Flashback to soccer boom shows ukrainian investment moving past war

| Bloomberg
“Investment started to increase earlier than we expected,” said Olena Bilan , chief economist at investment bank Dragon Capital in the Ukrainian capital of Kiev.

The last time Ukrainian investment growth was this strong, stadiums and roads were being built to help co-host the Euro 2012 soccer tournament and there was no sign war was around the corner.

Four years on, with investors starting to look past the festering conflict in the nation’s east, spending on agriculture and real estate is once again gathering pace. Second-quarter capital investment surged almost 18 percent from a year earlier and 9 percent from the previous three months, data this week showed.

The improvement offers a boost to what’s so far been a lackluster recovery from 1 1/2 years of revolution- and war-induced recession. Gross domestic product will edge up 1.1 percent in 2016, accelerating to 3 percent the following year, the central bank predicts.

“Investment started to increase earlier than we expected,” said Olena Bilan, chief economist at investment bank Dragon Capital in the Ukrainian capital of Kiev. “We expect it to expand further in the second half of the year as the economy was heavily underinvested over last two years and many companies need to upgrade equipment.”

Astarta Holding NV, a Ukrainian producer of sugar, grains and meat, tripled investments in the first half of 2016, attracting loans from the International Finance Corporation and the European Bank for Reconstruction and Development for expansion.

The government is also revamping infrastructure to help revive the economy’s fortunes. Parliament this week ratified a 400 million-euro ($450 million) European Investment Bank loan for the agriculture industry, while a separate plan aims to channel almost 60 billion hryvnia ($2.3 billion) into roads.

But investment has limited scope to drive the economy. It accounted for just 14 percent of GDP between April and June, and its growth will slow in the second half of the year as favorable base effects wane, according to Alexander Paraschiy, head of research at Concorde Capital.

What’s more, the same factors that prompted the slump during the conflict’s peak months risk returning, with efforts to achieve a lasting peace repeatedly failing and a recent altercation around Crimea threatening to ratchet up fighting.

An airport outside the eastern city of Donetsk that was built to process the crowds of sports fans in 2012 now lies in ruins, a reminder to investors of the persistent danger the war poses. Diplomacy will be vital to ensuring the resurgence in investment doesn’t peter out.