OPINION: Ukraine’s Reconstruction Requires a Much Improved Business Environment

Later this week, the European Council will discuss the European Commission’s recommendation to open accession negotiations with Ukraine subject to parliament adopting legislation to address some of the underlying governance problems that have plagued the country over the past 30 years.

Upholding the rule of law and creating a level playing field for business are not only requirements for EU accession, they are essential to help Ukraine gain the trust of a new set of investors who see prospects for rapid and sustained growth in the country when the war ends.

There is no escaping the fact that Ukraine will rely on Western funding for its reconstruction. This finance will only flow if there is confidence that the business environment is aligned with Western investment principles, including respect for the expectation of a return on money invested, and the need for reliable courts where investors can uphold their rights

Western companies and their financiers need to feel sure that their investments will be protected.

For this reason, it is important that the Ukrainian authorities treat fairly the foreign investors who are already in the country and who are contributing to the economy and helping Ukraine remain resilient against Russia’s aggression. Making foreign capital safe and welcome is an investment in Ukraine’s future security.

At the same time, Ukraine needs to demonstrate its economic potential and how its resources can strengthen the European Union’s economic security.

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Ukraine Spent Nearly $2.5 Billion for ‘eRecovery’ Program, But It’s Not Yet Enough

While the amount might seem colossal at first glance, it is far from enough compared to the $486 billion needed to fully restore what’s been ravaged by Russia’s invasion.

One geological asset that is often overlooked is the country’s abundant iron ore reserves. The higher-quality iron ore that is mined and processed into iron ore pellets in Ukraine has the potential to reduce emissions from conventional steel production by a third.

This means that Ukraine is better placed than most countries to support the decarbonization of the European steel industry.

In 2020, Ukraine accounted for 60 percent of the greenhouse gas emissions in the EU’s Eastern Partnership countries and had the highest level of per capita emissions. For an enlarged EU to become climate-neutral by 2050 as planned, Ukraine and other accession countries need to implement European Green Deal policies as a matter of urgency.

Our company, Ferrexpo plc, has its production facilities in Ukraine and supplies high-grade iron ore pellets to the global steel industry. We can contribute significantly to the EU’s decarbonization strategy.

We see a bright future for the business because of the high level of demand for our products. We have plans to invest up to $3 billion to double our production capacity.

However, beyond the disruption of the war, we are experiencing a campaign of interference in our operations by Ukrainian law enforcement agencies.

For example, Ukrainian courts have frozen shares in some of our subsidiaries and placed restrictions on some of our physical assets as part of an effort to recover assets from Ferrexpo’s founder, Kostyantin Zhevago. These asset freezes violate Ukrainian law since the shares in the subsidiaries belong to Ferrexpo plc, the only Ukrainian company listed on the main London Stock Exchange. As such, they are not the exclusive property of the founder.

The dispute between the company’s founder and the Ukrainian authorities relates to assets that have nothing to do with Ferrexpo plc. Targeting our subsidiaries in Ukraine is also a violation of the English law principle of piercing the corporate veil that a company has a distinct and separate legal personality from its shareholders.

By attacking Ferrexpo, the Ukrainian authorities are penalizing the international shareholders who are invested in Ferrexpo. These include global pension fund managers as well as private individuals who as taxpayers are also contributing to economic and military support for Ukraine. These groups are sensitive to changes in the quality of the business environment and have an influential voice in Western debates on Ukraine.

Ukrainians have shown extraordinary bravery and resilience since Feb. 24, 2022. Our company employees are among those who have contributed selflessly to the defense of the country. Tragically, 34 of them will never return to us.

As Ukraine embarks on the task of economic reconstruction, government and business must work together to agree on the steps needed to create the investment environment that will help rebuild Ukraine as quickly as possible and shorten the path to EU membership.

Actions speak louder than words. Investors need to see that the Ukrainian authorities are taking steps to create a competitive economy and improve protection for investors.