Icebreaker Chevron

A regular meeting of the Council of Domestic and Foreign Investors under the President of Ukraine took place at the Presidential Administration on November 5. The interests of the private sector were traditionally represented by leaders of the largest Ukrainian and foreign companies (Nestle, Shell, Sberbank of Russia, VTB Bank, et al.). Like last year, “oppositionist” oligarchs (like Ihor Kolomoisky and Kostiantyn Zhevaho) and other top 10 from the Forbes’ golden hundred (Andrii Verevsky, Yurii Kosiuk, Hennadii Boholiubov) were not present at the meeting with the president. Remarkably, it was the first time that the biggest Ukrainian businessman Rinat Akhmetov had not attended the gathering. Akhmetov received Yanukovych at a forum in Donetsk two weeks ago and urged the government to create new transparent rules quite openly. In general, about 40 VIP guests came to the meeting with Yanukovych. The medium business was represented by the European Business Association.

The invited guests started gathering around 10 a.m. The policy-makers and businessmen spent about 2.5 hours talking about “Investments in the economy development and social sphere in the conditions of free trade area with the European Union.”

The president spoke first. After reporting on another economic success of the country and assuring that any citizen can go and open a business and developing economic activities in Ukraine, Yanukovych turned to the issue of the European integration. According to him, European investors provide today 80 percent of all investments in Ukraine, and deepening of trade relations will only strengthen the inflow of funds. “A powerful impulse to the investment dynamics will be given by the creation of the Deep and Comprehensive Free Trade Area with the EU. Ukraine’s integration into the economic space of the EU requires further harmonization of fiscal systems. We create such tax environment in Ukraine, whose rules will be comfortable and clear for European investors,” Yanukovych assured. According to him, closer contacts are being established with the EU tax and customs services. And this was the end of the public part of the dialog between business and government. Unlike at the previous meeting, this time everything that investors told the president was hidden from prying ears.

BOARD CHAIRMAN OF THE DEVELOPMENT CONSTRUCTION HOLDING OLEKSANDR YAROSLAVSKY (LEFT) AND CHAIRMAN OF LUKOIL VAGIT ALEKPEROV (RIGHT) HAVE A LOT TO DISCUSS. RECENTLY, THE FORMER SOLD HIS SOCCER CLUB METALIST, AND THE LATTER HIS ODESA OIL REFINERY, BOTH TO THE NEWLY CREATED UKRAINIAN OLIGARCH SERHII KURCHENKO, THE OWNER OF VETEK GROUP, THE SUCCESSOR COMPANY OF HAZ UKRAINY

As one of the participants anonymously told The Day after the meeting was over, the council at the Presidential Administration looked more like a “declarative assembly.” Representatives of the EBRD, the American Chamber of Commerce, Microsoft, Chevron, Ernst & Young, and Kulczyk Holding made short reports. Heads of the most of the large domestic and foreign companies were silent. The majority of speeches touched upon the investment climate, Ukraine’s potential and ways of its development, and opportunities that open after signing the Association Agreement with the EU. “There were no absolutely positive or absolutely negative assessments in the matter of investment climate. Everyone accepted the situation and accentuated the need to improve the situation not only in ratings, but in the investor sentiment. The majority of speakers supported the association with the EU and admitted it would become a serious impulse for economic development. But the main point is not signing, but the implementation of this agreement,” emphasized our interlocutor. When asked whether the dialog between the government and business was a successful one, he answered: “Listening to speeches and providing no reaction is not a dialog, it is a protocol meeting. It is necessary anyway. It is a high-level form of communication.” According to him, it is important now that a reaction from the government and other institutions follows. “Those who were interested in hearing, did hear, but the main question now is, how will this be implemented now?”

PRESIDENT OF UKRAINE VIKTOR YANUKOVYCH BELIEVES THAT COOPERATION WITH TWO WESTERN COMPANIES CHEVRON AND SHELL WILL ALLOW UKRAINE TO ACHIEVE ENERGY INDEPENDENCE AND POSSIBLY START EXPORTING DOMESTICALLY PRODUCED NATURAL GAS BY 2020

We had a feeling of deja vu while communicating with other participants, because it was only foreign investors who told about problems, while the Ukrainian ones (with a few exceptions) looked on with understanding but kept quiet. Why? Because, despite the improvement of the ease of doing business ranking, the domestic economic situation remains tense. And this correspondingly entails the rise in the cost of borrowed capital in foreign markets for domestic business, and also the rise in the cost of modernization of production facilities, which is inevitable if Ukrainian oligarchs want to win the competition in the European market.

