Zelensky wants to achieve growth of Ukrainian economy by 7%: He needs investment and stock market

Author : Olexandr Honcharov

Source : 112 Ukraine

During a joint press conference with Turkish President Recep Erdogan in Ankara, Volodymyr Zelensky said that in the coming years the Ukrainian economy would grow at the level of 5-7% of GDP. How to achieve this?
21:47, 13 August 2019

Open source

During a joint press conference with Turkish President Recep Erdogan in Ankara, Volodymyr Zelensky said that in the coming years the Ukrainian economy will grow at the level of 5-7% of GDP. Of course, if you look at the potential of our economy (huge natural resources, many talented people and a democratic state), you just need to combine all this to achieve the goal. How? Nothing needs to be invented: all developed countries have long shown a universal tool for this - investment.

That is why the Association of Capital Market Participants has already prepared a new Investment Strategy with the creation of an International Investment Hub in Kyiv. In fact, it is now a challenge for us to become a dynamically developing country that could implement a model of economic growth, and also meet the internal needs of Ukrainians, be attractive both to national business and to foreign investors. We, entrepreneurs, are well aware of the challenges that await us with this young political team, however, we also have every chance to successfully solve the most difficult economic problems. The main thing is to find a balance between high living standards for our people and a bet on efficiency, productivity, structural progress in the Ukrainian economy.

We should rely on the still preserved unique scientific potential and political will of the “Servant of the People”, and not on oligarchic agreements. And it is imperative to get rid of illusions, since, frankly, while investments in Ukraine are present only due to the high profitability, which is ensured by the low cost of labor. But it cannot go on for so long. This was pointed out to Petro Poroshenko by our American and European colleagues. I wonder if the "Servants of the People" understand this now? And what would they do in this regard?

First of all, I would advise them to attract investment and create a good investment climate in Ukraine. True, in real life, creating an investment climate is always a long process and a difficult compromise between the interests of business and the long-term interests of the state. The state should strive to attract capital, but at the same time protect its interests and the rights of its citizens, establishing some financial, administrative and social boundaries. We saw a magnificent and highly professional example of such a practice in 2008-2010, when Germany and the United States sold General Motors and Opel enterprises, for a long time compromising  with potential investors on taxes for business, on guarantees of non-closure of production, non-transfer of it from the country, on the level of salaries of workers, their social guarantees and so on.

The difference between this picture and what is happening in Ukraine, for example, with the privatization of the Odesa port plant, is huge. So far I’m not talking about problems with the expected sale of land. Finally, in order to attract investment, it is necessary for the new structures of the Verkhovna Rada and the Cabinet of Ministers to create a favorable investment climate. That is, the conditions for business in Ukraine should be better than in other countries (so that free capital, leaving somewhere, comes to us). The list of such conditions is long: legal security of the business and the absence of corruption restrictions for it, low taxes and high profitability, the availability of skilled labor, etc. And all this must be created. And most importantly, to end the permanent poverty and lack of rights of ordinary Ukrainians by reducing labor migration.

This situation primarily hurts us. How to change it for the better? Remember, a few years ago, our authorities and the Ukrainian expert community tried to analyze and implement a number of Georgian reforms in our country. Yes, there was something to analyze. There certainly is something to look at. There was something to try on. But what should Volodymyr Zelensky pay attention to?

- Firstly, the number of ministries and departments has decreased in Georgia (out of 18 ministries, only 13 remained, out of 52 departments – only 34, and staff reductions from 40 to 50%  took place in the remaining state institutions).

Related: How to strengthen trust of Ukrainians in hryvnia?

- Secondly, the number of licenses issued by officials and licensing procedures controlled by them decreased from 1000 to 140.

- Thirdly, the Pension Fund has been canceled.

- Fourth, in accordance with the Act of Economic Freedom, in particular, any restrictions on the movement of capital, an increase in the total number of licenses, the creation of new regulatory state bodies are prohibited. Government spending is also limited to 30% of GDP, and the introduction of new taxes is allowed only through a popular referendum (out of 22 taxes previously levied in Georgia, 6 remained).

- Fifthly, draconian responsibility for corruption has been established, for example, for a $ 50 bribe, a police officer is sent to prison for 10 years.

- Sixth, the financial and exchange markets in Georgia are completely open for international competition (foreign banks of A + and above category can enter the Georgian market without any restrictions).

The latter factor is one of the key elements for understanding the reasons for the success of Georgian reforms. So we need more and more financial injections into the budget of Ukraine, enterprises in the real sector of the economy need direct investments, but they simply do not exist. For example, in the USA they say: "On Sundays, our people believe in God, and on weekdays - in the stock exchange." And they have no problems with investors.

“20 billion hryvnias is precisely such a volume of operations with securities on stock exchanges over the past year that we have recognized as abuse or simply schematization. These operations were in no way connected with attracting investments,” said Timur Khromaev, head of the National Commission for Securities and Stock Markets. Top officials began to tell the bitter truth. It is also positive that the Ministry of Finance has finally understood: they have gone too far with the volumes and profitability of placed government bonds.

I would like to believe that they periodically read our critical, but objective reasoning on this subject on the Internet. And as a result, on August 6, the Ministry of Finance sharply reduced the placement of government bonds to UAH 2.7 billion (110 million USD). But on August 1, only non-residents bought government bonds for 12,7 billion UAH (503 million USD), increasing their portfolios to a record 86.4 billion UAH (345,5 million USD). By the way, in general, according to the NBU, bonds of domestic government loans worth 803,403 billion UAH (!) are in circulation, of which foreign currency government bonds in dollars amount to 96,220 billion UAH (3,8 million USD) in euros and 12,109 billion UAH in euros (475,000 USD).

Of course, with all its definite positive for activating the Ukrainian stock market, in practice, this enormous amount of borrowed funds, which have been consumed for a long time, will lead not only to revitalization of the business environment in our financial market, but also to a very serious deterioration of the situation for servicing and repayment of government bonds . Worst of all, the real economy of Ukraine, which is able to create new sources of income to fill the state budget and GDP growth with borrowed money from government bonds, unfortunately, has not been created.

And in this regard, personally, President Zelensky should realize that GDP is not the most important thing. For example, if I collect debts tomorrow, my GDP will grow incredibly, but the day after tomorrow I will have to give back more. Therefore, it’s much more important not the bare figures of GDP, but the understanding how the economic growth occurred, what is the structure of this indicator, what are the country's debt obligations and how will all this affect the welfare of all Ukrainians. Well, and Zelensky’s “impossible” task of annual economic 7% growth in Ukraine could be achieved with the right approach.

Related: Hryvnia appreciation: Why Ministry of Finance blames National Bank?

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