While reform talk in Ukraine often focuses on changing the Constitution and the judiciary, the way that the nation does business also needs to be shaken up to make Ukraine an economic success, experts say.
Ukraine’s oligarch system, through which a few wealthy individuals wield disproportionate influence on the nation’s political and economic policies, is still firmly in place.
Ukraine’s top five richest, according to Forbes, – Rinat Akhmetov, Victor Pinchuk, Ihor Kolomoisky, Henadiy Boholyubov and Yuriy Kosiuk – are the most prominent of the oligarchs, but there are many more people in Ukraine who have amassed huge fortunes and seized control of key businesses as the country’s economy has atrophied.
This hasn’t just made Ukraine an unattractive place to do business, it’s severely damaged the economy, Dmytro Bondarenko, director of news agency LigaBusinessInform, said during the Kyiv International Economic Forum on Oct. 8.
“An oligarch is not a businessman, an oligarch does not contribute added value,” Bondarenko said. “He sucks budget resources into his own pocket, at the same time he uses, breeds and maintains the system we see today – corruption, and the desire to influence the masses through media, political propaganda and populist decisions and promises.”
In his own sphere, the media, Bondarenko said he finds it hard to compete in an environment where the country’s main news sources are owned by oligarchs or political parties.
“Business cannot exist and compete with businesses whose goal is not to make money, but to be a lobbyist for individual interests,” Bondarenko said. “This is doing huge damage to our country.”
Much of that damage is due to the currency of the oligarchs being corruption – they amassed their wealth through it and operate their businesses with it, tainting the entire business environment in the process.
Andy Hunder, president of the United States Chamber of Commerce in Ukraine, says that 97 percent of AmCham’s more than 600 members find corruption to be the number one barrier to doing business in Ukraine.
And while over the past year business has had much more dialogue with the government than before, Hunder says that on the issue of corruption “the government hears, but doesn’t always listen.”
Businesses, however, still need to use the opportunity presented by last year’s revolution to deliver messages to Ukraine’s government. One way to do this is for businesses to create a better reputation, disassociating themselves from the oligarchic system, Hunder says.
“As in other countries, businesspeople can take advantage of having a good reputation,” Hunder says. For example, British billionaire Richard Branson has a great reputation, the Am-Cham’s director says. “For Ukraine, the time is such that Ukrainian businesspeople can become authorities that gain respect from society for what they are doing.”
And according to Harry Jacobs, chief executive officer of the World Academy of Art and Science, Ukraine’s oligarch system will start changing once business is not only speaking with the government, but when it is seen to be taking care of society as well.
“All the data shows that the more committed business is to the real well-being of society, and when it really takes on that responsibility, the more effective the economy will be,” Jacobs says.
Businesses will then be trusted by society, he says.
Economist Bohdan Hawrylyshyn agrees, saying that businesses must be “honest and responsible” in order to achieve the goal of rebuilding the economy.
But the responsibility is not only on businesses’ shoulders, Hawrylyshyn says. The government must establish clear property rights, providing grounds for long-term planning, while society has a responsibility as well.
“(Society) must accept business as a great instrument for producing wealth for the people of the country, Hawrylyshyn says. “They need to stop seeing business as just an oligarch (system). If society understands that business is necessary, then it will be much easier for business to work.”
But for there to be public trust in business and businesspeople, there has to be a solid legal system for calling wrongdoers to account. As yet, it’s not in place.
Ukraine’s business ombudsman, Algirdas Semeta, says that the rule of law in Ukraine is still not functioning because the prosecution services remain “completely Soviet-style.” Law enforcement, judiciary reform, and the tax and customs authorities must all be reformed, the ombudsman said.
“If we are talking about businesses, if Ukraine is capable of fixing problems with the tax authorities, customs authorities, law enforcement agencies and pass the anti-corruption package of laws, I think that could serve as a good precondition for the functioning of the rule of law in Ukraine,” Semeta said.
Moreover, recovering public trust in business is only part of the battle to boost the economy. Business also has to rebuild its trust in the government.
To achieve that, one of the first steps should be the punishment of corrupt officials, which is still not happening in Ukraine says the American Chamber of Commerce’s Hunder.
“Until we see people going to jail for corruption, then I think the trust of business in the government will remain at a very low level,” Hunder said.
Kyiv Post staff writer Ilya Timtchenko can be reached at [email protected]
