Legal Regulation of Foreign Investment in Ukraine’s Agricultural Sector — PRAVO.UA
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Головна » UJBL №7-8 » Legal Regulation of Foreign Investment in Ukraine’s Agricultural Sector

Legal Regulation of Foreign Investment in Ukraine’s Agricultural Sector

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Today, the Ukrainian agrarian sector is an object of interest of foreign investors, as Ukraine is the biggest country in Europe with lots of very fertile land. Investments coming into the agrarian sector have certain differences from other types of investments. Agriculture is dependent on many natural factors, is clearly cyclical and does not develop as quickly as the industry and service sectors.

Today, the Ukrainian agrarian sector is an object of interest of foreign investors, as Ukraine is the biggest country in Europe with lots of very fertile land.

Investments coming into the agrarian sector have certain differences from other types of investments. Agriculture is dependent on many natural factors, is clearly cyclical and does not develop as quickly as the industry and service sectors. However, investments made are usually protected by contingency funds that are created in the event of natural disaster, drought, etc., but the real financial result is displayed at the end of the year. Of course, this all affects the number of foreign investors in the sector.

According to calculations made by the Institute of Agrarian Economics in the period 2016-2018 every UAH 1 worth of investments in the fixed and working capital of agrarian enterprises brought an average of UAH 0.295 in profit. So, investment in the agrarian sector of the economy pays off quite quickly today, in 3-4 years. This financial attraction encourages more and more investors.

According to the State Statistics Committee of Ukraine, even in the current state of war and economic instability, foreign direct investment made in 2018 in the agrarian sector rose by 16.7% and came to USD 586.2 million.

Ukraine and the world in agrarian business

In recent years, a number of events have taken place that have had a positive impact on the formation of a healthy business climate in Ukraine’s agrarian sector.

The European Union has allocated EUR 3 million to implement projects of the Agricultural Development Strategy for Ukraine up till 2020. This project was developed with the participation of representatives of the European Union, United States Agency for International Development (USAID), the Food and Agriculture Organization of the United Nations, World Bank, as well as other organizations and countries. Among the expected results of the program’s implementation in the Ministry of Agrarian Policy and Food are growth in exports of agricultural products was noted at 3-4% per year and export opportunities for Ukraine’s food industry on the EU market increased by 5-7%.

Ukrainian Deputy Minister of Agricultural Policy and Food Vladislav Rutitsky said in an interview on this subject: “This project provides for the possibility of attracting donors to the programs included in the Strategy, the approximate value of which is, according to our estimates, USD 300 million”.

In addition to ties established with the European Union, Ukraine is building close and mutually-beneficial links in the agrarian sector with a number of separate countries.

Thus, on 16-17 May 2018, a regular meeting of the Ukrainian-Latvian Intergovernmental Commission on Economic, Industrial, Scientific and Technical Cooperation took place in Riga. During this event, issues of cooperation between Ukraine and Latvia within the framework of the Program of bilateral cooperation in the field of agro-industrial complex for 2017-2019 were considered. Priority areas of cooperation were:

— adaptation of Ukrainian legislation to EU requirements;

— development of rural areas and green tourism;

— forestry, veterinary and phytosanitary, fisheries;

— research cooperation;

— regional cooperation.

The fifteenth meeting of the German-Ukrainian Agrarian Committee was held on 18 September 2018. This event is held annually with the aim of promoting effective cooperation and identification of new promising areas for implementation of joint mutually-beneficial projects.

