Petro Poroshenko's business success since becoming president in June has provided fodder to his critics, fueled Russian propaganda and, some fear, compromised his judgement.
An April 7 disclosure of his officially reported income for 2014 shows a sevenfold jump over 2013. His banking assets doubled in 2014, according to reports, and his Roshen confectionary empire has swelled its retail network despite falling sales.
Yet in a time of war and hardship, some Ukrainians are not happy that a billionaire president is doing so well while other businesses are crumbling along with the economy.
“It wouldn’t be such a concern if all business were growing equally,” said Oles Doniy, the director of the Center for Political Values Research in Kyiv.
“But small business is dying. Entrepreneurs are being forced to sell their restaurants and the president’s business is growing. These are unequal conditions that speak to social injustice.”
Apparent conflicts of interest have also surfaced regarding Poroshenko’s holdings, especially his candy factory in the Russian city of Lipetsk, which reportedly controls 7 percent of the Russian market and accounted for as much as 20 percent of Roshen’s production in 2014, the company said. Operations there are interrupted by Russian authorities on a regular basis.
The mere existence of a large business in Russia, which is waging war against Ukraine, makes Poroshenko vulnerable, says Petro Oleshchuk, a political science lecturer at Taras Shevchenko National University in Kyiv.
The Russian Communist Party, for instance, called for an investigation earlier this year into Poroshenko’s business structures in Russia. Russian member of parliament Valeriy Rashkin accused Poroshenko of using funds gained from his Russian business to escalate the conflict in the Donbas.
Claims by Russian politicians don’t have much credibility with most Ukrainians. But arguments that the president could be using his powers to advance his business interests have gained momentum, observers said.
That was the case when key officials in government – such as energy commission acting head Dmytro Vovk and Information Minister Yuriy Stets – were recruited from his business empire.
In another example, National Bank of Ukraine chief Valeria Gontareva and Energy Minister Volodymyr Demchyshyn are co-founders and former top executives of Investment Capital Ukraine (ICU), the Kyiv-based investment bank now managing Poroshenko’s business empire along with Rothschild & Cie.
“Much of society sees this as a double game being played by the president between politics and his personal business interests,” Oleshchuk said.
The president’s income rose in 2014 to Hr 369 million, or nearly $15 million, according to his official declaration released on April 7.
That comes after his Kyiv candy factory reported in mid-February a nine-fold boost in net profit to Hr 34.8 million ($16.1 million) in 2014. Mizhnarodniy Investytsiyniy Bank, which he co-owns with partners, as reported in January its assets doubled in value to Hr 3.2 billion ($125 million) in 2014.
On top of this, Roshen opened 14 new candy outlets in the Kyiv area and five in Kharkiv since the beginning of 2014, the company confirmed. By comparison, it opened no more than seven shops annually in previous years.
In response to the skepticism, Roshen spokeswoman Inna Petrenko said no external factors other than customer loyalty and growing demand fueled the growth. The chain’s 2014 expansion plans were already approved in late 2013, before there was any indication Poroshenko would become president.
Ukrainian President Petro Poroshenko, a billionaire businessman upon his election in May, has boosted his wealth while in office as Ukrainians endure war, layoffs and currency devaluation.
Yet the president doesn’t need to engage in business directly to affect the market, Doniy said.
“The mere fact of presidential ownership of assets distorts competition,” he said. “Advertisers want to buy time from the presidential channel, and depositors would rather invest in the president’s bank because they believe it’s more secure.”
Another controversy also surrounds Poroshenko’s promise on the day after he was elected to sell all his assets, despite Ukrainian law not requiring such a drastic step.
Selling off assets is also not a common practice globally, with elected officials typically opting for blind trusts that are beyond their reach, said Timothy Ash, the head of emerging markets research at Standard Bank.
Poroshenko hired ICU and Rothschild & Cie in August to divest his assets, which hasn’t happened yet. The advisers blamed the inaction on Russia’s war and Ukraine’s poor economy. In addition, large corporations like Roshen usually need at least a year to be sold, assuming favorable conditions, they said.
Such claims are dismissed by critics. Oleshchuk pointed out that less attractive state assets have been sold and are slated for sale. Meanwhile, he has many other large assets.
“Roshen isn’t the president’s only business,” Doniy said, pointing to Poroshenko’s Kyiv machine building factory and fitness club chain, as well as banking and insurance assets. “He hasn’t sold any of them.”
Why Poroshenko made such an audacious promise is a matter of speculation, other than that “Poroshenko has a pathological bent towards saying what people want to hear,” says Doniy, director of the Center for Political Values Research in Kyiv.
“The promise of selling businesses was an essential political thesis, as separation of business from government has been the main demand of the revolutions,” said Dmytro Boyarchuk, the executive director of the CASE Ukraine Center for Socio-Economic Research.
Ukrainian law forbids public servants to formally serve as a member of management or on a board of directors, said Dmitrij Nabugornov, a lawyer at Goldblum & Partners.
Though that has been widely manipulated in Ukraine, whether directly or through indirect arrangements, such as relatives occupying positions.
In Poroshenko’s case, his son Oleksiy – a member of parliament – has reportedly served as the chair of Prime Assets Capital, the holding company of most of the president’s assets.
Such ongoing maneuvers do not quell debate about the conflict in having a president who leads Ukraine’s defense against Russia’s war while he owns valuable assets in the aggressor nation.
By law, Poroshenko cannot be directly involved in the operations of his businesses, including the resolution of the repeated instances of interference by Russian state officials in the operations of Roshen’s Lipetsk factory.
Poroshenko insisted in a March interview with the 1+1 television network that there’s no way to pressure him through his assets. He said that his actions as president have proven that he is acting in Ukraine’s best interests.
Amid his denials, former Defense Minister Anatoliy Hrytsenko and other critics speculate about the possibility that Poroshenko has cut backroom deals with Russian President Vladimir Putin. Conversely, others speculate that Putin is using the Lipetsk factory to exert pressure on Poroshenko’s political decisions.
“The presence of his business in Russia is weakening the starting positions of Ukrainian diplomacy as a whole,” says Anatoliy Oktysiuk, a political expert with the International Center for Policy Studies in Kyiv.
“While condemning the aggressor and calling on the West for a tougher response, he keeps drawing profit and paying taxes to Russia,” Oktysiuk says. “This is at odds with the official state policy.”
Despite the complications, Poroshenko’s fortune also offers political advantages, Oktysiuk said, such as leverage with rival billionaires.
That’s being demonstrated in his drive to reassert state control over Ukrnafta, the largest state oil company, and in sacking minority owner Igor Kolomoisky as Dnipropetrovsk governor.
Many also believe that Poroshenko is spearheading the effort to confiscate assets such as Dniproenergo from electricity giant DTEK, controlled by Rinat Akhmetov.
“He possesses both capital and power, which distinguish him from his predecessors, who were planning to acquire wealth through the presidential position,” Oktysiuk said. “Poroshenko uses his capital and power to influence his opponents.”
Despite the hooplah at home, Poroshenko’s business success and web of conflicts aren’t much of a concern in the West, said Ash said. He recommends the president consider the trust fund option
Kyiv Post staff writer Olena Gordiienko can be reached at [email protected].
