Limits on cash transactions from 1st September 2013

Way back on 21st January this year, I wrote about proposals from the National Bank of Ukraine (NBU) to place a limit on cash transactions within the Ukrainian economy.

Currently only 11% of transactions in Ukraine are not made in cash according to the NBU – Ergo 89% of all transactions in Ukraine are cash transactions.  For example, whether it be $40,000 for a new car or $2,000,000 for a very nice home by the sea, such transactions almost always occur in cash.

With effect from 1st September, it seems that is now about to stop – or at least reduce dramatically – owing to the NBU putting an official cap of UAH 150,000 (about $18,750) on cash transactions.

Whilst this will undoubtedly be promoted as a way to move some of the economy from the black/grey into the light – and it will have some benefits in this direction – one can also speculate that this has much more to do with reducing the need to continually buy US Dollars, Euro etc to facilitate people withdrawing large sums to buy cars, apartments and homes etc., when all the time the foreign currency reserves held by Ukraine are on a continual downward trend.

Quite simply there is less need to buy the paper currency from the markets when larger transactions will now have to be accomplished by transferring numbers electronically internally for domestic transactions.  Over the course of a year, one has to suspect going to the markets and buying $ billions in physically held cash to facilitate domestic transactions is a fairly costly exercise.

Thus one is left to ponder if the lightening of a black/grey cash economy is the real driver for this decision and a substantial saving on buying foreign currency is a fortunate by-product of this move for the NBU and Ukrainian banking system – or vice versa.

GOPAC Ukraine

Heavens – Here is Lesya Orobets MP, going slightly overboard when stating the effect on corruption a new Ukrainian branch of “Global Organisation of Parliamentarians Against Corruption - GOPAC” will bring.  Welcome as it undoubtedly is – it is no panacea when it comes to Ukrainian corruption.  If it were, then it would have cured corruption in all the other nations in which it is already active – but it hasn’t.

Quite simply corruption cannot be eradicated in Ukraine – or anywhere else – but it can be made far more difficult to accomplish and thus controlled by creating coalitions for reform from below and within civil society, from within the political elite themselves, from above via government leadership and from without via the international community.

To raise expectations that GOPAC will have a significant impact upon Ukrainian corruption is to raise them far beyond the limits GOPAC has proven to have.

The facts are simple.  Independent Ukraine has been thoroughly corrupt within the political elite, business elite and state institutional hierarchy since the USSR collapsed.

The unfortunate, then President Kravchuk in 1991, was rather rudely thrown the very difficult problems of transitions to democracy, retaining the rule of law,  initiating horizontal accountability and all the other things that took many European nations hundreds of years, occasional civil wars and several attempts at democracy to successfully achieve – and events overtook Kravchuk’s ability to do much about any of them.

Thus events solidified corrupt relationships during the Kuchma years of dominant party politics, and continued unashamedly under the feckless politics Yushenko/Tymoshenko and on-going Yanukovych years.

It really doesn’t matter whether we identify the obvious cronyism that has miraculously turned the current president’s eldest son into the richest dentist on the planet, whether we identify the corrupt relationship between Lazarenko and Tymoshenko earning her the title “gas princess”, or a UDAR party list full of long-in-the tooth MPs such as Edward “six zeros” Gurvitz, once mayor of Odessa.  Not withstanding the current grubby little deals on-going between the opposition parties as to who gets to access what trough if they manage to regain power – Corruption is pervasive and endemic amongst the entire Ukrainian political class, respecting no party lines.

Ever since Ukrainian independence arrived, it has been, and remains, a predatory state run by a feckless political class.

When Putman described the predatory state in “Making Democracies Work” he stated “Corruption is widely regarded as the norm, political participation is mobilised from above, civic engagement is meager, compromise is scarce, and nearly everyone feels powerless, exploited or unhappy.”

I’m not sure his description missed anything in respect of Ukraine 1991 – 2013 (and counting).

