Discussion with Aivaras Abromavicius and Ivan Miklos. 12th Annual Ukraine Investor Conference

Dragon Capital held its 12th Annual Ukraine Investor Conference on March 10-11 in Kyiv. The event gathered close to 300 guests—more than 100 international investors, local investors as well as top management of leading Ukrainian companies, who took the opportunity to gain fresh insights into the economic and political situation in Ukraine and communicate directly with government officials, representatives of international financial institutions and the country’s largest companies in order to make investment decisions.

Below please find highlights from discussion with Aivaras Abromavicius and Ivan Miklos.

Aivaras Abromavicius, Minister of Economic Development and Trade

• The worst is behind for Ukraine, macroeconomic stabilization has been achieved, and it is now on a recovery path. Openness and transparency have become priorities on the government agenda, with the Justice Ministry opening multiple property registers. The new public procurement system is expected to save up to UAH 50bn p.a. About 40% of licenses have been abolished.

• Recent investments are a case in point: Cargill, LEONI and Fujikura made positive investment decisions last year, and total FDI inflows reached $3.1bn.

• The ministry’s other accomplishments are the enactment of a new privatization law and enhanced corporate governance requirements for stateowned enterprises (mandatory international audits, CEO selection on competitive basis, etc.).

• The current political turmoil, which Abromavicius’s resignation announcement last month effectively triggered, is not necessarily a bad thing as it has set the stage for appointing a more reformist and accountable government and lowered the risk of important reforms being derailed by exposing the major hurdles. Still, the long-time “pursuit of so called stability” brought Ukraine to the “brink of an abyss”, meaning reforms must be accelerated and there can be no return to stagnation.

• The ministry drafted a further 43-step deregulation reform aimed at making Ukraine a top-20 country in the Doing Business rankings (vs. 83rd place in the 2016 survey).

• Despite Russia’s obstruction, the EU-Ukraine free trade agreement took effect Jan. 1, opening opportunities for Ukraine to become a “factory of Europe”.

• Replying to a question on his possible return to the government, Abromavicius said the bridges he burned behind him by tendering his resignation and exposing high-level corruption made it difficult to consider returning at this point. But he added “miracles happen”.

Ivan Miklos, former Minister of Finance, Slovak Republic

• Reforms is a political rather than economic process. From the experience of other countries, it is clear what economic model Ukraine needs to build. It should be based on economic freedom, liberalization, deregulation, privatization, structural reforms, and macroeconomic stabilization. Ukraine has done more over the past two years than in the previous 24 years, yet not enough. The point of no return for reforms has not yet been reached and a reversal is possible.

• Strong leadership, ownership and communication are the most important political preconditions for successful reforms. Ukraine’s current political crisis is rooted in the lack of trust. Popular expectations were high and unrealistic, as evidenced by post-Maidan opinion polls. Also, society has a natural aversion to change. It is therefore no surprise that the population is not satisfied. But it is important to explain to people that current economic hardships are the result of Soviet and post-Soviet legacy and lack of reforms in the past rather than the ongoing reform process.

• The most important reforms in Ukraine have been carried out thanks to outside pressure by international institutions or participation of Georgian reformers. The authorities need to demonstrate ownership of these reforms and strive for more than suggested by the IMF program. Lack of ownership, leadership and communication is reflected in relations between the government and parliament — two thirds of government legislative proposals failed to pass the Rada.

• Before forming a new technocratic government, an agreement on its relations with parliament should be reached. This agreement should be based on unconditional implementation of the IMF program, the EU-Ukraine association agreement and visa-free regime requirements and include the following components: privatization of state assets, judicial and prosecution system reforms, reform of the entire civil service, deregulation, and zero tolerance to corruption.

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