We might only be a few weeks into 2017, but it already looks like the long-awaited resurgence in the Ukrainian economy won’t be coming this year.
That was the conclusion of the expert speakers at the European Business Association’s first General Meeting of the year on Jan. 26, which was dedicated to Ukraine’s business climate
While there are some positive signs, lingering corruption, reluctance to carry out rapid reform, and politicians’ fear of taking unpopular decisions will shackle the country’s economy for at least the next 12 months – that’s the general feeling among Ukraine’s business leaders.
Moreover, the country’s continued economic malaise can’t entirely be blamed on Russia’s continuing war on Ukraine in the Donbas, said Dmytro Krepak, VISA’s country manager for Ukraine, Georgia and Armenia.
Krepak compared Georgia and Ukraine, which have both suffered aggression from Russia: the Russo-Georgian war didn’t stop the Georgian government from creating favorable conditions for business, he said, as can been seen from the figures.
For instance, the World Bank placed Georgia 16th in the 2017 Ease of Doing Business ranking. Compare that to Germany’s 17th place, and Ukraine’s 80th.
It’s estimated that Ukraine drew in $1.5-2 billion in direct investment in 2016. Georgia brought in the same amount, even though its population is 10 times smaller.
“If we had the same amount of investment per capita as there is in Georgia, we’d get $20 billion annually,” Krepak said.
Dragon Capital CEO Tomas Fiala was also downbeat, saying that Ukraine’s economy would only grow if the government implements 12 reforms demanded by the IMF as a condition for the provision to Kyiv of the lender’s fifth $1-billion loan tranсhe.
Fiala underlined the importance of three of them – creating anti-corruption courts, lifting the moratorium on land sales, and increasing the pension age – while noting that all would present problems for the government politically.
And even if Ukraine eventually does get the fifth tranche of the IMF’s loan, there’s no way the sixth one is going to come in 2017, Fiala said.
He also expects further weakening of the national currency: the hryvnia will sag to around Hr 28.5 per dollar this year, he predicted.
Even so, banking will be Ukraine’s healthiest economic sector in 2017, Fiala said.
All of the country’s banks have either been properly recapitalized or declared insolvent in 2016. And the “surprisingly peaceful” nationalization of PrivatBank has played a most important role for healing the sector,” Fiala said.
“That was a courageous and much needed move, indeed,” agreed Volodymyr Lavrenchuk, the CEO of Raiffeisen Bank Aval – the strongest bank in Ukraine as of the end of 2016, according to Dragon Capital’s ranking.
“(The banking sector) was on the edge of crisis in 2015-2016,” Lavrenchuk said.
According to him, if PrivatBank had been allowed to collapse, the rest of the banks could not have absorbed its 20-million-strong customer base.
“This was a success, but we’re all paying for it,” Lavrenchuk said of the nationalization.
Volodymyr Lavrenchuk, the CEO at Raiffeisen Bank Aval, talks to the audience at the European Business Association’s first General Meeting of the year on Jan. 26 (EBA)
Lavrenchuk said he hoped 2017 would see a decrease is deposit interests rates at least to 13-14 percent. Oschadbank, the state-owned savings bank, currently offers 17.5 percent deposit interest per year, and PrivatBank – 20 percent.
Former NBU Deputy Head Vladyslav Rashkovan agreed, and said he was sure the National Bank of Ukraine was underestimating the detrimental effect high interest rates are having on the economy.
“The (high) deposit interest rates offered by Ukrainian banks suppress the economy,” Rashkovan said. This in turn increases the interest on credit, and makes it difficult for small and medium business to borrow.
“If (Oschadbank and PrivatBank) retain 20 percent interest rates on average, other banks will not reduce them either.”
Kyiv Post staff writer Denys Krasnikov can be reached at [email protected].
