Ukraine capital inflow reaches USD 2.9 bln in 1H16

Capital inflow to Ukraine reached USD 2.9 bln in 1H16, nearly tripling from USD 1.0 bln in 1H15, according to UkrStat data of Aug. 16. In 2Q16, capital inflow was USD 1.8 bln compared to USD 1.1 bln in 1Q16. Despite sanctions and trade embargoes, Russia was the main investor in Ukraine, accounting for USD 1.3 bln in 1H16. Also there were noticeable investments from Austria (USD 227 mln), the Netherlands (USD 158 mln) and the United Kingdom (USD 116 mln). Investments were mainly allocated in financial sector, or USD 2.0 bln in 1H16. 

FDI stock in 1H16 increased 4.6%, or by USD 2.3 bln, to USD 52.7 bln. Hryvnia depreciation ate up USD 219 mln of FDI value in 1H16.

Alexander Paraschiy: Hypothetically, the current economic recovery should encourage foreign investment in the real sector. However, so far we do not see much activity in this direction – a large portion of “investments” recorded can be attributed to the recapitalization of the Ukrainian subsidiaries of Russian banks (the equity of the three largest Russian banks increased by UAH 35 bln, or about USD 1.3 bln in 1H16). Importantly, a large portion of such recapitalization occurred not in the form of cash contribution, but in the conversion of the banks’ borrowings from Russian holdings into equity. We expect some acceleration in non-banking investments in 2H16 and we are keeping our FDI inflow projection at UAH 4.2 bln for 2016.