The Kyiv Post’s Doing Business magazine is out today — June 16. It is 100 pages. It turned out that we had a lot to say.
Ukraine is close to making an investment breakthrough that will boost the nation’s prosperity. The three key sectors where the breakthrough is likeliest are agriculture, information technology and export-oriented manufacturing.
For agriculture, Ukraine needs to drop its 26-year ban on the sales of agricultural land. This would not only stimulate investment in agriculture and the banking sector.
For IT, rule of law as well as protection of investor and property rights continue to slow down a growing and promising sector. It’s sad to say, but when Ukrainian start-up businesses get big and successful, they end up going abroad or registering abroad. What’s left all too often are the workers engaged in outsourcing for clients abroad.
They’re here because of cheaper wages.
For export-oriented manufacturing, on the surface it seems so simple — Ukraine’s wages are 5 to 8 times lower than European Union countries. So why wouldn’t manufacturers relocate to or start in Ukraine, especially now that a free-trade agreement exists with the EU?
Greater success in all three sectors will spread to other sectors — retail, restaurants, real estate — and a host of supporting activities.
Unfortunately, the answer comes back to the same in all sectors: Inability or unwillingness to fight corruption, lack of rule of law, no independent judiciary or law enforcement system, and on and on. In short, the twin diseases stifling Ukraine’s development as an independent nation are in remission, but persist: the oligarchy and Soviet-era bureaucracy/business practices.
This is why it is unlikely that Ukrainians will have the patience to accept growth rates of 2–3 percent per year. At this pace, it will take 20 years to catch up to the 2013 gross domestic product of $183 billIon. It is intolerable that
Ukraine received only $4 billion in foreign direct investment in 2016, most of it from the enemy — Russia — which remains Ukraine’s largest export and import partner, despite impressive strides to reorient trade to other nations in recent years.
People are unhappy. The Population Research Bureau forecasts that Ukraine’s population will drop to 35 million people by 2050. At least 1 million are working in Poland, another 2 million in Russia and probably at least another 3 million people everywhere else. Life expectancy remains at 71, a decade less than EU countries, and the birth rate is low.
Reversing these trends will require constructive action from the nation’s political leaders. But they remain chained to the old ways of doing business, rather than heeding the clear calls for change from the public, business community and civil society.
A national public opinion survey of residents of Ukraine, taken from April 21-May 5 by the International Republican Institute with support from the government of Canada, is illuminating: 72 percent of Ukrainians said the nation is heading in the wrong direction; 73 percent say the nation’s economic situation has worsened somewhat or a lot; 39 percent blame President Petro Poroshenko, followed by the Cabinet of Ministers, parliament and oligarchs. Only 4 percent blame Russia for today’s situation, even though the same survey said the war is a major concern and that Russia is increasingly unpowerful.
In a danger sign to his re-election hopes in 2019, 76 percent disapprove somewhat or strongly of Poroshenko.
Also, the three most important issues for Ukraine, according to the survey Russia’s war, governmental corruption and low industrial production. The three most important issues for people personally are inflation, unemployment and Russia’s war. The most important tasks in the next 10 years: improve quality of life, economic development and get rid of corruption.
This discontent comes despite several recent, concrete achievements.
But the mood is ugly despite the beautiful weather. It would be a mistake for Ukraine’s leaders to ignore what the people are saying.