DOI: https://doi.org/10.62204/2336-498X-2023-3-4

INVESTMENT ACTIVITIES IN CRISIS:

CHALLENGES, THREATS, AND HOW TO OVERCOME THEM

  Maksym Ruzhenskyi,

Ph.D. in Economics, Associate Professor,

National Transport University, Kyiv, Ukraine,

max.ruzhensky@gmail.com; ORCID: 0000-0002-8034-1790

Natalya Sokolova,

Ph.D. in Economics, Associate Professor,

National Transport University, Kyiv, Ukraine,

nata_ns@ukr.net; ORCID: 0000-0003-0678-8882

Vadym Nevinhlovskyi,

Ph.D. in Engineering, Associate Professor,

National Transport University, Kyiv, Ukraine,

nevinglovskiy@ukr.net; ORCID: 0000-0003-0113-1822

Annotation. The consequences of the unprovoked armed aggression of the Russian Federation against Ukraine are the destruction of various industrial and social infrastructure facilities across the territory of our country, which leads to a temporary halt and/or closure (bankruptcy) of such enterprises in the temporarily occupied territories and in the combat zone in the South and East of Ukraine. The obvious consequences of this are unemployment, the loss of housing for millions of our citizens, their death and a crisis in the economy. The new realities of economy’s functioning require a combination of investment in the defense industry of our country with significant investments in the reconstruction of the destroyed faciliries, as well as an increase in the regulatory role of the state.

Strengthening the business motivation to invest and rebuild the domestic economy is combined with the development of investment passports by territorial communities, which will contribute to the formation of a favorable investment climate in specific territorial entities.

It was found that the movement of a significant number of economically active workers across borders has reached its critical level and poses a threat of disrupting the systemic nature of the investment process.

Keywords: investment, investing, investment activity, investment climate, innovative enterprise, industrial parks.

Statement of the problem. The unprovoked large-scale military aggression of the Russian Federation against Ukraine, launched in February 2022, is accompanied by the complete destruction of large, medium and small settlements, objects of the national critical infrastructure, mass missile attacks on the production and energy system of our state. According to the Kyiv School of Economics, the amount of direct damage caused to the infrastructure of Ukraine by Russian aggression as of June 2023 amounts to more than 150 billion dollars. Losses of business assets are estimated at 11.4 billion dollars. Since the start of the hostilities, up to 426 large and medium-sized private enterprises and stateowned companies have been damaged or destroyed. However, their number may be much higher, as currently there is no information about objects in the temporarily occupied territories. Moreover, the destruction of the material base of the Ukrainian economy continues. Along with the destruction of a significant part of the national wealth, civilians are subjected to incredible distresses and die as a result of artillery shelling, rocket attacks and air bombings. Enterprises in the temporarily occupied territories and in the combat zone in the South and East of Ukraine do not operate. Almost a third of Ukrainians lost their jobs because of the war, and most of them were left homeless – peaceful citizens of our country have already died and continue to die.

The consequence of the security situation was the largest migration crisis in the history of Ukraine. A large number of forced Ukrainian migrants flooded almost all European countries. According to the statistics of the Office of the United Nations High Commissioner for Refugees (UNHCR), as of July 19, 2022, 9,567,033 individuals left Ukraine. Cross-border movements, which may be pendular in nature, and cannot be considered a confirmation of sustainable return – 3,793,403 nationals. Data from the Kyiv School of Economics show that in 2023, the population of Ukraine will be about 31.2 million people, including 5.8 million refugees and those who left for Russia. These dismal figures indicate that each of the branches of Ukraine’s economy has lost a part of the working population, who, together with their families, had to become forced migrants from the regions that were under temporary occupation and (or) in the war zone [1] .

As a result of the migration of the working population, a challenge arose to preserve and support the economy of our state, both on foreign and domestic markets. This was particularly critical in regard to the possibility of financing with the aim to ensure the functioning of the military-industrial complex (the Armed Forces of Ukraine, the National Guard of Ukraine and other state structures), as well as the social sphere [1].

Therefore, the armed invasion launched by the Russian Federation against Ukraine has an extremely negative impact on economy of the latter. A critical situation has emerged in the basic sector of the Ukrainian economy, namely the mining and steel industry, where the drop in production ranged from 68% to 70%. Only two steelworks and four iron ore factories are operating [1].

As a result of the Russian Federation conducting full-scale military invasion, Ukraine faces the most difficult challenges in its recent history. They include hardships in the military, political, social and economic spheres of life in our society, through which our nation will have to go in the post-war years.

