Change of Favorites
Prime Minister Anatoly Kinakh has instructed the Ministry of the Economy to convene the Council of Exporters in early or mid-March. Managers of this country’s largest enterprises will be requested to draw up recommendations for the government to increase Ukraine’s activity on foreign markets. The prospect of a drastic export decline looks quite ominous at present. It no longer pays to rely on metallurgy as the pivotal industry due to a worsened price situation. Almost all metal producers had incurred losses by the end of last year’s fourth quarter. Oddly enough, this coincided with the actual end of the so-called sector tax experiment. The government seems to be inclined to gradually reexamine its priorities.
According to Mr. Kinakh, the state is going, from now on, to favor the chemical industry as well as grain and sugar trade. In any case, at the latest cabinet session he singled out precisely these industries as most important for boosting this country’s exports. To start with, the government intends to sign a cooperation memorandum with managers of these sectors’ largest companies, as it recently did with oil traders. Grain market operators are the first to prepare for this. “I ask you to study the experience of companies that worked on the oil products market and draw up proposals about cooperation on the grain market,” the premier told Leonid Kozachenko, vice premier for the agricultural-industrial complex.
Yet, the first results of this instruction fulfillment look rather strange. Mr. Kozachenko revealed plans to reorganize the Ukrainian Bread Company, making it a powerful grain export entity.
The economic feasibility of this reorganization deserves special study, but one can assert even now that it has nothing to do with “the experience of companies that have worked on the oil products market.” Looking back at the successful regulation of the gasoline market, we must note that the first thing Minister for the Economy Oleksandr Shlapak did at that time was to gather all the largest traders around the same table, instead of announcing plans to reorganize Ukrnafta (Ukrainian Oil).
It is perhaps no accident that the premier, when instructing the government to concentrate on the select sectors, hinted that there is a threat that ministers and vice premiers might treat these sectors unequally. “The requirement that the Cabinet of Ministers be equidistant from all commercial entities is still valid and is going to get tougher. We must establish transparent rules of the game on all levels,” Mr. Kinakh said to his government members. Lobbying the interests of one, even semi-private company, as is now the case on the grain market, is unlikely to help the cabinet stabilize this market. Today, large private companies on both the grain and the sugar market are not conducting a conciliatory dialogue with the government.
“The government does not understand market realities. If both producers and traders suffer losses, then something should be changed immediately,” The Day quoted Serhiy Fedorenko, president of Ukrros, Ukraine’s largest sugar trader, as saying just two weeks ago. That these words were said to journalists rather than a government official in a narrow circle of managers speaks volumes. The executive branch still displays a low culture of management at the sector level. The readiness of a bureaucrat to assemble competing businessmen in his office depends largely not only on his desire to do something real but also on whether the bureaucrat himself is a businessman. What can vividly illustrate the relationship between the state and business on the sugar market is the fact that managers of the largest trading companies learned the 2002 minimum sugar prices from journalists, although logic says that the government should have first sought the advice of traders before setting price restrictions.
The situation is less critical in the chemical industry, also a likely export favorite, mainly because each enterprise in this industry shapes its marketing policies on its own. The impression is that almost nobody in this sector is exactly bursting to get state support on foreign markets. The sector’s industrial managers point above all to slipping sales on the domestic market. “We are losing the domestic market owing to increased supplies from Russia,” Borys Raikov, chairman of the board of Cherkasy-based Azot, says. He thinks the government should immediately launch an antidumping investigation of the import of cheap fertilizers. Obviously, if the government signed a memorandum on cooperation, it could react to such dangerous tendencies in time rather than when Russian producers have already grabbed almost 20% of the Ukrainian mineral fertilizer market.
In general, the Cabinet of Ministers seems to have expanded its priorities mainly because of economic rather than political reasons. This means the current reorientation is most likely to continue this year no matter what kind of government might be in office after the elections. It is too early to discuss the political consequences of the change of favorites. Yet, it is worth noting that Donetsk oblast, now heavily represented in the government, managed to flex its political muscle through the preferential treatment of the Ukrainian metallurgy.
