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Victories and defeats of Abromavicius, Ukraine's Minister of Economy

Author : Olena Holubyeva

09:59, 9 February 2016
Victories and defeats of Abromavicius, Ukraine's Minister of Economy

Author : Olena Holubyeva

Openness and willingness to participate in dialogue with business persons, deregulation policy, lack of corruption, accompanied by oligarchic lobby, which blocked privatization and systemic reformation

09:59, 9 February 2016

Abromavicius is one of the three foreign ministers in Yatsenyuk’s Cabinet. He was appointed on a quota of Bloc of Petro Poroshenko in December 2014. When introducing him to the Verkhovna Rada, Yatsenyuk said: "Aivaras is a man known to a considerable part of the whole financial and economic world. He was directly involved in negotiations with foreign investors. He is in charge of bringing order to the public authorities".

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On election day on his candidacy, Abromavicius noted that his priorities deregulation and reform of state-owned enterprises. “I am a reformer, we will be very strict with the regulatory authorities. State-owned enterprises will be reformed. Our work to be long and complex. Ukraine is the poorest country, the most corrupted country in the world, 112th in the list on the ease of doing business. We must act fast, using the most radical methods,” he said.

Abromavicius stressed that he is "very liberal" and that his task is "to deregulate the processes in the economy as much as possible, to enable businesses to breathe freely". According to the coalition agreement, and the "2020 Reform Strategy", Ukraine in 2020 should enter the top twenty in the ranking of doing business and, and to enter the top-40 in the ranking of global competitiveness.

Business is satisfied with deregulation

Speaking in Parliament a year and a month after his appointment, January 29, Aivaras Abromavicius summed up: "During this year we have canceled more than 100 regulatory barriers, reduced the number of permissive documentsfor 40%. The deregulation plan was fulfilled by 72%, but this is only the beginning. 30 bills from the deregulation plan are still in parliament. We are waiting for thematic days in parliament, the day of economic development, to improve the business climate, to review and adopt a number of required documents. Economic impact of the deregulation is worth of billions hryvnia".

Experts point out that one of the major achievements of the ministry in this direction is trade facilitation. Minister Abromavicius said that this is one of the main objectives of his department. Ministry of Economic Development has prepared, and November 4th Parliament has ratified the WTO Agreement on Trade Facilitation, which, in particular, provides some simplification and acceleration of customs control procedures. For example, the creation of a "single window", i.e. institution, where the exporter or importer will submit a package of documents. According to the trade representative of Ukraine Natalia Mykolska, it will significantly reduce, and most importantly - reduce the cost of the procedure for the carrier, as the goods will not be delayed at customs, and working capital will not be frozen.

The implementation of foreign trade operations in Ukraine takes up to 30 days, its costs reach US $ 2-2.5 thousand, and the number of required documents is 8-9. It's twice as slow, expensive and complicated than in the developed world. Now, export clearance was reduced from 29 to 8 days, and imports - from 28 to 11.

Related: Abromavicius offers to reload governmental system in Ukraine

The main efforts were directed to the creation of conditions for increasing exports. In addition, there were agreements with individual countries on the simplification of trade procedures. For example, Egypt agreed to simplify the procedure for handling and customs valuation of export-import operations. Negotiations on FTA with Turkey, Canada has been launched.

An important step was the abolition of the monopoly of "Ukrekoresursy". The company charged a fee from importers for imports of the product in the package allegedly to build capacities and work for the recycling of packaging.Predecessor of Abromavicius PavloSheremeta unsuccessfully fought with this company. "One time I was told not to touch it, because this company is necessary for the flow of money to the campaign of one of the parties. Another time they told me not to touch it, because two parties were funded through it," claimed ex-Minister at the YES summit.

The problem with waste disposal management is still not fully resolved. To solve it, Verkhovna Rada must adopt the new version of the Law "On Waste", as well as specialized law on packaging waste. Now the companies are able to choose operators for disposal, cooperate with private entities in this area there was a competition", - she noted.

Almost 13 thousand Soviet state standards,developed before 1992, were cancelled.

“Ministry of Economic Development during the tenure Abromavicius was different from what it used to be. Of course, ther were some disagreements, but the ministry operated more efficiently than ever before. There have been fundamental changes, and we did not see corruption, private interests," said the head of the association "Ukrkondprom" Oleksandr Baldinyuk.