Analysis of studies and publications. Socio-economic problems of investing are the subject of research by Ukrainian and foreign scientists. In particular, leading foreign scientists R. Baldwin, J. Buchanan, J. M. Keynes, F. Modigliani, B. Olin, M. Porter, P. Samuelson, M. Friedman, E. Hansen, R. Harrod, J. Hicks, J. Schumpeter and other scientists of the world community achieved significant results in the study of topical issues in the formation and implementation of the state’s regulatory policy in the field of investment activity.

In the study of theoretical, methodological and practical aspects in the formation and development of investment relations, as well as in regulation of the investment process, significant results were achieved by V. Aleksandrova, Y. Bazhal, E. Bersheda, M. Bilyk, T. Voronkova, V. Heiets, M. Herasymchuk, Y. Honcharov, T. Yefymenko, S. Zakharin, B. Kvasniuk, I. Lukinov, D. Lukianenko, A. Poruchnyk, V. Tochylin, V. Shevchuk, A. Filipenko, V. Fedorenko and others.

Their scientific research was conducted in peacetime conditions, and not under conditions of today’s Ukraine, when repelling the invaders requires a rapid redistribution of material, human and financial resources, and combat operations are accompanied by various significant costs and losses, structural deformations in the economic system, etc. In the Ukrainian economy, new realities have been clearly defined, and it is necessary to combine investments in the country’s defense with significant investments in the reconstruction of destroyed production facilities, the creation of acceptable conditions for the livelihood of a large part of our citizens, as well as in other equally important areas and spheres. Under such conditions, the regulatory role of the state is growing and it is facing a number of large-scale, controversial and multifaceted problems in the sphere of investment support to drive the Ukrainian economy out of crisis.

The purpose of the article is to study the forms and methods of regulatory influence of the state on investment activity in the Ukrainian economy under conditions of crisis during the war.

The main results of the study. Investments belong to those components of the economic system that ensure the socio-economic development of enterprises, individual industries, regions and the country’s economy as a whole. Each country in the world community cannot develop without the  attracting and effective use of investments. Accumulating equity, state and mixed capital, providing access to innovations, investments not only contribute to the increase of national wealth, the formation of domestic investment markets, but also stimulate the development of aggregate demand and supply. They have a stabilizing effect on the economy, allow solving a set of problems caused by the critical state of the economy, deepened by the state of war.

The critical state of the Ukrainian economy expands the field of uncertainty in its functioning and development, the probability of risks that may arise under certain conditions and cause negative consequences for the economic system and its structural elements. Among the means and forms of reducing the field of uncertainty and risks for the economy in state of war and crisis, the leading role belongs to the reconstruction of its material and technical basis by developing the appropriate plan and cost estimate. The latter was developed by the government of Ukraine, presented and discussed with the participation of foreign experts at the international Ukraine Recovery Conference in the summer of 2022 in Lugano. It is intended for ten years and is estimated at 750 billion USD, of which 150 – 250 billion are earmarked for the recovery and modernization of housing and infrastructure in the country’s regions, 120 – 160 billion for the expansion and integration of logistics with the EU, and the formation of energy independence – 130 billion. It is planned to allocate 60 – 80 billion USD for macro-financial stabilization, 75 billion to ensure competitive access to capital, and for the development of the defense and economic sectors – 50 billion each [2, p. 5].

Confiscated assets of Russia and Russian oligarchs (300 – 350 billion USD), funding from the Ukrainian state budget and foreign investors should become the key sources of reconstruction for our country’s economy [2, p. 5].

The positive and effective use of significant financial resources depends on the investment potential of our economic branches. Among them branches that create high added value and products that become competitive on world markets are investmentattractive sectors.

On the basis of this criterion, the regulatory bodies of our country determined that they include:

• the defense industry (43 billion USD of investment potential), which will ensure not only the repulsion of aggression and the national security of our state, but also the export of its products;
• metallurgy and metalworking (26 billion USD of investment potential). Ukraine has significant natural resources, experience in the use of innovative technologies and a full cycle of manufacturing competitive types of products to ensure the development of the former. The latter is provided with the necessary raw materials and has a significant production capacity;
• energy sector (177 billion USD of investment potential). In addition to restoring destroyed equipment in energy sector, Ukraine can generate significant amounts of

electricity through the use of wind, solar and other sources;

