World Bank improves forecast for Ukraine’s economic growth in 2018

The World Bank has improved its forecast for the growth of Ukraine’s GDP in 2018 to 3.5% from 3%, while the forecast for 2019 has been revised upwards to 4% from 3%, according to previous the projections given in January 2017.

“In Ukraine, government stabilization efforts, supported by international financial institutions and a bumper agricultural crop, led to a sharp rebound in growth to 2.3 percent, following a cumulative 15.8 percent contraction in 2014-15 in the wake of geopolitical tensions with Russia,” the World Bank said in its report titled: “Global Economic Prospects June 2017: A Fragile Recovery,” published on June 3.

The Bank says that it also revised upwards the assessment of Ukrainian economic growth in 2016 to 2.3% from 1%, having maintained the forecast for the current year at 2%.

“In general, currencies in commodity exporters have strengthened and inflation has retreated as commodity prices have stabilized, allowing monetary policy to be eased in some countries (e.g., Brazil, Chile, Colombia, Ghana, Kazakhstan, Russia, Ukraine). Fiscal policy adjustment to low commodity prices is easing in countries where such adjustment started early and is well advanced (e.g., Honduras, Indonesia, Malaysia). Confidence is generally improving, although it remains fragile (e.g., Argentina, Brazil, Kazakhstan, Nigeria, Russia, Ukraine),” the report said.

“While private consumption growth appears to have bottomed out, impaired household balance sheets continue to weigh on consumption in some countries (e.g., Brazil, Kazakhstan, Russia, Ukraine),” it added.

The Bank also mentioned a cargo blockade on eastern region in Ukraine in March among geopolitical risks within the region.

As was reported with reference to the State Statistics Service of Ukraine, the growth of Ukraine’s GDP in the first quarter of 2017 slowed to 2.4% year-over-year, against 4.8% in the fourth quarter of 2016, which coincides with the World Bank’s projections.

Ukraine’s government drew up the 2017 national budget proceeding from a 3% increase in GDP amid 8.1% inflation, while the National Bank of Ukraine (NBU) expected a 2.8% rise in GDP amid 9.1% inflation.

The NBU later lowered its GDP growth forecast to 1.9% due to the Donbas blockade, while the government updated its economic growth forecast setting at 1.8% and revising its inflation forecast upwards to 11.2%.

Inflation in Ukraine in January-April 2017 was 4.9%. Inflation in April 2017 from April 2016 slowed to 12.2% against 15.1% in March 2017 from March 2016.

Ukraine’s government projects GDP growth will accelerate to 3% in 2018 and further to 3.6% in 2019 while inflation will slow to 7% and 5.9%, respectively.

Source: infagro.com.ua

Ukraine Is Silently Leading A Digital Currency Revolution

There’s a witticism sometimes used among Ukrainians: “may you be forced to survive only on your official salary.” The quip is both a tongue-in-cheek nod to the endemic corruption that is a daily, often necessary, reality of life in Ukraine and also emblematic of a certain self-effacing, survivalist mentality constituent to the national character. In recent years, the necessity of this “go-it-alone” approach to daily life has led to first-in-the-world technological strides.

Ukrainian frustration with the corrupt status quo boiled over in 2014, leading to the Euromaidan revolution and the ousting of Kremlin ally Viktor Yanukovych. But beyond the photo-ready scenes of violent confrontation, ensuing economic instability saw a digital revolution silently take hold in the form of an almost unparalleled adoption of digital “crypto-currencies,” such as bitcoin.

Bitcoin is based on so-called “blockchain” technology, a “centralized but decentralized” concept that helps the currency simultaneously balance security, anonymity and fiscal stability. The blockchain is “centralized” in that it serves as a ledger by which digital transactions—say, sending a single bitcoin to an online vendor—are tracked to ensure that, for example, the bitcoin is actually yours and not a digital copy. But the ledger is also “decentralized,” in that it’s distributed widely and open to the public, allowing no single party or group to game the system. The result is an ostensibly open, transparent system of currency.

