You're reading: Business Sense: Business in post-crisis Ukraine: bloodied boxer or still fighting?

Natalie Jaresko writes: Ability to buy and sell land will be a major step ahead; moratorium on land sales should be lifted now.

We have just lived through a year of one of the most difficult global economic crises in history. It has affected the way all of us see, work within, and interpret the world. This crisis hit Ukraine hard and fast due to Ukraine’s reliance on capital inflows, especially foreign direct investments and trade flows, in particular, the export of steel and chemicals.

After facing the challenges of this crisis, as business representatives, we find ourselves facing two sets of questions: First, how can we adapt our businesses to weather this crisis? Second, what are the opportunities that present themselves in this new environment and what can we do to take advantage of them, to rise above our competitors, to come out of this crisis better than we came into it? These two lines of thought are very natural for a business entrepreneur, but the second one in particular may not be as natural for a public leader.

We can take as a baseline assumption that the Ukrainian leadership has either done what is necessary to stabilize this economy, and/or is working on those measures today. There are many voices, including the International Monetary Fund and the World Bank, that can advise on the measures to take today to stabilize the economy, the banking system and the labor market. Apart from dealing with the emergencies, Ukraine needs a more strategic reform effort addressing the fundamentals of its future development. Strategic reforms will require much more preparation and effort.

It seems not enough focus is being put on the second aspect – what Ukraine can do now, during this crisis, to come out of the crisis better than it came into it. I think this is what will define Ukraine’s economic success over the next five to 10 years, and it requires more thought and certainly more action from the leadership. I will give several examples, which are just a few possibilities of what might create a more robust Ukrainian economy when growth returns to the global picture and to Ukraine’s economy itself.

The best starting point is the two elements that put Ukraine at such a disadvantage at the beginning of the crisis – the reliance on capital inflows and steel and chemicals exports. Both areas require proactive policymaking.

Overcoming our dependence on foreign capital inflows will take time. A more robust domestic capital market must be created, strengthened, and allowed to play a more important role in the economy. A normal first step for this is pension reform, which has in many countries created a sufficiently robust capital source to then fuel a real market in domestic securities. Before the crisis, Ukraine was dependent on foreign capital and the proportion of domestic financial capital in the markets was insignificant. This proportion must grow, but needs reform in the pension sphere, as well as other areas, to begin to make a difference.

The diversification of exports needs to be a major focus of policymakers. Clearly, agricultural exports present a very clear, quick potential area for growth of exports – but in order for it to become a reality, it requires the end of the moratorium on land privatization. There is no other stimulus that can create such an engine of growth as agriculture with the full privatization of land.

The ability to buy and sell land and to use land as collateral are key to a major enhancement of agricultural output in Ukraine. There are other policy-related improvements, but they will all be marginal in comparison to the large leap that the end of the moratorium on land sales will provide.

It is also crucial to create an environment for establishing new businesses and shutting down failed ones. This crisis has divided the winners from the losers in many cases.

But that may not yet be visible because the assets are not moving in and out of the existing legal entities. There exists a need to streamline the task of opening a business, making it a true one-stop shop one day and automatic procedure is crucial to this process, as is a reengineered, simplified, quicker bankruptcy process – one of the key areas reformed by countries that suffered during the East Asian crisis. Bankruptcy procedure in Ukraine currently takes two years. To move the assets that are currently lying in failed businesses to new, more competent business managers’ hands requires major reform in these two areas.

There are a number of things that will define whether Ukraine comes out of the crisis as a bloodied boxer lying on the ground, a boxer beat up but still fighting, or a boxer punching his way forward. We hope that the Ukrainian leadership will do everything possible not only to minimize the damage to the economy from this terrible global crisis, but to also build a better Ukraine as it comes out of this crisis.

Natalie Jaresko is co-founder and co-managing partner of Horizon Capital, a private equity fund manager with over $600 million under management in Ukraine and Eastern Europe. She can be reached via [email protected].