So when Ukrainian officials, from President Petro Poroshenko and Prime Minister Arseniy Yatsenyuk on down, say now is the time to invest in Ukraine, people shake their heads in disbelief or simply laugh.
But this really may be the best time to invest – or can be. Wages are low. Bargains are everywhere. Pent-up demand is high. Opportunities exist in many sectors.
Sri Lanka, of all places, provides an example. The Indian Ocean nation suffered a 26-year civil war that ended in 2009. After the risk melted away, Sri Lanka experienced an economic boom. Beachfront prices shot up and tourists doubled to 1.3 million visitors by 2013. Investors returned. The nation’s 20 million citizens are living better. Some of my Sri Lankan friends are kicking themselves for not getting in when prices were low and the war was still on.
The same could happen in Ukraine.
Another corollary: Sri Lankans this year voted out their war-hero president, Mahinda Rajapksa, just as Ukrainians, in a revolution, last year forced Viktor Yanukovych to flee. Both societies are still recovering from the staggering corruption of former regimes.
The same turnaround could happen in Ukraine. I have the feeling that only two types of investors remain: the entrenched ones who wouldn’t leave even if Russian tanks entered Kyiv and, secondly, those who thrive on risk.
Either way, Ukraine can win – but only if the nation starts prosecuting corruption. The signs aren’t encouraging. Ukraine’s judicial system is broken. As long as it remains that way, the absence of rule of law will undermine progress by the post-revolutionary government.
“The entire legal system needs to be replaced,” said Kyiv lawyer Irina Paliashvili. Also, on reforms, Paliashvili said: “The problem we still see today is a very haphazard and incidental reform of legislation. Business is suffering tremendously.”
Poroshenko and Yatsenyuk remain dogged by suspicions of Soviet ways and corruption, accusations that they deny. But John Herbst, a former U.S. ambassador to Ukraine, is unstinting in his criticism.
“The very top of your elites are corrupt. The very top. I will not name them now, but even people at the very top, who know how to talk to Westerners in reform language, and say all the right things, prospered under the old system,” Herbst told a conference in Kyiv in late April. “They are able to jump from one party to another, in some cases, to maneuver between several parties – and, somehow, to remain untouched and to prosper. They learned to prosper under the old rules, and those rules are very convenient for them.”
The new leadership has not yet conviced the world that Herbst is wrong.
His assessment is at odds with the rhetoric of many of the new ministers, including Natalie Jaresko in finance, Oleksiy Pavlenko in agriculture and Aivaras Abromavicius in economy, who are imploring audiences to help them expose and end corrupt schemes.
Regardless of whether the individuals who run the government are just as dirty as their predecessors, they are being forced from within, by Ukrainians, and from without, by Western governments, to change laws and reduce corruption.
And that may be the best that Ukraine can hope for.
Ukraine’s government can no longer account for 53 percent of a GDP that may shrink to under $100 billion this year. There’s consensus on the prescription: Shrink government and, inevitably, opportunites for corruption will shrink too; spend on defense and the poor; encourage private enterprise with rule of law, create a simple yet progressive tax system; and, adopt only the most essential regulations.
An epic struggle is under way. Ukraine’s next economic boom could be just years away – but only if people do the right things now.