According to him, in response to the request of the Association, the Ministry contributed to the approval of the Verkhovna Rada of the documents necessary for the establishment of a free trade area with Tajikistan. After taking all the necessary formalities, Ukrainian confectioners will be able to import their products duty free.

In addition, work on the implementation of the licensing system in the principle of "tacit consent" (in the form in which it acts in the European Union) has begun. "In Ukraine, until recently, state authorities could give the refusal and on the expiration of the allotted period, and this created the preconditions for the requirement of bribes. When the owner started to work, and a week later some people came to him and said that he should stop working, man became compliant," Baldynyuk notes.

Representatives of "Ukrvodka"Association also state about openness for business and dialogue with Ministry of Economy. According to general director Volodymyr Ostapyuk, a huge work has been done. In particular, a bill on the abolition of import and export licenses for alcohol and tobacco was elaborated, and it is adopted in the first reading. September 20, Ministry of Economic Development has allowed the import of alcohol without the mandatory certification of UkrSEPRO. Also, import or export license were cancelled.

Among the important business steps, he noted the abolition of compulsory certification in the domestic market, work on making the necessary changes to the industry guests. "There were a lot of initiatives in the work, and it’s a pity that they would bestopped," says Ostapyuk.

Related: Poroshenko on Abromavicius’ resignation: he should stay

There is also a category of business which are not completely satisfied withthe activity of the Ministry.

"As the head of the industry employers' association of enterprises of mining and smelting complex, I can say that personally I have to cooperate with the Minister Abromavicius and his deputies, and ambiguous impression has left. On the one hand, it is quite opened team, that demonstrated a willingness to participate in a dialogue, including a large industrial business. They have succedded in the area of ​​deregulation, public procurement, and foreign economic activity. Some positive results of their work, we have not even had time to feel, they occur with a certain time delay. On the other hand, I do not fully agree with the liberal or even libertarian views of this ministry on the role of government in the economy. In my opinion, at this stage of national economic development, the role of government should be more active, and cannot just be left to the market. The majority of participants in the industry, which I have been authorized to represent, were dissatisfied with those experiments, which were conducted by the Ministry in the market of scrap and ferrous metal waste, which ultimately led to record export volumes of this important metallurgical raw materials at the expense of domestic consumers," said Chairman of the Board "Federation of metallurgists of Ukraine" Serhiy Belenky.

According to him, steelmakers expected that the Ministry would more effectively support them.

STOP-privatization

After coming to the post Abromavicius said that hundreds of inefficient SOEs are not needed, and the ministry is going to get rid of them. However, the minister does not understand that privatization in Ukraine is the main stumbling block, the apple of discord. To please all the oligarchs who want to grab a piece of meatier, - it is almost impossible, not to mention the "sell it honestly".

Actually, the oligarchshave blocked the privatization. Formally, the main obstacle to the privatization process was the lack of legislation that would have opened the way "to the transparent professional privatization". In fact, assets are not shared, because "gray cardinals" have not given green light to the privatization.

The bill, developed by the Ministry, expands the requirements on the part of potential buyers of state companies, imposes a ban on participation in the privatization of natural and legal persons of the aggressor country (Russia).

"Ideally, I would like to make such a privatization, which is not only the Russians would not be able to participate, but also our oligarchs could not participate," said Abromavicius in October 2015. According to him, the transfer of state-owned enterprises to the oligarchs has shown the inefficiency of such business management. The bill was successfully blocked.

“It is obvious that it is privatized, rather, its absence was the reason for the resignation of the minister. Interests of more than 200 financial and industrial groups around personnel issues 70 largest state-owned enterprises of the country and forced the foreigner to leave the post. The initiative to transfer the largest enterprises in the country under the wing of the Ministry of Economy has broken the delicate balance," wrote on the Facebook page Oleksiy Zubritskiy, Advisor to the Minister of Agrarian Policy and Food of Ukraine.

"Unprofitable" state property

In the first few months as Minister Abromavicius said he is concerned about the loss ratio of state-owned companies. But in fact they get a decent income of their "shadow" owners. In the simplest terms, the influential clans "milked" the companies, and drew formal reporting losses.

