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How to solve problems that block process of big privatization in Ukraine?

Author : Olexandr Honcharov

In the course of large-scale privatization 2019 our government and legislators must move from a policy of reducing investment to a policy of forced investment. Otherwise we’ll see the collapse of the economy.
13:27, 23 January 2019

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From the first days of the coming 2019, the State Property Fund of Ukraine sharply intensified its activity. Yes, the real work began, and the SPF head Vitaly Trubarov hurried to report on January 10: "We agreed with the IMF permanent representative Gösta Ljungman to work together to solve problems that block the process of big privatization ... A clear requirement of the IMF is to start sales of large privatization companies in 2019." And the officials immediately rushed to follow the orders of the IMF Resident Representative in Ukraine.

Already on January 16, the list of large-scale privatization objects was approved, the Cabinet of Ministers made the appropriate decision and here are the objects for sale:  Ternopiloblenergo OJSC, Centrenergo PJSC, Zaporizhyaoblenergo PJSC, Kharkivoblenergo JSC, Mykolaivoblenergo JSC, Khmelnytskoblenergo PJSC , United Mining and Chemical Company, Krasnolymanska Coal Company, PJSC Azovmash, State Plant Electrotyazhmash, PJSC Sumykhimprom, PJSC Odesa Port Plant, OJSC Oriana, PJSC President-Hotel, PJSC Ukragrolizing, Indar pharmaceutical company.

But no one knows what will happen to the Ukrainian economy at least a year later. The high-ranking officials have already understood that “extra” state property is a problem. In this connection, we recall the well-known two phrases of Kakha Bendukidze: "You can sell everything except conscience" and "Only a large royal seal can be in state ownership." But we know very well that no one government of Ukraine managed to fairly privatize state property. No one deputy gave us at least one effective and proven way to restore the country's economy.

And what are these ways? First, it’s a stable hryvnia. Secondly, project financing. Third, the creation of a modern legal framework for capital markets and the development of a domestic market for joint investment (this is long money for reforms). Fourth, the improvement of the system of recruitment. Fifth, fair privatization to attract strategic investors and effective owners in the economy of Ukraine. What else can we do? Professionally speak with investors, explain to them the new rules for the sale of privatization objects and how we will continue to improve business conditions for them. And these measures should inspire confidence in both domestic and foreign investors.

For example, the practice of previous years of cooperation with China has demonstrated the inability of Ukraine to master the 3.6 billion dollars provided by the China Development Bank for the development of Ukrainian energy, and now we are trying to sell almost all of the regional power plants at bargain prices. As a result, then after 5 years, the money was withdrawn by the Chinese side due to the failure of Ukraine to submit the agreed projects. Although to get a new $ 7 billion from 2019, our Cabinet must justify that we can decide on strategically important projects and implement them.

By the way, the participation of Chinese investors in the purchase of privatization objects is derived from the state of development of bilateral trade, economic and political relations. It will make sense if there is a noticeable increase in trade volume between countries, and for this, Ukraine needs to declare its readiness to begin negotiations with the PRC on a free trade zone (to give a signal to start large-scale cooperation). And at the same time, China, despite the difference in the economic potentials of the two countries, is ready to go for an asymmetric FTZ in favor of Ukraine.

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Think about it - more than $ 200 billion of Chinese investment in Africa, about $ 180 billion in Latin and North America, as well as tens of billions of dollars in Europe, Australia, Southeast Asia, and so on. China is a very attractive potential investor for the whole world, who does not put forward political demands to Ukraine, but, on the contrary, proposes to invest in the real sector of the economy, including privatized enterprises, to create industries in our territory. China is also ready to provide concessional loans for the development of Ukrainian infrastructure (energy, transport, seaports, airports, roads) and in agriculture (crop production, processing, warehousing, logistics), energy (nuclear, electricity, renewable), high-tech sector.

So, in the course of large-scale privatization in 2019 our government and legislators must move from a policy of reducing investment to a policy of forced investment. Otherwise we’ll see the collapse of the economy.

But in order to move to a policy of forced investment, it is necessary to reduce the high level of inflation, the powerful tax pressure on the Ukrainian business and the 18 percent rate of the National Bank. Even starting to do this, we could receive from one to seven billion dollars from Chinese investors. However, until now, for some reason, we have not created a free trade zone with the PRC, which means we are not investing in the national infrastructure at all, while Belarus and Kazakhstan do.

For Ukraine this is especially important because of its unique geopolitical position. All this should be considered in a complex: transport infrastructure and energy infrastructure, education infrastructure and infrastructure of national culture, including investments in public infrastructure, namely in housing and public utilities and health care. In the meantime, neither the West nor China has virtually nothing to take from our poor country. In addition, the Cabinet of Ministers replenishes the funds only with IMF loans, so that Ukraine does not fall into the financial abyss. Yes, so far our country has a very bad investment image. And again the ancient principle is relevant: look who benefits from it.

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