for companies doing business in Ukraine or planning
to invest

FULL INFORMATION HERE – Guide (16.03) (ukraineinvest.gov.ua)

Asters, Ukrainian Wind Energy Association and Ukrainian Hydrogen Council have published the White Paper “Offshore wind energy and green hydrogen: new frontiers of Ukraine’s energy potential”.

The publication targets the top management of the Ukrainian energy market players, as well as a wider audience interested in the development of renewable energy and decarbonization of the Ukrainian economy.

The White Paper analyses the potential for offshore wind energy development in Ukraine, as well as the use of wind energy for the production of green hydrogen. The authors have presented convincing arguments in favor of the development of this energy sector and have suggested relevant changes to the Ukrainian legislation to facilitate investments in offshore wind energy and production of “green” hydrogen. The White Paper (in Ukrainian) is available for download at Asters website >>

Oleksandr Repkin, President of the Ukrainian Hydrogen Council, and Kateryna Knysh, Head of Analytics at UWEA, have inspired the idea behind this White Paper. The White Paper is co-authored by: Stepan Kudrya, Director of the Institute of Renewable Energy of the National Academy of Sciences of Ukraine, Anzhelika Livitska, Counsel at Asters, Marta Halabala and Bohdan Shmorhun, Senior Associates at Asters, and Olena Sichkovska, Associate at Asters. Andriy Konechenkov, Chairman of the UWEA’s Board, and Asters Partner Yaroslav Petrov edited the White Paper.

“The development of offshore wind energy technology and green hydrogen production is directly related to strengthening Ukraine’s energy independence, fighting the global climate change and implementing the EU strategies,” – says Andriy Konechenkov, Chairman of the UWEA’s Board. “A result of the cooperation of leading national experts, this White Paper is the first Ukrainian-language analytical study of the potential of these new and promising areas of energy development in Ukraine.”

“Under favorable conditions, offshore wind energy and green hydrogen production can become extremely attractive sectors for foreign investments into the Ukrainian economy and strengthen Ukraine’s energy integration with the EU,” – Yaroslav Petrov, Asters’ Partner comments. “Asters experts are actively involved in improving the legal landscape for doing business in Ukraine. We hope that the key points of this White Paper will trigger a productive discussion on further development of the Ukrainian renewable energy market.”

* * *

Asters has extensive experience in advising clients on various significant energy related projects in Ukraine. Asters is a Band 1 law firm for energy and natural recourses by Chambers Europe 2021, a Tier 1 law firm for energy and natural resources by The Legal 500: EMEA 2020 and is ranked among the Top 3 law firms for energy and natural resources by Ukrainian Law Firms 2020. A Handbook for Foreign Clients

Ukrainian Wind Energy Association is a nonprofit organization aimed at promoting wind energy technologies and ensuring wind energy industry interests on the national and international levels. The UWEA links wind power project developers, wind power equipment manufacturers and suppliers, utilities, construction companies, scientists and researches, lawyers, NGOs, consumers and others involved in the wind industry.

Ukrainian Hydrogen Council is the first hydrogen energy association of Ukraine’s leading energy, industrial and public companies. Combined by the desire and understanding of the need: integration of modern renewable energy technologies into the Ukrainian economic model, modernization of the energy complex of Ukraine and introduction of sustainable development for the global transition to renewable hydrogen energy resources.

One year since the start of Russia’s full-scale invasion, Ukraine’s economy and infrastructure are in tatters, with the government and its allies planning the largest rebuilding effort since World War II.

The World Bank estimates that Ukrainian GDP shrank by 35% in 2022, and projected in October that the population share with income below the national poverty line would rise to almost 60% by the end of last year — up from 18% in 2021.

The World Bank has so far mobilized $13 billion in emergency financing to Ukraine since the war began, including grants, guarantees and linked parallel financing from the U.S., U.K., Europe and Japan.

The International Monetary Fund estimates that the Ukrainian economy contracted by 30%, a less severe decline than previously projected. Inflation has also begun to decelerate, but ended 2022 at 26.6% year-on-year, according to the National Bank of Ukraine.

IMF Managing Director Kristalina Georgieva visited Ukraine this week, meeting with President Volodymyr Zelenskyy and NBU Governor Andriy Pyshnyy, among others.

In a statement Tuesday, Georgieva said she saw “an economy that is functioning, despite the tremendous challenges,” commending the government’s vision to move from recovery to a “transformational period of reconstruction and EU accession.”

“Shops are open, services are being delivered and people are going to work. This is remarkable testament to the spirit of the Ukrainian people,” Georgieva said, also noting that government agencies, economic institutions and the banking system are fully operational.

“Notwithstanding the attacks on critical infrastructure, the economy is adjusting, and a gradual economic recovery is expected over the course of this year,” she added.
Georgieva reiterated the IMF’s commitment to supporting Ukraine, and the Washington-based institution has provided $2.7 billion in emergency loans over the past year. However, it is also working with Ukraine under an economic policy monitoring program, a precursor to establishing a fully-fledged IMF lending program, as Kyiv seeks a $15 billion multi-year support package.

“The international community will continue to have a vital role in supporting Ukraine, including to help address the large financing needs in 2023 and beyond,” Georgieva concluded.

“The war in Ukraine has had far-reaching consequences for the local, regional, and global economy. Only if we work together as a global community will we be able to build a better future.”

Massive infrastructure rebuild
At a G-20 meeting on Thursday, U.S. Treasury Secretary Janet Yellen called on the IMF to “move swiftly” toward the fully financed loan program, with Washington readying economic assistance to the tune of $10 billion in the coming weeks.

The U.S. has provided a cumulative $76.8 billion in bilateral military, economic and humanitarian aid to Ukraine between Jan. 24, 2022, and Jan. 15, 2023, according to Germany’s Kiel Institute for the World Economy.

