Lack of foreign direct investment stunting Ukraine’s growth

A little bit better than Morocco, but not as good as Botswana.

That’s how Ukraine does in the 2017 Global Foreign Direct Investment Country Attractiveness Index, in which the country ranks 61st out of 109 countries. And it has slipped one place in the ranking since last year.

Foreign direct investments (FDI) in Ukraine collapsed after the EuroMaidan Revolution of 2014 – in 2017 it was $2.2 billion, or less than half the amount seen in 2013.

FDI in Ukraine peaked in 2008, just before the global financial crisis, at $10.7 billion, according to World Bank figures. After sinking to less than $1 billion in 2014, it had been on the up again, but the downward trend resumed after 2016, when FDI was $3.44 billion.

To put that into a regional perspective, Poland’s 2016 FDI was more than five times higher than that of Ukraine, at $16.76 billion.

Cyprus, the Netherlands and Germany in 2017 were the leaders in FDI in Ukraine, according to Yuliya Kovaliv, Head of the Office of the National Investment Council of Ukraine. But that ranking could be misleading, she said.

“Some European companies restructured their holdings through Cyprus or the Netherlands to minimize tax payments, and also to secure their corporate rights,” Kovaliv told the Kyiv Post during the “Foreign Direct Investment: Prerequisites, Strategies, Measures” conference on FDI held at the Diplomatic Academy of Ukraine in Kyiv on May 29.

According to Aivaras Abromavicius, the former Minister of Economic Development and Trade of Ukraine, the only way to increase FDI level is to make reform work. Speaking on the first conference panel, he said the country can make real progress only in a “sandwich situation” – when Ukraine’s western partners push the government from the top, and civil society pushes up from the bottom.

“If there is no pressure, politicians will have no incentive to do any reforms, because it only effects on their rating negatively,” Abromavicius said.

While conference participants agreed that Ukraine desperately needs to increase the level of its FDI, which was just 2.1 percent of GDP last year, according to the World Bank, they also said this should not be achieved at any cost. Strategically important industries should remain in state hands, said Herbert Stepic, the former chairman of Raiffeisen Bank.

“I’m totally against selling your gas, oil, and water industries,” Stepic said. “But the ports can be put, for example, under long term concession.”

Labor force

Stepic identified the three most important draws to foreign businesses looking to set up shop in a country: a fair and predictable judicial system, fair taxation, and the availably of an educated labor force.

Ukrainian labor does have the obvious advantage over other European countries as being a great deal less expensive. On the other hand, it faces another serious problem – poor productivity, Alfred Praus, the chairman of the Ukrainian-Austrian association, told the Kyiv Post.

“Ukraine needs to work on its labor productivity, because what counts in international industry is salary per piece of production, not per hour,” Praus said. “So, if you need here two hours to do something, but you can do it in one hour in Britain, it’s double the cost here for the same salary. It is also a question of mentality.”

Better climate

During the conference it became crystal clear that there are several key areas where Ukraine needs to improve to win more FDI – taxation, banking, and justice.

Nevertheless, Kovaliv said she has already seen a lot of progress in making Ukraine more attractive to foreign investors – even in taxation, one of the main problem spheres for reforming the country’s economy.

“The automatic system of VAT (value added tax) refunds is working, and companies for the last year haven’t had any serious complains about it,” she said.

And according to Abromavicius, the VAT refund system in Ukraine is also acting as an anti-corruption element.

Moreover, the largest amounts of FDI in Ukraine have historically been pumped into the financial sector and retail.

“Mostly, it was oligarchs financing their own business,” said Kovaliv. The situation provoked an urgent need for reform in the financial sector, which started in 2014-2015, Kovaliv said.

“It’s still not finished, but the hardest job is done,” she said.

But the next item on the to-do list is a big one – reforming Ukraine’s notoriously corrupt and politically influenced system of justice.

“At a practical level, in order to rebuild the system of justice we need to replace thousands of people,” Kovaliv said. “Nevertheless, the Supreme Court will be re-staffed this year and in the next two to three years the results will be visible.”

