International business conference promotes opportunities in Ukraine

by Zenon Zawada
Kyiv Press Bureau

KYIV - Now is the time to give Ukraine a second look, former World Bank President James Wolfensohn told more than 300 international businessmen attending the second annual Renaissance Capital conference.

Bankers, investors and their representatives converged upon Kyiv on February 7 and 8 to feel out the business climate and examine the latest opportunities available in post-Orange Ukraine.

Ukraine is a nation "with absolutely enormous potential, yet "there is a lack of political strength to get things done," Mr. Wolfensohn said, citing the domination of entrenched oligarchs and few market-friendly systems.

"The potential here just makes you want to cry in terms of what can be done," he added.

While European Union and World Trade Organization membership are worthy goals, "Ukraine's problems can be solved internally in Ukraine by Ukrainians," he said. Joining those organizations are mere extras.

For example, corruption and bureaucracy continue to plague the economy, despite the fact that there are impressive government officials who are competent and have a desire to move the country forward.

Ukraine ranked 124th out of 155 nations in terms of the ease of doing business, according to the World Bank's "Doing Business in 2006" report. Such a ranking is far behind Hungary and Poland, Mr. Wolfensohn said, which ranked 52nd and 53rd, respectively.

Such problems exist despite Ukraine's excellent geographic position, abundance of natural resources and educated population.

Only 8.4 per 100 Ukrainians are Internet users, an incredibly low number for a nation so well-educated, he said.

"The problems in Ukraine are not fundamental problems," he said. "They're bureaucratic problems."

Mr. Wolfensohn said Ukraine's agricultural future is exceptional and pointed out that Renaissance Capital has already recognized the opportunity for modernizing the sector. "I salivate at the prospects of agriculture," Mr. Wolfensohn said.

In his opening remarks, Mr. Wolfensohn mentioned that his Jewish grandparents had emigrated from Ukraine, having been "asked to leave at a less hospitable time."

While Mr. Wolfensohn spoke positively and optimistically of Ukraine's potential, government officials did little to buttress his endorsement and impress investors.

President Viktor Yushchenko, Prime Minister Yurii Yekhanurov and National Security and Defense Council Chair Anatolii Kinakh didn't appear at the conference, despite being scheduled to so.

The highest-ranking official to show was 31-year-old Minister of the Economy Arsenii Yatseniuk who offered vague and unclear economic data and summations.

The 2005 economic results were neutral to positive, Mr. Yatseniuk said. Ukraine's 2005 Gross Domestic Product (GDP) growth was higher than the European Union's, he said, without naming a figure.

Earlier in January, Mr. Yatseniuk had reported real GDP growth of 2.4 percent in 2005 as a tentative figure.

Vasyl Yurchyshyn, an economist at the Razumkov Center for Economic and Political Research in Kyiv, said a final GDP figure isn't yet available.

Inflation increased by 10 percent, Mr. Yatseniuk said, which was lower than 2004. Producer prices were twice as low in 2005 as compared to 2004 he said.

More precisely, inflation rose 10.3 percent in Ukraine in 2005 and 12.4 percent in 2004, according to Mr. Yurchyshyn.

In 2006, the Ukrainian economy will grow at about the same rate as the prior year, Mr. Yatseniuk said.

Though he represented the Ukrainian government and was speaking in Ukraine's capital city, Mr. Yatseniuk delivered his remarks in Russian.

Speaking in Ukrainian, State Property Fund Chair Valentyna Semeniuk went to great lengths to assure investors that no foreign investment will be re-privatized.

"Of the properties that were re-privatized, none belonged to foreign investors," Ms. Semeniuk said. "This involved domestic investors who neglected to fulfill their responsibilities. I always tell foreign investors, 'You don't have any reason to fear that your property will be taken.' "

She stressed that the Nikopol Ferroalloy Plant was illegally privatized, which is why the government took back control.

While Ms. Semeniuk favors government repossessions, she is against re-privatizations and opposed the Kryvorizhstal auction, even submitting her resignation over it. President Viktor Yushchenko refused to accept her resignation.

