Marcin PIATKOWSKI: “Failure to reform monopolies has stalled Ukraine’s economic growth”

What sectors of the national economy cause the greatest concern of the international community? How can the monopoly-related mess be cleared? This is the topic of an exclusive interview with Marcin PIATKOWSKI, a senior World Bank economist, coauthor of the study “The Problems and Prospects of Private Sector Development in Ukraine.”

What are the most monopolized sectors of the national economy?

“In the report we have not looked at the specific sectors that have the largest competition problems. That goes beyond the report. The objective was that report was to take stock of the status of anti-monopoly committee in terms of its effectiveness, as perceived by market players, by the private sector, and by experts from the World Bank, OECD, EBRD, and a number of other institutions. But we have not gone far enough to actually respond to the question of which sectors are the most monopolized. Even some of them are pretty obvious: the natural resources are the most monopolized: the natural gas, power generation, and the natural monopolies, I believe there is a big scope for further improvement and work in re-regulating the market. But this is what we know and we will have to work a bit more to answer your question more directly.”

What can the preservation of these monopolies in an economy lead to?

“Countries that have reformed natural monopolies, and you don’t have to look far: just drive west to Slovakia, the Czech Republic, and Poland, these countries simply have developed so much faster, because natural monopolies can be very harmful in a way they will not allow private sector to grow, they will be inefficient, so that the input into production will be more expensive than otherwise. In other words, if natural monopolies in Ukraine are not reformed, it will surely have a negative impact on long-term growth of Ukraine.”

So, roughly speaking, it can kill the growth of entrepreneurship in Ukraine?

“Monopolies in any shape or form are negative for growth. And the role of the public sector, of the regulator, is to ensure that the markets are as competitive as it gets, also in natural monopolies. And this is where you have to have very strong regulatory policy to ensure the prices that natural monopolies charge are in line with the economics.”

Let me clarify: if Ukraine does not get rid of the main monopolies, it will mean that the growth of the entrepreneurial sector will become practically nonexistent?

“There will always be growth, but it will be slower than otherwise. You have reformed natural monopolies if you have strengthened competition framework, growth will be definitely slower. In fact, if you look at the past 22 years of Ukrainian growth, you already have a proof, the fact that these monopolies have not been reformed has undermined the growth of Ukraine.”

If you keep monopolies, will the private sector have a chance to develop?

“If you keep monopolies, it will be very difficult for the private sector to develop, and in fact, the history of the past 22 years proves it so.”

If the main monopolies in Ukraine are preserved, does small- and medium-scale businesses have a chance to grow in such circumstances, or will large business only be able to develop?

“It is harder for everyone. It is not a ‘yes’ or ‘no.’ These things are a bit more complex. We all know that for 20 years Ukraine has not reformed monopolies, and we see Ukraine is poorer than it could be if it had followed the example of other countries.”

What kind of growth rate could we have now?

“We know that it could have been significantly faster than what it has been in reality.”

How much time do we have left to reform the monopolies before D-Day?

“I would say that we don’t know how much time, but we know that Ukraine is very sensitive to shocks, and Ukrainian economy is very vulnerable to anything that happens outside of Ukraine. And I think it is almost a crisis-intensive mode: Ukrainian economy is very often in a crisis, and if you don’t reform the economy, you’ll have a crisis every couple of years.”