Tomas Fiala: the Government stabilized the macroeconomic situation, but the market is waiting for the resumption of reforms to improve the investment climate
Tomas Fiala, CEO of Dragon Capital, began the conference with an analysis of the current Government’s actions. In his speech, he also noted with pleasure the increased interest of the country’s leadership in the creation of a full-fledged stock market in Ukraine. In addition, Mr. Fiala analyzed the reasons for the underperformance of Ukrainian stock market indices and expressed hope that the Government will intensify the reforms which are necessary to improve the investment climate in Ukraine.
Please see below the key points from Mr. Fiala’s speech.
The results of the past 12 months
Last year Prime Minister Mykola Azarov opened our conference and the main focus of his speech was macro stability, conservative fiscal policy, GDP growth and infrastructure spending.
We should admit that these priorities have been adequately realized. GDP recorded 5.2% growth last year, one of the highest rates in the region. The targets laid down in the budget suggest GDP growth of 3.9% this year, and the Government is determined to reach that level. Even taking into account our more conservative expectation of 2.2% for this year, Ukraine remains one of the fastest growing economies in the region. Inflation is down to 3% and the budget deficit has been halved from 8.7% in 2009 to 4.3% last year. This year the Government expects a budget deficit of 2.5%, slightly more optimistic than our forecasts.
Regarding infrastructure, four brand new airports and stadiums are ready, and progress on other infrastructure projects has been impressive compared to previous years.
As for reforms, they were slower in 2011 than in 2010. However one of the most politically difficult measures, Pension Reform, was approved and came to effect in October of last year. And grain export restrictions — a hotly debated issue this time last year — have been lifted.
New Government challenges and priorities
On March 15, Prime Minister Mykola Azarov invited approximately 20 largest strategic investors in Ukraine to receive our recommendations on how to improve the investment climate. We had a very open and frank two-hour discussion. It was very encouraging to read Mr. Azarov’s speech at the weekly Government meeting the following day. Half the speech was dedicated to the issues we raised, and tasks were delegated to respective ministries.
Among the most important objectives are protection of creditors’ rights (currently the largest problem for banks that prevents faster lending growth), transfer pricing (the respective law is being drafted), deregulation of the construction sector, and simplification of tax rules.
The recent appointment of Valery Khoroshkovsky as First Deputy Prime Minister, Yuri Kolobov as Minister of Finance and Petro Poroshenko as Minister of Economic Development and Trade, gives investors hope that the reform program needed to improve the investment climate in Ukraine will be resumed.
Focus on the stock market
We were pleased to hear that among the priorities of the Government was the development of a well-functioning stock market worthy of the size of the Ukrainian economy. These measures include the introduction of double-listings — placement on Ukrainian stock exchanges of foreign holdings based on Ukrainian assets. This will allow Ukrainian investors access to leading domestic agricultural and steel enterprises.
First Deputy Prime Minister Khoroshkovsky has been mandated to take charge of the review and development of legislation governing capital markets in Ukraine, which is also a positive signal to international investors.
On March 22-23, Prime Minister Azarov was on a two-day visit to Poland for the final coordination meeting ahead of EURO 2012. We and our clients were very pleased to know that last week he asked that a visit to the Warsaw Stock Exchange be added to his schedule.
We hope that the Ukrainian leadership’s interest in the investment climate in general and in the Ukrainian stock market in particular will significantly improve the situation with capital inflows into the country. The new team in the Government is targeting quick wins that should improve business environment. So, not only the European football championship in June will be a highlight of this year.
About 8th Annual Investor Conference
During the eight years of its existence, Dragon Capital’s Investor Conference was a landmark event, which raises topical issues and makes public statements of the Ukrainian government. This format allows the international investment funds and banks that are willing to invest in Ukraine, to get answers to their questions from the top officials.
For more information please contact us at [email protected].