Panel Discussion with Government Ministers. 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 panel discussion with government ministers.
Moderator:
Neil Buckley, Eastern Europe Editor, Financial Times
Speakers:
Natalie Jaresko, Minister of Finance
Oleksiy Pavlenko, Minister of Agrarian Policy and Food
Andriy Pyvovarsky, Minister of Infrastructure
Maksym Nefyodov, Deputy Minister of Economic Development and Trade
Oleksandr Danyliuk, Deputy Head, Presidential Administration
Andriy Kobolyev, Chief Executive Officer, Naftogaz of Ukraine
- Ms. Jaresko refused to discuss the potential government reshuffle, including rumors about her being among the candidates for the PM post. “The government is not in crisis [and] working every day.” On cooperation with the IMF, she said outstanding issues preventing approval of the next loan tranche were “not tremendously large”, yet the recent political turbulence delayed finalization of an updated memorandum with the Fund due to some of the document’s deadlines falling due and thus necessitating their renegotiation.
With NBU reserves rebuilt and macroeconomic stabilization achieved, Ukraine is far from being at a crisis point similar to where it was a year ago when the IMF approved the $17.5bn Extended Fund Facility. However, Ukraine needs to renew IMF financing in order to give a boost to confidence.
The major impact on domestic economic growth was made by the decline in global commodities prices and global economic slowdown rather than Russian trade restrictions. The Finance Ministry currently expects the economy to grow by about 1% this year, down from 2% estimated before.
Parliament’s recent adoption of the new civil service law facilitated talks with Western donors on creating an interim fund to finance higher pay for government employees.
- Mr. Pavlenko focused on the agricultural industry’s export expansion. Diversifying away from Russia, whose share of Ukrainian food & agriculture (F&A) exports shrank to the low single digits, Ukrainian F&A companies doubled exports to China and expanded to nine new markets including Iran and the UAE last year. He said the launch of the free trade agreement with the EU from the start of 2016 has led to over 2,000 Ukrainian companies applying to export to the EU already, which should provide for further growth in exports to the EU from last year’s $4.2bn (28% of total food & agriculture exports in 2015). On land reform, he said the ministry planned to start pilot sales of state-owned farmland this year, being unable to launch more sweeping reform due to opposition from parliament. The ministry also aims to privatize the remaining 430-plus state-owned agricultural assets.
- Mr. Pyvovarsky, commenting on privatization issues, said opposition from vested interests remains huge, particularly with respect to state stevedoring companies, which parliament refused to remove from the list of state assets banned from privatization despite strong foreign investor interest towards domestic sea port infrastructure. On rail monopoly Ukrzaliznytsya, the minister said the company will not be privatized following its corporatization in late 2015, yet the company’s new legal status enables management to divest non-core assets.
- Mr. Nefyodov elaborated on successful expansion of the new state electronic procurement (e-procurement) system, which his ministry launched together with a group of volunteers last year. Recently enacted procurement legislation mandates that all state organizations shift to electronic tender procedures in the course of 2016, which if successful would complete the public sector’s transition to e-procurement in less than two years. For comparison, the EU’s transition to e-procurement began in 2011 and is expected be completed in 2018. In addition, Ukraine is on track to become the 48th country globally to join the global government procurement agreement, giving Ukrainian companies access to a $1.7 trillion market. The ministry’s e-procurement project along with work on reform of state-owned enterprises illustrates its reform focus on creating “faceless” institutions and rules safeguarded against the human factor.
- Mr. Danyliuk, who also acts as President Poroshenko’s representative at the Cabinet of Ministers, reflected on the rather poor implementation of the parliamentary majority’s coalition agreement, which became one of the triggers of the ongoing debate about a government reshuffle. He said some coalition factions proved irresponsible in signing a document they did not mean to implement in view of associated political damage (e.g. the obligation to allow farmland privatization). Thus, the political actors had to learn their lessons from this experience when negotiating a new program to implement jointly with a potentially reshuffled government.
- Mr. Kobolyev said an independent board of directors for Naftogaz Ukrainy would be appointed shortly as part of reform of the company and the domestic gas market. Yet he also struck a less optimistic note, saying gas market reform was “losing momentum” compared to last year, with the government yet to enact the next stage of gas price hikes (part of Ukraine’s IMF commitments) by the deadline of Apr. 1. Mr. Kobolyev also stressed risks to the domestic gas transit system stemming from Nord Stream 2, which he said Russia would “build at any cost” to do further damage to Ukraine by effectively leaving it without Russian gas transit fees (currently est. $2bn p.a.). To mitigate the risk, Ukraine needs to “unbundle” Naftogaz in the near term, separating its gas transit business and finding a reputable Western partner to operate it, which would help convince the EU not to go ahead with Nord Stream 2.