This includes $46.6 billion in military grants and loans, weapons and security assistance, by far outstripping the rest of the world. The U.K. has been the second-largest military contributor at $5.1 billion, followed by the European Union at $3.3 billion.

As the conflict enters its second year and shows no sign of abating, with Russia increasingly attacking critical infrastructure and power shortages persisting, the Ukrainian economy is expected to contract again this year, albeit at a low single-digit rate.

A recent estimate from the Kyiv School of Economics put the total damage to Ukrainian infrastructure at $138 billion, while Zelenskyy has estimated that rebuilding the country could end up costing more than $1 trillion.

“Since the beginning of Russia’s war against Ukraine, at least 64 large and medium-sized enterprises, 84.3 thousand units of agricultural machinery, 44 social centers, almost 3 thousand shops, 593 pharmacies, almost 195 thousand private cars, 14.4 thousand public transport, 330 hospitals, 595 administrative buildings of state and local administration have been damaged, destroyed or seized,” the KSE report highlighted.

Meanwhile, Ukraine’s budget deficit has risen to a record $38 billion and is expected to remain elevated, though strong external support from Western governments and the IMF is likely, according to Razan Nasser, emerging market sovereign analyst at T. Rowe Price.

“This should help to plug the financing gap, which in turn should help to reduce reliance on monetary financing this year,” Nasser said.

In its January policy meeting, NBU officials discussed a number of measures aimed at avoiding a return to monetary financing of the budget deficit.

External creditors in August agreed to a two-year standstill on sovereign debt, acknowledging the immense pressure being exerted by the war on the country’s public finances.

“This will likely be the first step of the restructuring, with a deep haircut on the debt likely. It is difficult to predict the size of this debt reduction as it depends on the state of the Ukrainian economy at the time the restructuring is agreed,” Nasser said.

He added that a “political decision” will be needed on how much private creditors should contribute to the reconstruction costs in light of the colossal damage inflicted to infrastructure so far.

When this war does eventually end, the scale of the reconstruction and recovery effort is likely to eclipse anything Europe has seen since World War II,” he said.

This sentiment was echoed on Wednesday by Deputy Prime Minister Yulia Svyrydenko, who told Politico during an interview in Brussels that the reconstruction should start this year, despite there being no immediate end to the conflict in sight.

“It’s going to be the biggest reconstruction [since] World War II,” she said. “We need to start now.”

Although beginning the rebuild while the war is still ongoing and Russia continues to target civilian infrastructure might seem counterintuitive, Daniela Schwarzer, executive director of Open Society, told CNBC on Thursday that it was essential.

Ukrainians very clearly make the case that actually, reconstruction has to begin in some parts of the country while the war is still ongoing, because for the country, the destruction of infrastructure — which really happens every day — needs to be handled otherwise people can’t live, the economy can’t pick up, and so there’s a huge task,” she said.

“We will see over the next few months how international financial institutions, including the European ones such as the International Bank of Reconstruction and the European Investment Bank along with governments and the EU, plus the United States, but the next important question is how can private investments eventually be brought back to Ukraine, because governments alone can’t rebuild the country.”

On January 10, 2023, the Center for Strategic and International Studies (CSIS) held a presentation of the Report named Enabling an Economic Transformation of Ukraine. Recovery, Reconstruction, and Modernization. CSIS, as influential American think-tank with over 60 years of history, is involved in active discussion of the state and future of the Ukrainian economy. A feature of this organization is analysis of a variety of problems/challenges through the prism of security, geopolitics and American version of development policy. CSIS has direct, strong contacts with all branches of government, influences policymakers and decision-makers both in the USA and in many countries worldwide.

Nine months ago, CSIS created Ukraine Economic Reconstruction Commission. Presentation of the Report commenced with speech of Daniel F. Runde, Vice President of the Center, Director of the Prosperity and Development Project, who informed about the work that preceded publication of the Report. There were held 20 seminars on various themes, starting from agriculture and up to public administration. 500 people got engaged in work, including experts from Ukraine, resulting in ten papers. The Danish government financed the whole scope of works.

The speakers were Professor & Ambassador Paula Dobriansky, Ambassador William Taylor and well-known businessman, founder and CEO Invenergy Michael Polsky. Discussion touched mainly on the most general issues of security, legal institutions, public administration and investment opportunities. D. Runde clearly defined that reconstruction and transformation of Ukraine should be such that it would result in NATO and EU membership. He described very ambitious benchmarks of success as follows:

1. GDP per capita, like in Poland,
2. production capabilities/productivity in agriculture, like in Canada,
3. industrial capabilities/performance, like in the Czech Republic,
4. technology sector, like in Estonia,
5. quality of public administration, like in Romania,
6. military ability/quality, like in Israel.

Sergiy Tsivkach, CEO UkraineInvest, the first speaker, expressed full agreement with the presented Report, assured of the unconditional course of Ukraine’s current leadership to carry out institutional systemic market reforms. Sergiy Tsivkach emphasized that Ukraine has a zero tolerance towards corruption. Even those present at the presentation of the Report hardly agreed with this bravura hypothesis.

As expressed by the Ukrainian marketer of business opportunities in Ukraine, hundreds of companies from various countries are ready to invest in the country, to implement their own ideas, funds and production plans. However, there were no specific cases and figures. As an argument in favor of the current government’s intentions, he cited phrase spoken by Head of the State Property Fund, who said that everything would be privatized in Ukraine except dignity. Prior to that, he said that the country has made progress in privatization but cited no figures of revenues to the budget from the sale of state assets. Obviously, neither discussion of the main economic document upon Ukraine in the format of a business forum, on the one hand, nor security conference, on the other hand, is aimed at critical, scientific understanding of the formalized proposals.

