Kovaliv: Stick to IMF program and liberalize the market

Few people in Ukraine are as familiar with the country’s investment climate as Yuliya Kovaliv.

The head of the office of the National Investment Council, a non-governmental organization that partners with government to lure investors to Ukraine, Kovaliv works with all of the major investors in Ukraine. Global brands such as General Electric, IKEA, H&M and DP World have all consulted with the young ambitious Ukrainian, who was the country’s first deputy economy minister in 2015-2016.

Sitting in her office in one of Kyiv’s only skyscrapers (which until 2016 used to be owned by Ukrainian tycoon Dmytro Firtash, who is fighting extradition on U.S. bribery charges from exile in Austria) she is tackling the legacy of an old economic system inherited from the Soviet Union, while trying to build a new one by attracting foreign investors. While aware of the practical hurdles an investor might face in Ukraine, she can also list the advantages of coming to Ukraine.

Keep with the program

Kovaliv is convinced Ukraine should stick to the four-year International Monetary Fund’s $17.5 billion bailout program, approved for Ukraine in 2015.

“The crucial thing is the IMF program,” Kovaliv told the Kyiv Post. “It’s a very important trigger for a lot of investors… Commitment to the IMF program to get the next tranche is like a basic, basic, basic thing for increasing FDIs to this country.”

The IMFs requirements include Ukraine finally raising natural gas prices to market levels and establishing the long-awaited anti-corruption court.

The IMF deal came with demands that Ukraine carry out reforms to revitalize the economy and uproot corruption. But Ukraine received the last tranche of IMF money — $1 billion — in April 2017. The next tranche has been delayed because Kyiv has failed to meet the necessary requirements.

Meanwhile, Ukraine is doing a poor job of attracting investments. In 2016, inward FDI amounted to $1.8 trillion globally, according to the Organization for Economic Co-operation and Development. Of that, Ukraine was only able to attract $3.3 billion, or one-hundredth of 1 percent, out of which more than two-thirds went to Ukraine’s banking sector to make sure it did not collapse.

And Ukraine has to act fast, as it soon will have to start paying off its IMF loans, which mature next year.

Privatization and concession

Further steps that Ukraine has to concentrate on are the privatization and concession of state-owned enterprises to shrink the public sector as much as possible.

“It’s everything when you decrease the interference of the public sector in the business,” Kovaliv said. “It is a mixture of giving room for private capital, liberalization and fighting corruption. Because what is the source of corruption – state-owned companies and bureaucracy.”

However, Ukraine’s privatization process stalled for three years. Ukraine still has more than 3,000 state-owned companies, most of which are small- or medium-sized enterprises that are inefficient and cash cows for corruption.

Kovaliv’s former boss, ex-Economy Minister Aivaras Abromavicius, strongly promoted privatization, but resigned two years ago, complaining he was hamstrung by Ukraine’s ingrained corruption and interference from President Petro Poroshenko’s top ally and business partner, Ihor Kononenko.

There was finally movement on Jan. 18, when Ukraine passed a privatization law aimed at boosting investors’ confidence in taking part in tenders for the privatization of Ukraine’s biggest state-owned companies.

But if privatization is not possible, the next best thing would be a concession. Kovaliv has been in charge of developing new concession legislation since the summer of 2016. With this tool, foreign companies will be able to operate state-owned enterprises, modernize them, and collect profit, while the assets are still owned by the government.

The new concession law will attract investors not only to strategic assets such as seaports, but also to the regional level such as utility and waste management sectors.

“Concession is the kind of tool that allows those assets to be left with the government in state ownership, but that will also attract investors that will build, renovate, and operate them for a period of time,” Kovaliv said.

The draft law proposes the maximum concession period to be 50 years, providing stability and predictability for the investor.

Ukraine’s government could learn from its Central European neighbor Serbia, which made a concession deal with French private investors on its Belgrade Nikola Tesla airport back in January.

“They got their upfront payment of around 500 million euros and the concession payment for about 25 years,” she said. “And (that airport is) two times smaller than our Boryspil (International Airport). So we can just compare the potential investment flow that we can get with this kind of tool.”

More changes

Another important step for Ukraine’s private and public sectors is corporate governance reform to make companies more transparent and provide companies with more access to financing from Western banks.

“Unfortunately now the current corporate law does not give shareholders a lot of flexibility,” Kovaliv said.