Ukraine has been nothing short of passionate in its embrace of bitcoin, with many citizens using the currency as a hedge against extreme inflation and an unstable hryvnia that has lost 80% of its value amid ongoing turmoil. In 2014, nearly 5,000 BNK-24 ATM terminals nationwide began offering the option to buy bitcoins for cash as effortlessly as one would conduct any other automated banking transaction. Last year saw one Ukrainian bitcoin-selling service report a five-fold increase in demand, and the country also became the first regulated market in the world to begin offering futures on bitcoin contracts.

But perhaps most notably, the Ukrainian government has sought to apply the promising technology’s tell-tale transparency to its process of auctioning state property. In 1991, when the Soviet Union collapsed, Ukraine underwent a sort-of “revolution without a revolution.” The same basic, established power structures remained in place, despite an ostensibly more democratic government that had, in reality, done little more than change the titles on its business cards.

As Ukrainian historian Dr. Serhy Yekelchyk writes in Ukraine: Birth of a Modern Nation: “The new elites were essentially the old Soviet bureaucrats in Ukraine who came to power as a result of imperial collapse rather than revolution and thus felt no need to develop either democratic institutions or a market economy.”

With former party elites maintaining their positions of power under a different banner, the process of auctioning off state assets to the private sector became a lucrative target for the unethical. With a small group of elites controlling the auction process, access could be used to curry favor and to line the pockets of the country’s entrenched oligarchs. Both ousted Ukrainian President Viktor Yanukovych and former Prime Minister Yulia Tymoshenko—nicknamed the “gas princess” for the fortune she amassed in the natural gas industry—are among the high-ranking officials alleged by court documents to have benefited from such practices.

Last July, at a blockchain-related conference in Odessa—one of two Ukrainian bitcoin conferences held in 2016, both of which drew sellout crowds—Minister of Finance Oleksandr Danylyuk laid out plans to move the auction process from a paper-based system to the new blockchain-based “Auction 3.0” system, thereby ensuring transactions would be public and fully transparent. The efficiency of the system—which represents one component of a “Cashless Economy Project” undertaken by the National Bank of Ukraine slated to run through 2020—promises a number of additional benefits, including significant cost savings and a dramatic decrease in the bureaucracy needed to run the system.

The timing of this dramatic rush toward digital currencies is not without a certain sad irony. Ukraine is perhaps the nation most singularly affected by the foreign policy shifts following the election of President Donald Trump. Trump’s unabashed willingness to cozy up to Russia, whose ongoing military presence in Ukraine underlies many of the nation’s economic woes, represents a waning opportunity for Ukrainians who had hoped for a more hard-line stance from the United States. With a long history of Westward-reaching diplomacy, even under Soviet rule, the country became the third-largest recipient of American foreign aid by the end of the 1990s, despite only achieving independence in 1991.

Thus even as the idealized ally upon which Ukraine modeled its very constitution finds itself rushing headlong into that which Ukraine has long sought to flee, Ukraine’s commitment to blazing new trails in the name of transparency represents a commendable example for an American political sphere increasingly marked by intentional obfuscation and “alternative facts.”

Author: Ben Carnes

Mr. Carnes is communications director and policy analyst for the R Street Institute, a free-market think tank in Washington, D.C. Mr. Carnes previously served as communications director for Rep. Trent Franks (R-AZ) and Rep. Darrell Issa (CA-49).

Source: forbes.com

Ukraine’s IT boom could speed up EU integration

Ukraine has a literacy rate of 99.7 percent, which is higher than most EU states

June 2017 will mark the three-year anniversary of the association agreement between the European Union and Ukraine, and while the Eastern European state has taken major steps towards European integration, its progress has been slow.

With the signing of the EU agreement in 2014, it seemed as if Ukraine’s dream of Western integration would finally become a reality. This feeling materialised in 2015 as Ukraine took significant steps in its fight against corruption.