Goals and ways to achieve them

The Report is quite optimistic. As stated by head of the European Commission, Ukraine has everything it needs for successful recovery, such as determination, vibrant civil society, many friends worldwide who want to support Ukraine, as well as impressively strong economic base. Such base has been developed in Ukraine since the early 1990s. But Ukraine feeds mainly 3-5% of its population, at the expense of the rest.

CSIS Report dated October 2022 shows a vision of Ukraine’s future: In 10 years, Ukraine will be a stable, Western-oriented democracy, tightly connected to the Euro-Atlantic world. Strong armed forces and EU membership will guarantee independence of Ukraine. Its economy will be transformed from a system dominated by oligarchs, vested interests and state-owned enterprises to a dynamic, innovative, open, inclusive and entrepreneurial system. Ukraine will meet high international standards, such as the Finnish level of military spending and involvement, the Japanese level of infrastructure development, the German style of industrial production, the IT sector based on model of the Baltic countries, the agricultural sector in terms of labor productivity and efficiency, like in Canada.

In the entire history of mankind, neither country has managed to go along such a super-difficult path just for ten years. With regards to post-Soviet heritage, quality of Ukrainian legal institutions, toxic influence of oligarchic structures, state of the intellectual field (with Marxism and left Keynesianism prevailing), as well as specifications of decision-making system in Ukraine, it is extremely problematic to reach the level of Poland, Czech Republic, Slovakia or Romania. With proposed model of the State, universal interventionism is impossible. The chance appears in case of launching a truly innovative, evidence-based economic and institutional policy. But in fact, situation in Central and Eastern Europe is not so rosy and not so high-quality: many of them have joined the European Union almost 20 years ago and have joined NATO ~25 years ago. And Ukraine, in some magical way, should complete the transit just in 10 years.

Authors of the Report are right that in Ukraine should create an environment that commercial structures will trust in order to invest and to modernize the country. They say, investment in small and medium enterprises (SMEs) will play a key role in providing options in the labor market for migrants to return and to participate in national economy. They are right in listing theses about the rule of law, intensification of privatization, independence of judiciary power, inefficiency of state-owned enterprises, importance of access to finance and investment in human capital. Of course, it is not enough to treat the Report as a valuable intellectual contribution to discussion about the necessary economic recovery program for Ukraine.

So, CSIS offers the following to achieve the stated ambitious goals:

1. adopting multi-year, multi-billion dollar obligations with regards to financing programs aimed at restoration of Ukraine (USA, EU, G7). The EU should offer a clear schedule for Ukraine to become a full-fledged EU member at lest within 10-15 years: Any other schedule is not serious and could weaken Ukrainian resolution to pursue the necessary reforms.
2. fixing the roles and liabilities of development agencies, international financial institutions, development finance institutions in order to avoid burdensome requirements or duplication of effort.
3. prioritizing reforms that will improve quality of public administration and accountability of government in order to create an enabling environment for private investment in Ukraine aimed to support its economic transformation: Such reforms should be consistent with Ukraine’s commitments on the way to EU membership. There shall be a crucial reform of legal system, which should be corruption-free. It is also necessary to break the power of oligarchs and vested interests, to create a level playing field both for large, medium and small Ukrainian businesses and to facilitate an effective judicial system based on the principles of Western partners functioning.
4. reducing risks for private investors by creating a pool of finance for economic development from the American International Development Finance Corporation (DFC), IMF, the World Bank, European development financial institutions amounting to $5 billion per year within five years.
5. creating an environment of transparency and accountability in order to include local civil society support aimed to monitor procurement and investors, to prevent harmful effects and to verify applicants for participation in programs.
6. prioritizing modernization, in particular, via digitalization, throughout the whole reconstruction period, in order to create transparent conditions, accountability, to assure both donors and private sector of progress towards creating a well-managed economy.

Now we have a long menu of good intentions and institutional wishes. Who will oppose the German industrial way, Japanese infrastructure, Canadian farming or Estonian IT? It is unlikely that in Ukraine, the EU, the USA, and indeed in any country worldwide someone will act in favor of increasing country risks, hiding information from citizens/business, managerial chaos.

Quality of economic recovery/modernization program is determined not by a set of correct, noble goals, but by scientifically based, historically proven, country-specific methods aimed to achieve the set goals. Here the programs differ from each other. We can judge their quality just by set of proposed instruments/actions/solutions.

Let us single out main parameters for assessment of particular program document upon launching systemic, institutional reforms:

1. functionality, amount of resources/assets, powers and discretion of the State (or those who dispose of someone else’s property). The document should clearly fix dynamics of the following indicators: 1) incomes/expenses of government bodies, 2) budget deficit, 3) public debt, 4) volume of regulatory burden, 5) volume of transaction costs, 6) share of labor force that receives income at the taxpayers’ expense, 7) inflation, 8) credit cost and distribution of interest rates between the beacon country and the reformer country. CSIS Report indicates nothing.
2. dynamics of improving the country’s parameters in several leading indices and world rankings: Economic Freedom Index, Human Freedom Index, International Property Rights Protection Index, Global Competitiveness Index, Transitions Performance Index, Rule of Law Index, Innovation Development Index, Legatum Prosperity Index, Corruption Perceptions Index and many others. CSIS Report mentions nothing.
3. structure of economic power: state business, large, small, metropolitan, regional, as well as degree of capital concentration in real and financial sectors. CSIS experts do not give clear answer to this question.
4. dynamics of institutional, macroeconomic development parameters in terms of the following indicators: gross domestic product, GDP per capita, labor productivity, average/median wages, employment, unemployment, investment volume, foreign direct investment volume, export/import volume, savings volume and many others. CSIS Report specifies nothing.
5. dynamics of social parameters: demography, life expectancy at birth, life expectancy after 60 years, life satisfaction, level of trust, number of healthy life years, fertility and many others. CSIS Report does not contain such information.

