Voices from Dragon Conference 2018
Attending the annual Dragon Conference is like pushing your fork through good cheesecake – rich and rewarding.
During the first four hours on Thursday, 18 high level speakers mustered their wisdom before a demanding audience of high-powered foreign investors.
Several themes emerged:
All speakers who touched on politics spoke against moving parliamentary elections ahead one year, to this August.
“On early elections, Ukraine needs political stability,” said Hugues Mingarelli, EU Ambassador to Ukraine. “The last thing this country needs is political instability.”
However, he argued, Ukraine’s civil society will brake any populist adventure.
“There is a majority of a population in favor of modernizing this country along European lines,” said Mingarelli, a Franco-Italian career civil servant. “Civic society here is exceptional. Every day, it operates as a watchdog for the political class and warns the society and government about actions by vested interests...If a populist wins, I am sure they will not be allowed to implement their agenda. Civil society is guarantee that the country will move in the right direction.”
Prime Minister Groysman promised his government will continue to implement free market, Westernizing changes, undeterred by presidential elections one year from now.
“We are entering a new political cycle,” the Prime Minister said. “Maybe some say the process will be halted. I do not share that. In the Ukrainian Parliament, we have quite a healthy majority for resolving issues.”
This spring, he said, the government is working on 35 new laws, including protecting intellectual property, cutting red tape around oil and gas exploration, and creating concessions structures for private companies to build ports and toll roads.
Finance Minister Oleksandr Danylyuk told foreign investors – you snooze, you lose. (James Brooke)
“Our biggest complexity is dealing with the wait and see [attitude] of investors,” he told the 200 attendees. “People think: ‘It’s a pre-election year, why not wait and see?’ If you wait, you lose.”
2018: Year of Privatization?
With a new privatization law and a tested online auction system, speakers predicted that this will be the year when Ukraine’s state selloff starts in earnest.
“For the investors in the room, get your money ready we are about launch new tenders in
May-June,” said Maksym Nefyodov, First Deputy Minister of Economic Development and Trade. “Last year, we sold more than in the previous five years combined – scrap metal, real estate…Many thousands of small properties, of brown fields, will be sold through ProZorro.Sale.”
“You can go on the site and bid from London,” he continued. “At the next Dragon Conference, we will not be talking about privatization law, but about what we will have achieved.”
Maksym Nefyodov, First Deputy Minister of Economic Development and Trade, said the tools are in place for privatization to start for real (James Brooke)
Danylyuk said that after a slow start – and some false starts – Ukraine’s privatization campaign now is underway.
“This has been planned for many years – and now, privatization is the proof that we can do it and we can make Ukraine great again,” he said. Implying that there are few sacred cows among the 3,000 state companies, he proposed privatizing he state gas production company, Ukrgazvydobuvannya.
Jason Pellman, Ukraine manager for the World Bank’s International Finance Corporation agreed, saying: “This year will see the first real privatizations in Ukraine.”
Although most foreigners were doing the listening, some foreign investment stories did emerge.
“We are investing $300 million in private equity, double the level of last year, and even more than before the 2008-2009 crisis,” said Tomas Fiala, the CEO of Dragon and the conference host.
Most of Dragon’s recent investments have been in commercial real estate – office centers and warehouses. Now, they are adding to their media investment in Novoye Vremya, business site.
“Within the next one to two weeks, we will launch an independent, all news and talk radio station,” Fiala, a Czech, announced. “It will cover all of Ukraine, including Crimea.”
During a coffee break, Adam Barbolet, senior trade commissioner for the Canadian embassy, said: “My team is working flat out – fielding inquiries and visits on wind, solar, defense, IT.”
Canada’s seven month old free trade pact with Ukraine – and the attendant publicity – seem to have prompted Canadian investors to take a second look at Ukraine. The June debut of a direct Toronto-Kyiv flight on Ukraine International Airlines is expected to increased the flow of Canadian business visitors.