Kovaliv also keeps a close eye on the country’s World Bank Doing Business rating, since this, in particular, attracts medium-sized businesses. “For medium-sized investors, (it) is just a good indicator of what is happening in the country, what the regulations are like.”

For example, Ukraine’s Doing Business ratings on access to electricity and bankruptcy are some of the worst in the world. Changing the bankruptcy law should be a priority for Ukraine, since it will protect creditors’ rights. At the moment, private banks cannot risk handing out big credits to businesses for development, even though many businesses in Ukraine have a serious lack of investment capital.

And taxation of investments is still a big problem in Ukraine. For instance, businesses that are investing in a new building must pay up to 10 percent of construction costs to the local budget. Kovaliv says this should stop.

Recent success

So far 2018 has been a good year for Ukraine attracting FDI. On Feb 23, General Electric and state-owned enterprise Ukrzaliznytsia signed a $1-billion deal to modernize railway infrastructure. Back in January DP World invested in Port Yuzhniy. And now Ukraine is expecting Hutchinson Port Holdings, IKEA and H&M to invest in the country during this year.

“With iconic flagship companies entering the Ukrainian market, we see that this can all (create) the perception that Ukraine is ready to welcome investors,” Kovaliv said.

For example, many foreign investors from Europe, China and Saudi Arabia are eyeing Ukraine’s alternative energy potential. Others have already entered – in January TIU-Canada officially launched a 10-megawatt solar power plant, China’s TBEA is now developing a $500-million wind power project, and OPIC – the U.S. government’s development finance institution – has approved up to $150 million in financing, along with up to $250 million in political risk insurance and reinsurance, to EuroCape Ukraine, a renewable energy company.

“We see a huge interest for the renewable energy, and especially for the wind and solar power,” Kovaliv said. “We see it is booming, the capacity is doubling from year-to-year.”

Other Ukrainian sectors can learn from this, Kovaliv said. For example, Ukraine should also be attracting global manufacturing companies to set up manufacturing facilities to supply the nearby European market.

Kovaliv points to Hungary as a good example of what could be achieved: Back in 2008, the country attracted China’s Huawei electronics company to build a logistics center. Today it is the company’s second largest logistics and manufacturing plant, with $1.5 billion annual turnover.

“From there, they ship all of their equipment and goods throughout Europe,” Kovaliv said.

“That’s the kind of thing we can do in Ukraine too.”


Source: Kyiv Post

US General Electric and Ukrzaliznytsia sign $1 billion, 10-year deal

U.S. multinational conglomerate General Electric finally struck a deal with Ukraine’s railway monopoly Ukrzaliznytsia with the official signing of a $1 billion contract between the two in Kyiv on Feb. 23.

The deal foresees Ukrzaliznytsia purchasing 200 locomotives from General Electric’s Pennsylvania plant and the modernization of 75 of its own locomotives at a cost of up to $110 million.

The ten-year deal envisions up to 40 percent of the locomotive parts being produced in Ukraine, making the country a part of General Electric’s global market infrastructure. This will help Ukraine to better meet demand for its rail freight services, easing a major bottleneck for exporters.

Ukraine’s railways monopoly Ukrzaliznytsia employs more than 270,000 Ukrainians and has a rail network of 21,000 kilometers of track. Altogether, this year Ukrzaliznytsia plans to invest about $1 billion in its rail fleet. This includes purchasing 60 new wagons, 30 General Electric locomotives, the production of 3,600 freight wagons, and the modernization of 226 passenger wagons and 10,000 freight wagons.

The U.S. conglomerate will be partnering with Ukraine’s public-joint stock company Kryukiv Railway Car Building Works plant, which manufactures locomotives and multiple-unit trains in the Poltava Oblast city of Kremenchuk.

The deal is secured with financing from Ukraine’s state-owned Ukreximbank and U.S.’s Citibank. The first delivery will be worth $120 million and is due by the end of 2018.

General Electric’s TE33A Evolution diesel-electric locomotive was tested on Ukrainian railroads for four months, two years ago.

Yuliya Kovaliv, head of the Office of the National Investment Council, a nongovernmental organization that partners with government to lure investors such as General Electric to Ukraine, says that the deal will bring many benefits to Ukraine’s economy such as providing easier logistical access for local businesses to be part of the global supply chain.

