You're reading: Ukraine’s road to economic prosperity

An upbeat Economy Minister Pavlo Sheremeta took the stage of a Kyiv Post-Lavrynovych & Partners conference on June 26, predicting that once the Kremlin-backed separatist war is over, Ukraine will make economic progress.

While the war remains volatile, he gave an optimistic estimate of one month for the situation to be resolved, saying the conflict is “moving in the right direction.”

Sheremeta said Ukraine should not put any formal restrictions on trade with Russia, Ukraine’s biggest trading partner so far. “We are ready to trade with any global partner,” he said.

Maksym Lavrynovych (C) of Lavrynovych & Partners law firm sees weaknesses in the Ukrainian government’s tax amnesty proposal.

After Ukrainian authorities regain control of its territoriy, Sheremeta identified battling corruption as the second most pressing task of the government. To this end, he advocated a comprehensive transformation, not just a shuffling of positions or new laws, since the “disease of corruption” must be fully rooted out.

The minister said that he would like to see an industrial policy that mixes economic freedom alongside active government involvement. The new government has determined 12 sectors of the economy that need to be sorted in order to remove “bottlenecks from the system,” such as infrastructure and transportation. He cited Singapore and Indonesia as good examples for Ukraine to follow to accomplish this goal.

Volorymyr Yevtushenko of the state’s investment agency says Ukraine’s western regions are becoming more attractive for investors.

Moreover, the Economy Ministry is planning measures to support small and medium businesses, whose input in the country’s gross domestic product is substantially lower than in economically developed countries. This will involve providing help in obtaining cheap financing and simplifying all kinds of licensing, Sheremeta explained.

Taxation was a volatile topic of the conference.

Sheremeta and Volodymyr Kotenko, adviser to First Deputy Minister of Revenue and Duties Ihor Bilous, were taken to task by panelists and delegates for the lack of progress in overhauling the tax system. At the tax assessment level, nothing has changed from impudent tax officials to the practice of “set collection plans,” participants complained.

In response, both Sheremeta and Kotenko gave the “Rome wasn’t built in a day” argument, since they are in the midst of fundamentally rewriting the tax code.

A key challenge for the tax authorities is to draw business out of the shadows, Kotenko said. He put the ministry’s official figure at 34 percent of the whole shadow economy, although he admitted that the figure could probably be much higher.

Participants of the Kyiv Post-Lavrynovych & Partners conference in Kyiv on June 26 were glad to hear Economy Minister Pavel Sheremeta’s optimism about stopping the bloodshed in Ukraine’s east.

Kotenko said that the tax authorities must adopt a public service attitude, laws need to be harmonized with Europe and taxes have to be simplified.

Many aren’t particularly happy with the new tax amnesty law because it does nothing for transparent, taxpaying companies while allowing others to get away with evasion. “Why should we pay for the faults in the system?” asked Lavrynovych & Partners senior partner Maksym Lavrynovych. He echoed the sentiment of many in the audience that massive corruption in bureaucratic structures was responsible for the immense size of the shadow economy and tax “optimization” schemes.

All these problems make it difficult to attract investment, which is a major concern of the government and business community alike. The war in the east is the main immediate barrier to investment, the panelists agreed, followed by weak financing structures from the top to the bottom of the economy.

BASF Ukraine’s chief executive officer Andreas Lier (R) gives his business cards to Olya Bosak.

The chairman of the government’s investment agency, Serhiy Yevtushenko, said that 76 percent of investment comes from the European Union while only 26 percent of Ukraine’s exports go in that direction. Introducing so-called insurance for the political risks could essentially contribute to attracting more investments, especially from the West.

Yevtushenko was particularly enthusiastic about the expected signing of the economic part of the association agreement with the EU on June 27 because it would lower tariffs for 96 percent of Ukraine’s export goods.

He announced that investment attractiveness was moving westward within the country, citing Lviv and Ivano-Frankivsk oblasts as the most attractive.

Yevtushenko also proudly announced that a floating liquid natural gas terminal operated by a Texas-based company would start operating near Odesa starting in April 2015. It could supply Ukraine with up to 5 billion cubic meters of natural gas per year. However, he neglected to say where Ukraine would obtain the LNG for the terminal.

Kyiv Post business journalist Evan Ostryzniuk can be reached at [email protected]. (Photos by AnastasiaVlasova)