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Investors don't want to bring their funds to Ukraine: President's speech in Davos can't change it

Author : Oleksiy Kushch

Source : 112 Ukraine

Being in Davos at the World Economic Forum, Ukrainian political elites might think that they became members of the world establishment club
21:27, 29 January 2020

Official website of the President of Ukraine

But this is just that famous gospel parable about a guest, for whom it’s better to go to the meeting to sit on the edge and then they will tell you to “sit closer” rather than try to tell fantasies about a great country (the same as Great Britain), which will make "enter" in the EU. Indeed, in this case, the "owner" answers: "Sit back."

Why do our politicians fall into this trap over and over again? The reason is simple. Almost the entire top of the power is struck by the Dunning-Krueger effect, that is, metacognitive distortion, when people "with a low level of qualification make erroneous conclusions, make unsuccessful decisions and are unable to recognize their mistakes because of their low level of qualification."

Ministers and MPs with overstated ambitions are sitting on the shoulders of people who, on the contrary, "tend to underestimate the assessment of their abilities and suffer from insufficient self-confidence." This is happening in all countries, but for some reason in Ukraine, this phenomenon has acquired hypertrophied forms, and every year the effect grows with the speed of geometric progression and new portions of people with “distortion” take overall living space at the top of the public pyramid, competing in who is dumber and more shameless.

Related: Ukraine's economy to see up to 3.7-percent growth in 2020, - World Bank

As a result, the economy has been under the cold "investment shower" for years. But our delegation in Davos will not feel this. Indeed, world-famous politicians and economists who arrived there are polite, smiling, and even come to our "panel" for sponsorship money from Ukrainian oligarchs. They will not openly say anything negative about the current economic policy of the Ukrainian authorities, but they will not trust us with their money.

Ask the distinguished guests which of the Ukrainian delegation impressed them with their speech at the last forum in Davos - they will not remember. And talking on the current delegation, you will hear flattering respond, based on the principles of political correctness and ordinary courtesy.

And the reason is simple: Davos is a territory of meanings, where futurology, far from reality, is closely intertwined with development models relevant to the current state of the global economy. If you have something to say to the world and your ideas will be interesting in the context of global trends, the path to Davos will become the starting point for the growth of investment attractiveness of your country, and the site itself will become an effective mechanism for communication and country marketing.

And if banalities or empty rhetoric sound from your lips, then the effect will be the opposite. But only if the time lag between effective performance and the influx of investment in the country can be from six months to several years, then the negative effect of useless air shaking works almost immediately in the form of deferred investment decisions. Therefore, if there is nothing to say - it is better not to go.

Related: Ukraine enters top five of world's chicken meat exporters, - Economy Minister

To the current forum in Davos. In the ranking of the global competitiveness index - 2019, which is calculated by the World Economic Forum, our country fell two places and was in 85th place out of 141 countries. It should be said that those countries that are not in the top 50 are often perceived by investors as economic losers.

And here it would be interesting to know the opinion of our “grant” officials, who love the markers of success in the form of KPI, and which consider places in international indices and ratings in absolute terms. The largest decrease in the components of the competitiveness rating was recorded in such sections as the financial system - a fall of 19 levels (136th place) and medicine - a drop of 9 positions (101st place).

And these are precisely those areas that, according to the assurances of the previous government, were "reformed" best. In this case, why did the “most stable banking system over the years of independence” receive such a low rating in terms of its competitiveness (maybe because 60% of it is concentrated in 4 state banks and the judicial topic of “PrivatBank” continues to play the role of “future problems”?)

And medical reform clearly cannot boast of worldwide recognition (maybe all because the population was cut off from "free" services without even giving it a model of affordable insurance medicine?). And blaming the evil “successors” is no longer comme il faut: the rating covered the period when “the reforms were in the full swing.” By the way, the current government has declared full commitment to the previous “reforms” in terms of medicine and the financial system.

Related: Zelensky’s speech in Davos: There is war in Ukraine and expressing concern is not enough

Our power has never been puzzled by such a "trifle" as the correspondence of form and content. This year, there’s another sign in the form of "creativity, innovation, opportunities" (by the way, in the "innovation" section, our country fell into two positions). And a country that relies on creativity meets on the sidelines of a summit with a creditor - the IMF, and in domestic politics - destroys the industrial core and science as two system poles of innovation supply and demand ...

But Prime Minister Honcharuk posts a picture of “the two youngest prime ministers” with the head of the Finnish government, forgetting to mention that her country is in 11th place in the rating. Although, on the other hand, what could they write in the form of a new message? Government bonds, land, sale? So it is and so everyone knows. The main thing is that there is no word "digitalization".

In this context, one can compare the speech of US President Donald Trump and our Prime Minister. Naturally, the scale of politicians is not comparable, it’s like an elephant and an ant, but the accents themselves are important.

Donald Trump: "We returned our pace, we opened our spirit and woke up the powerful machine of American entrepreneurship. America is thriving, America is succeeding and yes, America is winning again like never before... The United States with a great advantage is the most powerful economy in the world... The newfound welfare of America is undeniable, unprecedented and incomparable. "

And then comes the fact: 7 million new jobs with a forecast of 2 million, the unemployment rate is the lowest over the past 50 years - 3.5%. Trump: "For the first time in decades, we are not just concentrating wealth in the hands of several people, we are creating the most inclusive economy in history."

