September 3, 2014 / 2:36 PM / 4 years ago

Ukraine's hard sell - now is the time to invest

LONDON (Reuters) - The Russians are raising the specter of a split in the country, the gas supply from across the border has been shut off and corruption remains a problem. 

But it is Andrii Kuzmenko’s job to persuade British investors that now is the best time to invest in Ukraine.

“We should think about the future,” said Kuzmenko, the charge d’affaires at Ukraine’s embassy in London.

“History shows that after turbulence, even after military conflict, the boost to the economy always happens,” he said, speaking at a Ukrainian investment conference attended by around 50 people.

Kuzmenko and other officials hope investors will take comfort from the signing in June of an agreement between Ukraine and the European Union that will bind the country more closely to the bloc as it turns away from Russia.

A more urgent concern is the situation in the east of Ukraine where conflict with Russian-backed separatists has escalated and threatens to tear the country apart. Russia denies its forces are helping the rebels.

Ukraine received a pre-crisis annual average foreign direct investment of almost $8 billion a year, according to United Nations body UNCTAD. But this more than halved last year to $3.7 billion and has almost certainly evaporated further in 2014 as the standoff with Russia has intensified.

Indeed, as officials spoke at Wednesday’s conference, others in the room checked their smartphones to read conflicting headlines about a possible ceasefire, adding to the growing sense of uncertainty.

“It is virtually impossible to convince foreign investors to come into a country that is being invaded by its largest neighbor,” said Andre Kuusvek, an official with the European Bank for Reconstruction and Development.

But the combination of financial support from international lenders such as the International Monetary Fund and the EBRD and long-awaited reforms to improve the business climate should help attract private investment in the long term, he said.

Further “Invest in Ukraine” conferences are due to be held in New York in November, and in Dubai and Hong Kong next year.

One private equity executive attending the conference in London said he feared the uncertainty over the country might not be resolved any time soon.

“There is an 800-pound gorilla at the border and it’s not going to go away,” said the executive, who asked not to be identified because his company has a policy of not appearing in the media. “It would be great to see a change in Russian policy but (President Vladimir) Putin seems to be very ensconced.”

Timothy Ash, head of emerging market research at Standard Bank, said he expected Ukraine to remain in a deep recession next year, dismissing official forecasts that the economy will stabilize and start to grow in 2015.

However, for some foreign companies in the country, business is booming.

GESS Consulting Ukraine has seen demand surge for its expertise in how companies can reduce energy consumption, something that strikes a particular chord in Ukraine which is highly reliant on the now suspended gas supplies from Russia.

“They are moving to reduce their gas usage to the least amount possible,” said Shaun Lee, GESS’s director of field operations. “I’ve been doing energy efficiency for 18 years and I’ve never seen a bigger financial upside.”

Additional reporting by Sujata Rao; Writing by William Schomberg; Editing by Alison Williams

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