What investment is needed in Ukraine

Какие инвестиции нужны Украине

A common point of view – a lack of investment inhibits the growth of Ukraine’s economy. But the modern economy is driven by ideas and technology, not investresurs.

The Minister of Finance Oksana Markarova in an interview with a radio station said that to accelerate the growth of the economy, you must invest at least $10 billion a year. I remember how once in the United States claimed the country is not enough ten million businessmen. People say they do not want to be business people, preferring to work employees “from start to finish” – so calm, the nervous system suffers less. So we have investment, but investors are reluctant to invest in the Ukrainian economy. Not helping interviews, round-table discussions.

First, let me remind you that there are several types of economic growth: investment growth, where capital accumulation outstrips the growth in the labour force, so the share of workers have more capital; growth in connection with the expansion of trade in goods and services; the increase associated with the increase of population; factor growth; innovative growth, caused by technical and/or technological progress.

Can be a combination: for example, GDP growth depends on the rate of development of investments that can be carried out through transfer of revenues from the increasing trade.

But back to the investment. A common point of view – a lack of investment inhibits the growth of Ukraine’s economy. But the modern economy is driven by ideas and technology, not investresurs. In conditions of excess savings is enough people willing to invest in potentially highly profitable projects. On the contrary, there is fierce competition for the opportunity to invest in the most promising projects. And this competition will increase as awareness of the inevitability of the transition of the world economy in preparadigm a new paradigm of additive manufacturing, alternative energy, saving resources.

Promising ideas and technologies is unlikely to remain without investments for their implementation. But unless such ideas and technologies, that money alone cannot ensure quality development. As there would not expect proponents of the primacy of investresurs. And in the economy of Ukraine investment is not forthcoming due to the fact that we have little perspective, according to the new technological order, recipients of investments.

Well, say the proponents of economic growth at the expense of investment, no one can deny the importance of investment in infrastructure. But, what is infrastructure, that is the question! For example, in the United States order podestarile traditional infrastructure, but a strongly developed high-tech sector. Or look at India and China. In India, compared to China’s poorly developed infrastructure. But in India there is no Ghost cities that exist in China (where, on the basis of created infrastructure should live one million people and more, and really live on much less). No in India and highways, some of them in China, passing a dozen cars a day. But in India developed a computer cluster in Bangalore and Hyderabad. In General, in several sectors of the Indian economy the growth of the organic and technological, and this post-industrial growth. While China dominates the industrial growth.

Many will begin to say – we are in Ukraine at least industrial growth to achieve. But successful efforts to revive the Ukrainian enterprises of the old industrial structure is not strategically successful, if not it will create new sector industrial growth within the paradigm of the third and fourth programosy.

Don’t get me wrong – infrastructure investment to direct need. Investments are required in infrastructure, housing, probably had in mind, saying that economic growth will stimulate the law on concession. But it is important to create infrastructure development for companies who have chosen technological vector. And to create the conditions for investment in such infrastructure. Developed industrial society will be built on funds received from trade of high-margin technological products in demand on global markets, the necessary infrastructure. And help to find funds for investment in infrastructure, housing, roads, airports.

In a number of old industrial sectors of the Ukrainian economy observed structural factors for investment. But incentives in the form of high profitability and productivity growth a little bit. This will interfere with rapid economic growth at the expense of investment. The potential growth of the economy most sensitive to the dynamics of performance. For example, in the United States over the past 100 years, productivity growth has provided more than half of GDP growth. And we have a necessary and significant performance mention two times less than the investment.

Indeed, we should not discount the growth of the economy through investments, you only need to deal with incentives. Investment incentives can be divided into two groups: structural and conjunctural. Structural give companies the opportunity to expand in specific industries. Opportunistic – ones that are formed as a result of amount of components, business cycles and fluctuations in international markets.

In 1957, Milton Friedman formulated the permanent income hypothesis, which is based on the logic of the analysis of the effects of temporary and permanent increase in income. With the unexpected increase in income, the recipient considers this a temporary phenomenon and a significant part of this increase saves, and not spent on current consumption. If the income remains at a high level, the recipient is adapted to this level and begins to consume more while the saving rate decreases (together with it decreases and potential for investment). Propensity to consume for the temporary increase in income is low. Economic agents adapt to new price levels, for example, grains or metals (in the case of Ukraine), because they do not believe that a higher level of prices will be long term. To rely on market incentives for investment is not a good idea.

What I propose to focus, if we are talking about accelerating economic growth? On creating competitive products (what has been export-oriented countries of Southeast Asia). Successful will be the countries that will be able to develop, produce and supply the market with perfect in terms of technology, products and services. This understanding should not only determine the choice of strategy, but also the efficient allocation of economic resources, which are yet scarce. And technological development and efficiency of doing business should be a priority. Therefore it is necessary to promote structural incentives for investment.

If we have to produce high-tech products, if the business in Ukraine will be effective if to increase the productivity, this in itself will be a motivation for investment. Maybe even in large volumes, than those voiced by the Minister of Finance. Then the potential investors will start to bump each other’s elbows in the offices of the leaders of the “Yuzhmash” factory Antonov, offering your investresurs on the most favorable terms.

A favorable business climate, which also refers to the factors necessary to accelerate economic growth, is of fundamental importance from the point of view of the attractiveness of Ukrainian economy for investors as a revival in investment demand is also one of the triggers of economic growth.

To summarize. The optimal strategy for fostering rapid economic growth the following: we need investment in high-tech sector, which will ensure the production of high-margin products demanded in world markets.

Bohdan Danylyshyn