The growth of US stock market capitalization by 50%, or $ 19 trillion since the election of Trump as president in 2016. Almost 25% of global direct investment in 2019 fell on the US economy. “For each new regulation, there are eight canceled old ones,” Trump told about deregulation.

What could Prime Minister Honcharuk tell to the world? It may be that in December, industrial production in Ukraine fell by 8.3%, and throughout the year - by 1.8%, and the decline has intensified since the fall when he came to power (the funny thing is that on December 16, 2019, Minister of Economics Milovanov predicted a drop in industrial production by only 0.6%). Or that the growth rate of GDP in the fourth quarter slowed by half compared with the third and fourth. Or about the growth of wage arrears and the number of unemployed.

Or about the “hole” in the budget and the “freezing” of regional infrastructure projects in December. No, he found what to say instead of all this, so as not to injure the sensitive psyche of the forum guests: "Yes, we want to give the Germans 10 years to manage the railway." Moreover, it was said with such enthusiasm that even the surrounding Alps seemed to laugh. In any case, the Germans laughed for sure, since no one really notified them of this "transfer".

The president was more creative and offered investors three cakes:

1. Every foreign investor who has invested $ 100 million in the Ukrainian economy will receive a “supernanny”, that is, a “native” who speaks five languages ​​“as a gift” (why five? Apparently because it sounds Feng Shu).

By the way, speaking of international "investment" languages, these are: English, French, German, Spanish, Chinese and Arabic. That is six (seven with Ukrainian) if you do not take into account Russian. According to the Minister of Economy, the contract with the investor for investment will be drawn up on the basis of English law.

2. A foreigner who has invested $ 10 million or more in privatization will receive tax credits for five years. It is only a profit tax.

3. A special arbitration court will be created to resolve disputes with investors.

All these proposals look interesting only at first glance. In fact, we are faced with a chaotic copying of someone else's experience. The investor’s personal nanny mechanism was used in Singapore to overcome the confusing administrative moves of the eastern post-colonial city (and Singapore is actually a city-country).

Tax breaks are a mantra that rings like an empty drum if it is not coordinated with the principles of economic policy and is applied not within the framework of the general fiscal reform, but in a semantic vacuum.

And a separate court and English law for investors is the Kazakh idea for the creation of a financial hub.

What is the investor paying attention to? Among the many factors (in addition to the popular topic of protecting property rights) these are:

    registration of enterprises;
    obtaining building permits;
    connection to electricity and other infrastructure, including the availability of transport logistics;
    protection of minority shareholders;
    resolution of insolvency;
    international trade.

How this is implemented in practice can be seen in the example of aforementioned Kazakhstan. The fiscal system of this country entered the top twenty in the ranking of tax regimes in the world. In the global competitiveness index, Kazakhstan is in the top 30.

The same indicators are at the level of human capital development. The level of foreign direct investment annually exceeds $ 20 billion, almost 5 billion dollars of which make up the reinvestment of profits of foreign participants. GDP per capita is 8 800 dollars.

Related: Putin called tariffs for Ukrainian gas transit high and economically unacceptable

The growth rate of the gross domestic product is stable at 4%. Industry and extractive industries account for 34.4%, and agriculture - only 4.8%, which almost corresponds to the degree of influence of the agricultural sector in developed countries. One of the achievements of recent years is the launch in Astana of an international financial center - a full-fledged financial hub, which may soon become a real link between the largest world capital markets and the Central Asian region. The technology of its starting success can be formulated as follows:

    organization on the principles of English law;
    preferential tax treatment;
    independent financial court and foreign judiciary;
    independent arbitration system;
    exchange organized by Western standards;
    its own regulator.

In the near future, the Kazakh financial hub may enter the twenty largest financial sites in the world.

The difference between the Kazakh model and Zelensky’s idea is obvious. The Kazakhs clearly understood why they were applying the idea of ​​a financial cluster and what goals they would achieve with the help of these benefits in the coming years. Because benefits are not the unlimited seed that can be uncontrollably scattered in the dry soil of the national economy, without preparing an economic “ground” and without understanding what should eventually “grow”.

Related: Nigerian example for Ukraine: How labor migration can become driver of economic growth?

Zelensky still has a unique historical chance to create inclusive economic institutions that will involve a significant part of citizens in the mechanism of the "market game" and wake up the "spirit of entrepreneurship" as formulated by Kazuma Tateishi.

This was exactly what could and should have been said in Davos, because it would mean for investors that the green light at the entrance to Ukraine had finally lit, because otherwise no one would ever dare to enter the country with funds, even accompanied by "babysitter with five languages."

That is why Skoda refused the idea of ​​building a plant in Ukraine with investments of 5 billion euros, several thousand jobs and export potential of 2-3 billion euros per year. And of the "system companies" we have so far only Coca-Cola and McDonald’s ...

Related: Davos and international cooperation: Promises of Ukraine's presidents to foreign investors

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