• natural resources (investment potential of 5.6 billion USD). Our country has significant amounts of minerals located in regions with developed transport infrastructure and other favorable conditions for their use;
• agricultural industry (34 billion USD of investment potential). Ukraine has favorable environmental conditions for the production and processing of agricultural products on the world food market. Promising areas of development include deep processing of agricultural products;
• logistics and infrastructure (123 billion USD of investment potential). Geographically located at the crossroads from Europe to Asia, with a developed logistics and transport infrastructure, our country can become an important transport corridor for the world community;
• industrial production (16 billion USD of investment potential). The composition of industrial production include industries that determine economic development and livelihood of individuals and society;
• woodworking and furniture production (5 billion USD of investment potential). The availability of resources, developed logistics and transport infrastructure forms prerequisites for entering foreign markets;
• pharmaceuticals (19 billion USD of investment potential). The industry has leading positions in investment sphere, domestic pharmaceutical companies have

achieved international standards and availability of necessary capacities;

• innovative technologies (11 billion USD of investment potential). Ukraine is at

the forefront of the world in the use of information technologies and has the first place among the countries of Central and Eastern Europe in terms of scientific research and IT outsourcing [3].

The need to organize the defense of our country and social support for the affected strata of the population gave rise to significant changes in the corresponding costs. The total volume of capital investments in public administration, national defense and mandatory social insurance increased from 5,808.0 million UAH in 2014 up to 36,530.8 million UAH in 2022 or 6.3 times. The proportion of capital investments in public administration, national defense and mandatory social insurance in their total volume grew each year. In 2014, their share was 2.6%, in 2016 – 3.5%, in 2018 – 7.7%, in 2022 – 8.9% [4]. The dynamics of investments in public administration, national defense and mandatory social insurance within the structure of capital investments by types of economic activity is presented in Figure 1.

Fig. 1. The dynamics of investments in public administration, national defense and mandatory social insurance within the structure of capital investments by types of economic activity, 2014-2022.

One of the ways to participate in reconstruction for foreign investors is the EU program «Housing for Internally Displaced Persons and Reconstruction of Liberated Cities in Ukraine». Within its framework, non-refundable grants are already being allocated for housing construction in regional centers of Ukraine.

All of the above shows that the multi-functional nature of investments used made it possible to plan measures at the macro and micro levels of the Ukrainian economy. The plan and cost estimate provide for immediate recovery during hostilities, rapid recovery after the end of hostilities, long-term transformation of Ukraine according to EU principles, which takes into account the objective conditions and the current state of our country’s economic system.

Rocket strikes and artillery shelling of cities and villages in Ukraine caused the destruction of a significant number of infrastructure facilities, their restoration requires investing significant resources. Mobilization of resources will be facilitated by the public-private partnership of the main participants in the investment process – the state, private companies and individuals. For example, the previously restored infrastructure facilities of our cities should be transferred to a concession, clearly regulating all the parameters of the concession business and providing control over the execution of the concluded agreement. Regulation of concession relations by the state should be consistent and should only apply to key business positions. Control over the targeted use of investments, volumes, quality, and compliance with the terms of reconstruction works must be ensured. On the basis of unambiguous legislative and regulatory instruments, the authorized bodies of local governments will be able to successfully monitor the state of infrastructure restoration in cities and villages of Ukraine.

Military campaigns in the East and South of our country forced a significant number of industrial enterprises to relocate to the western regions, creating an opportunity to produce material goods and provide services on a new organizational basis in the form of industrial parks. For these regions, establishing industrial parks becomes an important tool to overcome the job shortage. The possibility of creating additional jobs in industrial parks will become a reality when all the institutions, designed to increase the competitiveness of Ukrainian goods and services, will facilitate the growth of the population’s well-being. Investing in the establishment and development of industrial parks creates a platform for the development of relocated and new enterprises on the basis of a new type of competition, where the main component is not cheap labor or a short logistical «shoulder», combined with the availability of a material basis for the introduction of innovations. The latter requires creating innovative enterprises in the form of an innovation center, technology park, technopolis, innovative business incubator as part of industrial parks, which would develop, produce and sell innovative products or services, the amount of which in monetary terms would exceed 70% of its total output [5, p. 35].

In view of restoring de-occupied and damaged territories, industrial parks will become a means of organizing industrial development, restoration of material production and delivery of services. Industrial parks are characterized by the differentiating approach to state support for territories depending on the amount of resources lost during military operations.

The restoration of our country’s economic system is ensured by significant flows of material and financial resources. Along with them circulates an information flow, which mainly contains data on the parameters of the flow, its direction, destination, etc. Despite the coordination and agreement on the main flow parameters, there is a risk of information asymmetry regarding the quantitative and qualitative characteristics of the specified flows. The prevention of such risks is achieved through the use of high-quality means of collecting, processing and using information, as well as through the engagement of competent personnel.

