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Everything you wanted to know about innovative investing in Ukraine

The most important task of the national economy, which is actually dictated by the international economic community in our state, is the implementation of an economic breakthrough in the field of innovation.
We should state that the level of innovation, which is based on the effective search for and implementation of research results, determines the competitiveness of the national economy, increase of production profitability, as well as domestic demand with the help of the national competitive advantages and achieving the highest social and economic indicators.

A distinctive feature of today's Ukrainian economy is that despite the sufficient number of technological developments, research, know-how, experts and relatively inexpensive labor force in the country, there is a decline in innovation activities, which is connected with a lack of own funds of Ukrainian companies, the crisis and total budget financing cuts.

The increase in the volumes of Ukrainian production, in fact, is hampered by two aspects: the lack of growth in purchasing power and the minimal competitiveness of domestic goods in foreign and domestic markets.

It is the innovative development of the economy that ensures this competitiveness by continuously modernizing technologies, goods and services, expanding and stabilizing sales markets, expediently using the scientific potential and enhancing its growth.

It should be noted that during the past 5-7 years, the Ukrainian legislation in the field of innovation has not been static and has been gradually developing. Perhaps it happens not as fast as we would like it to, but still. The hard work has been done in terms of analyzing the entire array of regulatory acts in the field of Ukrainian innovation practice, as well as in terms of determining the level of its compliance with the global standards.

The Verkhovna Rada (the Parliament of Ukraine) adopted a number of normative acts that confirmed the focus on European integration chosen by the state. In particular, one of the defining events in this area was the development by scientists of a draft Innovation Code of Ukraine. This innovation was due to many years of work of scientists, as well as specially attracted foreign experts. This code is a kind of synergy of existing regulatory acts, in particular, the laws of Ukraine "On Innovation Activity", "On Priority Directions of Innovation Activity", "On Special Regime of Innovation Activity of Technological Parks", "On Scientific and Technical Activities" and, in general, it solves two main tasks (which are also problems) of innovation: regulations are systematized and the process of innovation is streamlined – from the development of an innovative product to its commissioning, and tools for stimulating innovation are provided for – for example, venture funds.

The Law "On Innovation Activity" regulates the main goal of the state policy in terms of innovation, namely the creation of socio-economic, organizational and legal conditions for the qualitative development and use of the scientific potential of the state, ensuring the introduction of modern, safe, environmentally friendly, energy- and resource-saving production technologies and the creation of new types of competitive products.

This regulatory act emphasizes the need to support the development of the Ukrainian economy in an innovative way. That is, according to the law, the business that implements innovative projects in Ukraine and enterprises having innovative status get support from the state.

The Article 326 of the Economic Code of Ukraine defines investments as long-term contributions of property, intellectual values and property rights in objects of economic activity for receiving profit or achieving another social effect.

The same Economic Code identifies the following forms of investment in the innovation process:

— state investment – is carried out by public authorities at the expense of the budget;
— commercial or business investment – is carried out by business entities at the expense of their own or credit funds for the development of their own business base;
— social investment – investing in social objects and other non-production spheres;
— foreign investment – is carried out by foreign legal entities or individuals, or by other states;
— joint investment – is carried out by Ukrainian individuals and legal entities together with foreign legal entities or individuals.

However, the list of investment forms can be classified not only by the subject composition of investors, but also by the object in which investments are made:

— real (direct) investments;
— portfolio (financial) investments;
— investments in financial instruments (securities, deposit certificates, gold, stocks, futures, options);
— investments in the authorized capital of legal entities.

And existing regulations in the field of investment in general and innovation in particular do not allow putting together an integral scheme of attracting and implementing investment projects. For example, there is no modernization of legislation on financial leasing, commercial concession, technology transfer, although a franchise agreement, for example, is the most complete scheme for financial attracting investment resources to innovation activities, and it allows to increase the profitability of small and large businesses.

However, there is no even the very concept of "innovative investment" in the national legislation. Though we hear about the need to attract foreign investment almost every day.

Therefore, it is necessary to decide what exactly is meant by "innovative investment."

Most economists classify innovative investment as a form of real investment. That is, investing in material production (in construction, agriculture, industry, etc.) and the acquisition of rights to intangible assets (copyrights, patents, inventions) with their further use for the needs of production.

There are the following forms of real investment:

1) purchase of integral property complexes – often such large-scale investment operations are carried out by large enterprises, concerns, holdings, thus ensuring their product, industry or regional diversification);
2) construction of a facility with a complete technological cycle — is carried out when the company's production volume has increased so much that it is necessary to divide and structure the business by creating branches or subsidiaries);
3) reconstruction – is carried out to completely transform production methods using the latest achievements of the scientific and technological progress with the creation of new funds and structures;
4) modernization – improvement of existing funds of a specific production using innovative methods;
5) investments in intangible assets – in order to modernize production with the latest techniques (acquisition of patents for inventions, trademarks and industrial designs, purchase of licenses for franchising, know-how).

The choice of a specific form of real investment of a particular company is coordinated with the investment strategy of the enterprise as a whole, the possibility of implementing new resources and labor-intensive and competitive technologies (minimization of operating expenses and improvement of quality) and the company's potential for the formation of investment resources (cash assets, that is, funds that serve as a contribution to real investment objects).

We can highlight the following most popular forms of investment:

— innovative investment – is carried out with the need to implement the achievements of the scientific and technological progress in production and includes: the production and distribution of brand new technologies, implementation of long-term innovative programs with long payback periods, funding of large-scale studies to implement qualitative changes in production, etc.;
— leasing investment – investment in fixed assets of production by leasing modern equipment (most often the lessee receives not only equipment, but also maintenance and repair services, as well as the possibility of buying out the leased asset, which is certainly beneficial for the lessee who receives the necessary innovative equipment without expenses for paying its full cost and without any concerns about its maintenance);
— major construction – creation of new and fixed assets in which the funds are placed, other values (one of the most profitable investment option);
—concession investment – creation (construction) or management of concession objects (which are owned by the state (communal enterprises)) under an economic and legal contract, subject to assuming the risk obligations and material liability by the concessionaire;
—other economic and legal investment regimes (privatization, joint, foreign, in the territories of the highest priority development, in special economic zones, etc.).

On the basis of analysis of the characteristics of innovation investment, corresponding conclusions regarding its characteristics can be made, and, in our opinion, the characteristics of innovation investment should include the following:

1) it is a kind of real investment;
2) investment is made in intangible assets;
3) the purpose of investment is to introduce the achievements of scientific and technological progress into production;
4) investment is carried out through the acquisition of finished innovative products, or the development of new scientific and technological products;
5) transfer by the investor of property rights to certain intellectual property items in the form of an innovative product, which is carried out on a corporate basis;
6) introduction into the production process of such an investment allows to start the production of innovative products or the provision of innovative services.

The correct definition of the concept of innovative investment, the definition of its characteristics and mechanism is an important step towards the transformation and stabilization of the Ukrainian economy, supporting the necessary level of its competitiveness and efficiency.

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© 2018, Denys Bondar
The best way to solve a problem — it`s to rethink it