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The existential war with Russia approaches the one-year mark.

The less visible “internal war for the future of Ukraine,” as MP Yaroslav Yurchyshyn has dubbed it, has recently been thrust into the spotlight.

The Zelensky administration has initiated a sweeping corruption purge, with 15 senior government officials across ministries and law enforcement resigning or forced out in late January after investigations uncovered apparent bribery and embezzlement of funds intended for critical infrastructure repairs.

Keen to reassure Western allies and Ukrainian citizens alike, President Zelensky has stressed that “there will be no return to what used to be in the past,” with the US hailing this response as “quick and decisive.” In recent years, the Zelensky administration has taken strong anti-corruption action, but significant progress will continue to be needed in order to attract and retain private investment in strategic sectors to fuel a high-value, sustainable recovery and accelerate EU integration.

Breaking shackles of Soviet legacy

After the fall of the USSR in 1991, Ukraine—like many post-Soviet states—inherited a legacy of Soviet state corruption. In the ensuing decades, Putin’s Russia has mobilised the influence

of some Ukrainian oligarchs—covertly funding some which have then built monopoles in strategic sectors—in an attempt to pre-empt Ukraine’s democratic, Westward shift and re-establish Russian hegemony.

As a result, Ukraine has struggled to shake the lingering corruption albatross around its neck,

with Transparency International ranking Ukraine as Europe’s most corrupt country after Russia in 2021. The corruption problem has stifled Ukraine’s economy throughout the post-Soviet era, with the country’s growth trajectory significantly weaker than neighbouring countries such as Poland. US Secretary of State Antony Blinken has notably highlightedcorruption as a key threat to the Ukrainian economy, depriving Ukraine’s public budgets of tens of billions annually and discouraging foreign direct investment (FDI).

Even before the war, there were signs that the situation was slowly beginning to improve following the pro-European Euromaidan movement in 2014 that ousted then-President and Kremlin loyalist Viktor Yanukovych, setting Ukraine on its ongoing path to Western, democratic integration. The Zelensky administration has considerably accelerated the national anti-corruption drive since assuming power in 2019, passing a series of crucial reforms and laws including the creation of the National Anti-Corruption Bureau of Ukraine, the anti-oligarch law, a law ending political immunity for MPs and reforms in a number of key sectors, including banking.

Private investment helping build new Ukraine

While more work naturally remains to be done, as evidenced by the recent high-profile investigations, the anti-corruption progress that has already been achieved, paired with trade liberalisation, fiscal incentives and regulatory reforms, have helped trigger a significant rise in foreign direct investment (FDI) in Ukraine in recent years, notably in strategic sectors such as renewable energy and ICT.

Solar energy firm TIU Canada, founded by Canadian-Ukrainian entrepreneur Michael Yurkovich, was one early company spearheading FDI in Ukraine’s promising renewable energy sector, capitalising on the 2016 Canada-Ukraine Free Trade Agreement (CUFTA), of which it was the first investor. Operating three solar energy plants across the country generating a combined 54 MW, TIU Canada has invested over $65 million in Ukrainian solar energy, contributing to the billions in FDI pouring into Ukraine’s renewables industry in recent years.

TIU Canada CEO Michael Yurkovich has highlighted the crucial role that the Ukrainian government’s competitive green tariff scheme and increasingly efficient regulatory and permitting environment have played in attracting this growing wave of investment, while encouraging “other foreign investors to join the effort to decarbonise the country…and build a shared EU-Ukraine future.”

On the ICT front, US-based private equity firm Horizon Capital has had a major investment impact in Ukraine, recognising the significant potential of this rapidly growing sector prioritised by the government and boosted by a strong local talent pool. Through its Horizon Capital Growth Fund IV, the firm has harnessed $125 million from international finance institutions to invest in Ukraine’s tech sector and export-based entrepreneurs, which will create jobs and fuel the development of an industry that generated a record $2 billion in the first quarter of 2022.

The company’s CEO and founding partner Lenna Koszarny, a Canadian national of Ukrainian descent, has said that the Fund will be vital for Ukraine’s revitalization, emphasizing that the country “needs investors who believe in the country.”

Building on momentum for future

Crucially, the renewable energy and ICT sectors will allow Ukraine to align with and support the EU’s twin green and digital transitions, while capitalising on a historic opportunity to rebuild Ukraine as an innovative model of sustainable, efficient and high-productivity development.

Encouragingly, foreign investors, primarily from the US, UK, Canada and Ireland, continue to explore market entry opportunities in Ukraine despite the ongoing war, as was notably displayed at the Ukrainian Investment Roadshow hosted in London by the Strategy Council—an association representing European businesses—last November. However, fully unlocking this FDI potential will depend on not only resolving the conflict in Ukraine, but also significantly accelerating anti-corruption reforms.

Moving forward, Ukraine and international allies must find a “common language on corruption,” as CSIS expert Andrew Lohsen has posited, which entails both Ukraine recognising the corruption concerns of Western governments and investors—and the West acknowledging the progress achieved since Euromaidan as well as Russia’s significant role in Ukraine’s history of corruption.

Concretely, Lohsen recommends that Ukraine boosts investment, operational capacity and independence of its anti-corruption bodies while robustly and impartially implementing its anti-oligarch law. Meanwhile, Brussels should provide advisory support as well as financial and political incentives for reforms, while empowering Ukrainian civil society.

The fact that Ukraine is continuing to make progress on its anti-corruption crackdown despite the nearly year-long conflict is an encouraging sign—Kyiv will need to maintain this momentum to attract the levels of private investment needed to fuel a fair, sustainable economic recovery in a country of integrity and transparency.

Read more:
Ukraine’s corruption purge setting stage for private investment-driven recovery