New economy minister stands for austerity, deregulation, privatization

A former citizen of Lithuania, Abromavicius quit his job at East Capital, a Swedish asset management firm that claims to have provided a 1,542 percent return on investments in 2000-2010, to take the job that Pavlo Sheremeta quit in September, citing an onerous bureaucracy and vested business interests that resisted any reforms.

Abromavicius also expects to encounter big resistance, but hopes to stay longer than Sheremeta, who left the job after six months.

“I expect resistance as well and I understand where the resistance is going to come from,” he says. “But I want to push. Ukraine has no way out.”

While Abromavicius didn’t say where the resistance would come from, he didn’t have to specify. Ukraine’s state bureaucrats and oligarchs have teamed up with corrupt politicians in Ukraine throughout 23 years of independence to perpetuate a graft-ridden, Soviet-style system that has kept millions of Ukrainians impoverished and prompted millions of others to flee the nation. Those who stayed have engineered two revolutions in a decade to advance the nation’s democracy and economy.

Abromavicius said he’s coming into public office without any compromising personal ties. “I’m very happy I don’t know any of Ukrainian oligarchs personally,” he says.

While he is determined to succeed, he wants to do it on his terms. If he fails, “it’s not the end of the world for me personally. I will go back to what I know best, which is investment activities.”

Ukraine spends Hr 140-150 billion of taxpayers’ money on public procurement annually. Bringing transparency and efficiency to these deals could cut the figure by some Hr 30 billion – nearly $2 billion. “That’s a lot of money,” he says, especially for an economy that may shrink to as little as $150 billion in gross domestic product this year.

Moreover, the nation’s public expenditures are 56 percent of GDP. He says the new government wants to cut the state’s share of spending 10 percentage points. 

A good start would be the state-owned Naftogaz, which sucks up 7 to 9 percent of the nation’s GDP — much of it on non-transparent schemes that epitomize Ukraine’s corrupt ways. Every month, the nation pays up to $1 billion to plug Naftogaz’s finances.

“We cannot feed Naftogaz at the expense of Ukraine,” he said, noting that Ukraine should start charging market prices for energy while helping the poorest consumers cope with the price increases.

Abromavicius says that large-scale privatization is necessary, but will have to wait for better economic times.

“The public sector is 3,300 state-owned companies, 1.1 million people employed – and billions of dollars of losses and indebtedness,” he explains. “The state is a horrible owner of the assets.”

Those assets should be sold after auditing them by the Big Four, a super-league of globe’s biggest audit firms that includes Deloitte, EY, KPMG and PricewaterhouseCoopers.

Stakes in public companies will be placed on the international exchanges, while some will be also traded on the Ukrainian stock market. “My view is that Ukraine should have a strong local stock exchange. Obviously, we need to change the laws, need to work in the Securities Commission slightly different than before,” the minister explains.

“There are going to be no re-privatizations,” Abromavicius adds. “This idea was a big mistake of the Orange Revolution. Only one asset should have been reprivatized – Kryvorizhstal – and that already happened.”

Meanwhile, he hopes to stimulate private pension funds, a rather novel concept for Ukrainians, to supplement the nation’s simultaneously burdensome (17 percent of GDP) and paltry state pension for retirees (average payment of only $110 monthly). The private savings will create a long-term investment base that will be contributing to the development of business.

Deregulation will also help, especially for the small and medium businesses whose share in the country’s economy remains low by Western standards.

An exports promotion strategy includes discussions with the European Union authorities over quotas applied to the Ukrainian goods under the free trade agreement coming into effect in 2016. 

“We need the trade representative offices,” Abromavicius explains. “China has 5,000 people in Moscow working only on trade promotion. All these big embassies of the Netherlands or Germany – all they do is trade promotion. And, certainly, you shouldn’t have a 65-year-old guy promoting IT goods.”

The former asset manager is looking for a circle of experts to work at the Economy Ministry to make it more productive. He thinks government can get by with fewer, but better-paid employees – in the order of $2,000 monthly to reduce incentives for corruption.

“Dmytro Shymkiv’s team at the Presidential Administration is working on that. They plan to submit some laws to allow salary sponsorship from a separate fund. The basic idea is that you get private and corporate sponsors to that fund,” he said.

One big difference between his native Lithuania and his adopted home of Ukraine is the attitude towards public officials. In the Baltic nation of three million people where he grew up, public officials are treated as public servants. In Ukraine, by contrast, some public officials act as if the people should serve them. 

“I don’t understand how somebody working in the public administration can be a billionaire or millionaire,” Abromavicius emphasizes.

The corruption fight should not only come from public officials such as himself. It should involve all Ukrainians who are on the alert, he said, citing Sweden as an example where “a neighbor will call the tax police to check where your expensive car comes from.”

A resident of Khreshchatyk, Kyiv’s main street, Abromavicius explains he’s been emotionally plugged into the Ukrainian politics since the EuroMaidan Revolution that took place nearby.

A father of three children all born in Kyiv, he’s been married to a Ukrainian woman for 10 years, so doesn’t consider himself to be a complete foreigner.

“We met in the elevator in a hotel in Yalta,” the minister recalls. “She was coming back from the night club and I was returning from the restaurant.”

The family has lived in Kyiv at least six years.

Abromavicius was a guard for Lithuania’s basketball team, a top-notch sports team that won the Soviet Union’s championship for children in 1988. “But I love tennis much more now,” he says.

Abromavicius joined East Capital in 2002 and became a partner after starting his career with Hansabank, the largest Baltic Bank, where he soon was appointed head of equities.

He also worked three years as head of trading at Brunswick Emerging Markets and was deputy chairman of the Investor Protection Association in Russia, although Russia’s war against Ukraine has prompted him to cut ties to Russia.

From 2002 to 2014, he worked as portfolio manager and senior adviser within the East Capital’s portfolio management team for Eastern Europe, in Stockholm, Moscow and Kyiv.

Abromavicius has a B.A. in international business from Concordia International University, Estonia and Concordia University in the American state of Wisconsin. He speaks Russian, Lithuanian and English fluently and communicates well in Estonian.

Kyiv Post chief editor Brian Bonner and associate business editor Ivan Verstyuk can be reached at [email protected] and [email protected].