Ukraine’s new economic strategy is anything but modest.
Presented by Economy Minister Tymofiy Mylovanov on Feb. 17, the strategy promises to attract $50 billion in foreign investment, create over 1 million new jobs and accelerate the growth of gross domestic product by 40% over the next five years.
The exact means to achieve this have yet to be specified, but Mylovanov says one thing is certain: Ukraine needs “huge investments” to even catch up with neighboring Poland and Belarus.
And his ministry can achieve just that, he added.
To reach this goal, Mylovanov wants to improve infrastructure, sell large state-owned firms, change Ukraine’s obsolete labor code and protect local businesses from corporate raiding, when criminals use legal means to steal others’ businesses.
Improving infrastructure
The program, called “Economic Strategy: Growth through Investment,” emphasizes the dire need for modern infrastructure.
Key priorities are roads, expanding railway access to ports, electrification of the railways and the development of the river transport. There’re big hopes for public and private investments in this area as well.
Private investors could take part in the renovation of infrastructure through public-private partnerships and concessions – like the concession in Olvia, a 180-hectare seaport in southern Mykolaiv Oblast, which is to bring $140 million to the state budget as the Qatari firm QTerminals will now manage the port.
As for infrastructure, the ministry plans to improve 43 industrial parks already existing in the country, as well as to fully equip 12 of them. The goal here is to attract $5 billion in investment and create up to 100,000 jobs.
Privatizing firms
Mylovanov’s program advocates for large-scale privatization of state-owned enterprises and banks.
The government plans to sell more than 300 small facilities and at least three large-scale state enterprises through the State Property Fund in 2020.
In an interview with the Kyiv Post on Jan. 28, Fund CEO Dmytro Sennychenko said he expects to bring $500 million in income to the state budget.
So far, the Fund sees huge interest in the Electrovazhmash plant, a manufacturer and supplier of turbo and hydro generators, while the United Mining and Chemical Company will likely be privatized this year.
Another Ukrainian state-owned giant to be privatized is Centrenergo, the second-largest power generator in the country.
“Privatization is the best step against corruption because neither the state nor a foundation can ensure 100% clean and non-corrupt management of the enterprise,” Sennychenko said.
Giving incentives
On another level, the state also offers incentives such as a five-year income tax exemption for companies willing to invest at least $10 million in high-tech.
Moreover, those investing over $100 million in Ukraine can make use of the so-called “investment nanny” program. Each company that brings $100 million or more to Ukraine will have a special contract with the state which will provide protection and an efficient, multilingual manager working round-the-clock for the foreign firm.
The UkraineInvest government agency will operate as a nanny agency, and 10 such “nannies” are already available.
Tymofiy Mylovanov, the Minister of Economic Development, Trade and Agriculture of Ukraine, delivers the keynote speech on the country’s innovative future on Dec. 10, 2019 at Unit City Innovation Park in Kyiv. (Oleg Petrasiuk)
Changing the labor code
The Economy Ministry also believes that Ukraine must change its obsolete labor code, adopted back in 1971, by passing a new bill that has already been submitted to parliament.
Introduced in December 2019, the bill includes provisions allowing employers to more easily fire their staff, reduces overtime pay and expands the scope of zero-hour contracts, under which the employer does not have to provide regular work for the employee, but the employee must be on call in case they are needed for work.
The plan – designed to add flexibility and encourage foreign companies to employ more Ukrainians – has trade unions up in arms against the reform.
Halyna Tretyakova, a lawmaker from the pro-presidential Servant of the People, told Ukrainian media in September that the goal of the new labor code is to streamline the process of opening new businesses, thereby creating more new jobs.
She admitted the law would clash with employees’ rights, but Prime Minister Oleksiy Honcharuk dismissed the existing labor code, saying that “it’s often easier to divorce than to dismiss an employee” in Ukraine.
Advocating land reform
Introducing an open land market in Ukraine stands out as one of the most challenging reforms in the ministry’s program.
Currently, all Ukrainian land is under a sales moratorium, which means owners of land plots can only rent them out, as selling farmland is banned. The new law will lift this ban, but in order for it to pass, parliament must approve over 4,000 amendments.
Pro-reform lawmakers and international lenders say an open land market is necessary to unlock the potential of the country’s economy and agriculture.
But the government’s latest push for the law has left the public skeptical, and the reform remains highly unpopular.
Under public pressure, Ukrainian President Volodymyr Zelensky agreed to make some concessions in November 2019 and allow the public to decide whether foreigners should be able to own land in Ukraine through a referendum.
Currently, roughly 70% of Ukrainians are against allowing foreigners to buy land, according to several polls. Even among those who support the decision to lift the ban on farmland sales, half is against allowing foreigners to buy land plots in the country.
Combatting raiding
The economic plan also proposes introducing an updated public finance system, including new customs, tax and financial monitoring. Mylovanov also underlined the need to ensure a “favorable business climate.”
He believes that would require strengthening the rule of law, particularly through open and transparent registries, the creation of a commercial arbitration system and fair court decisions.
Due to weak property rights legislation and allegedly biased judges, pressure on businesses is a rampant issue in Ukraine.
In September 2019, Cabinet Minister Dmytro Dubilet wrote on Facebook that, from now on, the state-run registry of legal entities would publish information on a daily basis, rather than weekly.
Dubilet noted that a week’s time was enough for a corporate raider to take control of a company’s assets behind the real owner’s back or to quickly sell the assets to a third party while barring shareholders from attending meetings.
Raiders can even use the courts to harass the owners of the property they want to steal, which hurts businesses and repels potential investors.
Such a case, for instance, happened in Odesa, when the Danish company BIIR in 2017 bought a decayed, foreclosed building for its new office, paying around $400,000 to a local real estate firm. Almost immediately after the purchase, the previous owners, who are influential businesspeople with political connections, challenged the building’s sale, and a local court arrested the property.
BIIR finally won the case two years later, but its owner is still fighting for judges who ruled to block his company’s operations for so long to be punished.
In December 2019, President Zelensky signed a law aimed at easing pressure on businesses from market surveillance authorities. The law aims to prevent officials — and those working with them — from putting illegal pressure on businesses.
