Deleverage of Ukrainian companies in last three years exceeds foreign direct investment three times – expert
Ukrainian business reduced its net debt for 2022-2024, that is, increased its liquid funds and deposits and reduced debts to Ukrainian banks by $21 billion, which is three times more than foreign investment for this period and twice as much as in the "most successful year in Ukrainian history," said Oleksandr Paraschiy, head of the analytical department of the investment company Concorde Capital.
"While our government sits and waits for foreign investments, which for some reason do not come, Ukrainian business, by its behavior, hints that ‘this is not the time to invest.’ Ukrainian business is simply accumulating funds: either for investing in times when ‘risks disappear,’ or in order to then withdraw them to less risky jurisdictions as soon as the National Bank lifts restrictions on capital movements," he wrote on Facebook on Wednesday.
Paraschiy noted that this means that businesses are not willing to invest actively.
"And if native Ukrainian businesses are not going to invest, what do you expect from foreign investors?" he added.
According to published information, over the past three years (2022-2024), local businesses have reduced their net debt (i.e., increased their liquid funds/deposits and reduced their debts to Ukrainian banks) by approximately $21 billion. Of these, business loans decreased by $2-2.8 billion (depending on how to count), deposits increased by $16-17.7 billion, and business investments in government bonds increased by approximately $2.4 billion.
Paraschiy believes that this deleveraging can be interpreted as an unused investment potential of Ukrainian business or (and) a challenge for the Ukrainian economy. He noted that there are three scenarios for how business will use these funds after the war, but decided to outline only two of them: an outflow of currency from Ukraine in the amount of $15+ billion as soon as the NBU's restrictions on capital withdrawal are lifted due to state pressure and "pinching-off" business, or an increase in accumulated funds and rapid economic growth due to coordinated government actions and if "it turns its face to business."
Regarding the first scenario, Paraschiy added that these outflows will not be compensated by any private foreign investments, and the likelihood of new investments will be low.
"As a result, we will have significant outflows from the balance of payments and the banking system, a painful devaluation of the hryvnia and a degradation of the economy. And our business will actively invest money abroad, as, by the way, Ukrainian banks do: during the Great War, they replenished foreign banks with foreign currency deposits and loans for an immodest $4.4 billion," he explained.
In the case of the second scenario, Paraschiy hopes that business savings, even after partial withdrawal of dividends, can be multiplied by new loans approximately 1:3, and as a result, investments in the amount of $40 billion will be secured in Ukraine only through the savings of Ukrainian business and its lending.
"And only then will foreigners actively come here. As a result, we will have record investments and rapid [and possibly sustainable] economic growth. What our government will choose remains a mystery. For now, it chooses to beg somewhere outside Ukraine," the head of the analytical department of Concorde Capital summed up.