Investors’ fears

Despite the fact that Ukraine is trying to burnish its reputation around the world – a reputation tarnished by the occupation of Crimea, Russia’s war on Ukraine in the Donbas, and the economic turmoil this has brought – so far most investors are still cautious.

“Unfortunately, over the last four years we haven’t seen a lot of big investments from western countries in Ukraine,” said Burak Pehlivan, the chairman of the International Turkish Ukrainian Business Association.

“We have good results and trends, but at the same time we have a lot of problems in the protection of investments,” said Ruslan Osypenko, the CEO of the Chinese Commerce Association.

New Beskyd tunnel moves Ukraine closer to EU

New Beskyd tunnel moves Ukraine closer to EU

The long-awaited launch of the double-track Beskyd tunnel in Ukraine’s Carpathian Mountains integrates the country’s infrastructure with the pan-European transport network Corridor V, stretching from Venice to Slovenia, Hungary and now Lviv.

It will take on 60 percent of rail traffic between Ukraine and the European Union, according to the European Bank for Reconstruction and Development, which provided $40 million in loans for the project.

The tunnel was also financed by the European Investment Bank ($64 million loan). The Beskyd tunnel is expected to quadruple the current capacity of train traffic from 12 units per day to 46 in both directions.

The tunnel is Ukraine’s first public sector project built under the standards of the International Federation of Consulting Engineers.

Ukraine likely to need fresh IMF support in coming years – IIF

LONDON, May 21 (Reuters) – Ukraine is likely to need a new IMF bailout programme in the coming years to plug an up to $5.5 billion-a-year hole in its finances, the Institute of International Finance has warned.

Ukraine is hoping to get a long-delayed $1.9 billion tranche from its current IMF package in the next three to six months , but new analysis from the Washington-based IIF on Monday laid out the country’s precarious longer-term picture.

Real exports are now roughly half the level they were in 2008, economic growth is a better but not stellar 2.5 – 3 percent a year and its energy import bill is rising in tandem with global oil and gas prices.

It’s the country’s external finances that pose the biggest risk though, the IIF said. For Kiev to remain “comfortable” next year, bond market lenders will have to ‘rollover’ — re-lend — 100 percent of their loans to the country.

However, if that ‘rollover’ rate stayed at last year’s 85 percent level the government would face a $3 billion funding gap and one of $5.5 billion if rate dropped down to 75 percent.

“Unless capital inflows pick up substantially, Ukraine will likely need fresh IMF support in coming years,” to meet its needs, the IIF analysis said.

“The cumulative financing gap for 2019-21 could reach $16.5 billion, or 90 percent of international reserves in a low rollover rate scenario.”

Ukraine’s current IMF programme is due to finish next year. The country has so far received $8.4 billion of what was originally supposed to be $17.5 billion of aid.

Its overall amount of short-term debt has fallen and its reserves have more than doubled during the programme, but both are projected to reverse these moves as it comes to an end.

Between now and 2021 it has $20 billion of IMF and other ‘official sector’ debt payments due. The government’s revenues will also be squeezed, the IIF said, as new gas pipes allow Russia to pump its gas around Ukraine rather than through it, meaning it will no longer have to pay transit fees. (Reporting by Marc Jones, Editing by William Maclean)

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Source: REUTERS

National Aviation University and Canadore College had signed the Bilateral Agreement of cooperation

On May 16, 2018 National Aviation University and Canadore College (Ontario, Canada) had signed the Bilateral Agreement to implement joint research projects and student exchanges. In the addition, the Quadripartite Memorandum had been signed between the National Aviation University, the Antonov State Enterprise, the Canadore College and the airport named after Jack Garland, North Bay (Ontario, Canada) on further development, expansion and enrichment of cooperation between Parties in education, research and industrial activities.

The official part of the signing ceremony of the Agreement and Memorandum was held at the Embassy of Canada in Ukraine. The event was attended by the Ambassador Extraordinary and Plenipotentiary of Canada to Ukraine Roman Vashchuk, the Rector of the National Aviation University Volodymyr Isaienko, the President of the Canadore College George Burton, the first Vice-president of the Antonov state enterprise Iurii Kordianin, as well as the delegations of the Parties.

