UKRAINE at a Crossroads
spacer spacer
Reforms will help complete transition to a market economy
spacer
By Thomas Cromwell
spacer
spacer
spacer Independence Square, Kyiv

the transformation of a nation from a Soviet or Soviet-dominated past into a full-fledged democracy and free-market economy differs from country to country. For some it has been a rapid, if painful process, completed in the span of a few years. For others it drags on for decades.

Some countries, notably the Baltic states of Lithuania, Latvia and Estonia, were always restless in the Soviet Union, and there was a national desire to go free long before the forced integration of the post-WWII period was finally reversed and independence achieved. These countries, and Estonia in particular, embraced their future energetically, from the outset making radical changes on every level of government and the economy.

For the Soviet satellite states of Central and East Europe, the more independent-minded the people and government, the quicker their transformation. Poland, Hungary and Czechoslovakia all made radical changes out of the box and moved as fast as they could to make it across the transition and into the Euro-Atlantic system dominated by the United States and European Union.

No surprise, then, that these countries were the first to gain membership in the EU and NATO. Other satellite states have trundled along behind, in many cases taking much more time to turn around, due to everything from poor political leadership to resistance to change among bureaucrats and private citizens alike, and in some cases outright nostalgia for the good old days when the state took care of your needs from cradle to grave.

Mother Russia herself has had a rough ride through transition years. Yes, the role of government has been radically diminished, and the private opportunities for business and creativity have flourished. But a deep-seated nationalism that responds to strong leaders has made Russia a special case.

On the one hand, the dominance of Vladimir Putin in Russian affairs for a decade has brought welcome stability after the roller coaster of the Yeltsin years, but on the other, Russia seems to have stopped somewhere along the road to a truly liberal future. Perhaps dependence on a strong leader is an obstacle to real reform which ultimately empowers individuals and reduces the power of the state.

Ukraine is in a special position. Arguably the country most deeply integrated with Russia within the USSR, Ukraine has floundered on its way to a new nationhood. On the political front, stability has been elusive as various forces jostle for control of the main institutions, generally at the cost of most citizens.

As with Russia, Ukraine’s economic landscape has been dominated by oligarchs. Most of these were men of power in the old system, and were able to leverage that power to become captains of capitalism in the new. Yet oligarchs by nature thrive on developing monopolies and suppressing competition.

The alliance of strong political leaders and oligarchs is not a recipe for change. It will produce a good number of business deals, but it tends to suppress entrepreneurship and the true flowering of a market economy.

When Viktor Yanukovych won the election as president of Ukraine early this year, there was a widespread perception abroad that his ties to Russia would entangle him and pull Ukraine inexorably into the Russian orbit, with all the negative repercussions that this implied.

The skeptics were probably wrong. Yes, one of the new president’s first moves was to sign a deal with Russia that traded an extension of Russia’s lease for naval facilities at Sevastopol for lower Russian gas prices for Ukraine, a critical element for the latter’s economy. And, yes, Yanukovych backed away from the previous government’s commitment to join NATO. However, his government has also pushed aggressively to integrate fully with the European Union.

In many respects, these policies, east and west, are the right recipe for Ukraine. Having a simmering dispute with Russia over Sevastopol does neither side any good. During the Georgian crisis, when Russia invaded its smaller neighbor, there was talk of the Russian-Ukrainian dispute getting really ugly.

On the other hand, for Ukraine to put NATO membership on the back burner is prudent. Only some 30 percent of Ukrainians favor full NATO membership. The majority would not favor NATO membership at the cost of good relations with Russia.

Most Ukrainians, however, also want to be part of Europe. Most important to them? Removal of the visa requirement to visit EU member countries. For the business community, it is access to the EU markets that is most desired.

Yanukovych has moved aggressively on both these fronts. At a Ukraine-EU summit in November, a free trade agreement and a visa exemption program were at the top of the list of priorities that Ukraine pushed for, and, as Ukraine’s foreign minister Kostyantyn Gryshchenko told us in an interview published elsewhere in this report, Kyiv is working with all seriousness and all speed to take the necessary legislative and practical steps to meet EU demands so that these twin objectives can be achieved.

For investors in Ukraine, there is cautious optimism that the other piece of the government’s agenda will be implemented. That is the reform of the business climate, including the adoption of a long overdue tax code (initially vetoed by the president, but after some modifications by the parliament signed by the president on December 3); the reform of the judiciary (so that judges actually follow the law instead of bending to political and other pressures); and the pruning of 90 percent of the regulations that make doing business a nightmare in Ukraine.

Jorge Zukoski, for the last 14 years the president of the American Chamber of Commerce in Ukraine (a group that represents 80 percent of the FDI in Ukraine) says that he believes for the first time a Ukrainian government is actually serious about making the changes that his members have long sought.

Thus Ukraine is at a crossroads. Having stabilized its relations with Mother Russia and focused its energies on market reforms and substantial economic integration with the Euro-Atlantic community, it is poised to unleash the many positive energies evident to all who are familiar with the modern state.

With a population of 46 million, Ukraine can become a major player in its own right. It need not be thought of as a buffer between Russia and the West, but perhaps a bridge, and a vital bridge at that.

This report explores the situation in Ukraine today. It includes an interview with the foreign minister and profiles of leading investors in everything from agriculture to fast food and beverages. These stories are balanced with articles on everything from the art world to infrastructure and the preparations for Ukraine to host the Euro 2012 soccer cup.

 

spacer
Stories
spacer spacer spacer spacer
spacer arrow Reforms will help complete transition to a market economy
div
spacer
spacer arrow Kyiv wants to speed integration with the EU
div
spacer
spacer arrow An arts walkabout in Kyiv
div
spacer
spacer arrow Government will not pursue Nato membership, but continues close cooperation
div
spacer
spacer arrow EU leaders impressed by Ukrainian resolve
to join Europe

div
spacer
spacer arrow The Holodomor Memorial
div
spacer
spacer arrow Business tips on entering the Ukrainian market
div
spacer
spacer arrow A discussion with Jorge Zukoski, head of AmCham in Ukraine
div
spacer
spacer arrow The time is ripe to be engaged in Ukraine
div
spacer
spacer arrow Investment in agriculture could yield high returns
div
spacer
spacer arrow Ukraine looks forward to 2013 OSCE Chairmanship
div
spacer
spacer arrow Offshoring to Ukraine
div
spacer
spacer arrow There’s always fresh opportunity’
div
spacer
spacer arrow Coca Cola: An early investor catches the market share
div
spacer
spacer arrow Looking forward to needed reforms, businesses are poised to move forward
div
spacer
spacer arrow Mykola Syadristry, artist and activist
div
spacer
spacer arrow Your tourism guide to Ukraine
div
spacer
spacer arrow Ukraine’s rich agricultural experience
div
spacer
spacer arrow The last agricultural frontier
div
spacer
spacer arrow Entrepreneur expands into the Ukrainian auto market
div
spacer
spacer arrow Knowledge bridge for sustainable energy could be model for other sectors
div
spacer
spacer arrow Kraft Food’s Ukraine success story
div
spacer
spacer arrow McDonald’s has largely developed the service culture in this country
div
spacer
bottom
UKRAINE at a Crossroads Home
UKRAINE at a Crossroads Home