One can think that authors of this document were diplomats, lawyers, policymakers, security experts and delegates of associations and PR structures to attract investors. The gaping lack of specificity cannot be hidden by hackneyed phrases and sentences, such as: To carry out reform of the public administration system, anti-corruption reform, reform aimed to secure the rule of law, as well as legal reform, reform against money laundering, reform securing mass media independence, or: To stimulate the process of investment climate improvement, which facilitates growth of the Ukrainian media and attracts additional foreign investment, adopts clear rules of the game: Ukraine should go on improving the overall regulatory environment for creating new businesses, especially SMEs.

Here are more examples of formalism and programmatic blank noise: To continue get focused on privatization of state-owned enterprises, conducting their corporate governance in accordance with OECD principles aimed to reduce corruption and to improve overall economic efficiency, or: To improve and to update infrastructure in accordance with EU standards, by choosing trustworthy partners that will allow Ukraine to join the EU and to strengthen mutual complementarity with NATO.

In the framework of legal reform and public administration system improvement, CSIS recommends the following:

• to adopt procedure for selecting judges of the Constitutional Court, with regards to the Venice Commission standards;
• to strengthen combating corruption,
• to bring Ukrainian legislation in line with international anti-money laundering standards;
• to apply anti-oligarchic law;
• to bring laws on mass in line with EU standards,
• to reform legal framework for national minorities.

But hasn’t Ukraine been doing all this for the last 15-20 years? Hasn’t Ukraine created a whole network of structures aimed to combat corruption? Did it help in a situation where huge economic power and objectively corrupt instruments of nomenklatura discretion subordinate to VIP managers and consumers of someone else’s property?

Hetmantsev and CSIS: birds of a feather?

The Report has quite complimentary opinion concerning national recovery plan at the governmental level, known as the Lugano Plan (July 2022). This document, managed by of D. Hetmantsev, is deemed rather as a matrix for using ca. $750 billion of foreign aid, grants, loans and investments, not a full-fledged plan aimed at systemic modernization of the country and creation of new competitive institutions. Its implementation would not allow creating a full-fledged market structure of the economy but would reproduce the nomenklatura-oligarchic model.

However, CSIS treats the Hetmantsev’s Plan as a responsible attitude to economic policy. Both two documents are similar in abundance of bright slogans, formal declarations, emphasis on noble, wise, responsible and honest VIP-managers disposing of someone else’s property as the main drivers of development and growth. Both documents, as well as the reports drafted by the UN, IMF, state development agencies, ignore theory and practice of state failures, jointly with model of entrepreneurial growth. The reason for this synergy is obvious: it is a single theoretical matrix promoted and pumped-out by Western mainstream universities worldwide.

One thinks that authors of the Lugano Plan and the CSIS document are people of very similar political and ideological orientations within the theoretical school of development economics. Its recommendations are based on the growth theories proposed by Harrod-Domar, Solow-Swan and are partly based on P. Romer’s model of endogenous growth. Most such developments were offered to poor, developing countries in the first half of the 20^th century. They cover instruments and institutions for all-encompassing state interventionism. They even provide for small and medium business development via preferential loans, subsidies, grants, tax preferences, that is, it is prerogative of the State.

The Americans (CSIS) neither browsed the Lugano Plan essence nor critically assessed theory and practice of the poor country development for over 70 years. This would require for deep audit of economic reforms in over 100 countries worldwide. They were carried out at the assistance and under the leadership of IMF, the World Bank and international development agencies/companies.

It is very difficult to find successful cases in the framework of general interventionism model, but there are lots of high-profile failures. Windows of opportunity (after termination of the war, political crisis, revolution) appeared in dozens of states, such as Afghanistan, Iraq, Serbia, South Africa, Tunisia, Moldova, Kyrgyzstan, Egypt, Turkey, Argentina, Mexico, Sri Lanka, Brazil, where international assistance to develop a reform program was based on development economics matrix. In fact, it was also launched in Ukraine both after the Orange Revolution and after the Revolution of Dignity. In 2019-2021 the Government of Ukraine also pursued a policy of active state dirigisme, artificial stimulation of demand and nationalization of investments.

Again, we fall into the same trap twice. Both D. Hetmantsev and CSIS (there is a mutual penetration of experts) see the future of Ukraine as several nomenclature-commercial projects owned by VIP-managers, consumers of someone’s else property and external partners in development/canalization of funds/assets. If any other people do the same but within the old system of authorities, motivation of officials and functionality of the State, why are the Lugano Plan authors and CSIS experts expecting to get a different result? The Report contains neither theoretical nor statistic nor essential grounds for such presumption.

CSIS experts fancy the Lugano Plan. They call it bold and wide-ranging, bringing sustainable economic growth and people’s well-being. Principles of the Plan are good for PR campaign as political slogans, as set below: 1) rapid onset, gradual development; 2) fair increase in welfare, 3) integration into the EU, 4) build back better, 5) stimulation of private investment and entrepreneurship. Does anyone understand what the tax & regulatory burden and inflation will be if such slogans are implemented?

Representatives of the Lugano Plan potential donors adopted their own seven principles for participation in reconstruction and modernization of Ukraine: 1) partnership, 2) reform process, 3) transparency, accountability and the rule of law, 4) democratic participation, 5) involvement of interested stakeholders, 6) gender equality and inclusiveness, 7) sustainability.

These principles have been adopted by Ukraine and other member states, as well as by multilateral institutions in Lugano. They will serve as grounds for further recovery of Ukraine, states CSIS in the Report. It notes that implementation of these principles will facilitate the EU membership in Ukraine and economy transformation.

Growth points again: subjectivity and favoritism

Authors of the Report support the slogan description of the Ukrainian economy in future: brains, hands, and grains, as defined by Olena Kosharna, head of Horizon Capital. It means that the Ukrainian economy in future will be based on high technologies in industry, digitalization and the IT sector, as well as agriculture: She notes, Such comparative advantages are built on a solid economic foundation. Done right, they can be the source of significant, fair economic growth for years to come. CSIS highlights that focus on such three economic areas will offer clear opportunities for successful integration of Ukraine into the EU economy, as well as its trading partners, such as the United States.

