New Agriculture Minister Oleksiy Pavlenko has ambitious goals for the industry that could save Ukraine’s economy.
“I have a dream to reach production of 100 million tons (of grain annually),” Pavlenko said. “ It will give us the opportunity to double our export potential.” Ukraine saw a record grain harvest of some 62 million tons in 2014, despite the loss of agricultural land in Crimea to Russia’s annexation and in the east to the Russian-backed war.
Agriculture is already contributing about 10 percent to the nation’s gross domestic product of $150 billion and is one of the drivers of the economy.
All this makes Pavlenko sound unusually upbeat, in stark contrast with other representatives of the government of a war-torn nation undergoing a severe economic crisis and on the brink of default.
“Right now we are conducting negotiations with our Chinese partners on increasing exports and investment,” Pavlenko said. “
The Chinese market is huge and Ukrainian production is in demand.” He also wants to expand cooperation with the European Union.
Pavlenko hopes to attract $25 billion in investment, as he recently told U.S. Ambassador Geoffrey R. Pyatt. But that plan is not as easy to fulfill as it might sound for a country that has received only $48 billion in foreign direct investment since 1991.
“It is virtually impossible to convince foreign investors to come into a country that is being invaded by its largest neighbor,” Andre Kuusvek, an official with the European Bank for Reconstruction and Development was quoted as saying by Reuters.
The war, however, is not the only reason. Ukraine still lags behind many neighbors in ease of doing business. In the 2015 Doing Business report of the World Bank it ranked 96 from 189 nations. Moreover, investors are now scared off by scandals involving major agricultural holdings like Mriya, which is in talks to restructure the $1 billion debt it owes foreign and Ukrainian banks as well as international investment funds.
Pavlenko, who worked for an investment fund and headed an agricultural company before his appointment as minister, understands the challenge well. Asked if the ministry plans to intervene, Pavlenko said that it is “following the situation and can only suggest to all sides to look for a compromise.”
“Our position is that the business should work, this is what we told lenders,” he said.
Mriya is not the only mess the minister inherited from his predecessors. He also has to solve the consequences of a 2012 contract when Ukraine received a $1.5 billion loan from China in exchange for 90 million tons of grain it was supposed to provide within the next 15 years.
China initiated proceedings in 2014 against Ukrainian State Food and Grain Corporation over a violation of the conditions of the deal. The argument is related to the fee of $5 per ton of grain, which Ukraine was obliged to pay to China when exporting grain to other countries, according to Pavlenko, who hopes the issue will be resolved. “I think we will find a business compromise on that,” he said, but would not release the detains of the potential deal.
In his sector, like most others, state-owned companies are a source of not only major headaches, but corruption, embezzlement and mismanagement. Pavlenko said “there are dozens of criminal cases” related to the work of big state companies, including State Food and Grain Corporation, which the ministry plans to investigate together with the Prosecutor General’s Office. He refused to name the former and current officials who are under investigation.
To clean up the state corporations, the ministry has already engaged Big Four accounting companies to conduct due diligence and audit of big state enterprises, which is going to be a precedent in the industry.
Yet another big challenge for Pavlenko is in deregulation of agricultural production, which is long overdue. The first bill which reduces the number of licenses and permits, among other changes initiated by the ministry, was passed by parliament in the first reading on Dec.25 and was now sent back to the regulatory policy and entrepreneurship committee for revision.
Meanwhile, the ministry is going through internal cleansing as well.
It has submitted a plan to lay off 10 percent of its employees. If it is approved, its staff will be cut from 357 to 321 people.
But of course, after a firing, recruitment becomes a challenge. “Very few people are willing to have a state job. It’s a big problem” Pavlenko said. “I can see very few people who could really take on this responsibility and (decide) not to have business and stable income in this difficult time, but work for the state and be proud of that.” The pay of state employees cannot exceed Hr 8,526 ($533), according to the new budget legislative package that came into effect on Jan. 3. It’s a fraction of what private sector pays to top managers.
Kyiv Post staff writer Anastasia Forina can be reached at [email protected]