“Our cooperation with the CanadoreCollege began last summer, during this short time we moved from the intention to cooperation in training aviation specialists for the stage of formation of common aviation business and scientific projects,” said the Rector of the National Aviation University Volodymyr Isaienko during the signing ceremony.

“The signing of this Agreement and the Memorandum is a confirmation of our desires and opportunities, the resources of our educational institutions allow us to move together through the creation of joint projects in the field of education,” said George Burton, the President of the CanadoreCollege.

Roman Vashchuk, the Ambassador Extraordinary and Plenipotentiary of Canada to Ukraine, noted that the signing of a Bilateral Agreement and Memorandum of Cooperation between the National Aviation University, Canada College, Antonov State Enterprise and North Bay Airport symbolizes the beginning of large-scale cooperation between Ukraine and Canada in the field, and also the development and deepening of partnership in the aviation industry between our countries.

Within the framework of the visit to Ukraine, the Canadian delegation and the authorities of NAU visited the Antonov state enterprise; the State enterprise aircraft repair plant 410 and the “Gostomel airport “.

  

 

Source: NAU Press Release

Russia ordered to pay $159 million in compensation to Ukrainian companies in Crimea

By Natalia Datskevych.

The Permanent Court of Arbitration in The Hague has ordered Russia to pay $159 million in compensation to 18 Ukrainian companies and one individual for property seized after Russia’s occupation of the Ukrainian territory of Crimea.

The decision, issued on May 10, is the first ruling on compensation issued against Russia in the wake of its 2014 invasion and subsequent occupation of the Ukrainian peninsula. Russia claims to have annexed the territory, but this has only been recognized by a dozen-or-so states, such as Cuba and North Korea.

It is expected that the Russia will appeal against the court ruling.

The main plaintiffs were Everest Estate LLC, the builder of an apartment complex in Gurzuf and a hotel in Yalta, and radio company Zhisa, which was previously part of the 1+1 Media holding.

Some of the companies have been linked to Ukrainian oligarch Ihor Kolomoisky. According to the Prosecutor General’s Office of Ukraine, Everest Estate was associated with PrivatBank, which was previously owned by Kolomoisky.

Two other companies, Dyries and Dilayn Ltd., which were also among the plaintiffs and owned land in Alushta and Foros, had as end-beneficiaries Kolomoisky and Gennady Bogolyubov, another Ukrainian oligarch.

Another plaintiff, the Energetik Sanatorium, belonged to Kolomoisky as well.

In 2014, the Russian occupation authorities in Crimea started the “nationalization” of the assets of Ukrainian-owned private companies. The assets were confiscated by force and placed on a list of property in Crimea that was no longer considered to be Ukrainian-owned.

More than a year-and-a-half later, on Dec. 28, 2016, the Russian occupation authorities in Crimea passed a law stipulating a procedure for reimbursing Ukrainian owners for the “nationalization” of their assets.

However, it does not apply to individuals against whom criminal cases have been opened in Russia, especially those accused of crimes of extremism.

In Russia, Kolomoisky has been accused of murder and using of prohibited methods of warfare.

The Russian occupation authorities in Crimea therefore declared that Kolomoisky would not receive any reimbursements for the seizure of his property.

Subsequently, the Ukrainian billionaire sued for $2 billion in compensation from Russia for the “nationalization” of more than 100 of his assets in Crimea.

The main asset seized by the Russian occupation authorities was the PrivatBank network in the peninsula, with its 39 branches, 359 ATMs and 557 payment terminals.

Furthermore, a network of 32 gas stations in Crimea, Belbek airport, and a tank farm in Sevastopol, which Kolomoisky co-owned with Alexander Annenkov, a former deputy minister of transport of Russia, were “nationalized” as well.

The Permanent Court of Arbitration located at The Hague in the Netherlands.
Photo by Facebook/Permanent Court of Arbitration

Source: Kyiv Post

World Bank: Value of Ukraine’s land to triple if farmland sales permitted

By Natalia Datskevych.

