Investment climate in Ukraine expected to deteriorate in 2025

The Ukrainian investment climate has never been too positive towards investors. The war only worsened the situation. Now only those who already worked in Ukraine before the war, some foreign companies that have been working in Ukraine for a long time and those who expect to participate in the post-war reconstruction of the country invest in Ukraine.

If Ukraine wants to carry out post-war reconstruction relatively quickly and on a new technological basis, it will require a lot of investment and will have to solve a lot of problems.

General picture of investment in Ukraine

According to the NBU, the inflow of foreign direct investment (FDI) in Ukraine in 2024 decreased by a quarter ($1.2 billion) compared to 2023 and amounted to $3.3 billion. At the same time, the structure of investment shows almost complete absence of new investors, as 72% of FDI or $2.4 billion is reinvestment of income by existing foreign investors.

As a result, the amount of accumulated FDI last year decreased by 0.7% y/y or $0.38bn – to $54.6bn, 17% less than in pre-war 2021.

Ukraine receives much less foreign investment than its European neighbors. For example, the gap with Poland is about 6 times, where the accumulated volume of FDI is $335 bln.

The trend of deterioration of the investment situation continued at the beginning of this year. According to the NBU, in January-February 2025 FDI inflow in Ukraine amounted to only $351 million.

“While the authorities report about “reforms”, the real economy is crying out for trouble. In the first two months of 2025, the inflow of foreign direct investment in Ukraine amounted to only $351 million. This is 3.3 times less than in the same period of 2024. And this is not a statistical error, but a fat minus for the economic policy of the state. Investors are unwilling to take risks in a jurisdiction where the rules can change overnight, and politicians ignore economic logic,” economic expert Daniil Monin said in a commentary for GMK Center.

FDI inflow to Ukraine continues to decline due to such reasons:

• reduction in reinvestment of earnings by foreign investors;
• reduction of FDI on trade credits to affiliated companies;
• low activity rates of foreign investors on capital participation instruments.

The situation is similar for the Ukrainian investment climate, which is strongly affected by the war and the current economic environment. The European Business Association (EBA) Investment Index for 2024 rose slightly to 2.49 out of a possible 5 points (2023 – 2.44). The survey reflects business sentiment regarding the current state of the country’s investment climate and the outlook for the next 6 months.

The results of the survey of CEOs show the lack of significant progress in improving the investment climate in Ukraine last year. The number of respondents who consider the investment climate unfavorable in 2024 decreased to 79% from 84% in 2023. At the same time, 49% of respondents believe that the investment climate has worsened, and 39% – did not see significant changes. Only 12% of respondents believe that it has improved.

By and large, the war is just an aggravating factor for the Ukrainian investment climate, which has never been too good. For the entire history of measurement (since 2008) the EBA index has never reached the positive zone – above 4 points.

Investment climate in steel sector

All the depth and “attractiveness” of the Ukrainian investment climate can be seen on the example of the Canadian company Black Iron, which since 2010, i.e. the 15th year has been trying to put into operation the Shimanovskoye deposit of ferruginous quartzites in Kryvyi Rih. Now the company is at the stage of obtaining permits for mining, while in previous years it has been conducting approximately similar preparatory processes – meetings and correspondence with Ukrainian government agencies, including lobbying at the embassy level, registration of a land plot for use by the Ministry of Defense, negotiations with investors, etc. But no permits to start operations have been obtained until now. But there are still no permits to start operations.

In early March, the Pechersk court transferred 49.5% of Poltava Mining, the largest asset of Ferrexpo, to the ARMA. The company considers these decisions to be completely unjustified and contrary to not only Ukrainian but also European law.

“We reminded the Ukrainian government that Ukraine and the UK and Ukraine and Switzerland have agreements on the promotion and mutual protection of investments. After receiving a notification, according to the procedure, the Ukrainian government has three months to resolve the situation and compensate investors for the damage caused. The ball is in the Ukrainian government’s court. If the situation is not resolved, the only way out is to go to Stockholm or Washington arbitration, because investors’ rights have been violated,” commented Ferrexpo Chairman Lucio Genovese.

