Ukraine has the potential to develop its agricultural sector on a massive scale. Few countries can compete with the size of its land bank, the quality of its soils, its location and its labour costs.
Unlike many of its competitors in the agricultural sector, Ukraine can afford to feed itself and sell substantial amounts of production abroad. It is already a major exporter of agricultural goods to the European Union and China, giving it diversity of markets.
With more modern equipment and technology, improved logistics and storage together with modern management practices, Ukrainian agriculture can be a global leader and the country’s biggest exporter generating wealth for all its citizens.
The sector is making progress but nothing like as fast as it should be. The main impediment is lack of investment. Foreign investors justifiably remain nervous about Ukraine’s stability and its slow progress in developing institutions to protect property rights and ensure reliable and competent regulation. Uncertainty about the scale and pace of land reform adds further uncertainty.
However, reputations change quickly when observers detect positive change and start to view it as part of a broader pattern of reform.
This is why the case of Mriya Agro Holding is important for Ukraine
Mriya is a perfect example of “new” Ukraine battling “old” Ukraine. The company is under the control of management appointed by creditors after the previous owners defaulted on Eurobond obligations in 2014. At the time of the default, the company had a debt portfolio of $1.3 billion.
It turned out the owners that had embezzled around $300 million of investors’ funds and stripped out roughly 50,000 hectares of land and 600 pieces of equipment belonging to the company.
Mriya is currently going through a debt restructuring process unprecedented in Ukraine. However, this is complicated by the fact that the previous owners are still active in the agricultural sector and have continued to steal Mriya assets and interfere with its business.
Last summer, they hired armed men to raid a logistics base belonging to the company and take control of 140 pieces of equipment valued at $3 million. This had a material impact on Mriya’s ability to bring in the harvest. Over nine months later, Mriya’s management has still not been able to secure the return of the equipment because of never ending battles in the courts.
The National Anti-Corruption Bureau of Ukraine is now leading the effort to investigate the fraud carried out by the previous owners and bring them to justice. The case was previously stuck in the Prosecutor’s Office for 18 months. As is well known, NABU has small numbers of detectives relative to the number of cases it has to investigate, and in Mriya’s case, it has yet to show results.
Despite this challenging background, the new Mriya management team has implemented a reorganization of the company to improve efficiency and raise transparency. Under the previous owners, as elsewhere in the agricultural sector, theft was rife at all levels in return for meagre salaries. Taxes were not paid and there was insufficient investment in skills and equipment.
However, to consolidate progress, it is vital that the Ukrainian authorities take decisive action to ensure restitution of company assets stripped out by the previous owners and bring them to justice. In particular, they need to stop them interfering with the judicial process both in Ternopil where the company has most of its assets and in Kyiv. This is achievable with a combination of improved coordination between the law enforcement agencies and proper oversight of the courts.
A small sign of progress is that after two years of criminal and judicial investigations, Mriya succeeded in April in recovering 5,000 hectares of land illegally removed from the company.
Mriya is a litmus test of the strength of commitment on the part of the authorities to creating a reliable legal environment in which business can develop free from external interference.
Success breeds success. Mriya has the potential to be a compelling story of how Ukraine is making a decisive break with the practices of the past and creating new conditions for business that will give investors greater confidence and encourage them to rebalance their risk assessments in favour of the rich opportunities that the country offers.
The consequences for the agricultural sector, in particular, could be immense.
John Lough is author is managing director of JBKL Advisory, a government relations consultancy advising Mriya Agro Holding.
