Behind the Curtain

EPA-EFE/SERGEY DOLZHENKO

Anti-corruption protestors gather outside the Verkhova Rada, Ukraine's Parliament, in central Kyiv on October 18, 2017. For over four years, the Ukrainian public has waited for the changes they demanded during the 2013-14 Euromaidan Revolution, including the lifting of parliamentary immunity, a modification of the electoral legislation, as well as the establishment of an independent anti-corruption court.

Threats to the Ukrainian reform process


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My name is Dr Mohammad Zahoor. I am a British citizen and for almost ten years, I was the benefactor of the Kyiv Post, Ukraine’s most important English language newspaper, very much the benchmark for independent and investigative journalism in this part of the world. I have no political agenda. It has always been my intention to bring to the public arena the positive and the negative aspects of Ukraine, both as publisher and as an entrepreneur. In this context, I have been acknowledged for years as a leading authority in matters such as Ukrainian business practices, investment health, corruption, and government bureaucracy.

I believe in Ukraine. It is a country of vast resources. Front and centre are its people, hard-working and well educated, and it is no coincidence that in the first half of this year, Ukrainians abroad sent US$5.5 billion home (up 31% over last year). For the 12 months ending in June, this number rose to US$11 billion. This is the equivalent of 10% of Ukraine’s GDP. Unfortunately, this impressive number also documents the failure of the Ukrainian government who are not even remotely able to match the success of its citizens that have had to leave their motherland to make their fortunes abroad. The former is striving to attract Foreign Direct Investment, which is currently at its lowest ebb, but instead of implementing the necessary reforms, the government prefers to distract.

There is no question that Ukraine is on the road of recovery and that many reforms have been implemented: Successes in decentralisation, banking, public finance, public procurement and parts of energy policy are often put into the spotlight. Academic indices like ‘Ease Of Doing Business Index’, ‘Corruption Perception Index’ or ‘Rule Of Law Index’ are often referenced as well as the full implementation of the EU association agreement and finally, the set-up of the High Anti-Corruption Court. Bravo!

Bravo? Humbug. With the hindsight of almost four years after the first Euromaidan demonstrations, the international community must acknowledge that the Ukrainian reform effort is seriously jeopardised by a dysfunctional government. The implemented reforms are only kept alive through international supervision. Without the outside pressure of IMF, EU, and the US, the Euromaidan Revolution would have ended the same way the Orange Revolution did ten years earlier: In failure. Of the 6,000 bills submitted by the government, only 10% have passed. The speed of the reform process is at a three year low; crucially, most major reforms were implemented years ago.

Without the condition-linked financing of the international community, the reform track record would be even worse. There would not be a High Anti-Corruption Court without the insistence of the IMF. Only the continued withholding of aid tranches and the ever-looming threat of state bankruptcy brings progress. The international community practically has to bribe the current government into doing the right thing. This is patently absurd.

While the reforms are at least partially real, the international community has to realise that they have hardly come at the expense of the ruling class, who still has to shed itself of its robber baron mentality. Currently, the burden of all reforms is either carried on the shoulders of the general population or the international lenders. In the meantime, both government, as well as parliament, delay the elimination of their own privileges such as their far-reaching parliamentary immunity, as well as their attempts to reverse previous reforms, including the mandatory asset-declaration of public officials.

Ukraine’s troubles do not lie with corrupt individuals. Ukraine’s corruption is still systemic.

With presidential- & parliamentary elections around the corner, the Ukrainian leadership will attempt to create the impression that Ukraine is an increasingly attractive and safe country for foreign investors. At the same time, populist tendencies in the opposition openly try to win votes by undoing the current austerity programmes, thereby dismantling fundamental components of the necessary reform programmes.

And yet, neither side is undertaking or suggesting even the most basic steps to secure or protect foreign direct investment. This is particularly the case with regard to corporate raids, a special brand of Soviet white collar crime, where the owner is stripped of his assets through an unholy union of corporate raiders, public officials, and corrupt courts.

International investors are being left to their own devices as nothing in their Western training has prepared them for this kind of attack. While the figureheads are quick to proclaim concern and promise to investigate these kinds of crimes, no real support will be provided unless the case is being observed by international media, international NGO’s or representatives of foreign governments.

Again and again, government officials don’t act to stop this. Issues of domestic personal reputation intrude. Rather than fixing the problem, the responsible parties will generally limit themselves to shifting blame to a different government body.

This reality is not anecdotal. In 2017, 414 corporate raids were reported, which is an increase of almost 100% to the 234 cases in 2014. This is certainly a statistic that Ukrainian officials like to hide as it documents their failure to reform Ukraine’s legal system and law enforcement that helps the business community. To make things even worse, less than 1% of these cases are submitted to the court, as law enforcement tries to avoid the investigation of economic crimes. In this context, it is no surprise that the real statistics are even worse as many cases do not even lead to the filing of a criminal case. This is not the fertile black earth in which international investors will plant their investment seeds.

I do not worry about my own legal procedures. I will prevail as I did before. But if we expect the international investment community to have a comparable skill set than my own in order to succeed in Ukraine, one can easily conclude that Ukraine must not expect significant investment activities from international Midcap companies for another ten years. But even worse, this lack of entrepreneurial engagement and perspective could translate into the exodus of an additional two million Ukrainians that will seek their fortunes abroad. This kind of brain drain is a loss that Ukraine can simply not afford.

I along with my fellow foreign investors in Ukraine, therefore, urge the IMF and the EU in the strongest of terms to increase the pressure on the implementation of business-related judicial reform in Ukraine.

Without it, Ukraine can never become the success story it deserves to be.

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