The following Ukrainian-German projects in the agro industrial complex have already been introduced:

— The German-Ukrainian Agrarian Policy Dialogue (ADF) is a project implemented with financial support from the Ministry of Food and Agriculture of the Federal Republic of Germany and is being implemented jointly by IAK Agrar Consulting LLC, Leibniz, the Institute for Agricultural Development in Transition Economies and the Center for International Migration and Development. Main areas of work:

— reform of agrarian legislation and agrarian policy, taking into account the international experience of Germany and other countries, as well as international organizations, in accordance with market economy principles and structural policy;

— advising Ukraine on agrarian trade within the framework of the Agreement on a Deep and Comprehensive Free Trade Area between the EU and Ukraine. The project envisages the creation of a permanent coordination and advisory center for small and medium-sized agrarian enterprises, which should provide information on the use of trade preferences, as well as contract procedures with organizations and business partners;

— projects in the field of ecological agriculture;

— project “Promoting the development of vocational education in agrarian colleges of Ukraine”;

— The German Agrarian Research Center in Ukraine is an institution conducting measures to improve the qualifications of agricultural specialists in Ukraine, provides an opportunity to implement new approaches in training young specialists, updating professional and practical knowledge of teachers in accordance with international standards of agrarian business.

Favorable conditions for cooperation and great opportunities for the Ukrainian agrarian sector are attracted not only by territorially close European countries. So in 2018, the Ambassador of the Islamic Republic of Iran in Ukraine, Mohammad Beheshti-Monfarid, said that Iranian companies have leased 1,200 hectares of agricultural land in Odessa Region for growing grain crops. In addition, the ambassador noted that more than half of total Ukrainian exports to Iran consist of agricultural and food products.

According to data of the Ministry of Agrarian Policy and Food of Ukraine, the greatest investment interest in Ukraine’s agrarian sector is currently being shown by Asia, namely China. Thus, the PRC is steadily increasing the number of investment projects in Ukraine. “Well-developed cooperation with the Chinese will bring Ukraine USD 8-12 billion investment in 5 years. If during that time the military conflict in the East is resolved, the amount may double,” MP Ivan Miroshnichenko, a representative of a Chinese working group said, summing up.

In addition to establishing Ukraine’s international relations on the world stage, measures are being taken in the country to promote the agrarian sector among investment partners. From May 16 till 19 May 2019, with the support of the Ministry of Agrarian Policy and Food of Ukraine in Cherkasy, ​​the 3rd International Agricultural Exhibition AGROSHOW Ukraine 2019 took place in an expo-fest format. The advantageous territorial location of this event enabled the maximum number of visitors from both Ukraine and other countries to be attracted. The event was attended by about 300 participants and over 9,000 visitors over the course of four days. In addition to the general informative part, demonstrations of various types of sowing, tillage and harvesting equipment took place at special landfills. Such measures allow new investors to come to the agrarian sector of Ukraine, as well as to demonstrate the modernity and development of Ukrainian agrarian companies.

Legislative framework on foreign investment in Ukraine’s agrarian sector

Today, the regulatory framework designed to regulate the investment process in Ukraine’s agrarian sector is represented by more than 100 documents of various legal force. It is advisable, within the framework of this topic, to provide an analysis of the following legal acts.

The Law of Ukraine On the Priority of Social Development of the Village and the Agro-Industrial Complex in the National Economy. This is one of the first normative acts in this area that defines the conditions, content and priorities of the development of the social sphere of the agro-industrial complex in the structure of the national economy. The latest version of this law came into effect in 2018, indicating the trend of updating the legislative framework and bringing it in line with international standards.

The Law of Ukraine On Investment Activity. Determines the general legal, economic and social conditions of investment activity in Ukraine, the content of rights, interests and responsibilities of subjects of investment activity. In this document, the concepts and types of foreign investments, as well as subjects and objects of investment activity are set out, and the procedure for implementation and the general principles of state regulation of this activity in Ukraine are determined.

The Law On Foreign Economic Activity carries out legal regulation of foreign economic activity, including foreign trade, economic and scientific and technical cooperation.

The Law of Ukraine On Mutual Investment Institutions specifies more precisely the features of the creation, activity and responsibility of joint investment entities, establishes requirements for the composition, structure and storage of assets, the features of the circulation of securities of collective investment institutions, and others.

The Law of Ukraine On State Support to Agriculture in Ukraine defines the foundation of the state policy aimed at stimulating the production of agricultural products and development of the agrarian market.

The Law of Ukraine On Basic Principles and Requirements for Organic Production, Circulation and Marking of Organic Products. This legal act contains standards and requirements for organic products produced on the territory of Ukraine.