Minister has actively changed the management of public enterprises. He singled out the appointment of a number of highly effective leaders such as Oleh Prokhorenko "Ukrgazvydobuvannya" which has saved billions of hryvnia to the state.

“While the Ministry of Economy was engaged in senseless work on the construction of superstructures above the main holding companies-feeders of the country, it has never stopped anyone. The point of fracture, determined the resignation of the Baltic reformer, was the decision to take 70 of the largest state-owned enterprises of the country under controlof the ministry, and, respectively, the right to appoint the management of these enterprises,” wrote Advisor to the Minister of agrarian policy and food of Ukraine.

Abromavicius notes that, according to preliminary estimates, the losses of state companies in the past year fell from 4.505 bln USD to 0.6 bln USD. Among the most important steps the minister also highlighted the reform of corporate governance "Naftogaz Ukraine", which was transferred from long-term management of the Ministry of Energy to the Ministry of Economic Development and submission of which is carried out pilot reform of state property management. EBRDfollows the experiment.

Related: Abromavicius resigns

"Until the end of March we expect the formation of the Supervisory Board of five members. Three of them will be completely independent. The best recruitment company is working on it," said Abromavicius, noting that the purpose of reform is to isolate the "Naftogaz Ukraine" and the key state-owned companies from political influence.

The Ministry is going to act in a similar way with respect to reform of other state-owned companies. By the way, the quorum meetings of shareholders in companies with state participation Rada took place without the participation of the Ministry. It was the deputies’ project on the fight with Ihor Kolomoisky, which then flowed smoothly into a political scandal.

During his stay in the post of Minister, Abromavicius has terminated bankruptcy proceedings of "Ukrburshtyn", the main asset of which is the largest amber deposit in Ukraine, in Rivne region, with area of 1027 hectares. According to media reports, estimates of reserves were more than 200 tons of amber.

Government Procurement

Losses from the line of corruption and mismanagement in public procurement accounted for about 20% of the total reserves - 2 billion USD annually, according to Prime Minister Arseniy Yatsenyuk.

According to Abromavicius, the reform of the public procurement system was a separate challenge for his team. There were two resonance things done. The first was the creation of e-ProZorro system. The system operates from February 2015, a pilot mode in the long-term procurement. The system keeps almost 39 thousand tenders from more than 2.3 thousand government customers. According to the data of the Ministry of Economic Development, the total budget savings have already exceeded 19 million USD.

In 2016 it is planned the complete conversion of all tenders for ProZorro system. From April 1, all the major customers of the services: the ministries, departments, the largest state-owned companies should launch to it.

The new law confirms the opening of access to all information on public tenders, including the price offer, the list of owners of the participating companies, assessment protocol. It eliminated the possibility of intentional blocking of trading by the court of appeal procedure, and it will be easier to participate in tenders.

Technical changes, introduced by the law, allows Ukraine to join the World Trade Organization Agreement, Agreement on Government Procurement (GPA). This will open the Ukrainian companies access to public procurement markets abroad, totaling $ 1.7 trillion.

Investment is a complex problem

One of the tasks of the ministry is to attract investments into the economy. Minister Abromavicius is blamed  of the lack of these investment policy, forgetting that investors look primarily at the general lawlessness and rampant corruption in the country.

According to Abromavicius, last year investments amounted to slightly less than $ 3 billion. "Many companies continue to invest," he said. However, as examples of specific investors led only to the representatives of the agricultural sector, which has long been working in Ukraine: "Bunge" (export crops, produced in Ukraine sunflower oil under the brand name "Oleina") - $ 200 million, KWS (growing cereals) - 100 $ million, NCH (growing crops) - $ 100 million, Alseeds (one of the largest manufacturers and exporters of vegetable oils and meal) - $ 200 million.

Serious constraints on the decision to invest in Ukraine are low efficiency of the fight against corruption, the lack of judicial reform, the lack of evidence of foreign exchange liberalization. In particular, the negative impact on the investment climate are the currency restrictions imposed by the NBU.

Related: Ukrainian embargo on 70 Russian products

Research shows that the vast majority - 80% of business people - are dissatisfied with the situation in the Ukrainian investment climate.