The value of Ukraine’s land will triple, to $3,500 per hectare, if Ukraine cancels restrictions on land ownership, the World Bank believes.

Satu Kahkonen, World Bank country director for Belarus, Moldova and Ukraine, told news agency Bloomberg in a story published on May 7 that the country’s budget is losing billions of dollars because of the moratorium on sales of farming land, which prevents Ukrainians from selling their land to investors and forces them to rent it out instead.

However, Ukraine’s authorities do not want to cancel the moratorium for political reasons, such as the upcoming presidential elections in 2019, she said.

The Verkhovna Rada on Dec. 7 delayed land reform by another year, extending the moratorium at least until Jan. 1, 2019. This was despite the fact that agricultural land market reform is one of the areas in which Ukraine’s financial backers, the International Monetary Fund and the World Bank, have hoped to see progress since last year.

Pavlo Koval, the general director of the Ukrainian Agrarian Confederation, a nonprofit that promotes the interests of Ukrainian farming businesses, including major agricultural companies, agreed with Kahkonen’s prediction that prices will rise if the moratorium is lifted, but told the Kyiv Post that prices of between $2,000 and $2,500 per hectare are more realistic.

Ukraine’s former Agriculture Minister Oleksiy Pavlenko (2014-2016) who now currently heads the Program for Agricultural Industry Development, a non-profit, says that land prices depend on many factors. Currently, the price of renting a hectare of farmland varies between $400 to $1,300 in Ukraine depending on the quality of land in the region and the length of the contract, which could range from three to 49 years, he said.

“After the cancellation of the moratorium, the prices will rise, and, most likely, will be similar to prices in other Eastern Europe countries that have already undergone such reform,” Pavlenko told the Kyiv Post. For example, land in Romania sells for 4,500-5,000 euros per hectare.

“Once the land market is launched, the price will continue to grow over the following six months,” Pavlenko said.

The price will generally depend on each regions’ conditions and specialization. For example, Ukraine’s southern regions specialize in vegetable crops and horticulture. A hectare of land will also cost more if it is irrigated.

“(A hectare of) irrigated land with sandy soil in Kherson Region will be worth one-and-a-half times more than a hectare without irrigation,” Pavlenko said.

The price will also depend on who – individuals, legal entities and/or foreigners – will be allowed to purchase land in Ukraine, Koval said.

 

Source: Kyiv Post

Ukraine Is Worth Fighting For

May 3, 2018

Kyiv. The new conventional wisdom is that four years after Maidan, reforms have stalled in Ukraine and corruption has consumed the leadership. But this picture is hardly true.

Certainly, the economy has stabilised, but economic growth stopped at 2.1 per cent last year. Yet a broad reform agenda is still proceeding, though everything is contentious. The most striking impression from one week of intense meetings with senior policymakers and businessmen in Kyiv is that every issue is contested. The many conflicts slow down the speed with which things move forward, but they also block reversals.

Open and transparent

Ukraine is a remarkably open and transparent society, making it easy to figure out what is going on, while the drama is multifaceted and complex. Nobody seems to be afraid. A lively and competent civil society usually starts the criticism and comes up with concrete reform proposals.

The Cabinet of Ministers is divided on almost every issue between reformers and those preferring to make money on government. Wealthy businessmen dominate the parliament, but even so the parliament promulgates surprisingly reformist laws. Ukraine has not stopped. It is fighting its internal battle over reform or corruption.

The political options remain open. Ukraine is scheduled to have presidential elections in March 2019, and parliamentary elections in October 2019, though the latter can be moved forward. President Petro Poroshenko wants to stay on for another term, but the latest poll put his rating at a miserable 12.7 per cent, while former Prime Minister Yulia Tymoshenko leads all polls, though only with 15.2 per cent. Ukrainians hold all institutions – apart from the military and the church – in low esteem.

Kyiv is a lively place. Few places have so many protests, because there is a lot to protest about. Last October, a major public manifestation in Kyiv set the political agenda for the current debate. Ukrainians oppose corruption and demand the rule of law, which tops the political agenda. Therefore, the first popular demand is the establishment of an independent corruption court, the second is for proportional parliamentary elections, and the third the abolition of parliamentary immunity.

