Tomas Fiala: Hard, objective figures point to what will drive the country’s growth and what the presidential candidates need to do.
Hearing the emotional but utterly vague election mantras of Ukrainian politicians over and over again is a reason compelling enough to think about explicit criteria to measure success of the future president in as objective a manner as possible … that is by relying on figures.
I think gross domestic product per capita, which grows in line with economic expansion, is a key indicator that could be used to estimate the effectiveness of the future president’s team. National gross domestic product statistics show that Ukraine, with $2,500 per capita expected in 2009, compares poorly with its Central and Eastern European peers such as the Czech Republic ($18,000) or Bulgaria ($6,000). As a matter of fact, Ukraine ranks next to last in the regional rating of national wealth, outdoing only Moldova.
Average wage is another important indicator, and the one that also mirrors closely the state of the national economy. The average monthly salary in Ukraine has approached 165 euro this year, or 0.9 euro per hour. Despite their hourly salary increasing substantially compared to 0.5 euro per hour in 2004, Ukrainians still earn much less than their western neighbors, even if one factors in the difference in prices.
Salaries in the European Union average 20 euro per hour, with the richest Central and Eastern European states, the Czech Republic and Poland, averaging 7.8 euro and 7.0 euro per hour, respectively. The lowest-paid in the EU are Bulgarians with 2 euro per hour. I’d most like to see Ukrainians, as a minimum, double their income during the next president’s term so they could at least catch up with their Bulgarian counterparts.
It goes without saying that wage growth must not be subject to government whim, as any pay rise not supported by revenue growth will dampen competitiveness and increase unemployment. Protecting the poor is one of the main duties of the state, but in Ukraine’s case the heavy burden of wages and subsidies, which already account for 75 percent of total budget spending, cannot be shouldered for much longer without adequate economic expansion. In other words, income growth will not be sustainable unless it stems from higher productivity and competitiveness of Ukrainian business.
In turn, economic productivity and national wellbeing depend heavily on the regulatory environment for business. According to Doing Business, a World Bank project, Ukraine ranks third from the bottom on the ease of doing business among the countries of Eastern Europe and Central Asia. One of the ranking’s component indicators is the ease of paying taxes, which takes into account the number of tax payments, time to prepare and file tax returns and to pay taxes.
Ukrainian businesses have to pay taxes 147 times a year on average, or three times more often than their regional peers and 11 times as often as 30 members of the Organization for Economic Cooperation and Development do. A local company spends 736 working hours a year to pay taxes, or four times as much as its developed market peers. On this measure, Ukraine ranks 181st out of 183 countries.
Coming up next on my criteria list is corruption. Many of the government’s well-intentioned attempts to improve the situation here and there proved futile due to corruption on all government levels. Transparency International’s Corruption Perceptions Index 2009, which focuses on corruption in the public sector, ranked Ukraine 146th out of 180 countries included in the index, on par with Ecuador, Kenya, Russia and Zimbabwe.
Improving at least some of the aforementioned indicators will make life a lot easier for domestic business and thus enhance its competitiveness and profitability margins, which in turn will increase government revenues and national prosperity.
The richer a country, the more budget revenues it can generate and the more capable it is of providing adequate pensions and subsidies for those in need, improving the quality of health care and ultimately prolonging the life of its citizens.
Life expectancy is the last, but not least, criterion on my list. An average Ukrainian dies aged 68, which is seven years less than the average lifetime in Europe. I think the authorities have everything at their disposal to narrow this gap to at least five years.
That is my proposition of what I think are clearly stated and fully achievable objectives for the next president of Ukraine. Should any of the current presidential hopefuls agree to sign off on this five-year business plan, I will heartily try to persuade my friends into voting for him or her (I am not a citizen of Ukraine and cannot vote myself).
If Ukraine elects a president with a clear vision of the country’s future, it will be much easier for my company to continue with its mission of opening up Ukraine to foreign investors, who want action and results rather than empty promises.
Tomas Fiala is managing director of Kyiv-based investment bank Dragon Capital. He can be reached at [email protected].