Export-import-GDP

January 1, 2016 came into force an agreement on deep and comprehensive free trade zone Ukraine - EU. EU removes restrictions on Ukrainian producers, and Ukraine is entitled to do this for seven years. However, the decision to launch the FTA was adopted in 2014, prior to the appointment to the post of Minister Abromavicius. Then it was noted that the positive effect we can expect no earlier than two or four years after its launch.

Despite all the risks, Abromavicius has not abandoned plans to launch a free trade area within a specified time. This caused the rupture of trade relations between Russia and Ukraine. December 25, the Federation Council approved the law on the suspension of the operation of the Free Trade Area Agreement with regard to Ukraine from January 1, 2016. In addition, January 1, Russia introduced a food embargo against Ukraine.

In response, Ukraine has restricted the import of food and household products from the Russian Federation. Earlier, on September 16, President of Ukraine Petro Poroshenko has signed a decree on the introduction of sanctions against Russia, under which there were more than 400 individuals and 90 legal entities, which are responsible for the implementation of criminal activity against Ukraine.. After application of Abromavicius for the resignation, Ihor Kononenko, person involved in the scandal, accused the Minister that the sanctions against the Russian Federation have not been introduced.

Related: Trade war between Ukraine and Russia: method of embargo

According to Statistics Service, in 2015, exports from Ukraine fell by 21.2% - to $ 34.52 billion, while imports decreased by 22.7% - to $ 34.27 billion. Among the reasons for the decline in import volumes are devaluation of the hryvnia, reduced purchasing power (according to the State Statistics Service, the real income of the population, calculated taking into account the price factor as compared with the corresponding period of 2014 decreased by 26.6%) and the additional import fee.

The reasons for decline in exports are the unfavorable external market conditions, low prices for agricultural products and metals. The annexation of Crimea and the occupation of part of the Donbas became the reason of the loss of the enterprises of the export-oriented industrial infrastructure, and led to the disruption of economic relations with Russia, for which many Ukrainian companies were targeted in the past years.

The general conditions of the country's crisis the GDP in 2015 is are expected to fall by 11%. The Ministry called the figure of 10.4%, indicating that the growth was 0.2% in the IV quarter. The Cabinet believes that the result of the anti-crisis policy in the second half of 2015 was the achievement of macroeconomic stability with the gradual intensification of industrial activity, the restoration of inter-sectoral linkages, improving consumer and business sentiment in society.

The IMF forecast for the Ukrainian GDP for the next year is an increase of 2%. The Fund expects that the economic recovery will support a gradual improvement in consumer and investment sentiment, lending expansion, an increase in exports.

Ratings, numbers

So, in the ranking of Doing Business World Bank and the International Finance Corporation (IFC) Ukraine in 2015 has risen from 96th to 83rd place among 189 countries. In the ranking of the country it was between Saudi Arabia (82 th place) and Brunei (84th). Yes, this is the rating, which in 2020 we should be in the top twenty.

But in the ranking of global competitiveness (Global Competitiveness Index 2015) World Economic Forum which is compiled annually, Ukraine dropped altogether from 76 th to 79 th place, situated exactly between Guatemala and Tajikistan. Abromavicius note that this rating is based on statistical data for the previous year, and business surveys at the beginning of the year. Although the task to enter the top 40 of the rankings still has not been canceled.

In the ranking of the tax burden on businesses that make up the World Bank together with the audit firm of PricewaterhouseCoopers, Ukraine ranked 107th place out of 189, being between Ghana (106th position) and Fiji (108th position).

In the world ranking of Global Open Data Index (openness of government data) Ukraine has risen to 58 th position out of 134 countries, whereas in 2014 the country ranked 68th place.

At the end of 2015 Ukraine dropped in the world rankings for the protection of property rights and now it occupies 109th place out of 129 countries.

Ukraine was able to make only one extra ball, and the result reached in 27 points out of a possible 100 in the world ranking of corruption perceptions CPI in 2015. This has allowed Ukraine to take the 130-th place out of 168 positions. In 2014, the country was in the 142 th place out of 175 positions.

Recent ratings, of course, indirectly related to the activities of the Ministry, but they evaluate its work. Well, with the pace of reforming we will not getinto the twenty Doing Business and the top 40 in competitiveness.

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