While Ukraine has emerged from economic crisis to something approaching financial stability, the nation still has a long way to go before it will attract enough foreign direct investment to help propel the nation’s economy to solid growth.
That was the consensus of many of the more than a dozen government and business leaders who took part in the 8th Kyiv Post CEO Breakfast held on Sept. 5 in the Hyatt Regency Hotel. The event was sponsored by DHL Express Ukraine and Syutkin & Partners law firm in Kyiv.
A contentious debate took place over whether the National Bank of Ukraine should lift currency restrictions to allow companies to repatriate profits out of the country. The NBU, worried about capital flight, has set a policy that restrictions can be eased only gradually as economic conditions improve. The central bank has set macroeconomic stability and structural reforms as their priorities.
The NBU has been widely praised for closing 80 insolvent banks, leaving 100 left that must pass stress tests, meet recapitalization requirements and end the widespread practice of insider lending and bank fraud that contributed to $11.4 billion in losses since 2008.
Ukraine’s economic stability has come at a tremendous cost to citizens, however, as a flexible exchange rate has seen Ukraine’s currency, the hryvnia, lose two-thirds of its value against the dollar since 2014.
Moreover, no one has been brought to trial or convicted for what Prosecutor General Yuriy Lutsenko estimates to be $40 billion stolen from the nation during the 2010-2014 rule of ex-President Viktor Yanukovych.
While there also was consensus that Ukraine still has massive opportunities for growth in many sectors, the lackluster fight against corruption, bureaucracy and excessive regulation is causing investors worldwide to bypass Ukraine.
Some in Ukraine tout the nation’s educated workforce and cheap wages as attractions to investors – but at least one participant said that low wages is not something to brag about, because it means low purchasing power for consumers.
Ukraine has also not offset reduced imports with increased domestic production in some areas, indicating lingering problems with the investment climate. While Ukraine’s banks have much liquidity — meaning they are capable of lending much more than they are – extending credit to many customers is still seen as too risky for bankers while the interest rates remain too high for prospective borrowers.
But, as a recent International Monetary Fund report summarized, economic growth has returned, inflation has lessened, macroeconomic stability has taken hold and official unemployment is down. So there is hope for the future.
But with a gross domestic product that has dropped from $180 billion in 2013 to an expected $92 billion this year, the nation will not be able to achieve its economic aims — or satisfy the demands of Ukrainians for better living standards — with just 1 percent growth. Some, including U.S. Commerce Secretary Penny Pritzker, say Ukraine should aim for at least 6 percent GDP annual growth.