Of equal interest to investors is the government’s openly pro-growth stance.
“We plan to grow 3% this year,” Minister Danylyuk told the visitors. “But this is where we should be: we should be a well-diversified, integrated economy, growing at no less than 6 percent annually, catching up with the lost potential of the past.”
Katarina Mathernova, a senior European Commission official, told investors that official goodwill for Ukraine is high.
“There are over 5 billion Euros in the accounts of the EIB, EBRD that are sitting there waiting to be invested in the economy,” she said, referring to the European Investment Bank and the European Bank for Reconstruction and Development.
The barrier to many foreign investors, she said, is Ukraine’s image.
“There is a very corrosive narrative in Europe: that Ukraine is so corrupt it is practically a failed state,” said Mathernova, a Slovak lawyer. “This is a very successful Russian narrative.”
One area for private investment should be toll roads and airports, said Francis Malige, Eastern Europe managing director for the EBRD. Such investments, he argued, will act as economic force multipliers for Ukraine’s regions.
“When you have proper roads and airports, you see more investment,” Malige said, noting with irritation that the day before it had taken him 12 hours to go by road and rail trip from Mariupol to Kyiv, an 800 km distance.
Watch out for Social Stresses
Putting aside number crunching, speakers worried about social trends.
“It is important to create jobs, because Ukraine is bleeding people,” warned EU’s Mingarelli. “We have to do everything possible to persuade young Ukrainians that their future is in this country.”
Finance Minister Danylyuk warned of the nation’s “deterioriating demographics.”
“Ukraine has the lowest birth rate in the last 15 years,” he said in his keynote speech. “Emigration has become a big issue, especially for those who relied on getting cheap labor around the country. They now discover that the labor they relied on has moved to other countries.”
For many, moving to the EU for work is a way to maintain middle class status threatened by the 2014-2015 economic collapse.
As Minister of Regional Development, Construction and Housing and Communal Services, Gennadi Zubko has his finger on the population’s pulse (James Brooke)
“The middle class is decreasing, from 50 to 35%,” warned Hennadiy Zubko, minister of regional development. “Now, 65% of the population receive the [gas] subsidies. That demotivates people, increases passivity.”
Mingarelli warned that ignoring a widening class divide is to play with fire.
“Inequality is unacceptable,” he said. “The majority of people have to struggle on $200 a month when you have thousands of Porsches, Ferraris and Lamborghinis in the streets.”
“Take care of the most vulnerable population,” he lectured the ministers in the room. “Otherwise, the populists win the elections.”
A Farm Land Market
Here, the government cautioned visitors not to get their hopes up. With elections on the horizon, the government is opting for a public information campaign -- but no bold steps.
“We are drawing up new model of circulation of land,” Prime Minister Groysman said, choosing his words carefully as the national press took note. “We are very close to be able to tell the people. But there are always populists who are scaring people.”
Prime Minister Groysman answers questions from Daniel Bilak, head of UkraineInvest (James Brooke)
Minister Danylyuk sounded the same note, saying: “It is very important to start with a very strong communication campaign. Yes, as a government, we support the land market.”
Olga Trofimtseva, deputy minister of Agrarian Policy and Food, repeated the same line:
“We are working on communication. People do not get information about advantages of a land market. It is not as bad as portrayed by populist politicians on TV in Ukraine.”
Given that the government plans to gradually phase in a land market, she said: “Our preliminary estimates are that we should not expect steep rise of FDI due to land reform alone.”
Malige of EBRD, suggested that an easy first step would be to privatize state land. He noted that the government still owns 10 million hectares, about one quarter of the nation’s farm land.
“If the state got proper rent for its land, it would get $2 billion,” said Malige, a French banker.
“There is no political cost in privatizing state owned land – only benefits.”
Mingarelli, the EU Ambassador, took a more broad brush approach, announcing: “This country has the best gricultural land in Europe. If you manage to do this in the right way, you will have unbelievable growth.”