We have a typical example of theorizing and nomenclature allocation of so-called growth points, formation of national champions in manual mode: this is how scientists/analysts from Washington, Brussels, Berlin, Paris and Rome allegedly see the Ukrainian economic structure in future. Therefore, such structure will be the result of investment, production, management decisions of VIP-managers and consumers of Ukraine and donor countries.

With rare exceptions, almost all poor developing countries, both democratic and authoritarian ones, got keen on so-called growth points. Theorists cultivated such an opinion among policymakers and decisionmakers that if half of their income is taken from citizens through taxes, if such funds are channeled into strategically important and promising projects, if resources are nationalized and investments are made via large state-owned enterprises, the rate of economic growth will increase significantly and catch up with developed countries will get faster.

Among those who dispose of someone else’s property, few were able to resist the drug with conditional slogan Five Years in Three, especially when it was presented as a valuable, highly effective supplement without side effects. In the second half of the 20^th century, absolutely all poor countries got keen on such stimulant. Then, through crises, bankruptcies, defaults, debt holes and corruption, everyone understood risks and threats of such a model as the state of general interventionism. Many low-income countries have been stuck in a poverty trap for decades.

Policymakers from post-Soviet countries, including Ukraine, also zealously took up manual management of business cycles, with the following main instruments applied:

1. in monetary policy: interest rates, conditions for access to credit and currency, special reserve requirements, insurance;
2. in fiscal policy: tax incentives/exemptions, tax holidays, special tax payment regimes, budget subsidies, grants;
3. in regulatory policy: licensing, certification, obtaining permits, quotas, preferences in public procurement, export/import mode.

A gross mistake of the Government’s cyclical and countercyclical policy was that the market/natural business cycle was based on a starting point having no market and economic nature, i.e. post-Soviet structure of a planned economy. First, it was necessary to create this market structure of the economy, not to commit methodological deception.

Ukraine still does not have a full-scale market structure of the economy, which would further result in free, voluntary choice of business entities within their private property. Therefore, post-war reconstruction gives us such a unique historical chance.

Public sector still remains a burden of the Ukrainian economy. It preserves assets and ways of the state plan. The state is still the largest owner of resources and assets, including in the money market. Before outbreak of the war, those who disposed of someone else’s property processed 42-45% of GDP annually, while in 2022 total government spending reached nearly 75% of GDP. The war destroyed old structure of production and consumption, employment and savings. Under such circumstances, it is just subjectivity and favoritism – to identify so-called growth points (sectoral, individual etc.) and to create a special financial, tax, customs and regulatory regime for them. In view of economic science, such approach to economic policy is inessential and impractical. Unfortunately, such approach applies very rarely when discussing a country development strategy within development economics, especially in view of further prospect to use hundreds of billions of dollars of someone else’s monetary assets.

Authors of the Report have a declarative approach to defining sectoral priorities. Agriculture – certainly! Since it is so big and important, its development and support is first and foremost – but either for everyone or only for large enterprises having powerful lobbyists?

IT sector – no doubt! Let digitalization combat corruption and inefficiency of public administration system. But what should we do with multi-thousand functionality of the State?

Industry – that is a must! Due to launching German, Italian, French businesses Ukraine will turn into a powerful hub in the framework of global value chains. It is curious fact that such a crucial section of the Report as Manufacturing covered just 14 rows among 47 pages.

Power – yes, of course! It is a keystone: for 12 years before outbreak of the war, Ukraine received ca. $12 billion in renewable energy investments. Installed capacities could generate up to 60 gigawatts of solar energy, 320 gigawatts of onshore wind energy and 251 gigawatts of offshore energy, but the aggressor state paralyzed the use of this potential. Obviously, no proper attention was drawn to security risks. The Report contains no clear and explicit recommendation upon creating a full-fledged power generation private market from those competing in equal legal, tariff and price conditions.

Who will be liable?

CSIS states that the International Monetary Fund (IMF) will play crucial role in supporting macroeconomic stability during the recovery phase. The Fund is expected to help Ukraine to restructure debts and to finance budget programs. The World Bank should use its full potential to finance infrastructure, while IFC and MIGA will help Ukraine to attract private investors. The European Bank for Reconstruction and Development (EBRD) is also treated as an institution to support projects in infrastructure, energy and SME development.

Development agencies of G7 countries will finance technical expertise in public administration reform, launching the rule of law, anti-corruption and business climate. Although funding conditions are important, they should be introduced smartly, not in the name of the conditions themselves. In 2014 after the Revolution of Dignity, numerous bilateral and multilateral institutions put forward over 400 terms and conditions for Ukraine. This is unacceptable. Therefore, CSIS invites participants to recover the Ukrainian economy in order to get focused on such industries as public administration, the rule of law, combating corruption, trade liberalization, bringing laws, rules and regulations in line with EU standards.

At first glance, everything looks beautiful and dignified on paper – something close to perfect harmony of interests, missions, motives of dozens of international structures from various countries worldwide. Before that, all of them were able to agree only to global warming, gender balance and biodiversification. Even before holding their conferences in Bali or in another comfortable, very expensive place somewhere in Africa, Asia or Latin America. Here we are talking about real and large monies. There are high risks that each organization will dogmatically pursue its policy without response to actual state of affairs and the agenda of others.

The challenge of synchronization and cooperation within one international team is even more serious when we add a Ukrainian link to the overall system. Ukraine will be represented by a certain Mr./Mrs. Restructuring with a clearly defined moral and value position, profound scientific knowledge and a clear idea of what to do. Delegates from Ukraine will be various people with their own interests, views on the future and on the harmony of balance of interests/resources.

