Russian foreign direct investment in Ukraine

Nataliya Blyakha                                                                                       PEI Electronic Publications 7/2009 

www.tse.fi/pei 

 

 

Figure 

3

 

Russian direct investments in Ukraine during 1995-2008, $ mln 

 

 

Source: Institute of Research of Russia 

 

There are several factors that attract Russian investments in Ukraine. First of all, when 

Russian companies decide to come to Ukraine’s market, they do not need to spend 

time and money on monitoring the economic infrastructure. There are many similarities 

between Ukraine’s and Russian markets as well as no language and cultural barriers. 

Moreover, traditional contacts that have been made during common history already 

have lead to existing investments. Second, Russian investors are less sensitive to 

many of the risks, connected with Ukraine’s economic and political instability, and also 

well familiarized with the ways of overcoming them. Finally, Russian economy has the 

prevalence of the raw material industries, that is why Russian companies continue their 

expansion to Ukraine to simplify the excess to EU market or to restore value chains 

that were damaged due to Soviet Union collapse.  

6 

---

Nataliya Blyakha                                                                                       PEI Electronic Publications 7/2009 

www.tse.fi/pei 

 

 

3  Russian capital in Ukraine 

The Russian capital in Ukraine is mainly operating through financial groups and is 

accumulated in those sectors of Ukraine’s economy, which significantly affect the 

industrial growth of Ukraine, the income to the budget and the social situation in the 

regions. Russian financial groups have powerful financial and industrial resources 

(banks, manufacturing enterprises and industrial complexes), means of mass media 

and political support. Moreover, Russian financial groups are very influential political 

and business players in Ukraine and have become a significant factor in Ukrainian 

economy (Volovuch 2006). Russian capital is dominant in the industries such as oil 

refinery, telecommunication, and aluminum production in which Russian companies are 

among the world leaders. Table 2 provides information about Russian capital presence 

in major Ukrainian industries. 

Table 2 

The share of Russian capital in Ukrainian industries in 2007 

 

Industry 

Russian capital, % 

Companies operating 

Oil refining 

90,0 

Lukoil 

TNK BP 

Tatneft 

Gas 20,0 

Gazprom 

Metallurgy 66,7 

Evraz Group 

Smart group 

Non-ferrous 

metallurgy 

20,0  

Aluminum 90,0 

RUSAL 

Mechanical 

Engineering 

33,0 

Smart group 

RUSAL 

Telecommunications 38,5 

Alfa group 

AFK System 

Banking 

   7,0 

Alfa Bank 

Electricity 36,0 

Renova 

Luzhniki 

Energy standard 

Source: Kontrakty 

Figure 4 indicate percentage of Russian direct investments in Ukrainian industries. As it 

is shown in the figure major sectors of Ukraine's economy that have attracted Russian 

investors have been financial sector, oil refining, trade and telecommunications. 

 

7 

---

Nataliya Blyakha                                                                                       PEI Electronic Publications 7/2009 

www.tse.fi/pei 

 

 

Figure 

4

 

Russian direct investments in Ukraine by industry in 2008, % 

 

18,4

8,4

6,2

5,9

3,6

2,9

2,3

1,8

1,4

1

0,8

0,6

Ban

king

 and

 fina

ncia

l ser

vice

s

Oil r

efin

ining

Trad

e

Te

leco

mm

unic

atio

ns

Con

struc

tion

Foo

d an

d b

ave

rage

s

Hotel

s a

nd re

stau

rants

Mec

han

ical e

ngin

eerin

g

Agric

ultur

e

Che

mica

l ind

ustry

Meta

llurg

y

Build

ing m

ateri

als

 

Source: State Statistic Committee of Ukraine  

 

However, these numbers actually do not give a complete and adequate understanding 

of the real Russian’s capital inflow and control in the above mentioned sectors of the 

economy. Firstly, as it was mentioned in previous chapter, it is difficult to estimate the 

actual amount of the Russian investments flow because in many cases Russian 

shareholders transfer capital through offshore financial subsidiary. Secondly, Russians 

can be in command of Ukraine’s companies operations without making vast 

investments. For example, by ensuring the right to appoint management in investment 

agreements

4

, investors without having controlling stake could have a majority in the 

supervisory board and control the company. (Blinov 2008) 

 

 

                                                 

4

 Investment agreement includes all the issues pertaining to the investment, including the rights 

attached to the investor's shares and the balance of power within the company. 

8 

---