Panel discussion with IFIs. 14th Annual Ukraine Investor Conference

Dragon Capital held its 14th Annual Ukraine Investor Conference on March 1-2 in Kyiv. As in previous years, the event gathered close to 300 guests, with top speakers addressing the audience of international and local investors including Prime Minister Volodymyr Groysman, other government members, top management of leading Ukrainian companies, representatives of international financial institutions and western diplomats. Over 25 Ukrainian and foreign TV channels, news wires and other print and online media covered the event.
Below please find highlights from the keynote speeches delivered by Gosta Ljungman, Resident Representative in Ukraine, IMF, Francis Malige, Managing Director, Eastern Europe and Caucasus, EBRD, Jason Pellmar, Regional Manager for Ukraine, Belarus and Moldova, IFC, Katarina Mathernova, Deputy Director-General, European Neighborhood Policy and Enlargement Negotiations, European Commission. 

• Mr. Ljungman reminded the audience that the current IMF program will expire in March 2019.
• The key issues to resolve for the next review are approving anti-corruption court (ACC) legislation and adjusting domestic gas tariffs in line with import prices while also ensuring that the overall macroeconomic policy holds together and is supportive of long-term growth.
• The IMF believes that establishing the ACC is one of the key prerequisites for investment and economic growth in Ukraine. The IMF would like to see the ACC bill, which was adopted by parliament in the first reading, strengthened before the second reading.
• Unfortunately, economic growth remains slow, and the gap between Ukraine and neighboring countries is widening. Investment/GDP needs to increase to 25-30% from current 17-18%. By carrying out the right reforms, Ukraine could reach economic growth of 6-8% y-o-y.
• Mr. Malige agreed that establishing the ACC is vital for Ukraine.
• The EBRD and other IFIs should not be a substitute for a strong judicial system in providing protection against corruption for foreign investors.
• Among the areas where opportunities for corruption continue to exist are the gas sector, SOEs, and state-owned land. By properly renting the 10 million ha of stateowned land, the government could potentially offset the $2bn loss it would incur if the gas transit contract with Gazprom was terminated.
• Also, selling state-owned land has no political cost, because small farmers would only benefit from such privatization. However, despite the existing corruption issues, it is possible to conduct business in Ukraine without paying bribes.
• The EBRD is involved in forming a strategy for state-owned banks, with a special focus on corporate governance. Following the nationalization of Privatbank, the EBRD helped implement a strong corporate governance structure at the bank.
• The EBRD is also looking for opportunities to invest in state-owned Oschadbank, but its privatization will take longer than that of Ukrgazbank.
• Mr. Pellmar said the IFC’s goal is to mobilize cooperation between the local governments and the private sector.
• Agriculture remains a growth driver for Ukraine, but innovations need to be implemented in other sectors of the economy.
• Decentralization, investment in infrastructure and reform of stateowned enterprises is crucial to creating investment opportunities in Ukraine. The IFC has assisted the fourth-largest bank in Ukraine, Ukrgazbank, in starting a trade facility and building out “green” financing, which now represents 10% of the bank’s portfolio.
• Also, the IFC has set the stage for the bank’s privatization, which would send a positive signal for investors.
• Publicprivate partnerships (PPPs) is another great possibility for attracting investment capital to Ukraine. The IFC, together with the EBRD, is working on PPPs at two Ukrainian ports. The IFC has been successful in convincing the government to lower port tariffs by 20% to help agricultural exporters.
• Ms. Mathernova confirmed the EU’s stance on the necessity of creating the ACC while refuting the narrative that corruption has practically made Ukraine a failed state. To date, the banking cleanup and gas sector reforms have been successful in reducing corruption in those sectors.
• The European Plan for Ukraine (also called Marshall Plan), targeting EUR 5bn in annual investments over 10 years, is an extremely useful initiative in terms of raising awareness about Ukraine’s investment needs and pushing with investment-friendly reforms. It could be combined with the EU External Investment Plan, which has been recently launched as a de-risking facility for private sector investment.
• One of the key priorities is for Ukraine to improve its civil service’s capacity, which among other things would help unlock $5bn in committed funds from the EIB, World Bank and the EBRD.