A sort of Hetmantsev or another similar policymaker may become a key decisionmaker from Ukraine. His/her proposals from the Lugano Plan are unlikely to raise serious objections from CSIS, IMF, MIGA or EBRD. IMF will clearly support tax increase for small and medium businesses, will object against reducing basic tax rates (VAT, income tax etc.), as well as will support progressive tax rates. This Fund does not support free market reforms but follows a certain macroeconomic matrix offered to our country in exchange for loans and technical assistance costs. In this scenario, it will be possible to forget about the reform in Ukraine, which means termination of dozens of thousands of individual entrepreneurs.

Lately IMF has praised the National Bank of Ukraine, recommending moving in this direction in the future. It means that average annual inflation over the past 20 years made up ca. 11%, for 25 it reached 30%. Figures for in 2022-2023 do not disturb the Fund. It is not particularly upset by scant credit market, as well as by the fact that Ukraine ranks last in the financial openness index worldwide. If IMF is the main institution for fixing Ukraine’s macroeconomic policy after termination of the war, deep reform of monetary policy can also be forgotten. If you do not believe, you may study a poor example of Argentina for the past 20 years. Today its inflation level makes up nearly 100% – in the footsteps of country programs launched by IMF, which has caused defaults, debts, corruption and acute shortage of economic freedom.

The World Bank, the EBRD also work in the same theoretical matrix at the IMF. The implementation of large investment projects in developing and transitional countries is not about reforms, but about joint business with VIP-managers of foreign and big business. Small business does not pull large investment projects in energy, utilities, transport, logistics infrastructure and banks. This means that international agencies and structures of the World Bank are doomed to work with large Ukrainian businesses, which will be recommended by representatives of Ukraine. If these are not commercial structures of the old oligarchs, then they can be firms of new VIP-managers of someone else’s property.

Out of the frying pan and into the fire, as proverb says. All these organizations have been working in Ukraine for over 25 years with varying intensity. Their theoretical basis, the content of their recommendations has been known for a long time. If so far (i.e. before outbreak of the war) they have not given the desired effect, have not put Ukraine on the way of rapid, long-term, inclusive economic growth, so why will such organizations, working by almost the same schemes/programs, with Ukrainian officials engaged of nearly the same quality as before, suddenly create an economic miracle? Clash of motivations, interests and expectations is obvious. Surely there will be informal negotiation platforms to coordinate interests. This is the new troubled water, where players of the Ukrainian and international back door deals and opaque scheme feel great.

International syndicate: harmful for the future of Ukraine

In early 2023, the situation in support of Ukrainian systemic economic reforms by international community is alarming, frustrating and causes serious concern. An analogy with weapon supply is appropriate. For a whole year, the US/EU/NATO has been assuring, promising, holding meetings, such as Ramstein, G7 and G20, while Ukraine is still without crucial weapon aimed to defeat the enemy. Every day of talks, every attempt to save Putin’s face once again – all results in daily death of Ukrainian heroes at the front and ordinary people under shelling of Russian fascists.

International stakeholders in recovery of Ukraine (American Center for Strategic and International Studies (CSIS), European Center for Economic Policy Research (CEPR), IMF, World Bank, EBRD, international consulting organizations such as Boston Consulting, Goldman Sachs or McKinsey, G7 and EU international development agencies) have relied on standard institutional, macroeconomic solutions. Their implementation resets the Ukrainian model of oligarchy/opaque scheme, preserves the model of the State of general interventionism in Ukraine, leaves a wide range of discretion (subjective interpretations of law provisions) in the hands of someone else’s property custodians. Such opinion is based on analysis of the following documents of joint Ukrainian-foreign stakeholders:

1. Enabling an Economic Transformation of Ukraine. Recovery, Reconstruction, and Modernization, created by Center for Strategic and International Studies dated January 2023
2. Restoration of Ukraine: principles and policy. Paris Report 1, created by Center for Economic Policy Research (CEPR) dated December 2022
3. Country report on Ukraine No. 22/387, created by International Monetary Fund, IMF Country Report No. 22/387, Ukraine. Program Monitoring with Board Involvement, dated December 2022
4. Plan of Ukraine’s Renewal or Lugano Plan, created by National Council of Innovation, Government of Ukraine, dated July 2022
5. Macroeconomic Policies for Wartime Ukraine, created by Center for Economic Policy Research (CEPR) dated August 2022
6. A blueprint for the reconstruction of Ukraine, created by Centre for Economic Policy Research (CEPR) dated April 2022.

The main delegates from Ukraine engaged in the above projects are Tymofiy Milovanov, Daniil Getmantsev, Yuriy Gorodnichenko, Natalia Yaresko, Ilona Sologub, Yegor Grigorenko, Vladislav Rashkovan, Veronika Movchan, Olena Pavlenko, Tatyana Deriugina, Olena Kosharna and Serhiy Tsivkach, all involved in the western mainstream, all speaking speak the same language with the IMF/EBRD/CEPR/CSIS. Most of them hold high offices in the Ukrainian government. All share principle approaches to economic policy based on the neo-Keynesian left and even Marxism; all defiantly ignore theory and practice of entrepreneurial growth with its main element, i.e. economic freedom.

All of them treat the State as the main business strategist, investor and designer of further structure of the Ukrainian economy; all keep contacts with large commercial structures – being further consumers of huge resources via projects aimed at restoration of Ukraine. There is another common feature that unites them all: none of them, in case of failure, will recover losses, no one will reimburse damages at his/her own expense, because they rely on management, consumption and disposal of someone else’s property.

Ukraine has already lost almost a year for radical, systemic reforms under war conditions. Specific proposals on the wartime economy were submitted to the Cabinet of Ministers, the Supreme Council and the Office of the President just in April 2022. Unfortunately, those forces that drafted the above plans and programs for Ukraine won. Their implementation means the only one: just missing once again a unique chance of Ukraine to become the New West, to liberate the entrepreneurial potential of millions of Ukrainians based on economic freedom.

