How Ukraine reoriented the market outlets during the war,

We Need a Horizon of State Planning for 20 – 40 Years

Ukraine is a rich and promising country. If we have enough political will, a political desire to develop as a state, thus everything will be good in the country. And the world has opened the door for domestic exports even today.

Vladyslava Rutytska, a member of the National Reforms Council, a Vice-President of SigmaBleyzer and AgroGeneration, told the “Fashion of Diplomacy” how Ukraine reoriented the market outlets during the war, why we should be proud of the achievements of the agricultural sector and how to develop it. She was the Deputy Minister of Agrarian Policy and Food of Ukraine.

The country will be prosperous only when investments feel safe

Vladyslava Rutytska

Ukraine has to make a quantum leap, then we will develop rapidly. You said so in one of your interviews. What are we doing now for this? Are the changes felt?

— Today we have a better situation than it was in 2014–2015. As you know, I am a member of the National Reforms Council. In 2017, we launched the implementation of the next reforms, without which the leap, as you said, will not be possible to be made. In particular, the reform of education, health care, pension, civil service and privatization.

We took as a basis the results of 2016, when the reforms and changes that were implemented yielded a positive result. In particular in banking. It was painful, but it improved the economy of Ukraine. Over the past year, the issuance of loans by individual banks in a currency for 5–7 years at interest of 5–8% has become the evidence of the possibility of obtaining cheaper funds for a clear term. Unfortunately, not all the banks provide such an opportunity and not all businesses can claim such quality of financing. Profitability, transparency, limpidity, export orientation need to be proven. But we all remember the interest rates for 2014–2016, so the examples of companies-producers that have attracted a loan for such a period and under such interest are a good signal of a qualitative change in the system.

In addition, I am waiting for the moment when AgriApexLoan, the agreement between Ukraine and the European Investment Bank for 400 million euro, which I facilitated being the Deputy Minister, start working. It is the support of investment projects for those who are engaged in grain and oilseeds. I expect that this line will be fully opened by partner banks at the end of 2017, and from the beginning of 2018 it will be fully operational.

Which of the reforms is most timely to stimulate economic development?

— Probably, I will mention the main ones:

1. Deregulation. We have taken a lot of steps to deregulate and facilitate business. This allowed Ukraine rising in the Doing Business rating. If the Cabinet of Ministers continues the open policy in this direction, then there will be a qualitative reaction from the sidelines of business and investment climate. The richer our country will become, the better we can think about the strategic future.
2. Privatization, more precisely — the new Privatization Act. There are more than 3,500 enterprises in state ownership under the Ministries in Ukraine today. There are 301 state-owned enterprises in neighbouring Poland and a completely different approach to the management of state property. In Hungary, there are 371 state-owned companies, but also not thousands like we have. There are three state-owned enterprises in the USA, none in Canada, there are two state-owned companies in Switzerland, eight — in Japan. And in Ukraine, I repeat that again — 3500! Most of our state owned companies are corruption feeders, because the efficiency of doing business is almost zero. At the same time, their debt obligations are increasing. The new Law “On Privatization of State Property” will be submitted to the Parliament for days, and the investors are waiting for its rapid passage. It abolishes the need to assess the enterprise before its privatization. This has always slowed down the privatization process. In case of privatization of a large state owned company (according to the new bill), the investment advisor recommends the price and the main task is to attract the maximum number of potential buyers to obtain the maximum price. In case of small privatization, the starting price is determined as the balance cost and the most important task is to create maximum competition at an e-auction that is similar to Transparent. It is very important that the bill provides for the possibility of concluding an agreement of sale and purchase in accordance with the foreign law. Until our judicial system is reformed, it will create trust from foreign investors. Primary candidates for privatization in the agricultural sector:

• State Food and Grain Corporation of Ukraine (SFGCU) — autumn, 2018
• Agrarian Fund — autumn, 2018

3. The reform of the state service. The reform of the state service is being implemented by the Prime Minister and his office. 11 Ministries will take part in the pilot project. With the help of funding from the EU, new employees will be hired to work for the Ministries, with high, transparent and white wages. The task for new civil servants will be to transfer the Ministry from the operational management of state-owned enterprises to their immediate role: policymaking. The effect of the introduction of these specialists, that should create competition for the working employees of the Ministry, will lead to the renewal of the organizational structure and functions of this government body.

What kind of industry is the thing of the future of Ukraine?

— There is a good thesis: “Ukraine is an agrarian state”. It is often denied: “We could have been a country that builds planes, space vehicles, that makes breakthroughs in pharmaceuticals, that creates modern equipment.” We have these industries really well developed. But if to look at the structure of exports, then more than 47% are the products of the agrarian sector. You can accept it, you cannot accept it. But there is a fact: we are an agrarian country. And there is nothing to be ashamed of here, but on the contrary — we should be proud. As an example, over the years, we have become the number one country in the world in exports of sunflower, sunflower oil, number four in the world in the exports of grain, etc.