When looking at some of the key features of a predatory state,  such as the government generating private goods for rulers, families, cronies, ruling party, security apparatus through a vertical patron-client relationship – and not public goods for development – low trust in public institutions, opportunistic and cynical decisions made against short-term horizons, a weak civil society undermined further by a lack of trust and ties amongst its horizontal counterparts – it is hard to argue Ukraine has ever been anything other than predatory during its recent history.

So just how much effect on that can GOPAC have?  Despite Ms Orobets overtures, quite obviously it will have limited impact, at most adding a strong player to civil society that has a political reach further than most.  A small bonus for those trying to enforce some vertical accountability, and a little additional weight to external accountability.

GOPAC will do nothing to address the two core issues that would have a tremendous effect upon corruption.  The first being the political will of the political elites themselves to actually deal with the issue effectively – thus asking turkey’s to vote for Christmas – and secondly in the absence of that political will,  it cannot create institutionalised (both overlapping/reciprocal oversight or independent ) horizontal state agencies to hold the vertical to account.

Until that happens, the only accountability available relating to the vertical is the chance of changing one corrupt leadership and political party for another every few years via the ballot box.

In short Ms Orobets, look not externally for the solutions to the problem, look to yourself and your colleges internally, as whilst external crutches maybe welcome, the fixing of the Ukrainian problem can only be done from within.

Ukraine climbs in World Competitive Yearbook rankings

As incredible as it may seem to many prima facie, Ukraine has managed to climb from 56th to 49th place in the World Competitive Yearbook – a rise of 8 places – and is now better placed than several EU nations.

Nice to see a fairly well respected league table in which Ukraine is heading the right way for a change!

Monsanto Ukraine

Placing my cards on the table – I know nothing about agriculture.

Well almost nothing.  I know how much a new combined harvester costs in Ukraine as I lent the wife’s cousin half the cost of one, as he is a crop farmer with a lot of land just outside Nikoliev and needed a new harvester – but that really is about it – aside from an O level in biology and some general knowledge relating to an awareness that Ukraine has the most fertile soil in Europe.

As regular readers will know, I try and stay away from the main stream media stories and write about things that remain “off the radar” but really should have more coverage in my view.

Ten days ago, I almost blogged about a statement from the US Department of Agriculture (USDA) relating to Ukraine.  I was going to comment on it because it seemed so unnecessary.  The USDA stated:

“In the 2013/2014 marketing year, which begins July 1, the major grain exporters, among them Ukraine, will show double-digit growth rates in the production and export of food and feed wheat and corn.

In the production of corn (+24%, 26 million tons) Ukraine will rise by two lines – from eighth to sixth, and in the production of coarse grains (+17%, 34.5 million tons) by one line (from eighth to seventh). By the export of corn and forage Ukraine this season will join the three world leaders, surpassing Argentina and Brazil, the report says.

The USDA forecasted that global grain harvest this season promises to be much better than in the previous year, when crops were affected by drought.

The U.S. Department of Agriculture expects a growth in the production of almost all major crops by 7-13%.

Ukraine, like other post-Soviet grain exporters – Russia and Kazakhstan, will be able to boast of a much greater dynamic. The overall picture for Ukraine this year was not spoiled even by the abnormal snowfall in March – its effect was offset by favorable weather conditions for planting and expansion of arable land.

Wheat harvest in Ukraine will grow, as predicted by USDA, 40% to 22 million tons. According to this index, the country will stay in the ninth place in the world.”

“Well, and?” I thought –  Aside from competition for US farmers, possible agricultural machinery import and a bit of a lift for the Ukrainian government, the point of that statement is what?   Perhaps an indirect pointer to the $ billions China has been spending on agricultural infrastructure throughout Ukraine for the US Government?  If so why not just tell them?