Despite all this, the president of the European Business Association Tomas Vial sees grounds for economic optimism in Ukraine. “Our company has been in business for 17 years, we have attracted financing for many Ukrainian companies, and we continue doing so. Many main macroeconomic indicators do not look optimistic. At the moment, the predictability of their development is not very high. That is why investments are being put on hold. But since we have a lot of experience, we understand that historically, this predictability has always been problematic. But at the end, the government could always put their thoughts together and solve everything before a crisis. I think, this will happen in the future. That is why we are not afraid of investing,” says Vial in an exclusive commentary to The Day. And since competition in Ukraine is much smaller than in other Central European countries, and there are many niches, Vial believes that despite the macroeconomic risks, there is light at the end of the investment tunnel. “If you look at it from the long-term perspective, the majority of our investments turned out to be successful, even though there were sharp fluctuations up and down. You can succeed if you work conservatively and with a long-term perspective in your mind,” Vial sums up.

EXECUTIVE CHAIRMAN OF VTB ANDRII KOSTIN (LEFT) ADMITTED IN HIS COMMENTS FOR THE DAY THAT HE FOUND UKRAINE’S INVESTMENT CLIMATE TO BE QUITE CHALLENGING. HOWEVER, HIS COLLEAGUE, EXECUTIVE CHAIRMAN OF SBERBANK GERMAN GREF (RIGHT) REFRAINED FROM COMMENTING ON THE BANKING ENVIRONMENT IN UKRAINE

Managing partner at Ernst & Young Oleksii Kredysov, who spoke at the meeting, told The Day that Ukraine has to harmonize its legislation with the international one to keep financial records. “Then a slight correction in the financial sector must be made, because now a situation with financial losses and huge tax is possible in Ukraine. And all investors are sitting and thinking what to do about it. A lot has been done already, for example, transfer pricing is progressive. But there is still much to implement. The amount of taxes must be reduced, they should apply equally to all players in the market, all gaps must be closed,” Kredysov says.

“We are moving in the right direction, we only need to implement all these decisions,” adds Vadym Novynsky, MP and chair of the Smart Holding supervisory board. According to him, the parliament has already passed necessary laws (on reform of the judicial, law-enforcement, and tax systems), the law on economic entities has been amended. “Adopted laws provide foothold for economic optimism. We have done half of the job, now we need to finish it,” Novynsky says.

AMERICAN BUSINESS DOMINATED THE MEETING OF THE PRESIDENTIAL COUNCIL OF INVESTORS. ACCORDING TO PRESIDENT OF THE AMERICAN CHAMBER OF COMMERCE JORGE ZUKOSKI (LEFT), COOPERATION WITH CHEVRON WILL BENEFIT UKRAINE’S ENERGY INDUSTRY. STILL, FIRST DEPUTY PRIME MINISTER SERHII ARBUZOV (RIGHT) HAS FEW GROUNDS FOR OPTIMISM, AS THE WIDER ECONOMY IS STILL MIRED IN STAGNATION

“It is not about the climate, the main thing is for legislation to work steadily, for it to be predictable, but it changes too much at the moment,” says director for Nestle Corporate Affairs Hennadii Radchenko. “A developed infrastructure, industry, almost 50 million consumers – these are the grounds for optimism, which gives investors confidence in Ukraine’s future.”

Foreign investors are more specific in their proposals. “A transparent energy market must be launched. It is important for Europe and Ukraine for the domestic Ukrainian market to become a part of the European one. In order to achieve this, technical connections must be built. At the moment, Ukrainian market looks like the EU energy market, but we need to complete the technical harmonization as soon as possible,” says Jan Kulczyk of Kulczyk Holding.

Everything said before and during the meeting by investors and government representatives does not look like the whole truth. Why? In the conditions of a complicated economic situation in Ukraine and the indeterminacy of the future GDP tendency, the matter of filling the budget was not discussed, and therefore, not solved.