Exploring Investment Opportunities on the EU Border – in Western Ukraine

Western Ukraine, particularly its border regions (oblasts), is emerging as a promising area for business and foreign investment. These include Lviv, Volyn, Zakarpattia and Chernivtsi, which all share borders with EU member states Poland, Slovakia, Hungary and Romania. This strategic location offers unique advantages for businesses looking to tap into both Ukrainian and European markets and to take advantage of the favorable trade rules between Ukraine and the EU.

Strategic advantages

  • Proximity to EU markets: The western oblasts’ proximity to EU countries facilitates easier access to European markets, reducing transportation costs and time. This is particularly beneficial for sectors like manufacturing, logistics, agriculture and food processing.
  • Skilled workforce: Western Ukraine boasts a well-educated and skilled workforce, particularly in IT, engineering and manufacturing. Cities like Lviv, home to a renowned polytechnic, have become IT hubs, attracting tech companies and startups.
  • Infrastructure development: Significant investments have been made in improving infrastructure, including roads, railways and border checkpoints, enhancing connectivity and trade efficiency.

Government incentives

  • Tax benefits: The Ukrainian government offers various tax incentives to attract foreign investors. These include reduced corporate tax rates, exemptions on import duties and VAT for equipment and tax holidays (See: Ukraine strengthens state support for investment) as well as a special regime for the IT industry through the Diia.City regime (See: City Special Tax Regime).
  • Special Economic Zones (SEZs): SEZs in regions like Zakarpattia provide additional benefits, such as simplified customs procedures, reduced land lease rates and government support in obtaining permits and licenses. The Zakarpattia SEZ was established to leverage the region’s strategic location bordering Poland, Slovakia, Hungary and Romania.
  • Investment promotion agencies: Agencies like UkraineInvest actively promote investment opportunities and provide support to foreign investors, including assistance with legal and regulatory issues. Advantage Ukraine promotes investment by showcasing over 500 projects and opportunities across various sectors, including agriculture, technology and natural resources. (See: Interview with Oleksandr Gryban, Advantage Ukraine)

Economic opportunities

  • IT and software development: Known as Ukraine’s Silicon Valley, Lviv is a major IT hub with numerous tech companies and startups. The IT sector has seen significant growth, with exports reaching over USD 5 billion in 2023. (See: Interview with Anna Ryzhova, Ciklum)
  • Agriculture and food processing: The fertile lands of Western Ukraine are ideal for agriculture. Investment opportunities exist in organic farming, food processing, and agriTech. The region’s agricultural exports to the EU have been steadily increasing.
  • Renewable Energy: With a focus on sustainability, there are opportunities in renewable energy projects, including solar and wind farms. The Ukrainian government has set ambitious targets for renewable energy, making it a favorable environment for investment.
  • Manufacturing: Since the start of the war, approximately 13.4 percent of Ukrainian firms have relocated, either partially or completely, to Western Ukraine. This includes a significant number of companies in light manufacturing industries such as apparel, textiles, and beverages. Having seen much less disruption since the war’s onset, thanks to its distance from the front lines, Western Ukraine is perceived to be safer and has benefited from programs to assist with relocation costs and logistics. For example, Kingspan Global plans to invest €200 million in a construction technology hub in Lviv to produce low-carbon insulation and building envelope products. This hub will support both EU exports and reconstruction efforts in Ukraine.
  • Tourism and Hospitality: Rich in cultural heritage and natural beauty, the tourism sector shows potential for growth. Opportunities exist in hotel development, travel services and cultural experiences.

Economic growth and statistics

  • GDP growth: The western oblasts have shown resilience and growth despite the challenges posed by the ongoing conflict. For instance, Lviv’s GDP grew by 4.5 percent in 2023.
  • Foreign Direct Investment (FDI): Western Ukraine has attracted significant FDI, particularly in the IT, manufacturing and renewable energy sectors. In 2023, the region received over US$1 billion in FDI.
  • Export growth: Exports from the western oblasts to the EU have been on the rise, with agricultural products, machinery and IT services leading the way.

Western Ukraine’s border regions offer a wealth of opportunities for businesses and foreign investors. With strategic advantages, government incentives and a growing economy, these regions are well-positioned to become key economic hubs. Whether in IT, agriculture, renewable energy or tourism, the potential for growth and success is substantial.

 

By Adam Mycyk, partner, Dentons

Posted in Expert Opinion