Private sector FDI critical to sustainably boost Ukraine’s economy, says Black Iron’s CEO

In an exclusive interaction with Invezz, Matt Simpson, CEO of Black Iron, shares insights on key requirements to boost Ukraine’s economy and support growth after the war-led damage. Edited excerpts:

What strategies could Ukraine adopt to stabilise its finances and boost economic growth?

It is critical Ukraine attract Foreign Direct Investment from the private sector to sustainably boost economic growth.

However, the reality, outside of Ukraine’s high tech sector which is currently receiving FDI, is this won’t largely happen particularly for the construction of physical assets (buildings, roads, manufacturing, mining) until the country is at peace.

There is limited appetite for political risk insurance during this time of war.

The most important thing Ukraine’s government can do during this time of war is to finalize its Special Investment Agreement legislation (SIA), which has been outstanding for over three years.

This legislation is very important because it provides several benefits and guarantees to attract investors including:

* Freezing of current tax and royalty rates
* Exemption from corporate profit tax
* No import duties on equipment purchased to realize an investment
* Transfer of Government owned land to realize an investment and reduced land tax plus lease rates
* Construction of required infra at government expense
* Host country formal commitment of investment support which is essential to obtain Political Risk Insurance from MIGA
* Investment Nanny in government to help navigate any issues to realize your investment

Should Ukraine be more open to foreign investment to modernize its industries and infrastructure?

Ukraine is spending a tremendous amount of time and money traveling the world to host conferences over the last two years trying to convince private sector foreign investors to invest now.

But further to comments above, the private sector will only meaningfully invest upon peace.

There is a tremendous amount of Government-backed investments (USA, Japan, Europe) in Ukraine today largely aimed at reducing the extent of rebuilding costs which make sense.

For example, if an apartment building roof gets hit by a missile and the rest of the building is structurally sound, it makes a lot of sense to repair the roof to avoid further damage.

Can you share any successful experiences or challenges faced in rebuilding Ukraine’s economy with Black Iron?

For Black Iron, it is essential that land parcel owned by government is transferred upon peace for construction of the iron ore concentrator/process plant, waste rock stockpile and tailings impoundment.

Prior to the war breaking out, Black Iron signed a MOU with Ukraine to transfer this land but since the war broke out it has not been possible to meaningfully progress land transfer binding contract negotiations.

Hence, Black Iron’s management is pursuing a parallel path to secure this land transfer by putting in place a Special Investment Agreement (SIA).

Over the last two years Black Iron’s team successfully lobbied Ukraine’s government to have several legislation changes made to allow Black Iron to qualify.

We completed the extensive multi hundred page documentation required, and applied in July 2023 to formalize our SIA.

However, after several attempts to speak with Ukraine’s Ministry of Economy who are responsible for implementation of the SIA legislation, I only found out mid December 2023 that Black Iron’s application has not been reviewed by Ukraine’s Ministry of Economy.

Nor will they review to provide feedback on any changes required to qualify because they are making further changes to the SIA legislation that were supposed to be put in place by 2023 year end.

It is important Ukraine’s government focuses on finalizing this legislation, stabilize senior government officials and sign up SIA’s so there is a clear portfolio of investable projects for foreigners upon peace in Ukraine.

What are the top priorities for Ukraine’s economic development, and how can collaborations with companies like Black Iron help achieve them?

Ukraine government officials need to make themselves much more available to foreign investors as their legal system is very complex.

The Investment Nanny concept as proposed in the SIA legislation is a positive step to address this matter.

Ukraine needs to adopt international standards for Environmental and Social impact studies (e.g. World Banks Equator Principles) and for technical studies (SK 1300, NI 43-101, JORC) as international investors insist on project development work being done in compliance with these standards.

But Ukraine’s government does not recognize these standards and instead requires investors to duplicate quite a bit of this work to meet outdated Ukraine Soviet Era standards which adds years and millions of dollars to realize an investment.

If Ukraine does not adopt major international standards for project development, it will significantly slow down FDI upon peace as people seeking to invest try to understand Ukraine’s standards and find domestic companies that are even capable to completing the required work.

With major economies like the UK and Japan slipping into recession, what impact do you think is likely for Ukraine?

Reconstruction of Ukraine is likely going to be the largest infrastructure project in our lifetime and it should provide a boost for other global economies such as the UK and Japan that participate by providing goods and services made in their home country.

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