OPIC in Ukraine: Supporting the small businesses that will drive growth and stability
OPIC’s commitment to supporting development in conflict-affected regions that are critical to American foreign policy extends to Ukraine, where our portfolio of active projects has quadrupled since 2014. Working in this region, OPIC often collaborates with other development finance institutions, such as the European Bank for Reconstruction and Development (EBRD), which was initially established to invest in Eastern Europe and the former republics of the Soviet Union.
OPIC Project Finance Director John Didiuk recently attended the EBRD’s Annual Meeting and Business Forum in Cyprus and joined discussions about the investment climate in Ukraine. Here he discusses OPIC’s growing investment portfolio in the country and the increased focus on supporting the country’s small and medium-sized enterprises or “SMEs”.
Why does OPIC invest in Ukraine and what sectors does it support?
Since the 2014 revolution in Ukraine, OPIC has been actively leaning in to do more to support the country’s growth and stability through greater private sector development. We have more than quadrupled our portfolio since then and currently have more than $500 million invested across 16 active projects ranging from energy to agriculture to access to financing. We are on track to invest several hundred million dollars more by the end of the year, including multiple projects that support lending to local SMEs.
Why is support for SME lending so important to development?
SMEs are a key driver of any country’s economic growth and stability. These businesses create jobs and opportunity in many sectors of the country’s economy, including agriculture, which accounts for about 14% of Ukraine’s GDP.
For example, there are about 14,000 SME farmers in Ukraine who collectively cultivate approximately one-third of the soil in Ukraine, a country historically known as the breadbasket of Europe’ given its rich agricultural resources. The true potential of these small farmers has been held back to date, however, due in large part to a lack of available financing. Given the risks in agriculture, the need for liquid collateral, and the inexperience of traditional banks in lending to this sector, SME farmers in Ukraine face a financing gap estimated at $3.3 billion.
One project that OPIC is currently exploring would support SME farmers in Ukraine is through a long-term loan to a local bank which specializes in working capital financing secured by agrarian or crop receipts. Our financing would be on-lent to farmers to purchase high quality seeds, fertilizer, and agricultural equipment. By making this financing available, Ukrainian farmers will be able to purchase the inputs needed to increase yields and to invest for future growth in their business and to help the country overall prosper.
What are the challenges of investing in the SME sector?
Although significant progress has been made in Ukraine’s business environment in just the past few years, limited transparency and existing regulations can still make for a challenging business environment. As the business environment continues to improve and new SMEs are formed and existing ones seek to expand, the need for capital to promote the growth of this sector becomes greater.
OPIC can address this need in a number of innovative ways. We can directly finance and insure smaller U.S. businesses seeking opportunities to enter or expand in the Ukrainian market. We can also provide financing to banks and other financial intermediaries which in turn make those funds available specifically to the SME sector in Ukraine. Our longstanding partnership with Megabank, for example, has allowed millions of dollars to be on-lent to SMEs, funds which would not otherwise be available to thousands of small Ukrainian business involved in local manufacturing, agriculture, construction, and energy efficiency. OPIC has also provided more than $100 million across three different investment funds in Ukraine which focus on the long-term development of local SMEs into strong and thriving businesses.
Describe the opportunity for U.S. businesses in Ukraine
There are tremendous opportunities for U.S. businesses in Ukraine right now given the unrealized economic potential of the country and the real progress being made in reform and greater transparency. OPIC’s role is key because it provides the long-term financing and political risk insurance for U.S. businesses that are not otherwise available in a still risky market such as Ukraine. Our existing clients include large U.S. corporations as well as small businesses. We field dozens of new inquiries each month from other U.S. companies seeking to learn how our programs can support investments in Ukraine. At the same time that OPIC helps supports U.S. business in Ukraine, these investments are having a positive developmental impact on the country, creating jobs and fostering growth that contributes to political stability.