“It is also a good sign about improvements in Ukrainian business climate for potential investors who are considering stepping into country in the nearest future,” Kovaliv said. “General Electric is committed to further work in Ukraine, the next focus for them will be renewable energy and healthcare sectors.”

Back in October 2004, General Electric had a similar deal with Kazakhstan’s national railway Temir Zholy, where it delivered 200 locomotive kits to modernize the Central Asian republic’s locomotives. Since then, General Electric has built a $125-million plant there to manufacture locomotives.

General Electric is headquartered in Boston, Massachusetts and does business in a many different areas such as healthcare, financial services, pharmaceuticals, automotive industry, engineering and software development. Experts say that with a stronger General Electric presence in Ukraine, the conglomerate will also start investing into other areas, such as medical services.

EBRD supports electrification of Ukrainian railways

By Anton Usov

Project to improve connectivity between industrial and agricultural areas and key ports

The EBRD is contributing to the increased efficiency of the Ukrainian railways (UZ) by supporting the electrification and modernisation of a 253 km stretch of railway line in southern Ukraine, which is linking the country’s major industrial and agricultural areas with the key Black Sea ports of Odessa and Mykolaiv.

A 15-year sovereign-guaranteed loan of up to €150 million to UZ will help electrify and connect the Dolynska-Mykolaiv-Kolosivka railway line to the high voltage grid, install a second track on single track sections in the Dolynska-Mykolaiv railway line and, therefore, increase overall throughput capacity and efficiency of the railway operations. It will be co-financed by a similar-sized loan from the European Investment Bank and supported by grant funding of €6.8 million provided by the EU’s Neighbourhood Investment Facility.

Once implemented, the project will lead to significant reductions of CO2 emissions of over 140,000 tonnes a year.

The project will also promote better corporate governance at UZ through the preparation and implementation of the Corporate Governance Action Plan. Other important institutional and efficiency development elements of the project are the Energy Efficiency Investment Plan and the Energy Management Strategy, which will be implemented during the course of the project.

EBRD Country Director for Ukraine Sevki Acuner said: “By supporting this project, the EBRD is not only promoting an efficient and ecologically friendly means of transportation but is contributing to the development of best international corporate governance standards at UZ.”

All contracts under the project financed by the EBRD will be procured by open tender in strict compliance with the EBRD’s Procurement Policies and Rules. This will provide equal opportunities for eligible bidders and contribute to the transparency and cost efficiency of the investment programme.

The EBRD is the largest international financial investor in Ukraine. To date, the Bank has made a cumulative commitment of almost €11.7 billion through 390 projects since the start of its operations in the country in 1993.


Source: EBRD

IMF technical mission begins its work in Ukraine

Volodymyr Groysman, the Prime Minister of Ukraine met Ron van Rooden, the Head of the IMF mission on February 12 as the press service of the Ukrainian government reported.

‘The technical mission of the International Monetary Fund began its work in Ukraine. The aim of the mission is the discussion of the practical issues connected with the continuation of the work of the EFF. Volodymyr Groysman, the Prime Minister of Ukraine met Ron van Rooden, the Head of the mission’, the message said.

Related: Irrational cooperation between Ukraine and the IMF

Earlier Petro Poroshenko, the President of Ukraine claimed that the IMF tranche should be in April as by now the government has already fulfilled commitments before the Fund by 80 percent.

Oleksandr Danyliuk, Ukraine’s Minister of Finance claimed that Ukraine expects to fulfill all of its obligations under the IMF’s Extended Fund Facility before May 2018, which will help receive the next tranche of the loan.

Related: Cryptocurrencies to inevitably become government-regulated, – IMF

It is known that at the moment Ukraine’s debt to the IMF is $12.1 billion. This amount is made up of liabilities of the National Bank ($7.2 billion) and the Ministry of Finance ($4.9 billion).


Source: 112 International

Defending Europe by Arming Ukraine

Defending Europe by Arming Ukraine.
by Ihor Kozak and Lubomyr Luciuk

Overturning its policy of supplying Ukraine with strictly non-lethal military aid, the US will soon supply the Ukrainian military with much-anticipated anti-tank guided missiles. However, will this be enough to turn the tide of the war in the Donbas?

The Royal United Services Institute for Defence and Security Studies (RUSI) is based in London, UK. Founded in 1831, RUSI is the oldest defence and security think tank in the world.