Having blogged about Chinese investment in Ukrainian agricultural infrastructure a few times – and knowing nothing about agriculture other than that stated at the beginning – I let the USDA statement pass and blogged about something else that day instead – but decided to keep my eye on US agricultural interests in Ukraine for a month or so just in case it was a “feeder” for a forthcoming announcement relating to grain and crop farming with US/Ukrainian interest.

Well, I didn’t have to wait long.

Two days ago, the worrisome organisation that is US GM seed giant Monsanto announced it was going to invest $140 million in a corn seed plant in Ukraine – probably located in Vinnytsya.  It claims for non-GM seeds.

As it happens Ukrainian law forbids GM crops either being imported or grown in Ukraine – and long may that ever be the case.

The new seed plant is envisaged to be ready by August (ish) 2015, working with only conventional seeds.  All jolly good as far as FDI, employment, agricultural storage and export and economics are concerned – and just as, if not more important, Ukrainian agriculture remains GM free.

But I am troubled.

The reply of Vitaliy Fedchuk of Monsanto Ukraine, when asked whether there were expectations that the laws would change is diversionary.

“Indeed, in Ukraine only conventional seeds are allowed for production and importation, thus we will be working with conventional seeds only.”

That does not answer the question of whether Monsanto anticipates a change in the laws relating to the import of and growing of GM seeds in Ukraine.  It simply affirms the laws today.

Does the answer perhaps lay with the outcome of any presidential elections on 29th March 2015 when it comes to the willingness of any president to sign any proposed changes to the current law that may yet get proposed?

I surely hope not, as I would be delighted for Ukraine to remain GM production free – but something to keep a very watchful eye on in 2015/16.

This at a time when world-wide protests against Monsanto take place!

Is working in Ukraine as a foreigner about to get easier?

As it is my umteenth anniversary today, and thus via the “ball and chain” and the goodwill of Ukraine, I have permanent residency here, this entry really does not affect me in any way.

In fact it doesn’t affect anybody I know either.

It will undoubtedly affect some readers however – both currently and in the future.

It seems that the State Employment Centre has made assurances that the current (and no doubt overly bureaucratic) systems for granting work permits and temporary resident status (for the purposes of work) are going to be simplified – requiring far less documentation than currently is required – especially so as far as renewals/extensions are concerned, and which will subsequently be gratis if granted for those who have navigated the bureaucratic circus before.

They also state that consideration is being given to raise the duration of such permits from 1 year to 3 years.

A particularly good idea should the EU-Ukraine Association Agreement and DCFTA actually be signed – as not only will foreign confidence increase (to a greater or lesser degree) relating to entering the Ukrainian market at an SME/entrepreneurial level, those who want to do so, may actually stand a reasonable chance of navigating the bureaucratic hurdles that prevent so many currently.

It is necessary of course, to see just how the bureaucracy will be reduced – if at all – and I suspect not at all, other than the more expedited time line requirement for the bureaucracy to function and process applications.

Which documents will be subsequently scrapped from the current list will be far more interesting, as currently some of the documentation required is the barrier to entry – rather than the business environment itself!

Best guess thus far is here.

EU/Ukraine Mission DCFTA Workshop – 10th April 2013

For those of you who happen to be in Brussels on Wednesday 10th April, the Ukrainian Mission to the EU is holding a DCFTA workshop for business at the Press Club Brussels, 95 Rue Froissart, 1040 from 1500 – 1630.

Key speakers are the two main negotiators of the DCFTA Messrs V Piatnytskyi and P Cuisson.

Some may consider this somewhat hopeful given there are doubts the AA and DCFTA will be signed in Vilnius in November – however with the impending seemingly immediate release of Yuri Lutsenko, perhaps not.  His release will go a long way towards the “substantial progress” the EU has demanded over the issue of “selective justice”.  Possibly just far enough, as nobody really expects Tymoshenko to be released prior to 2016 and equally nobody expects much in the way of ratification before that date either due to German, French and EU parliamentary elections in 2013, 2014 and then Ukrainian presidential elections in 2015.

