Ukraine

Business

Journal

8:36 AM Thursday, October 19, 2017
Opinion
As Russia’s Doors Close, Will Capital Divert to Ukraine?
For Western investors comfortable with the ‘post Soviet space,’ the Slavic alternative is Ukraine
image/svg+xml Kyiv Lutsk Rivne Zhytomyr Lviv Ternopil Khmelnytskyi Uzhgorod Chernivtsi Vinnytsia Chernigiv Sumy Kharkiv Poltava Cherkasy Kirovohrad Lugansk Dnipropetrovsk Donetsk Zaporizhzhia Mykolaiv Odesa Kherson Simferopol Sevastopol Ivano- Frankivsk

KYIV – In a clear message, 99 percent of U.S. Members of Congress voted last week to turn American sanctions on Russia into law.

In retaliation, Putin is cutting the American diplomatic posts by 755, or almost two thirds of the staff. By comparison, the largest diplomatic expulsion involving Washington and Moscow was in 1986 at the end of the Cold War, when President Reagan expelled 55 Soviet diplomats.

As a hockey goalie, Putin has let far too many goals get through -- losing friendship with Ukraine, reenergizing NATO, and throwing away trade and investment with the West. (UNIAN Inna Sokolvska)

A new chapter

A page, nay, a chapter is turning in the history of Russia’s relations with the West.

For skeptics, here is another mathematical fact. The last major American sanctions against Moscow – the Jackson-Vanik amendment – were adopted in 1974. They lasted 38 years. If history repeats itself, the new sanctions on Russia would run through 2055, when Vladimir Putin is 103.

Russia: the party is over

Despite obvious return of Cold War relations, we now will be treated to protests from diehard Russian investors insisting it is business as usual. But the reality is that the universe of American – and European – investors who will deal with Russia is shrinking like an ice cube in August.

When I was last in Moscow, in June 2014, I covered an international oil and gas conference. In the wake of the first round of post-Crimea sanctions, the American business presence was thin on the ground. The explanation was that:

1) sales opportunities abound in Russia

2) no US oil company could understand US Treasury rules

3) no company board in Houston would touch a new Russian investment with a 10-meter Volga barge pole.

In that year alone, 2014, one third of all Brits, Americans and Germans registered as living and working in Russia, moved out.

Today, any new American investment in Russia automatically triggers red flags. A Russia investment could be legitimate, but few investors want can afford to cope with American prosecutors on well-funded “fishing trips.”

And don’t forget: the new sanctions cover Russia, Iran and North Korea. Who wants to join that club?

With Moscow dropped from the A List, Western reporters may now start chronicling Glamour-on-the-Dnepr. Here a Miss Ukraine contestant struck a yoga pose Thursday while an instructor held her board. (UNIAN/Valdemar Gorlushko)

Where does this leave Ukraine?

Ukraine will benefit. But it will benefit in a more constructive way than the old Soviet-era zero sum view: ‘You’re up, I’m down.’

With Russia’s steel doors closing again, Ukraine can attract diverted capital – human and financial – looking for a new Slavic home.

In the generation since the 1991 collapse of the Soviet Union, the world’s financial capitals – Frankfurt, London, Toronto, New York and Tel Aviv – have filled with Russian-speaking experts in ‘the post-Soviet space.’ With the closing of Russia, their stock plummets.

The alternatives?

Belarus is a ‘small cup of coffee.’

Kazakhstan is an oil and gas play, kind of blah in the era of $50 oil.

The real country is Ukraine – 43 million people with a free trade pact and a 1,400 km land border the EU, the world’s richest consumer market.

OK, Ukraine may never be as economically sexy as oil-rich Russia. But with Britain and France promising to end sales of new internal combustion cars, the long term prospects of oil-based economies may not do well.

But investors generally do better if they are not distracted by glitter.

In a classic tortoise and hare contest, Poland passed Russia last year in the per capita income race, hitting $27,700. And, as everyone knows, income is distributed far more equitably in Poland than in Russia.

While Ukraine cannot compete with Russia's oil-based economy, it scores well in suntan oil and sunflower oil. Here two contestants for Miss Ukraine posed Thursday after the boarding contest on the Dnipro, in Kyiv. (UNIAN/Valdemar Gorlushko)

Take a second look at Ukraine

Last week, I got a hint that Russia investors are taking a second look at Ukraine.

Out of the blue, my old US Russian language school asked me to film a short video testimonial forstudents, from Ukraine.

My last contact with the school was in New York 18 months ago. In advance of an alumni reunion at an upper East Side art gallery, it was agreed that I would talk briefly about job opportunities in Ukraine for Americans who had studied Russian.

But, on arrival at the gallery, I was told by a college administrator that, um, it would be ‘awkward’ if I spoke about Ukraine. The husband of the gallery owner was an ethnic Russian from Crimea.

I agreed to submit my pitch to fellow alumni by email – the diplomatic solution.

At the reception, the gallery owner’s husband tracked me down and treated me to a rant: a ‘Third Maidan’ is coming and that this time Nazis will be swinging from the lampposts. I let him blather. He had married well and could afford to indulge in irrational tirades.

Fast forward to today. The American language school has three campuses in Russia at stake and dozens of American students questioning the wisdom of studying in Russia this fall.

Time to take a second look at Ukraine.


For comments or story suggestions, please contact Ukraine Business Journal editor-in-chief at james.brooke@theubj.com

We recommend
Putin's reelection March 18, followed by World Cup...
Timothy Ash Oct 07, 2017
by Ievgen Gusiev
The UBJ Oct 04, 2017
Will a few rotten apples with spoil the Supreme Co...
Diane Francis Oct 02, 2017
--> --> -->