Ukraine’s central bank may deserve high marks for protecting the value of people’s money over the past few months, but its restrictions on currency transactions are hurting importers and the ability of private business to access short-term financing.
Great Plains Manufacturing, the No. 1 grain drill supplier and sixth largest importer of agricultural equipment into Ukraine, has seen its business drop by 50 percent since March 2014 amid the hryvnia’s threefold devaluation.
Not helping matters are the central bank’s 90-day limit for making payments on import and export transactions, and the U.S. Export-Import bank’s decision last month to temporarily halt operations in Ukraine.Few Ukrainian farmers are big or efficient enough to receive cash in advance of harvests, either through futures contracts or pre-export finance centers.
Most have to borrow at yearly rates that reach 30 percent. This is where the American Export-Import Bank played a role.
“We don’t have that tool, the opportunity to offer financing now,” Tom Bryan, export director at Great Plains, told the Kyiv Post. “In the past years we’ve had some major farm corporations that have bought millions of dollars’ worth of Great Plains’ farm equipment financed through the EXIM bank.”
U.S.-Ukraine Business Council president Morgan Williams added that the U.S. government should find a way to renew the bank’s operations as soon as possible.
Its “wait-and-see” approach is extremely harmful for the Ukrainian economy, while the Ukrainian risks are in reality not too high and fully acceptable, he said.
Importers find the National Bank of Ukraine’s currency restrictions even more painful.
The 90-day term for export-import transactions, introduced in December, were recently extended last week until Sept. 3. “They (customers) can’t pay for anything that they don’t get back within 90 days,” Bryan of Great Plains said. “This creates a lot of paperwork, pressure on purchase requirements and details. We understand that it’s to curb corrupt schemes to get currency out of the country and money laundering, but we are all just normal people trying to do business the right way and we get penalized, and it’s very difficult.“
The equipment, worth some $150,000, is usually ordered six months ahead of the seeding campaign, supported by a small down payment from the distributor. It takes up to several months for assembly, and then some 60 days to ship it to Odesa.
Thus, it’s almost impossible to complete the transaction in 90 days. “One hundred eighty days were more convenient for business,” said Tetyana Pyankova, director of Agro-Tekhnologii group, an equipment distributor. “It’s hard, but we manage.”
The problems also get passed to farmers, who are experiencing difficulties with getting equipment, seeds and fertilizers from abroad, Bryan said. High-quality inputs are crucial for agricultural yields, including modern farming equipment that provide precision, are more productive and fuel efficient. “It hurts us but it also deprives our customers, Ukrainian farmers and distributors, from having a good opportunity,” Bryan said.
Williams said the 90-day term imposed by the NBU is only one of numerous measures that are harmful for Ukraine’s economy. “The NBU regulations towards private business are terrible, there are hundreds of them,” Williams told the Kyiv Post. “They are very restrictive for investors to bring money, to get out money…the National Bank is not supposed to be regulating in minute details the finances of businesses, but they are.“
The central bank said that although some restrictions were extended until September, it eased others as part of its “liberalization program” to phase them out on the money market, according to the NBU’s statement of June 3.
Importers also complained that they couldn’t buy enough foreign currency from banks to pay suppliers during last winter.
“This was a tragedy,” said Volodymyr Ischuk, director of Harvester, intermediary importing machines from U.S. John Deere, Case, Kinze and more. “There was a feeling that I would have to shut down the business.”
Purchasing hard currency got easier in February when the NBU let the exchange rate float, Ischuk said.
Doing business will stay bearable if everything stays the same, and without new unexpected regulations, he added.
“This means … that you cannot give a single dollar to Ukrainians because tomorrow they get some new regulator who makes some odd changes and you don’t get a single dollar (back) as an investor,” Ischuk said.
Kyiv Post staff writer Olena Gordiienko can be reached at [email protected].