Legal regulation of foreign investments in the agrarian sector of Ukraine

In accordance with the Law of Ukraine On the Regime of Foreign Investment foreign investments understand all the values invested by foreign investors in objects of investment activity in accordance with the legislation of Ukraine in order to earn profit or achieve a social effect.

Investors can be:

— foreign countries;

— international organizations;

— legal entities;

— individuals, including Ukrainian citizens living abroad.

The legislation of Ukraine defines the following forms of foreign investment:

— partial participation in enterprises that are created jointly with Ukrainian legal entities and individuals, or acquisition of a share of operating enterprises;

— creation of enterprises that are wholly-owned by foreign investors, branches and other separate units of foreign legal entities, or the acquisition of fully-owned enterprises;

— the acquisition of immovable or movable property not forbidden by the laws of Ukraine through direct obtaining of property and property complexes or in the form of shares, bonds and other securities;

— acquisition of rights to use land and use of natural resources on the territory of Ukraine independently or with the participation of Ukrainian legal entities or individuals;

— acquisition of other property rights;

— economic (entrepreneurial) activity on the basis of production-sharing agreements;

— without establishing a legal entity on the basis of agreements with economic entities of Ukraine.

The given list is not exhaustive and, taking into account the constant development of business sphere, existing forms of investment activity in Ukraine can be changed or supplemented.

In 2018, a number of changes were made to the legislation of Ukraine in order to simplify the order of receipt of foreign investment by the economy. The main event was abolition of the mandatory procedure for state registration of foreign investment. According to the old version of the Law On the Regime of Foreign Investment, foreign investments were recorded by the statutory documents of the entity and entered into the Unified State Register of Legal Entities and Individual Entrepreneurs. In line with the legislative changes, an applicant’s principle of state accounting of investments is introduced, according to which the submission of statistical reporting on the implementation of foreign investments will be carried out by enterprises with foreign investment and bank institutions. Also, all existing privileges, such as exemption from customs duty for contributions to a company’s statutory capital, will apply equally to all foreign investments.

Today, information on the availability of foreign investments, their size and structure is publicly available, which together with the above changes eliminates barriers for the development of foreign business in Ukraine, and will also have a positive effect on Ukraine’s position in the Doing Business rating and the International Business Compass Index.

Problems involving foreign investment in Ukraine’s agrarian sector

A detailed study of this topic allows us to identify the main problems hindering the effective attraction of foreign investment by the agricultural sector of Ukraine:

1. There is no system for assessing the investment climate in the country and separate regions of its. Today, in order to get a general picture of the state of business climate in Ukraine, entrepreneurs are guided by the international Doing Business rating and the International Business Compass. These figures were introduced by the Hamburg Institute of the World Economy. They are complex and are measured once a year, and considering the seasonality of the agrarian sector, they are not sufficient for getting a full understanding of the condition of the investment climate in Ukraine.

2. Closeness of the land market. In accordance with modern legislation, a moratorium on the sale of agricultural land is in place in Ukraine. That is, the only opportunity for foreign companies to take part in the formation of the agrarian market in Ukraine is the conclusion of a land lease agreement (the longest term of such an agreement is 50 years). This significant limitation somewhat pauses the pace of development of the agrarian sector of the Ukrainian economy and needs to be reformed and modernized.

3. Political and tax instability.

4. Lack of an effective insurance system: insufficiently-developed mechanisms of state insurance of foreign investments.

5. High inflation rate in Ukraine.

6. Failure of banking system.

These factors have a negative influence on the intensity of attracting foreign investment to the agrarian sector and, therefore, require the fastest solution by the state authorities.

After analyzing the above information and existing legislative framework designed to regulate foreign investment activity in Ukraine’s agro-industrial complex, it is certain to assert that most of the Ukrainian economy is currently oriented towards the agro-industrial sector. Interaction between Ukrainian agrarians and foreign investors enables the agro-industrial complex to grow actively and develop, confidently demonstrating its position on the international market.

 

 

Rostyslav Nykitenko
is an advocate / barrister

 

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