State and prospects of investment in the Ukrainian economy

Abstract

The Ukrainian economy is characterized by unstable investment dynamics. It is a mirror image of the macroeconomic environment - when it improves, investment volumes increase and vice versa. During 1991-2023, there were 6 periods of marked deterioration in the macroeconomic environment that led to a decline in investment demand: 1993-1994, 2008-2009, 2012-2014, 2017-2018, 2019-2020, and 2022.

With a 1% increase in capital investment, Ukraine's GDP grows by 2.261%. This is the investment multiplier. The highest investment efficiency occurred in 2002-2012, and the lowest in 2013-2023. The prospects for increased investment in the Ukrainian economy, especially by foreigners, are linked to the end of the russian-Ukrainian war and the establishment of a sustainable, lasting peace.

Over the past 19 years, the share of enterprises' and organizations' own funds in the structure of capital investments has increased by more than 13% on average, reaching 72.8% in the crisis year of 2022. Domestic enterprises and organizations have switched to self-financing their investment needs.

The domestic banking system is not involved in providing credit resources to the real sector of the country's economy - its share in the structure of capital investments has decreased almost 5 times, reaching a historic low of 2.9% in 2023.   The resources of commercial banks are mainly used for lending to individuals and servicing short-term business operations (trade, cargo transportation, etc.).

Ukraine's current monetary policy is implemented in the form of monetary restriction, which is aimed at preventing runaway inflation. This is evidenced by the NBU's key policy rate, which is 3-4 times higher than the key policy rates of central banks in some developed economies. This is not conducive to increased investment demand.

The reason for the high discount rate in Ukraine is the systemic weaknesses of its economy, which cause excessive price dynamics. In particular, these are:

- violation of antitrust laws;

- high production costs due to the technological lag of the Ukrainian economy;

- shortage of domestically produced consumer goods.

The prospects for increased investment in the Ukrainian economy should be linked to the following:

- ending the russian-Ukrainian war and establishing a sustainable long-term peace;

- Increasing the effectiveness of antitrust legislation and responsibility for its violation;

- intensification of the state industrial policy aimed at technological modernization of the Ukrainian industry and stimulation of industrial production;

- Increased conversion of cash savings of Ukrainian households into deposits due to increased confidence in government and banking institutions.