When I read enthusiastic analyses about Ukraine’s improving business environment, I wonder if I must be missing something.
They must be right. After all, the hryvnia is strengthening at a time when most emerging markets are suffering from the prospect of tighter U.S. monetary policy, which is dampening demand for emerging-market assets. The Financial Times reported that foreign investors bought only $300 million of emerging market bonds in April versus $39 billion for the first quarter. However, Ukraine seems to be casually brushing off this turbulence.
I must admit that I struggle to reconcile the above with my conversations with CEOs and businesspeople who work in Ukraine. Their perspective seems to be in stark contrast. One alcohol producer recently told me that the black market in his industry had reached 70 percent of the total market and government policy was simply adding fuel to the fire. From the food-manufacturing sector, I heard that the government is completely ignoring calls to clamp down on blatant gray imports. You only have to visit your local supermarket to see that foreign intellectual property is democratically shared with local producers.
I accept that, as someone who practices dispute resolution, my reported conversations may suffer from sampling bias. However, when I encounter significant issues that disrupt business and are easily resolvable through sound policy, I cannot help but feel something far worse than “a lack of political will” is afoot. In fact, I would say there is an abundance of political will; just the wrong sort!
One particular situation that leaves me doubting the sincerity of the government’s political will is that of the special anti-corruption prosecutor. Nazar Kholodnitsky does not appear to me to be a man burdened by a powerful yearning to root out corruption. If I am mistaken, I can only assume he must be playing the long game, masterfully pretending to be a corrupt official so that his targets drop their guard. Perhaps that is why, following the release of audio recordings revealing Kholodnitsky preparing to obstruct justice on behalf of suspects in corruption probes, absolutely nothing has happened. If U.S. special counsel Robert Mueller were recorded telling Paul Manafort, the former adviser to U.S. President Donald J. Trump and ex-Ukrainian President Viktor Yanukovych, not to worry about his criminal case because it is “all under control,” what would be his chances of remaining a free man, let alone remain as the U.S. special prosecutor? Whenever something highly incriminating happens to a public figure in Ukraine, the matter often seems to disappear from public sight. The next thing you know the individual at the center of it is absolved of blame and promoted. I await the news of Kholodnitsky’s promotion.
Dysfunctional decision-making can also be dressed up in more innocent forms. For example, should mega-tariffs be provided for generating solar energy?
Sounds like a good idea, after all, solar energy is clean energy.
But isn’t solar energy much more expensive than energy derived from gas and isn’t Ukraine struggling to afford to pay for the amount of energy it consumes?
It would, therefore, seem more sensible, for example, that such mega-tariffs be used to solve Ukraine’s waste management crisis.
So why is solar energy a government priority, yet waste is not?
I posit that this is because of projects that take one year to construct and generate immediate free cash flow (solar) to fund the 2019 election campaigns better than the ones that take 3-5 years to construct (waste).
However, nobody can deny that the economy is growing, business associations are excited and the hryvnia is strengthening.
I venture, therefore, to suggest that the country is recovering despite its leadership and not thanks to it.
Ukraine has received external financing amounting to roughly $28 billion from the European Union, International Monetary Fund, European Investment Bank, European Bank for Reconstruction and Development, International Bank for Reconstruction and Development and Eurobond market.
Additionally, the country has received more than $1 billion in grants. When you consider that the Ukrainian economy in 2017 only generated $21 billion more output than it did during its post-EuroMaidan Revolution low of 2015, you have to question how well these funds are being spent and what the situation would be like without them.
Suddenly Ukraine’s growth-leadership paradox starts to make sense: $28 billion can hide all manner of sins. If it obstructs reform like corruption, fails to prosecute criminals like corruption, and formulates policy like corruption, then it probably is corruption.