Ukraine House Davos succeeds, gives hope for new investment

The first-ever conference venue Ukraine House Davos turned out to be a success, welcoming more than 5,000 investors, top executives, activists, politicians and other visitors during its five-day run on the sidelines of the World Economic Forum in Switzerland.

The event, which ran from Jan. 22–26, featured panel discussions, receptions and speeches promoting the country’s investment opportunities and some of its most talented people. The events focused on technology and innovations, like blockchain, as well as data science, energy, agricultural business and cryptocurrency. Sophia, a social humanoid robot manufactured by Hanson Robotics, also went on display.

“Ukraine has to push itself in,” Jaroslawa Johnson, president and CEO of the Western NIS Enterprise Fund, said. “And make sure that everyone recognizes it as an important player, not simply someone in a sidelight of Russia.”

Johnson made three previous trips to the forum, an annual conference that gathers the global economic and business elite. She noticed that Ukraine didn’t have a strong presence and, after last year’s test event — Ukrainian Davos Nights in 2017 — the organizers came up with this year’s plan for Ukraine House Davos.

Without receiving government support, the Ukrainian Venture Capital and Private Equity Association teamed up with the Western NIS Enterprise Fund and the Victor Pinchuk Foundation, among others.

“I cannot underscore how much pressure this group felt… because you cannot fail on the stage of Davos,” Horizon Capital CEO Lenna Koszarny said. “In the end of the day, if we failed, we would reflect poorly on Ukraine.”

However, all worked out well.

“I spoke at another session sponsored at a pop-up on the main street called Ukrainian House,” Don Tapscott, the chief executive of the Tapscott Group, says in his op-ed to The Globe and Mail newspaper in Toronto, recalling his panel “Where is the next cryptohaven?”

“The room sat about 80 people and there had to be twice that jammed into it. The big topic was where will this ‘internet of value’ be centered. Most agree that unlike the first era of the internet, this second era would not be based in Silicon Valley. The debate centered on Canada, Switzerland and predictably, given the venue, Ukraine.”

Among the guest panelists were: Alex Fridlyand, a managing director of Soros Fund Management; Ukrainian lawmakers; business executives; Tech Crunch’s editor-at-large Mike Butcher; Mike Harvey, the head of content and communications at Web Summit; Suma Chakrabarti, the president of European Bank for Reconstruction and Development; and Christa Markwalder, a member of the Swiss parliament.

Ukrainian President Petro Poroshenko delivered a speech on Jan. 25 and talked keeping the nation’s partnership with the International Monetary Fund, anti-corruption institutions and fake news.

He also participated in a discussion with Lithuanian President Dalia Grybauskaite and Polish President Andrzej Duda on Russia’s threats to energy security.

Another panel featuring the Klitschko brothers was overcrowded with guests. It hosted more than 200 visitors in a room with only 25 chairs. Location on the central Promenade Street helped, as passersby walked in.

“Our goal was to showcase the best of Ukraine at the highest of international stages, educate and inform the key audience of tech leaders, investors, top officials,” said Alexa Chopivsky, director of the Ukraine House Davos organizing committee. “This was entirely a team effort and I’m really proud.”

The organizers hope events like this can spur much-needed fresh investment. Ukraine attracted only $1.5 billion in direct foreign investment in 2017 and cumulatively has garnered less than $50 billion since regaining independence in 1991.

“I feel that we maximized this opportunity in terms of changing the perception about Ukraine,” Chopivsky said. “First you form perception, then you attract investors.”

Koszarny recalled how visitors and potential investors were amazed as they found out that Ukraine was above India in the technology and the World Bank Doing Business ranking. Ukraine scored 76 compared to 100 for India.

“We are often so hard on this country,” Koszarny said. “We need to also talk about the successes and what we’ve collectively achieved.”

G7 Ukraine Support Group Priority Framework 2018

Canada G7 Ambassadors for Reform in Ukraine

Economic Growth:
– Reform State Fiscal Service, Customs, and financial police and maintain fiscal stability
– Implement further deregulation couples with privatization of state-owned enterprises (SOEs) and band, and improved corporate governance at SOEs
– Introduce the principles of the EU Third Energy Package, ensure effective corporate governance and management of Naftogaz and other energy SOEs, continue diversification of energy supply and improve nuclear energy security
– Comply with IMG program conditionally and lay the legislative foundations for land reform