Last year, however, presented new challenges.

The failure to remove various corrupt government officials undermined progress. Furthermore, as anti-corruption efforts stalled, Odesa governor Mikheil Saakashvili, among others, resigned in frustration.

Events within the EU further stymied Ukraine’s progress towards European integration.

In April 2016, the Dutch overwhelmingly rejected closer EU ties with Ukraine. Matters became worse in June when the United Kingdom, one of Ukraine’s staunchest advocates in the EU, voted to leave the bloc.

Implementation of the agreement allowing visa-free travel to the EU has also been delayed. Given these developments, Ukrainian enthusiasm for Europe is slowly waning as many Ukrainians believe the EU may not deliver on its promises.

Critics of Ukraine argue that it is far from ready to join the EU, citing corruption as its major hurdle.

Furthermore, some EU members are concerned that Ukraine’s economy would be a drain on European resources.

This comes at a time when the EU faces the loss of the UK, one of its biggest financial contributors. Some critics argue that it will take at least 20-25 years for Ukraine to be admitted into the organization.

Ukraine continues to face these problems in 2017. It was ranked 131st in the world on the Corruption Perceptions Index, and the war in Donbas has escalated.

New case

While Ukraine’s future may seem bleak, the eastern European state has a new case to present to the EU.

Its educated populace and the IT sector may accelerate the membership process and boost national morale during this difficult period in its history.

Ukraine has a literacy rate of 99.7 percent, which is higher than most EU states. This statistic demonstrates that it can be a vital member of the international community.

The well-educated populace has also led to a booming IT sector, with venture investments in Ukrainian start-ups jumping 237 percent from 2014-2015.

There are currently over 100,000 skilled IT professionals in Ukraine, and the training and knowledge of Ukrainian software developers are on par with those of Silicon Valley. The IT sector accounted for 3 percent of Ukraine’s annual GDP, and has generated billions of dollars in exports.

The work of these Ukrainian developers has not gone unnoticed. Corporations such as Snapchat and Uber have performed well in Ukraine.

Moreover, GitLab co-founder Dmitriy Zaporozhets was listed in Forbes 30 Under 30 as one of the most successful people in the world in the enterprise technology sector.

In addition, international companies are outsourcing to numerous Ukrainian tech start-ups.

Firms such as Ecois.me and Petiole have gained international acclaim and were recognized for their contributions to the Ukrainian market.

Given their expertise, Ukrainian developers would be a valuable asset to the European community as they have demonstrated that they are very motivated, well-trained, and capable.

The recent rise in Ukraine’s tech industry has had a major impact on foreign investment. The tax burden in Ukraine is one of the lowest in Europe, and many investors have capitalised on this opportunity.

Investors

Private sector technology firms from Sweden have invested millions of dollars into the tech industry.

The strong performance of IT companies such as Sigma Software and Beetroot have encouraged others, like Danish company Clio Online, to enter the market.

As the IT sector continues to expand it is likely that private tech companies from other EU members will conduct business in Ukraine. This partnership could strengthen international cooperation between the EU and Ukraine.

The IT sector in Ukraine could also help reduce corruption. During the early 2000s Estonia invested heavily in the tech industry, even choosing to develop electronic services to oversee transactions online between government and citizens.

These programs established greater transparency and facilitated good governance. In the words of former Estonian president Toomas Hendrik Ilves, “you can’t bribe a computer.”

Thanks largely to the effect of technology, the Baltic state is now ranked 23rd in the world on the Corruption Perceptions Index.

Using Estonia as a model, Ukraine’s IT sector could play a critical role in fighting corruption, thereby building confidence in Ukraine and easing the concerns of critics in the EU.

With demonstrated strength in the growing IT sector, Ukraine is showing that it can compete with the tech industries of any Western state, and data processing solutions can contribute to greater efficiency and investments across both the private and public sectors.