The divide is clear

On September 15 last year, Poroshenko made an impressive speech on foreign policy at the annual Yalta European Strategy Conference in Kyiv, but when responding to a question about the formation of an independent anti-corruption court, he stated it was necessary. He preferred an anti-corruption chamber within the ordinary court system, but presently the courts are pervasively corrupt. The next day, Prime Minister Volodymyr Groisman stated softly that he did not oppose an independent anti-corruption court. The divide was clear to all.

In parallel, Ukraine was pursuing a complex judicial reform. A civil society body evaluated that one-quarter of the more than 114 new Supreme Court judges had tainted integrity, but even so last November the president swore in all but one of them. Apparently, corrupt behaviour did not preclude anybody from being appointed to the Ukrainian Supreme Court.

The botched judicial reform has convinced Ukraine’s reformers and the international community that the formation of a truly independent anti-corruption court is vital. Just before the Christmas holidays, Poroshenko submitted his much delayed proposal to parliament. Three weeks later, the International Monetary Fund, the World Bank, and the European Union each presented very similar criticism of the draft law. It would not make the judges independent, sufficiently many, or give them the relevant jurisdiction. Poroshenko passed on the responsibility to parliament. On February 28, the parliament voted for the draft law on the anti-corruption court with a large majority. The question is whether the parliament, through its amendment, will make the court truly independent.

Reform is possible

In January the Ukrainian parliament, to general surprise, also passed a draft law on proportional elections in a first reading, showing that reform is possible. The reason for the strong demand for the abolition of parliamentary immunity is the many dubious businessmen in the parliament who hide there from prosecution.

The international community maintains strong leverage in Ukraine. Unless the country receives IMF financing, it can hardly get through 2018 without a major depreciation of the Ukrainian hryvnia, which would be devastating in the 2019 elections. Politically, Ukraine needs Western support against Russian military aggression. This is well understood in Kyiv.

As usual, the IMF has a brief but firm reform agenda. Its foremost demand is an independent anti-corruption court, followed by an alignment of domestic gas prices with international prices. Next comes the legalisation of private sales of already private agricultural land. Macroeconomic policy, the traditional IMF focus, is much less controversial, since the central bank and the ministry of finance remain bastions of reform.

Stability takes hold

The battle for and against reform is going on every day. Macroeconomic stability has taken hold and can be defended, and Ukraine has proven that it can stand up against Russia’s military aggression. But the victory will not be safe until rule of law has been established so that Ukrainians can trust their property rights to home and land.

The West cannot reform a country without domestic support, but in Ukraine there is strong popular support for sensible reforms. The West needs to offer sufficient conditional support and engagement to the good causes so that the balance can tip to victory for the reformist circles.

In Ukraine, Europe and the West can stand up and deliver or fail. This is the joint front against corruption, state capture, and Russian aggression, all in one. The West had better win this battle, but then it needs to engage fully, offering more financial support, albeit with strict conditions.

The views expressed in this opinion editorial are the author’s own and do not necessarily reflect Emerging Europe’s editorial policy. 

Source: Emerging Europe

Ukraine’s democracy is approaching ‘make or break’ — and the West is missing in action

 May 1

KIEV, Ukraine — Russian President Vladimir Putin is waging a global ideological war against Western liberal, democratic values. It has been underway for many years, and it extends from his own immediate neighborhood to Western Europe and, of course, the United States, where he intervened in the U.S. presidential election in 2016.

The front line of this ideological war between Putinism and democracy, however, remains Ukraine.

Having spent the last week in Kiev, I can see why Ukraine today frightens Putin. This Slavic nation with some shared historical and cultural legacies with Russia is building democracy. Over lunch one afternoon, I listened to members of Parliament argue vigorously over the pluses and minuses of a draft law. That doesn’t happen in Russia anymore.

On another morning, I met with two dozen non-government leaders working to combat corruption and disinformation. Ukrainian civil society remains robust, independent and a force capable of constraining the state and shaping public policy outcomes. There is little evidence of that in Russia, either.