Structure 

Are there any particular drivers in your jurisdiction that will determine how a joint venture is structured? 

Typical drivers for joint venture structures are industry practice, regulatory framework and taxation. 

For instance, Ukraine has a long-standing practice of joint venture agreements for cooperation in the oil and gas industries, owing to certain tax considerations. Certain regulated business activities can only be conducted by legal entities that are registered in the designated form (eg, banks can only operate as a public joint-stock company). Owing to possible double taxation, joint venture parties sometimes prefer to cooperate as an unincorporated business in the initial stages before proceeding to a joint corporate entity. 

Since February 2022, IT businesses that comply with certain criteria can apply for registration as so-called ‘Diya City residents’ and enjoy a number of statutory preferences, including a special taxation regime, flexibility hiring IT specialists and governing their engagement, the possibility to conclude non-competition agreements, and implement debt-to-equity swaps, etc. 

Tax considerations 

When establishing a joint venture, what tax considerations arise for the joint venture parties and the joint venture entity? How can tax charges be lawfully mitigated? 

An incorporated joint venture is a taxpayer under the general rules (regarding corporate profit tax, value added tax (VAT), real estate and other taxes). Since February? 2022, IT joint ventures eligible for registration as so-called ‘Diya City residents’ can, instead of the general system of taxation with corporate profit tax (at 18 per cent), opt to pay capital withdrawal tax at the rate of 9 per cent. Small undertakings whose annual income does not exceed certain thresholds (approximately 7.5 million hryvnias in 2022) may enjoy preferential taxation regimes. 

In the wake of the Russia-Ukraine war, which started on 24 February 2022, the Ukrainian government introduced an alternative system of taxation for joint ventures earning not more than 10 billion hryvnia annually: for the duration of martial law, such businesses can choose to pay 2 per cent turnover tax instead of 18 per cent corporate profit tax. 

Temporary VAT and corporate profit tax exemptions exist in the cinematography industry, and in the space and aircraft industries. After 24 February 2022 and for the duration of martial law in Ukraine, most imports for defence purposes and humanitarian aid are released from import VAT and customs duties. 

An unincorporated joint venture is subject to separate taxation, for which special tax accounting regulations apply. The joint venture agreement shall define a (resident) participant responsible for the venture’s tax accounting and payment; this participant and the agreement are registered by the tax office. 

In-kind contributions (as opposed to cash contributions) of founders or participants into the (both incorporated and unincorporated) joint venture trigger Ukrainian VAT, subject to further tax credit and refund. 

Asset contribution restriction 

Are there any restrictions on the contribution of assets to a joint venture entity? 

The parties can agree on the contribution of any assets into an unincorporated joint venture. Importantly, the investments of the parties are deemed of equal value if the parties do not state otherwise in their joint venture agreement. 

There are restrictions on the contribution of certain assets to the capital of a separate corporate entity. The following cannot be used for the formation of registered capital: 

     – budget and loaned funds; 
     – bills (promissory notes); 
     – state (municipal) property that cannot be privatised; and 
     – state property that is under the operational management of a state-financed institution. 

Interaction between constitution and agreement 

What is the interaction between the constitution of the joint venture entity and the agreement between the joint venture parties? 

For unincorporated joint ventures, the joint venture agreement shall be registered with the local tax office for VAT purposes if the total volume of VAT transactions in the last 12 calendar months exceeds 1?million hryvnias. Additionally, the joint venture partner responsible for tax accounting is subject to a separate registration with the tax office. 

In incorporated joint ventures, the parties can enter into a corporate (shareholder) agreement determining certain aspects of their cooperation as shareholders. Such agreement is not subject to registration and may not contradict the joint venture’s constituent documents (charter). In case of a conflict, the constituent documents shall prevail. 

As of 2021, non-Ukrainian law may be chosen for a corporate agreement if at least one of the shareholders of the joint venture is a non-resident party. 

Party interaction 

How may the joint venture parties interact with the joint venture entity? Are there any restrictions? 

In an incorporated joint venture entity, the shareholders can participate and vote at general shareholders’ meetings and, therefore, interact with the joint venture by governing it on the most important issues. The shareholders only have access to a limited amount of information regarding the entity. 

Exercising control 

How may the joint venture parties exercise control over the joint venture entity’s decision-making? 

In an unincorporated joint venture, the parties may agree that all affairs are to be carried out jointly by all shareholders. In such a case, the consent of all shareholders must be obtained to execute each transaction. 

In incorporated joint ventures, the shareholders may exercise their will through participating in general shareholders’ meetings. 

In joint-stock companies, most issues on the agenda of the general shareholders’ meetings are resolved by a simple majority vote of all participating shareholders. However, in a private joint-stock company, the shareholders can agree to a bigger quorum (eg, unanimous consent of all present shareholders) for any issues except: 

     – the pre-term termination of the powers of the company’s bodies’ officials; 
     – the commencement of a claim against the company’s officials regarding the reimbursement of damages incurred by the company; and 
     – the commencement of a claim regarding non-compliance with the law in the case of a significant transaction. 

Therefore, a minority investor can have more power and control over a private joint-stock company. 

In a joint-stock company, a qualified majority (more than 75 per cent of the present shareholders) is required to adopt the following decisions: 

     – an amendment of the company’s charter; 
     – a cancellation of the bought-out shares; 
     – changing the type of the company; 
     – regarding the placement of shares; 
     – changing the registered capital; 
     – the issue of securities that may be converted into shares; and 
     – the termination of the company. 

