Must Ukraine Rise from Investment Purgatory to Reach Paradise?

By Logan J. Borges

 

In a recent article published by the National Interest, authors Oleksiy Honcharuk & Roman Waschuk emphasize a gap between an ideal “new era in Ukrainian policy” put forward by Ukrainian president Volodymyr Zelensky and the lingering reality which continues hampering Ukraine’s ability to attract foreign direct investments (FDIs) towards its still-emerging still-in-transition market economy. Corruption, failure to enforce the rule of law, and lack of “bold reform initiative” represent the greatest factors cited as impeding Ukraine’s ability to become what Zelensky termed as “the investment ‘Mecca’ of Central-Eastern Europe” during his visit to the Davos Economic Forum in January 2020.

Very little about this situation is new to those familiar with post-Soviet Ukrainian history; Ukraine’s oligarch class have held the reins on many of the country’s most important industries since their transition from the ‘red director’ days, while also holding considerable influence within the country’s legislature. This situation negatively affects Ukraine’s ability to attract FDIs, as businesses must risk the potential of a reiderstvo, whereby the value of their investment  is lowered by arbitrary legal means until they are forced to sell cheaply to the Oligarch who pulls the strings. A two-year battle in Dnipropetrovsk between the Canadian energy company TIU and the Nikopol Ferroalloy Plant best embodies this cycle, as the Kyiv Economic Court refuses to consider the case, leaving TIU’s solar stations without power unless they are sold to the local oligarch Ihor Kolomoisky.

What is new about this situation, however, is the leadership under which these conditions persist. Zelensky’s 2019 electoral campaign was based on the idea that he represented a break from the pattern of corrupt, self-interested politicians running Ukraine since 1991. An every-man voters could relate promised to put the country on the right track by dealing head-on with corruption. That the TIU-Nikopol plant case is unfolding under Zelensky’s presidency therefore threatens to undo the image he has created for himself, suggesting not even a fresh face can make stable that “promising but unpredictable country.”

For the authors, this story reflects an ongoing dilemma among Ukrainian politicians over what degree of reform to pursue; deep, meaningful reform of Ukraine’s legislature will help turn it into a branch truly independent from outside pressure, allowing it to uphold the rule of law and raise the country’s business attraction. Simultaneously, however, Ukraine is a land known for its dramatic transitions between leaderships, and in Ukrainian politics one always needs loyalty from insiders to get anywhere. As a consequence, to maintain such relationships, politicians resort to “half measures,” tackling particular problems affecting Ukrainians, as Zelensky has done with land reform and digitization, without treading on the networks that are in their political interest to maintain.

That such an article on Ukraine appeared within a major Western, American-based journal may speak to the continued growth of interest in Ukrainian affairs among Western states. Indeed, recent developments in D.C. suggest Biden giving Ukraine higher priority among the United States’ foreign relations than his predecessor, as seen in his personal reassurance to Zelensky that Ukraine could still find a “strong friend and ally” in America. At the same time, however, much of this is early on in Mr. Biden’s presidency, a time where he must set a new tempo for relations between his country and Russia, who views Kyiv’s post-Maidan status quo as a threat to its own foreign policy. Furthermore, recent developments in late March near the Russo-Ukrainian border have forced Biden to be more active, with Russia mobilizing troops, tanks, and other offensive weaponry towards Ukraine, allegedly in response to recent NATO exercises in Europe.

Outside of these developments, how much does Ukraine’s situation matter to Canada? For Ottawa, events in Ukraine since 2014 have been the reason for its sour relations with Moscow, and Prime Minister Justin Trudeau has remained committed to this position in spite of those calling for a thaw in Russo-Canadian relations. Canadian commitment to Ukraine is not without condition, however. This conditionality revealed itself in October 2020 following the Ukrainian Constitutional Court’s curbing of the National Agency on Corruption Prevention’s powers, when Canada followed the U.S.’s lead by warning Kyiv of “growing concern” for the country’s ability to curb corruption.

It would seem to follow, therefore, that Canada’s concern for Ukraine is a conditional one at best, dependent on Kyiv’s ability under Zelensky to follow through on his promise of curbing corruption. As a result, Ukraine is now caught in a juggling act in its struggle against corruption; as its leadership tries to present itself as a reliable partner, it simultaneously depends on the West to defend its sovereignty and independence from Russian interference.

What happens, however, if by term’s end Zelensky can no longer justify his office as one acting in the interest of the average Ukrainian? How will this affect Western commitment, particularly in Canada, towards Ukrainian sovereignty? Will Ottawa along with the West be content to backtrack on its position towards Russian interference by leaving Ukraine’s fate to the whim of Moscow?

At the time of writing, much of this question depends on the White House’s own commitment towards Ukraine, as Ottawa has tended to follow their lead on this regard. Biden’s internationalist foreign policy promises the maintenance of that commitment, especially with Russo-American relations as cold as they are today, and the contested Donbas region being the front-line of this conflict. Trudeau’s humanitarian image coalesces with Biden’s outlook such that continued support for Ukraine may be a logical way for Ottawa to solidify renewed relations with D.C.

Furthermore, the current situation at the border of Ukraine may shift questions of Ukrainian support from financial or structural concerns to those of security, with the increasing presence of Russian military personal. This shift may give Zelensky the opportunity to refocus his own resources and efforts towards the separatist oblasts, thereby removing the spotlight from Kyiv’s setbacks against corruption.

In the end, however, at some point Russo-American relations will normalize, and Canada will likely follow suit as well. Only when this happens will one may be able to judge the depth of Canadian commitment to Ukrainian sovereignty, and how much concern for corruption affected that commitment.

Logan J. Borges is a Master of Arts Candidate at the University of Toronto’s Centre for European, Russian, and Eurasian Studies.