How was it managed?

— Let me explain on a real example. We were the largest exporter of sunflower seeds. The Parliament has decided to ban its export. It was the moment that became a turning point for attracting investment. Many oil extraction plants were built. Our companies began to export the product of value added processing: sunflower oil. And the world gradually got used to it, its taste and quality: different countries began to redefi ne their cuisine, recipes and tastes.

Do we have victories in the agrarian sector as well? As the Deputy Minister, you lobbied for the promotion of Ukrainian goods abroad. It was done quite successfully. For what Ukrainian products is there a demand?

At the end of 2014, the most important issue was export and international markets, as our country received an embargo from Russia. When I analyzed the half-year according to the European quotas, which we had, and saw how difficult it was to enter their market, to find qualitative European partners for our manufacturer, it was clear that this should be changed.

Then I, having been the Deputy Minister of Agrarian Policy for just 2 months, said, that we were asking the European Union to increase quotas for Ukraine, in one of my first statements. Just now, looking back at the events of these days, I imagine what shock there was in Brussels when they heard it. But when you face the task of national interests, when an agricultural producer, our agro sector, produces every day a product that Ukraine is accustomed to deliver to the Russian market, and it is closed, it was urgent to decide how to sell, diversify markets and earn.

I flew for the first time to Brussels, explaining why such statements came out. I am very glad that the Prime Minister (at that time, Arseniy Yatsenyuk) and the Cabinet of Ministers supported, and we attracted very high-quality institutions, I mean the international structures of FAO, EBRD, which helped and sponsored to some extent the analytical part of the reviews, which related to the rationale for increasing quotas, what we produce, where we deliver it, what is the forecast for the next three years, what the situation with prices and bank interest for our enterprises is, how much they meet the international requirements, how safe their products are.

We have done a huge job with profile Associations in each sector. I collected all agrarian associations, carried out work with them, wrote out all the data that we needed and how to represent them. We recommended a large package of analytical reviews as the position of the Ministry and country in Brussels three times. I am very glad that we finalized this process. A few months before my departure from the state post, we had received confirmation from the European Commissioners in Brussels that Ukraine will receive a package of preferences that has started already in 2017.

We worked 16 hours a day and opened more than ten new markets in two years.

Now, we are already supplying more than 35% of exports to the EU, where there are reliable distributors, strong currency and high quality. And this is good for the domestic market, too — because we consume the same products that have been made for European markets. More than 50% is exported to Asian countries. This is the most interesting market for us. There is an increasing number of people and there is economic stability. We will be oriented there next 10-15 years. Approximately 15% is exported to Africa, where the population is increasing too, and in many countries economic quality and situation are increasing.

Can Ukraine become more attractive for foreign investors?

— While the military actions will continue in our country, we will be in the “red zone” of investments. However, I want to note that if we can properly carry out judicial reform and step onto the path of corruption elimination, investors will have more faith in investing in Ukraine.

Now, among the big pros, we have the fact that the reforms are conducted under the strict control of Western partners. Ukraine has a lot to do. However, every year, the state actively simplifies investment legislation, conducts deregulation, and supports those, who want to create production. Ukraine is a country that does not have the equal in potential in the region, despite the typical for the whole Eastern Europe problems; our country demonstrates the fastest pace of reforms. Here people want to change and do everything in order to gain trust.

Your fund continues to work here

— Our SigmaBleyzer fund has invested in Ukraine more than a billion dollars over the past 20 years. It is a stable, reliable investor. Our main partners are such huge structures as OPIC, EBRD, private foundations of very wealthy families in Europe and the United States. But they all ask: “How safe is it to conduct business in Ukraine? How much profit will be gained from invested money?“

It turns out that we have quite high chances to become successful. What is slowing down then?

— We have such kind of a national trait: everything is bad. We have to fight with it. There are luxurious cars in the streets, restaurants are mostly crowded, Ukrainian fashion develops; there is no such differentiation in language as before. The country has become more united. The main thing is not to stop. What does it mean fast? It is slow and constant. Our main task is not to lose the pace and constantly work. The country is very rich, very fast in the revival, whichever trials we are given. These are both a war and a revolution. But at the same time, the main thing is that there will be no huge shadow market and corruption in the country. If we have enough political will, political desire to develop as a state, thus everything will be fi ne in Ukraine.

This is all possible when you have a strategic idea of managing a country not for three years, but at least for 10–20 years. For example, in its policy, China always adheres to what result there will be in 20–40 years. We have to strengthen our country so that we have such a horizon of planning as well.

I recall the quotation by Lee Kuan Yew. He

said: “When I became the Head of the country, I had two ways:

1) I could have become a billionaire and my immediate relatives and friends would have become;

2) I could have built a country where everyone would become rich. I have chosen the second one”.