Ukraine Seeks Foreign Investment, as Cease-Fire Holds

Ukraine Seeks Foreign Investment, as Cease-Fire Holds

Less than a month into a cease-fire with separatists in eastern Ukraine, President Petro Poroshenko is already outlining ambitious goals to rebuild his economy and make it attractive to outside investors.

Poroshenko laid out an ambitious plan for Ukraine over the next five years that includes attracting $40 billion in foreign investment and joining the European Union by 2020.

"I have no doubt that the main, most dangerous part of the war is over," Poroshenko reportedly said Thursday from Kiev. "I have no doubt that my peace plan will work."

He was scheduled to speak to the U.N. General Assembly Thursday, but officials indicated earlier this week that the ongoing crisis might keep him in Ukraine.

Poroshenko’s goal to entice foreign investors would be optimistic even if the country wasn’t threatened by restive pro-Russian separatists. Poroshenko’s target assumes that the country can bounce back and attract more annual investment than it had before Russia annexed the Crimean peninsula in March. The country received an average of $7.2 billion in foreign direct investment in 2010, 2011, and 2012, according to the U.N. Conference on Trade and Development. But investment fell to $3.8 billion in 2013 and has likely plummeted in 2014.

Ukraine faces many of the same economic challenges it did when Poroshenko took office four months ago, deepened by the costs of a military campaign and the destruction the fighting has wrought.

Poroshenko inherited empty state coffers and an economy in dire need of major reforms. The International Monetary Fund agreed in April to give Ukraine a $17 billion bailout, but is also requiring Kiev to impose austerity measures, such as raising taxes and cutting the gas subsidies that make it easier for many Ukrainians to heat their homes. Previous Ukrainian leaders have bought Russian gas at high prices and then sold it to businesses and individuals at lower, subsidized prices.

Any long-term peace deal with the separatists and their Russian backers would have to address the ongoing dispute over gas prices and Ukraine’s outstanding debts. Ukrainian, Russian, and European leaders are meeting Friday in Berlin to try to hammer out a gas deal. The EU is pushing for a short-term plan that would ensure that Ukraine has enough gas to get through the cold winter.

"Our proposal is to realize an interim solution to avoid problems with supply for winter season up to April next year," EU Energy Commissioner Guenther Oettinger reportedly said Tuesday.

But a price still has to be negotiated and the colder the weather, the more leverage Moscow has; Ukraine and other parts of Europe still rely on Russia for gas.

While Poroshenko is hoping for an immediate rebound, many observers see the conflict — and its economic effects — dragging on into 2015 and beyond. Former Bulgarian Prime Minister Boyko Borisov, who is seeking his old job in an Oct. 5 election, said Thursday that the Ukrainian crisis has hit his country’s tourism and foreign investments and that the ramifications will continue for 10 to 20 years.

Although others are not quite so pessimistic, many analysts note that Russia’s desire to keep Ukraine within its sphere of influence and Kiev’s drive to push the country toward Europe remain fundamentally at odds.

"At some point, likely in the late fall or early winter, the basic incompatibility of these aims will resurface, giving way to a deterioration in the tenuous negotiated peace, and putting the crisis back on track towards a ‘frozen conflict,’" Eurasia Group’s head of European risk analysis, Mujtaba Rahman, said Tuesday in a research note.