At the same time, Ukraine’s international image will suffer, as most of the company’s shares are owned by international investors such as BlackRock, UBS, JP Morgan, HSBC, etc.

At the same time, the State Tax Service has additionally charged Pivdennyi Mining with UAH 3.7 billion (the main payment – UAH 2.98 billion and fines – UAH 0.8 billion) for allegedly illegally applying tax benefits when paying dividends to Cypriot shareholders. The company denies tax violations, claiming that administrative courts did not consider the case on the merits, but canceled tax notices-decisions, referring to the moratorium on tax audits during the war.

Instability of tax policy and judicial practice, as well as their backward application over time, create serious risks for investors and negatively affect the development of Ukrainian business.

Titanic failure

At the moment, the most striking in the MMC sector is the history of privatization of state-owned titanic assets, which fully demonstrates the state of the investment climate in Ukraine.

The story of privatization of the United Mining and Chemical Company (UGCC) began back in 2016. UGCC, which owns Europe’s largest deposits of titanium-zirconium ores, was seen as one of the most valuable assets in state ownership.

Since the start of the privatization procedure (the most active phase of attempts came in 2020-2021), the company has repeatedly faced cancellation or postponement of auctions due to a lack of transparency, low level of confidence on the part of potential investors and suspicions of corruption. In particular, the auction in December 2021 was canceled due to the ineligibility of all potential bidders except for one little-known company, which caused a public scandal.

Subsequently, the company’s managers were constantly changing, and the previous ones were accused of corruption. The privatization of UGCCended in October 2024 with the sale to the sole participant for UAH 4 billion. This is much lower than the state wanted to get for its asset before the war.

Another “titanium” example is Zaporizhzhya Titanium and Magnesium Plant (ZTMK) – the only producer of sponge titanium in Ukraine and Europe. ZTMK has been the subject of protracted litigation as the state has attempted to repossess it due to the investor’s alleged “failure to fulfill its obligations,” which continues to be challenged in the courts.

For all the time that UGCC and ZTMK have been in a state of privatization and repossession respectively, they have continued to operate, but their development has been effectively halted. Amidst corruption scandals and litigation, these enterprises were losing their investment appeal, which in turn affected Ukraine’s investment image.

Investment prospects

It is obvious that until full-scale hostilities end and some kind of peace agreement is signed, the investment situation in Ukraine will be in the negative zone. The IMF baseline scenario assumes that the war will wind down in the last months of 2025. Therefore, there will probably be no significant improvements in the Ukrainian investment climate this year. According to the EBA survey, 49% of respondents expect further deterioration of the investment climate in Ukraine, 33% expect no change, and only 18% hope for improvement.

“Investors do not yet see exactly when the cessation of attacks by the aggressor and the actual end of the war will take place. This uncertainty forms high expectations on the part of investors on the returns they will agree to when investing in projects in Ukraine. In turn, Ukraine now does not have such attractive objects for investment that there would be a queue of foreign investors for these objects,” Dmytro Churin, director of the analytical department of investment company Eavex Capital, explained in his comments to GMK Center.

Among the factors negatively affecting the investment climate, the companies interviewed by the EBA point out: Russian military aggression, corruption, weak judicial system, shadow economy and attacks on the Ukrainian energy system. To this we can also add “fresh” factors – rising gas prices for industrial consumers due to attacks on production facilities, the probable abolition of preferential treatment of Ukrainian exports to the EU, etc. The EBA surveyed companies point to the following factors. All this together does not allow us to forecast an improvement in the investment climate this year.

Unfortunately, all Ukrainian governments do not give any actual signals to foreign and domestic investors about changes in the situation and approach to investors and asset owners. Constant changes in the “rules of the game”, tax changes, non-transparent courts, pressure on owners, delay in issuing permits and other factors negatively affect the investment attractiveness of Ukraine.

At the same time, without active attraction of FDI, post-war reconstruction of the country is impossible, and for this purpose it is necessary to solve the above-mentioned accumulated problems that have hindered investors so far, and to have firm security guarantees.