FDI attraction as a priority for post-war rebuilding of Ukraine with a view to technology transfer and innovations

FDI attraction as a priority for post-war rebuilding of Ukraine with a view to technology transfer and innovations

To begin with, technology transfer is the movement of data, designs, inventions, materials, software, technical know-how or trade secrets from one organization to another or from one purpose to another. An important part of technology transfer is the protection of intellectual property (IP), which is related to innovation. In general, foreign direct investment (FDI) is perceived as the best channel for technology transfer, not only across national boundaries but also between firms – in particular, between foreign and domestic companies. Especially in connection with chronic capital shortage in developing countries, the FDI provide the basis for economic growth process.

The most striking feature which distinguishes direct investments through multinational companies from other forms of international capital flows – portfolio investments or foreign aid – is the long-lasting interest of investing company in its subsidiaries abroad. This long-term interest provides not only for pure capital transfer but also for the transfer of product and process technology, know-how and marketing and managerial skills. By definition, multinational companies possess these skills which enable them to compete successfully with domestic firms, that have better knowledge of national market, have established supplier and customer networks, are informed about local business practises. As a result MNCs remain a primary source of innovation and their leadership in the international technology transfer is undisputable.

On the other side, domestic firms can learn from foreign companies about new products, process technology and marketing and organisational skills, as well as about foreign markets. If they succeed to become partners of foreign companies – as the suppliers or distributors – domestic firms may benefit from larger economies of scale, reliable payments and often direct support from foreign partners in upgrading their capital stock and technological level. If such technology transfer really takes place in practice, the improvements in performance of domestic firms will then reflect in their higher productivity.

Now, it is obvious that the post-war rebuilding of Ukraine should focus on attracting FDIs to foster technology transfer and innovation. In particular, this may include the establishment of technological clusters in the fields where Ukraine has a comparative advantage with dynamic IT sector as an example.

Despite the war challenges, Ukrainian innovative technology start-ups demonstrate resilience and high results. In the first eight months of 2022, Ukraine’s IT export has increased by 16%, as compared to 2021. IT services account for almost half of the country’s total volume of export services. The government support and the strong growth together inndicate that the time has come to invest in Ukrainian IT sector.

It is expected that start-ups should become the foundational pillars for a new level of technology companies that will add significant value to the economy and attract foreign capital. To this end, the Ukrainian Startup Fund (USF) has allocated $6.5 million for start-up funding during the last 3 years.

Finally, the development of industrial parks is important for implementing modern technological solutions and fostering innovations. To this end, the government of Ukraine has introduced significant state incentives for the development of industrial parks, including exemption from certain taxes, full or partial compensation of interest rates on loans, compensation for joining engineering networks, even during wartime. According to the Law of Ukraine No. 5018-VI, state support is provided for industrial parks in the field of processing industry, processing of industrial and/or household waste (except waste disposal), R&D and IT.

To conclude, the attraction of foreign capital through FDI should remain a priority for post-war rebuilding of Ukraine. As far as the transfer of modern technologies and the development of innovations will definetely accelerate the revitalization of Ukrainian economy and contribute to its post-war growth.

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