Attracting private investments in the reconstruction of Ukraine’s economic system is inhibited by the significant scale of uncertainty regarding the conditions of investment in production facilities and objects of social infrastructure. Introducing investment passports by territorial communities in our country will contribute to finding the solution. It involves conducting an inventory of industrial and social infrastructure objects, their condition and technological opportunities for entrepreneurship. Such a passport contains ideas for business, information about logistics, personnel potential of specific territorial communities, opportunities for starting new industries. This not only will form a favorable investment climate at the level of territorial communities, but will also provide opportunities to create new jobs, attracting additional funds for the socio-economic development of rural settlements.

Development of investment passports has been carried out in thirty settlements of Novopokrovsk community in Dnipropetrovsk region. The experts of «U-LEAD with Europe» help these and other communities in the region to develop similar documents [6, p. 1, 4].

It is well-known that in addition to material, financial and informational resources, human resources are also needed to ensure the positive effectiveness of investment activities. Compliance with the necessary optimal proportions of these investment components is one of the main conditions for the successful reconstruction of the Ukrainian economy.

The rapid development of the global information network, reducing the role of governments in the regulation of national economies and the corresponding strengthening of international institutions, growing global asymmetry in socio-economic development and well-being significantly intensified international labor migration. At the same time, a number of factors has resulted in a chronic shortage of qualified labor experienced by a number of countries in the world community. To overcome this shortage, the German government is revising the immigration strategy that has been in place until now. In addition to the simplified procedure for o German citizenship, the government proposed a new point-based immigration system, which sets conditions for moving qualified personnel to the country without a job offer and directing migrants to industries with the need for skilled workers. The Polish government has removed institutional and economic obstacles with the aim of intensifying immigration to the country by foreign qualified specialists, in particular Ukrainians. A fierce competition has emerged between the countries of the world community for the influx of skilled labor and its productive use in the sectors of national economies.

The significant scale of labor migration of Ukrainians, especially in regions bordering Western European countries, has caused an unsatisfied demand for skilled labor. In 2021, in the Lviv Regional Employment Center, almost 23% of vacant jobs are offered for drivers, operators for automatic lines of machinery and equipment, tractor drivers, turners. A third of vacancies are for qualified workers (seamstresses, cable installers, fitters, masons, electric welders) [7, p. 7].

New challenges in the field of employment were caused by hostilities on the territory of Ukraine. Five to seven million individuals moved from different regions of our country to EU countries, the majority of whom are women with children (80%), that found jobs, have European living conditions, with children studying and socializing in the host countries. Sociological studies show that a third of such migrants will not return to Ukraine. With a high probability we can say that their husbands will join these families after the victorious end of the war. In order to avoid the depopulation of our state’s territory, it is necessary to intensify the reconstruction of destroyed housing and social infrastructure (preschools, schools, vocational and technical education institutions, universities). Other factors for the return of temporarily displaced persons to Ukraine include bringing its economy out of crisis, so that unemployment decreases, and employees have a decent wage, competitive with foreign wages. Moreover, the longer our citizens stay abroad, the more problems will arise for the recovery of the Ukrainian economy, among which the most critical, given the necessary amount of investment, is the lack of qualified labor.

Conclusions and suggestions. The armed incursion of the Russian Federation on the territory of Ukraine caused a large-scale destruction of the material foundations of life for the Ukrainian population, a deep economic crisis and significant negative trends in the socio-economic attitude of our citizens, increased the chances of various risks and expanded the field of uncertainty.

The key ways to avoid them are outlined in the plan and budget for the reconstruction of Ukraine, the implementation of which requires significant investment resources. It is possible to use them in various organizational forms with state control over their use. It is advisable to relocate enterprises to the western regions of our country by founding industrial parks, which can become a platform for the development and implementation of innovations. Uncertainty regarding the engagement of private investments in the reconstruction of the Ukrainian economy is reduced by developing investment passports, which have already been tested in several territorial communities of Ukraine.

In order to avoid the risk of depopulation of our territory, it is necessary not only to speed up the reconstruction of facilities to ensure the livelihood of Ukrainian citizens, but also to develop and implement a national program for their return to the country. Strengthening the regulatory influence of our state in the field of employment would be facilitated by a population census, the need for which has been repeatedly declared, but which has not yet been conducted. Its findings would provide reliable information about the demographic situation in Ukraine, quantitative and qualitative parameters of the economically active population, current trends in the functioning of the labor market, etc.

References:

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10.33744/2308-6645-2022-4-54-169-176 [In Ukrainian].

2. Sokolovska, M. (2022). The Plan and Cost Estimate of Our Country’s

Reconstruction is Already Being Created. Voice of Ukraine, July 7. P. 1, 7. [In Ukrainian].

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