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8:31 AM Friday, December 15, 2017
Finance
Min Fin: ‘Tsunami’ of Foreign Investment for Ukraine
Buoyed by an overseas investor roadshow, Finance Minister startles Ukraine Financial Forum in Odesa by saying foreign money centers are bullish on Ukraine; Economists worry that euphoria will kill reform drive
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ODESA – A ‘tsunami’ of foreign investment may be coming Ukraine’s way, Finance Minister Oleksandr Danyliuk told foreign and national money managers gathered Thursday at the annual Ukraine Financial Forum.

Danyliuk based his optimism on a week of face to face meetings with foreign bond buyers in London, New York and Boston.

“I met with with investors representing $2 trillion,” the Finance Minister said of his roadshow. “I have a feeling a tsunami is coming. But a tsunami in a good sense, a positive sense of investor interest in Ukraine.”

Bolstering the minister’s optimism, investors signed up Monday to buy three times more Eurobonds than the $3 billion on offer. In Ukraine’s first sovereign bond offering in almost five years, they ended up paying 7.375 percent, the lowest rate since 2011.

Take Away the Punchbowl!

At the conference, sponsored by ICU investment bank, foreign speakers tumbled over themselves to lecture the Finance Minister about the perils of euphoria. They warned: easy money could derail Ukraine’s drive to make free market changes.

“The concern is: now you have money in the bank, the political will will fade,” said Timothy Ash, senior sovereign strategist for emerging markets at BlueBay Asset Management in London. “As soon as you get access to the market, will enthusiasm for reforms wane?”

Satu Kahkonen, World Bank director, said Ukraine's growth so far is anemic. (James Brooke)

Satu Kahkonen, a Finnish economist who is World Bank director for Belarus, Moldova and Ukraine, warned: “Ukraine does not have the luxury to slow down. Ukraine is still quite fragile. It is not a sustained recovery. If Ukraine manages to do the reforms in the next six months, we would be quite bullish. But right now: move ahead on the reforms, don’t stop.”

Francis Malige, a French banker who is EBRD managing director for Eastern Europe and the Caucasus, warned: “The next election is 18 months from now -- it is our responsibility to continue with reforms…This is not the time to give up on Ukraine, not the time to despair. In contrast, it is the time to engage more, to achieve more.”

Min Fin Zen

The Finance Minister seemed prepared for these arguments. His tranquil visage loomed over panelists in a large video screen as he talked by Skype from his office in Kyiv.

“I don’t see that much link between the markets and driving the reforms forward,” he said. “If we decide tomorrow to stop the reform agenda, do you think we will still have access to the markets?”

All speakers agreed that Ukraine’s 2.3 percent GDP growth for Q2 2017 is unimpressive.

“2.3 that’s good, but we don’t see any sectors picking up in a decisive manner,” said Kahkonen of the World Bank. “We don’t see the growth spurt coming to Ukraine yet.”

Unlock Billions for Growth

Bold steps, all said, are needed to put Ukraine on a high growth path.

Getting down to specifics, Danyliuk said the government will create a market for farmland and would push through major, faster privatizations.

“Next year, if we are successful in privatizing 20 large companies, they will create their own information channel, they will speak among themselves,” the Finance Minister said. “Then, we can talk about 6 to 7 percent growth in the next 2 to 3 years.”

Makar Paseniuk, of ICU, argues that land sales and gas exploration can boost Ukraine's economic growth. (James Brooke)

Makar Paseniuk, a managing partner of ICU, calculated that privatization of the state’s farmland holdings of 12 million hectares would earn the state $10 billion.

“In the next five years, $3 billion can be put into gas exploration and production,” he continued. “These are big numbers that can move the needle. To get to 6 to 7 percent GDP growth is not that unrealistic.”

Ash, who is based in London, warned that fixed income investors are fickle and often have superficial knowledge of countries around the world.

“They have short attention spans, they cover 100 countries,” Ash said. “They read the Financial Times, The Economist. And all they read about Ukraine is corruption. Ukraine needs to create a positive narrative.”

Impunity for Corruption

“Unfortunately, no bandits go to jail in Ukraine,” he added, returning to a common theme: for white collar crime, Ukraine is a sunny place for shady people.

Other speakers complained about a different problem: official shakedowns of businesses for bribes.

At the start of the conference, President Poroshenko gave a video address and cited a meeting he had in Kyiv last week with leader of foreign business associations in Ukraine.This discussion strengthened his resolve to concentrate law enforcement supervision of business into one investigative agency.He told the Forum: "We agreed to create a fundamentally new Financial Intelligence Service, which will have the sole right to investigate economic crimes."

The Finance Minister, a reformist, repeated this plan.

“While we still have the SBU, the tax collectors, the tax police running around, these agencies can kill everything,” he said, adding that ‘balaclavas’ and automatic weapons are not the right tools for forensic audits. “We support creation of a ‘Financial Investigation Unit.’ It would investigate economic crimes against the state -- and not harass businesses, as is now happening.”

Reform or Die

Before disappearing into the ether to return to the Rada, the Finance Minister again promised nervous conference attendees that Ukraine’s government will stick to its reform drive.

“Yes we returned to the markets, but we cannot be satisfied with that,” he said. “We are not at the midpoint of our journey. This is just the beginning.”

Listening closely, without speaking much, was one panelist: Gosta Ljungman, a former Swedish finance ministry official who arrived in July to work in Kyiv as the IMF’s new resident representative.

Slider Photo: Timothy Ash knows that it is not gold coming from the Finance Minister's mouth, but reflected TV lights. (James Brooke)


For comments and story ideas, please contact UBJ Editor in Chief James Brooke at james.brooke@theubj.com

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