In a limited liability company (LLC), as a general rule, all issues are decided by an absolute majority of votes. However, issues of changing the charter and registered capital, reorganisation or liquidation of the company require a qualified majority (at least 75 per cent of the total number of votes of participants of the company). Unless the company charter sets a lower number of votes (but no less than a majority), unanimous decisions of all participants are required for: 

     – the approval of the monetary assessment of a non-pecuniary contribution of a participant; 
     – the redistribution of the participants’ shares; 
     – the establishment of other corporate bodies; and 
     – the purchase of a participant’s share by the company. 

The minority investors are also entitled to demand internal and external audits. For instance, minority shareholders that hold over 10 per cent of a joint-stock company may request a special review by an internal auditing committee or a proper inspection of financial accounts by an independent auditing firm. 

Governance issues 

What are the most common governance issues that arise in connection with joint ventures? How are these dealt with? 

In an unincorporated joint venture, the parties are free to establish special procedures relating to adopting decisions and running the business in a practical manner, according to the terms and conditions of a joint venture agreement. 

The two most common governance issues that arise for joint venture corporate entities are the presence of a quorum and adopting decisions on specific issues. 

In the case of corporate disputes, the parties may resolve them in the courts or through arbitration tribunals. Shareholders have more freedom and flexibility to handle governance issues through shareholder agreements. 

Nominee directors 

With an incorporated joint venture, what controls exist in your jurisdiction in relation to nominee directors? How should a nominee director balance the potentially conflicting interests of the joint venture company and the appointing shareholder? 

In Ukraine, a majority shareholder (participant) usually nominates a director, but the former must act in the best interests of the joint venture company. 

In LLCs, supervision over the board of directors can be exercised by a supervisory board (if foreseen by the charter) or another corporate body appointed by the general shareholders’ meeting, or both. The general shareholders’ meeting may delegate certain powers to the supervisory board, including the appointment and dismissal or suspension of the board of directors. Moreover, shareholders that hold at least 10 per cent of the charter capital may initiate a financial audit of the company by an independent auditor. The board of directors is obliged to provide documents regarding the company at the request of the auditor. 

In a joint-stock company, the executive body is accountable to the general shareholders’ meeting and supervisory board (including its standing auditing committee). The general shareholders’ meeting can elect an auditing commission as a separate corporate body as well. In public joint-stock companies, an annual audit by an independent and certified auditor is obligatory. The board of directors is obliged to provide documents regarding the company at the request of the audit commission or an auditor. 

Competition law 

What competition law considerations are engaged by the formation and operation of the joint venture? Is approval needed? 

Assuming the turnover thresholds are met, the creation and operation of the joint venture may trigger the need to obtain certain approvals. Depending on whether a joint venture will be full-function or not, there may be a need for clearance of: 
     – merger: in the case of a joint venture’s creation, if operating permanently, all the functions of an autonomous economic entity (full-function joint venture) and such a creation will not lead to coordination of competitive behaviour between the parent companies of the joint venture themselves, or between the joint venture and its parent companies; or 

     – concerted actions: if a joint venture is established with an objective of, or results in the coordination of, competitive behaviour between the parent companies of the joint venture themselves or between the joint venture and its parent companies. 

Provision of services 

What are the key considerations in your jurisdiction in structuring the provision of services to the joint venture entity by joint venture parties? 

In an unincorporated joint venture, in the case of a simple partnership, the approval of all parties is needed for the execution of every transaction unless stated otherwise in the simple partnership agreement. 

In a joint-stock company, provision of services to the joint venture entity by joint venture parties (ie, its shareholders) may be recognised as an interested-party transaction if the transaction value exceeds 1 per cent of the company’s asset value, unless the company charter sets a lower value. The party interested in the transaction may be a shareholder (or shareholders or their affiliated persons) who alone or jointly owns 25 per cent or more of the company’s shares. Interested-party transactions with a value of up to 10 per cent of the company’s asset value require the approval of the company’s supervisory board and transactions with a value of more than 10 per cent of the company’s asset value require the approval of a general shareholders’ meeting. During the voting process, the shareholders interested in the transaction do not have the right to vote and a decision on this matter is made by a majority of votes of the non-interested shareholders present at the meeting. 

In an LLC, a transaction is considered an interested-party transaction if the other party is, inter alia, a shareholder (or shareholders or their affiliated persons) who alone or jointly owns 20 per cent or more of the company’s shares. However, it is entirely up to the shareholders to provide in the company charter for regulations concerning the need for pre-approval for interested-party transactions. All shareholders shall approve the relevant charter provisions unanimously. If the charter does not contain such provisions, no restrictions regarding interested-party transactions apply, except that such transactions shall be at arm’s length. 

Employment rights 

What impact do statutory employment rights have in joint ventures? 

Employees are entitled to all available statutory employment rights in joint ventures. Transferring the business will result in the automatic transfer of its employees to the new employer. At the same time, the mere fact of the business transfer may not serve as a reason for dismissal. In the case of transferring foreign employees, the employer must obtain a work permit prior to commencing the foreign party’s employment with a Ukrainian company. Under general labour laws, a transfer to another job in the same company and a transfer to another company, or other area or location, requires the consent of the employee concerned. However, in the context of the Russia-Ukraine war, after 24 February 2022 and during the validity of martial law, no employee consent is required in some instances (related to the liquidation of consequences of such aggression). 

In the case of non-incorporated joint ventures, employees will be employed directly by the joint venture parties. 

Intellectual property rights 

How are intellectual property rights generally dealt with on the creation, operation and termination of a joint venture in your jurisdiction? 

The parties of a non-incorporated joint venture can regulate issues of ownership and use of their intellectual property (IP) rights either in their joint venture agreement or in a separate agreement such as a licence agreement. The same applies to an incorporated joint venture. 

Economic (proprietary) IP rights may be transferred or assigned for ownership or use (eg, under a licence agreement) to an incorporated joint venture. On the termination of the joint venture, IP rights are dealt with in the same manner as any other proprietary rights; they are either sold (transferred) to third parties to pay off debts or distributed between the shareholders of the company.