Key message: Ukraine’s infrastructure requires much improvement as it faced massive corruption and inherited Soviet inefficiency. To achieve more competition and innovation, Ukraine must reduce bureaucracy and decentralize.
Igor Smelyansky
CEO at Ukraine’s state-owned postal service enterprise Ukrposhta
“If we want innovation in Ukraine to happen faster, I think we need to change the rules of the game. I think it’s a waste of time to change people if they still need to play by the same rules.”
Volodymyr Omelyan
Ukraine’s Minister of Infrastructure
“I do believe in that story for Ukraine that we can produce lithium batteries, electric vehicles in Ukraine, that we can jump into the (global) market that is just emerging… We should make anything that we produce cheaper and faster if we want to get into the market… If you focus on traditional technologies and traditional approaches, you will lose the market very soon.”
Yevhen Treskunov
aviation expert, founder of aviation consulting company Aviaplan
“An airport is considered as a driver for investments, for tourism flows, and in Ukraine’s case, I would add that it’s one of the best tools for real decentralization.”
Serhiy Vovk
director of the Center for Transport Strategies consulting center
“Many European companies work in Ukraine, they do their business in Ukraine so I think we have to change the model of financing infrastructure projects and use more money from the World Bank, European Bank for Reconstruction and Development and the European Investment Bank.”
Ukraine’s infrastructure is far from cutting-edge and there are various reasons of why it is so outdated.
But this also provides opportunities for the country to start from a tabula rasa in developing its infrastructure as it is cheaper for Ukrainians to start building a new framework instead of fixing the old and outdated one inherited from the Soviet Union.
This was the main takeaway from the participants of the “Connecting Ukraine” panel at the Kyiv Post’s Tiger Conference at the InterContinental Kyiv hotel on Dec. 11.
“In Ukraine there is an opportunity to invest into either an old elektrichka (Soviet train commuter) — and we all understand how much money it will take — or invest in new infrastructure,” said Igor Smelyansky, CEO at Ukraine’s state-owned postal service enterprise Ukrposhta.
For example, the current infrastructure makes it very difficult for people as well as cargo to move quickly and efficiently throughout Ukraine’s low-density population.
“In Ukraine, there are about ten million people living in villages with populations less than 2,000 residents by official account,” he said.
Financing
But in order to start investing into new and innovative technology it is first important to change the structure of financing as well as get rid of red tape.
“If we want innovation in Ukraine to happen faster, I think we need to change the rules of the game. I think it’s a waste of time to change people if they still need to play by the same rules,” Smelyansky, who was also the moderator of the panel, added.
One major challenge is for Ukrainians to pay taxes and for the government collecting them without chipping off major chunks through corrupt schemes.
“A few months ago I had a discussion with a person involved in contraband through the border of Zakarpattia (Oblast) and he was really pissed with the state of the roads… He did not see the connection between him not paying taxes and the roads being bad.”
Decentralization
One of the best ways to fix such problems and one of the best catalysts of innovation in Ukraine’s infrastructure is decentralization, as more power and responsibility is given to the regional government instead of being centralized in Kyiv.
“We should definitely focus on decentralization,” said Ukraine’s Infrastructure Minister Volodymyr Omelyan.
Regional airports are just one example.
“Right now we see a very big picture for air carriers and good policies for air-ticket pricing, but we are lacking infrastructure for airports in regions,” Omelyan said. “…We will need major investments in those airports to build new terminals, to build new runways and it’s a huge challenge for the government.”
Serhiy Vovk, director of the Center for Transport Strategies consulting center, says that Ukraine needs to think about infrastructure development as a long-term investment and the effect that it has on the overall economy and not just as an obscure project with specific financial returns, he says.
Aviation expert Yevhen Treskunov agrees and says that investing in regional airports is definitely worth it.
“An airport is considered as a driver for investments, for tourism flows,” he said.
So the long-term economic effects have a strong positive impact on the overall economy creating more jobs and attracting hard currency, Treskunov says.
“An airport in terms of economic development of the region will give much more than it actually needs to be renewed for operation.”
But altogether Omelyan is happy with Ukraine’s progress in air transportation.
“We checked the data of those new airlines that entered the Ukrainian market this year — it’s more than 10 airlines — 50 percent of their passengers are foreigners. They are coming to Ukraine, they are discovering Ukraine, they are telling the truth about Ukraine and then are making business here,” he said.
EU problems
But he blames some EU governments such as of Germany, France, and Poland for having import caps on many goods coming from Ukraine.
“Hundreds of new foreign companies with (foreign direct investment) have been established in Ukraine and they have a huge obstacle — the policy of their own governments, policies of protection.”
The minister also thinks the EU should be giving more money towards building Ukraine’s infrastructure, given Ukraine’s association agreement with the 28-country political and economic union that went into effect in September 2017.
“It is our joint mission and we should think about infrastructure links directly connecting Ukraine with the European Union.”
Vovk agrees.
“Many European companies work in Ukraine, they do their business in Ukraine so I think we have to change the model of financing infrastructure projects and use more money from the World Bank, European Bank for Reconstruction and Development and the European Investment Bank,” he said.
But it’s also the fault of Ukrainians who are not taking full advantage of the low rates provided by these international financial organizations. “For example, we have 300 projects announced as infrastructure investment projects. Do you know how many of them have feasibility studies? Around 20. We have to make the projects more clear and understandable to private investors and IFOs.”
Omelyan says that another big challenge is for the country’s infrastructure to stay up-to-date with the current fast-changing global infrastructure. And depending on how quickly Ukraine will adapt to the changes, will measure its success and competitiveness.
“I do believe in that story for Ukraine that we can produce lithium batteries, electric vehicles in Ukraine, that we can jump into the (global) market that is just emerging,” said Omelyan. This could be Ukraine’s niche market as EU countries are looking for more electric vehicles and electric buses to purchase, he added.
The staff issue
Another issues for Ukraine’s infrastructure leaders is to consider the brain drain of professionals as skilled workers are looking for better living standards abroad.
This problem is critical in Ukraine, Smelyansky said.
In aviation, the main brain drain challenge has to do with pilots and aircraft maintenance engineers “because their certificates or licenses are exactly the same as if they would be doing this business somewhere else in Europe,” Treskunov said.
But to counter that, Ukraine needs to increase its competition.
“The more airlines we will have here, the more pilots will be hired here,” Treskunov added.
Smelyansky also wants to see less regulation.
“Anything that deals with the state sector or the infrastructure, the way it’s currently setup in Ukraine is to make sure no one steals, despite the fact that there are many ways to steal,” he said.
“The United States is less regulated. You can more easily hire or fire a person. And in the current economy, the current framework I think for the innovation purposes (in Ukraine) it is key.”