This suggests that Ukraine is not as far behind as critics suggest, and that skeptics in the EU should not be so hasty in dismissing a potential engine of growth on the continent.

Author: Mark Temnycky is a Ukrainian-American pursuing a masters in public administration and international relations at the Maxwell School of Citizenship and Public Affairs in Syracuse University, New York, in the US

Source: Euobserver

Ukrainian IT industry employs 100,000 people

The Ukrainian IT industry now employs 99,940 people — up from 89,300 last year — according to the latest report of DOU.UA, an authoritative industry resource. The figure includes programmers, QA specialists, project managers and other IT-related professionals.

Almost half of these professionals live in Kyiv (Kiev). Others are inhabitants of such other major Ukrainian cities as Kharkiv (Kharkov), Lviv (Lvov), Dnipro (previoulsy known as Dnipropetrovsk), and Odessa.

With its Ukrainian offices in Kyiv, Dnipro, Lviv, Kharkiv and Vinnytsia, US-headquartered EPAM is the biggest employer in the industry. Among other industry leaders are such companies as SoftServe, Luxoft, GlobalLogic and Ciklum, if judging by the number of employees, says the report.

With monthly salaries reaching or exceeding $3,000 for certain specialties, remunerations in the Ukrainian IT sector are high or very high by local standards.

Women are becoming more interested in the field. This year the share of female specialists now reaches 15%, up two percentage points from last year.

Ukrainians have shown growing hunger for IT education, according to the study. In 2015, almost 30,000 Ukrainians attended IT courses.

Among the organizations supporting the educational effort is the BrainBasket Foundation, a Ukrainian NGO. Earlier this year George Soros offered his personal support to BrainBasket’s Technology Nation program through the International Renaissance Foundation.

Ukraine’s IT work force could double to some 200,000 by 2020, according to a recent report on the Ukrainian IT outsourcing and software devemopment by Ukraine Digital News and AVentures Capital.

[pdfviewer width=”800px” height=”500px” beta=”true/false”]https://www.cucc.ca/wp-content/uploads/2017/03/ua_hightech.pdf[/pdfviewer]

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2017 Should Be the Year Ukraine’s Economy Takes Off

Three years after the Revolution of Dignity, the Ukrainian economy has stabilized and is ready for growth. Will the growth be fast or slow? Dangers lie ahead, but opportunities prevail.

Success is easily taken for granted, so it is worth recalling what Ukraine has accomplished in the past three years. An unsustainable budget deficit of 10 percent of GDP has now been brought down to about 3 percent of GDP, mainly through cuts in public expenditures. The public debt has leveled out at 80 percent of GDP, while the IMF had feared it would spiral out of control. The government has sensibly reduced the exorbitant payroll tax from 45 percent to 22 percent.

Foreign payments have reached balance thanks to a necessary devaluation of the hryvnia, and the exchange rate has stabilized on the market. Ukraine’s international gold and currency reserves have surged from $5 billion in February 2015 to $15 billion, sufficient for a gradual liberalization of the strict currency controls. Ukraine accomplished this while Russia deprived it of one quarter of its prior exports through draconian trade sanctions.

With the nationalization of PrivatBank on December 18, the National Bank of Ukraine (NBU) has nearly completed an impressive cleansing of the corrupt and undercapitalized banking system. Owing to its strict monetary policy, the NBU has reduced inflation from a high of 61 percent in April 2015 to 12 percent today.

Ukraine has carried out major structural reforms. The unification of energy prices deprived corrupt gas traders of up to eight percent of GDP. The e-declarations of wealth will deal a major future blow to corruption. The ProZorro public procurement system does so as well, and so do deregulation and improved corporate governance.

Yet none of this offers the Ukrainian people much solace. The economy started growing by 2 percent in the third quarter of 2016, but only after a frightful slump of 17 percent in 2014-15. The quality of public services must also improve. These are the great hopes for 2017.

