Ukraine is eager to demonstrate its competitiveness on international capital markets

The second Partnership for Harmony and Development International Forum for Economic Cooperation was opened by Ukrainian Prime Minister Anatoly Kinakh on December 5. The nation’s economy is represented by over 3000 leading enterprises, organizations, and institutions. Entrepreneurs from forty countries of the CIS and more distant shores were expected to attend, including, among others, businessmen from Lithuania, Latvia, Moldova, Belarus, Austria, Belgium, the UK, Denmark, Sweden, Italy, France, Japan, and the United Arab Emirates, reports Interfax- Ukraine. Organizing committee members told The Day that 141 entrepreneurs from nearly thirty countries had registered before the business lunch break and the rest were due to arrive soon. In his address to participants, President Kuchma expressed hope that “the contacts of the representatives of Ukrainian and foreign businessmen will be regular, gain popularity, and status, becoming prestigious Eastern European business forums.”

If all the traditional drumbeat about the forum’s objectives is cast aside, the bottom line of this high-profile event could be squeezed into one word, investment. In fact, Ukraine already has everything it takes to attract investment, including the political and economic prerequisites for their massive inflow. As Pres. Kuchma stressed in his address (no doubt, the key item on the forum’s first day agenda), Ukraine has broken with its totalitarian past irrevocably, having become a center of stability in Europe and made final decisions on its future: the market economy (80% of Ukraine’s economy is already commercial) and integration in Europe. Ukraine already has a large-scale system to stimulate investment in the economy, the chief executive believes, with eleven free economic zones set up where the tax burden is minimal. Although created barely two or three years ago, the share of investment in FEZs is 17% of the country’s total. Since early 2001, Kuchma continued, the growth of investment in fixed capital has reached 25%, or three times the GDP growth. “This creates a reliable perspective for the economy,” he stressed.

Mr. Kuchma also noted that Ukraine is gradually overcoming its legislative instability. He reminded his listeners that Verkhovna Rada has already passed the Criminal and Civil Codes, assuring them that the Customs and Tax Codes will be approved by lawmakers by yearend, with all this enhancing the opportunities of the Ukrainian economy.

However, the share of foreign capital in Ukraine’s banking and insurance sectors is inadequate, he noted. Attracting foreign investments in these sectors is vitally important for economic growth. The president emphasized his interest in the larger presence of foreign capital, saying, “There is a great potential for investors in Ukraine, but it has not been tapped adequately.” He said there are 31 banks with foreign capital, seven of them 100% owned by foreigners. However, he added, these are small banks and their share in Ukraine’s banking system is insignificant.

The chief of state said Ukraine will step up its privatization of state property, including strategically important enterprises, energy companies, and its transport infrastructure. Stressing that the government is taking steps to ensure greater openness and transparency in privatization, Kuchma called on foreign investors to join in the privatization program. The Ukrainian president also said that for the two past years Ukraine had not applied for loans from international financial institutions, admitting that in the ten years since the country became independent Ukrainians have become overly optimistic in anticipating foreign loans.

Most of the forum participants surveyed by The Day, sided with the president on this issue. Moreover, head of the Kharkiv branch of the Ukrainian Union of Entrepreneurs and Industrialists and board chairman of a consulting firm Leonid Rubanenko told The Day that the need for foreign investment is not all that acute today. In his opinion, Ukrainian businesses should learn to use domestic capital, primarily bank resources, for their investment and innovation projects.

This opinion of the Kharkiv-based businessman echoes Leonid Kuchma’s view when he stressed at the forum that, although many praise the benefits of globalization, special attention should be paid to solving political and social conflicts.

Speaking to The Day, presidential advisor and National Bank Board Chairman Anatoly Halchynsky noted that in the face of gloomy forecasts for the world economy Ukraine must forge its own investment policy. In his opinion, the lack of foreign investment and aid is due to the fact that few in the outside world are aware of Ukraine and the progress it has made in the economy. Mr. Halchynsky is confident that the present forum can fill this information void and promote private investment in Ukraine.

Still, such optimism could prove short-lived, considering existing realities. For one, Ukraine is no longer viewed as a poor country which cannot make do without foreign assistance. On the other hand, in the wake of negative economic forecasts the developed countries are downsizing their assistance, as evidenced by last week’s session in Kyiv of the Ukrainian-American commission still called the Kuchma-Gore Commission., with the US experts assigned to the energy work group (? —Ed.) demanding the urgent solution of problems related to the observance of copyright laws by Ukraine, leading to a minor conflict in the commission’s work. It is still unclear whether the conflict or economic considerations made the Americans curtail their technical assistance to Ukraine by $40 million. The blame for the drop in aid should be placed on Ukrainian lawmakers for their foot-dragging on finalizing the required copyright law. Still, there is obviously some room for optimism left. Addressing the forum, President Kuchma predicted that the next Verkhovna Rada will be able to create an effective majority and overcome the present gridlock between the legislative and executive branches. According to The Day’s experts, a viable parliamentary majority could substantially increase Ukraine’s competitiveness on world capital and investment markets.

COMMENTS

Vice Premier Leonid KOZACHENKO:

The ongoing world economic recession will obviously affect the economic situation in Ukraine. But in this case we have the assurances of our president who said that he will not fear any slowdown because he is confident that Ukraine will not backtrack from what it has achieved.

Ukrainian Union of Entrepreneurs and Industrialists Vice President Volodymyr RYZHOV:

The main conclusion one can make from the president’s address is that we live in a quiet and stable country, something that is a major attraction for investors in today’s troubled world.