When asked by The Weekly whether or not she favored re-privatization, Ms. Semeniuk said she wouldn't comment until the process reached that far. But she hinted that she'd be against privatizing Nikopol.

When addressing the subject of re-privatization policy, Ms. Semeniuk said she'd like the issue to be off the table because no laws currently exist on the matter.

"I understand that today, sharp steps to the left or the right aren't positive for Ukraine," Ms. Semeniuk said. "Moreover, even if someone would like re-privatization to occur, we will never allow it without laws in place."

That was an indirect reference to Yulia Tymoshenko, who had expressed a very aggressive plan for re-privatization when she was prime minister. Businessmen and economists blamed this plan for scaring off investors, both foreign and domestic.

Ms. Semeniuk is a member of the Socialist Party, which is running in the elections as its own bloc.

As for privatization of those properties still owned by the government, Ms. Semeniuk said the State Property Fund will support such efforts but under strict oversight in which the buyer will properly develop the property.

"If you don't execute your investment responsibilities, the property returns to government ownership and is again up for competitive bidding," she explained.

During Ukraine's privatization, 98,000 properties were privatized, Ms. Semeniuk said, of which 83,000 became small businesses, 11,000 became stockholder companies, and 4,000 were incomplete construction projects.

In 2005 the Property Fund raised about $4.7 million in budget revenues from privatizations. Currently, 65 properties are in the process of privatization, she said.

Ms. Semeniuk said she foresees the day when stocks for privatizations will be offered and traded on Ukrainian television on a Ukrainian exchange, and that Ukrainian companies will begin selling their shares on the world's major exchanges.

She stressed that all privatizations will occur on a transparent basis and foreign investors are welcome to take part.

Prominent Ukrainian Canadian businessman Jaroslav Kinach also spoke at the conference, representing XXI Century Investments, a Kyiv-based real estate development and property management firm that became the first Ukrainian company to have its shares traded on a major stock exchange.

On December 12, 2005, XXI Century Investments shares began trading on the London Stock Exchange's Alternative Investments Market. The initial public offering (IPO) raised $140 million by floating 32 percent of its shares.

Half of the buyers represented the United Kingdom, and investors from 11 other countries bought shares.

The company's market capitalization increased by 20 percent after the IPO, said Mr. Kinach, who serves as a board director and owns options in the company.

Mr. Kinach formerly chaired the Ukrainian office of the European Bank for Reconstruction and Development. He gained much of his experience working for Toronto Dominion Bank and earned a master's of business administration from Columbia University in New York.

XXI Century's main objectives include doubling company size in the next two years, Mr. Kinach said, as well as carefully leveraging capital base and assets using a wide variety of financial instruments.

Speaking with The Weekly, Mr. Kinach said the Orange Revolution turned Ukraine's image around "180 degrees" and put Ukraine on the map for international businessmen and investors.

Under President Yushchenko's leadership, business conditions have improved because there is no longer a risk that the government will put administrative pressure on businesses for political reasons. Foreign investors can expect a faster pace of reforms and more stable business environment, he noted.

"The rules of the game have been simplified and straightened out in many senses," Mr. Kinach said. "There's still a way to go. The tax regime is still rather complex, but it is not abused as often and frequently in the past."

The recent changes, or attempted changes, with prime ministers projects instability and inconsistency to foreign investors, added Mr. Kinach. As a result, many investors are waiting until after the March 26 parliamentary elections to make decisions, he said.

"I think that's a big mistake," he said. "Conditions are only going to improve in Ukraine. They will not get worse. Those who are fence-sitting are missing the boat."

Investors favor the Our Ukraine bloc winning the March 26 elections, but the bloc will have to form a coalition to secure the majority in the Parliament, he said.

Successful and open elections free from abuse will be critical for investors, Mr. Kinach said. Then, a coalition government led by Our Ukraine would have to form an economic and social program that it will implement, he said.

"The big problem in this part of the world has been many programs announced and very few executed," he underscored.

Renaissance Capital is a Cyprus-based investment bank with a Kyiv affiliate. It is recognized as one of the top investment banks in the Russian Federation.

Copyright © The Ukrainian Weekly, February 12, 2006, No. 7, Vol. LXXIV

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