In the new year, reform of the state administration should finally start in cooperation with the European Union. The byzantine top government structures need to be simplified, modernized, and opened up.

Acting Minister of Health Ulana Suprun has launched the first real reform of the Ukrainian health care system. Minister of Education Lilia Hrynevych is sensibly trying to restore the twelve-year school system that was vandalized under Viktor Yanukovych. The most important reform of the state is the judicial reform that was legislated last June. A new Supreme Court is supposed to be composed in March.

Hopefully, a reformed government will interact better with the private sector. More deregulation is gradually taking place, but do not expect significant improvement of the fiscal or customs services. That is likely to take another year.

Current forecasts suggest 2-3 percent growth in 2017, but it should be the year that Ukraine takes off with a much higher growth driven by exports to Europe, the Middle East, and China. Lower inflation and interest rates should spur credit expansion and drive higher domestic investment. Energy production should rise with lower taxation.

Yet our forecasts must not be too rosy. The greatest threat to Ukraine’s immediate future is US President-elect Donald Trump, who seems to be dying for an early deal with Russian President Vladimir Putin. The victim is all too likely to be Ukraine.

Another Russian threat is the arbitration case between Naftogaz and Gazprom in Stockholm. Naftogaz claims $28 billion and Gazprom $39 billion, which renders this the biggest international arbitration case in history. A verdict is expected in the second quarter, though any settlement would presumably take years.

Traditionally, Ukraine received about 4 percent of GDP in foreign direct investment each year, but this has effectively been zero since 2014 because of Russia’s military aggression, and minimal recovery is expected in 2017.

By contrast, Ukrainian domestic concerns seem relatively limited. Prime Minister Volodymyr Groisman aspires to the legalization of private sales of agricultural land by 2020, which might be realistic. After having failed to privatize the Odesa fertilizer plant twice, privatization has stalled. Corruption scandals are ample and they are welcome because they expose and impede corruption.

In view of Ukraine’s substantial reform attainments and embattled position, one would hope that the international community would mobilize $5 billion a year in international investment credits to compensate for some of the great damage Russian aggression has caused to the Ukrainian economy.

Anders Åslund is a senior fellow at the Atlantic Council in Washington. He tweets @anders_aslund.

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Ukrainian IT Industry: How to transform Ukraine’s brain drain into brain gain

Returning IT entrepreneurs can help Ukraine to upgrade from breadbasket to brainbasket

In February 1992 my former employer, Digital Equipment of Canada, moved me to Kyiv to develop its IT business from scratch. At the time, DEC was the No. 2 global IT company. Prior to my arrival, the transfer of sophisticated technology was prohibited due to strict Cold War export restrictions. Regulations were relaxed after the Soviet Union collapsed. Even then, in 1991, everyone talked about Ukraine’s IT potential. Twenty-five years have passed and Ukraine’s economy continues to struggle along, taking several steps forward then several steps back.

Despite this, Canada has remained a fervent supporter of Ukraine’s economic, social, and political transformation. Support is partially based on Canada’s strong Ukrainian diaspora, but also because Canada can serve as a good example. With both countries strong in agriculture and technology while bordering a big, influential neighbour, Canada and Ukraine have shared attributes of multiculturalism, diversity, and technology innovation.

As a show of this support, the Canada Ukraine Business Forum took place in June in Toronto. The objective was to increase trade and investment between Canada and Ukraine. Three weeks after the forum, Canadian Prime Minister Justin Trudeau arrived in Kyiv. While in Ukraine, he and Canadian Minister of Trade and Development Chrystia Freeland signed the Canada Ukraine Free Trade Agreement (CUFTA), eliminating about 98% of all duties. Promising sectors for trade include aerospace, transportation, energy, agro-tech, defence and security, and information technology. All have the potential to create win-win opportunities for both countries.

As a good example, one of Canada’s largest retailers has contracted more than 700 Ukrainian software engineers to help them develop leading edge IT solutions to maintain an advantage against global technology giants such as Amazon and Ebay. CUFTA will make more opportunities like this possible.