Who knows?  As is so often the case in Ukraine, it just manages to do enough by the eleventh hour – by hook or by crook – be it delivering a good Euro 2012 tournament on an international scale, or the tradesmen finishing and leaving a new shopping centre two hours before it is due to open domestically.

Whether the same time and effort will be spend within Ukraine making the same explanations to business and entrepreneurs  remains to be seen.  Perhaps it is felt better to leave that until any signing actually happens?  That said, signed or not signed, I fully anticipate mutually beneficial parts of the DCFTA to be implemented anyway – as is always the case with what is considered politically expedient to all concerned.  After all the framework is already agreed and initialed, sealing the framework.

I have to say, that despite my invitation to this event, I will not be traveling to Brussels for the sake of a 90 minute workshop – particularly one that is more focused towards the Europeans looking at the opportunities the DCFTA offers in Ukraine, rather than one aimed at Ukrainians and the opportunities it offers looking west.

If a traveling roadshow passes through Odessa attempting to educate on the specifics of the DCFTA and opportunities it offers Ukrainians looking west – then I will surely attend – just to let you know what was said!

Tymoshenko loses court case – in New York

What seems long ago, back in July 2011 in fact, I wrote about Ms Tymosehnko launching legal proceedings against – well anybody involved in her then on-going court case and also anything that could be directly attributed to Dmitry Firtash or his business dealings.  That list has continued to grow, with new names being added to the action every time Ms Tymoshenko felt suitably offended by somebody.

This is the court class action complaint – Number 11 CIV 2794, United States District Court, Southern District of New York.

Back in July 2011, I wrote here - “You have to say the law suit she submitted reads as though it was written by somebody not overly conversant with the fact that every word must be chosen carefully in any litigation process,……. 

………Suffice to say it reads as though it was written by somebody with at best, only a passing interest in law. I have seen far more accomplished legal writing in standard contracts to be honest.”

Well, yesterday, a large part of the class action complaint 11 CIV 2794 was kicked out by the US judge stating there was insufficient evidence.  Having reread the above link, it is hardly surprising given just how terribly written the above class action is.  (In fact having read it again, I was extremely diplomatic in the above quote).

Given Ms Tymoshenko’s liking for suing in US courts – and looking at the standard of the class action prepared and filed that will subsequently get kicked out in its entirety I strongly suspect – perhaps she should consider suing the lawyers that allowed such a poorly written class action to enter a courtroom in the first place?

Anyway, I stated such a course of action was folly at the time – and thus it is proving to be so.

A market opportunity for facilities management – or a privitisation disaster waiting to happen?

For those who do not live in Ukraine, one of the inherited legacies of the USSR that still continues, is that of the Zhek and its responsibilities for maintenance of common areas in otherwise now privately owned apartment blocks.

Quite simply put, whilst the last 20 years has seen a massive move to private ownership of apartments, stairways, lifts, common entrances, lighting and general maintenance of all common use areas has remained the responsibility of the Zhek in the vast majority of apartment buildings both old and new.

Needless to say that whilst paying the monthly Zhek bill, known as the “quadplata” is supposed to insure the cleanliness and functioning of all common areas in most apartments blocks around the country – and you have no choice but to pay – the actual maintenance rarely happens, and when it does it is hardly what can be called timely.

However, it appears that this responsibility is likely to cease in 2015 if the national action plan 2010 – 2014 (also known as “Prosperous Society,  Competitive Economy, Effective State”) is to become a reality.

That will theoretically open up a huge percentage of the national housing stock to facilities management companies – with an domestic occupancy well used to paying through the nose for little to no (timely) service – and in all probability, some serious profit margins.

One has to suspect that there will be a fair few people in the RADA having their closest friends and/or family opening facilities management companies in preparation for 2015 when they will suddenly be activated.

Tomorrow – something more interesting (at least for some).  Tomorrow, for the first time in a few years, the blog is going nuclear!