Another evening, I heard several Ukrainian politicians complain about oligarchic ownership of television channels. But one oligarch — or the state — does not control all media outlets. That kind of media competition and pluralism no longer exists in Russia.

In conversation with Ukrainian government officials, business leaders and journalists, I also encountered a variety of assessments of the pace of economic and political reform under President Petro Poroshenko and his government. Some applauded new momentum toward decentralization; others dismissed its significance. Some highlighted real new efforts at fighting corruption; others lamented the slow progress. Some praised International Monetary Fund conditionality as a positive force for reform; others denounced the IMF’s neo-liberal orthodoxy as a drag on economic growth. But most striking of all was the debate itself. Different groups with opposing views were engaged in vigorous debates about major public policy issues. That also doesn’t happen very often in Russia anymore.

These contesting leaders, factions and parties are gearing up already to take their arguments to the voters, as the presidential elections are scheduled for next year, followed months later by parliamentary elections. Here’s another interesting thing: No one knows who will win. That’s how democracies are supposed to work — and it’s exactly what didn’t happen in Russia’s presidential election this year. Long ago — years ago — everyone knew that Putin would be the victor.

All of this democratic activity right on Russia’s borders threatens Putin and his system of government. If Ukrainians can make democracy work, they might inspire Russians to want the same. Therefore, Putin remains deeply committed to undermining Ukraine’s still-fragile democratic project. For four years, Putin’s forces have occupied parts of Ukraine, and continue to wage a war against Kiev in the country’s East. Russia continues to exert strong economic pressure on Ukraine. And the Kremlin’s propaganda efforts to portray Ukraine as a failed, corrupt state continue unabated both inside Ukraine and in the West. The Kremlin disinformation campaign creates a real quandary for Ukrainian civil society organizations: They want to continue to expose corruption and government failures, but in doing so, they also help the Russian narrative.

The next major battle in this international war of ideas will occur during next year’s presidential election in Ukraine. On a much greater scale than Russian meddling in our 2016 presidential election, the Kremlin and its surrogates will support candidates, sow division within Ukrainian society and fuel doubt about the freedom and fairness of the vote. Ambiguity about the legitimacy of the electoral process might tempt some to question the results, potentially triggering street demonstrations, polarization and maybe even violent clashes. Many Ukrainians said to me this week that this election is the most pivotal and most dangerous in Ukraine’s post-Soviet history.

Putin seeks to use this election to foment chaos, disorder and doubt about democracy. The United States and our democratic allies must seek the opposite: a peaceful, legitimate, free and fair election. We cannot sit on the sidelines and just hope for this outcome. Putin is engaged in pursuing his anti-democratic agenda; we must deepen our engagement now — not just weeks before the election — to advance the cause of democracy. This means, first of all, funding robustly anti-disinformation projects, campaign transparency initiatives and election-monitoring programs inside Ukraine as well as a massive international election-monitoring effort closer to the election.

Second, the Group of Seven — which Russia is not a part of — must commit publicly, and in advance, to use sanctions and other means to punish Russian interference in Ukraine’s election.

Third, Western leaders must state unequivocally that they are not supporting any individual candidate in this election, only the process. (I heard too many conspiracy theories this week about how the White House or Brussels will choose Ukraine’s next president. Those rumors undermine the legitimacy of the election.)

Fourth, Western democratic leaders must start now on putting together a new economic, military and political assistance package to be delivered immediately after the election, thus giving a boost to the next democratically elected president. The period right after the vote offers the most propitious moment to pursue the most painful but needed economic reforms.

Finally, all of these steps must be repeated for the equally important parliamentary elections occurring months later.

A free and fair presidential election would mark a major milestone in Ukraine’s democratic consolidation. That’s why Putin fears it. And that’s why we in the democratic West must support it.

Michael McFaul is director of the Freeman Spogli Institute for International Studies and a Hoover fellow at Stanford University, and a contributing columnist to The Post. He was previously special assistant to President Obama at the National Security Council from 2009-2012 and former U.S. ambassador to Russia from 2012-2014.

Follow @McFaul

Source: Washington Post