Ukraine’s bountiful brainbasket

One of the most successful panels at the Toronto business forum was ‘The New Ukraine – an Emerging Technology Nation’, where the chasm between Canada and Ukraine’s high-tech ecosystems was evident. The key to Ukraine’s growth in ICT is investment. The problem is not a lack of private capital availability. According to the 2016 Preqin Global Private Equity & Venture Capital Report, global uncalled capital commitments, known as dry powder, stands at a record USD 4.2 trillion.

According to the Ukrainian Ministry of Economic Development and Trade, Ukraine is ranked the fourth most educated nation in the world, with over 99.7% literacy. Ukraine produces more than 130,000 engineers and about 16,000 IT graduates each year, making it the No. 1 engineering force in CEE. Ukraine is in the top three by number of certified IT professionals globally. Indeed, Ukraine is no longer just the breadbasket of Europe, it is evolving into a brainbasket for global IT.

Ukrainian IT sector can learn from Canada

Despite its strengths, Ukraine lags significantly in attracting venture capital investment. By way of comparison, Canada attracted USD 2.3 billion in venture capital in 2015, while Ukraine attracted just USD 132 million. Nevertheless, IT outsourcing in Ukraine has grown twenty-fold over the last decade, reaching USD 2.5 billion in 2015. The industry is expected to grow to USD 21 billion by 2021.

A recent article in Tech Crunch states that Toronto can become one of the biggest hubs for technology start-ups in North America over the next five-ten years. Both the Canadian federal and Ontario’s provincial governments offer strong support. Federal tax incentives to conduct R&D and economic development agencies such as FedDev Ontario help create, retain and grow businesses while cultivating partnerships. Furthermore, International Science and Tech Partnerships are supported so small companies with R&D programmes can receive financial support to partner with foreign researchers. Ukraine happens to have a good supply.

If we want the brainbasket to grow by harvesting its technology potential, similar programmes should be implemented by the Ukrainian government. Best practices from Canada and other innovation centres such as Israel and Silicon Valley should be adapted to the Ukrainian reality. There is no way to recreate a Silicon Valley in Ukraine and that temptation should be resisted. Building a technopark (i.e. Skolkovo, Bionic Hills etc.) as a real estate project is not the way to go. The government should help create the conditions for entrepreneurship and innovation to thrive, or at least get out of the way.

Ukraine needs return of émigré entrepreneurs

Since independence, Ukraine has suffered from a shrinking population and brain drain. Thousands of young people have left the country – many from the tech sector. They have built careers in technology centres such as Silicon Valley, Tel Aviv and Toronto. They have gained valuable education and skills that are very much needed in Ukraine. A colleague, Stas Khirman, himself born in Kyiv, is managing partner at TEC Ventures and Co-Chair of the influential Silicon Valley Open Door Conference. He has researched that a minimum of 5% of Palo Alto residents, the heart of Silicon Valley, are Russian-speaking – mainly immigrants from the former Soviet Union. Accomplished entrepreneurs like Jan Koum and Max Levchin, both born in Ukraine, have achieved their success outside Ukraine. They would make wonderful mentors. The tipping point will come when those who left return to Ukraine to build their careers and companies, as many entrepreneurs from India and China have done after achieving success abroad.

Despite challenges, the Ukrainian tech sector has shown that it will continue to grow and prosper. If coupled with a well-defined strategy and best practices from global innovation hubs, and combined with stubborn Ukrainian creativity, the tech sector can play a more important role in Ukraine’s transformation than many realize. Ukraine has the ingredients to be the world’s breadbasket and brainbasket. It just needs the right recipe. Every Canadian knows this.

About the author

Bohdan Kupych (bohdan.kupych@kmcore.com) is Vice President of KM Core and Managing Partner of Borsch Ventures, a technology holding company based in Kyiv with a portfolio of operating and early stage technology companies

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