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INTERVIEW

Jaroslawa Johnson

President and CEO of the Western NIS Enterprise Fund (WNISEF)

After decades of running an American law firm in Ukraine, Ms. Jaroslawa Johnson was promoted from board member to President and CEO at the Western NIS Enterprise Fund (WNISEF), where she has managed the firm’s legacy fund for the last five years. WNISEF invests in key capacity development projects in Ukraine, such as in export promotion, microlending, and IT skill-building for students. Today, the fund concentrates on academic leadership programs through its Ukrainian Leadership Academy, which teaches civic, leadership, and public service courses to students during a gap year

You were appointed President and CEO of WNISEF in 2015 after serving over 20 years on WNISEF’s board, starting with the organization’s inception. What propelled your transition from board member to President and CEO?

I never expected to transition from being a board member at WNISEF into president and CEO of the organization. However, after the Revolution of Dignity our previous president was appointed minister of finance. At the time, I ran an American law firm here in Ukraine—I’d been doing so for over twenty years. When the Revolution of Dignity occurred, we decided it was too risky to continue to operate in Ukraine and we shut our law firm down. I was no longer occupied with the firm, and at that time the fund turned to me to take over. It was an interesting time to take over the helm at WNISEF because we were transitioning into a legacy fund. WNISEF was founded as an enterprise fund with $150 million of seed capital from the United States government. Within the fund’s legal structure, we were required to spend the first ten years investing the majority of the capital, with a portion of profits made turned over to the US Treasury, or allocated in-country for capacity building projects. Once we had completed our 10-year investment phase, we were in a period of restructuring ourselves into a legacy fund. I entered into my role when we were entering the phase of offering philanthropic work and technical capacity building.

We started the Ukrainian Leadership Academy, which is now in its fifth year with 633 graduates and 280 students located on seven campuses across Ukraine

Can you tell us about some of WNISEF’s key initiatives, now that it has transitioned from its core investment phase?

We still have an investment portfolio, but mostly with Horizon Capital, our daughter fund that we established in 2006. Since I took over as President and CEO of WNISEF, we’ve seen Ukrainian society shift drastically. Civil society has grown in leaps and bounds. The young Ukrainians especially are committed to making change. The young kids have rolled up their sleeves to do the hard work the country needs. WNISEF invests in projects to help make that change happen. One of our key projects is focused on export and investment promotion. After the decline of the relationship with Russia after the 2014 invasion, Ukraine needed to diversify its export portfolio, so we funded the establishment of an export office. That office helped encourage Ukrainian businesses to become exporters. We paid for trade shows and marketing materials, and now, Ukraine exports 40 percent of its product to Europe. We have an impact investment loan program that focuses on assisting entrepreneurs from disadvantaged communities. Ukraine has 1.7 million displaced persons as a result of Russian military activity in eastern Ukraine. We’ve given out 19 microloans, with virtually no defaulting in the program. Here in Ukraine, if you take a loan from the bank, the interest rates are 13 to 15 percent for individuals, and 25 percent for businesses. We post cash collateral to a bank, assure the bank that they won’t lose anything by loaning to our borrowers. We also have a program on local economic development. A few years ago, Ukraine began decentralizing the state budget. Prior to these changes, small communities had to go to the national government at the beginning of the fiscal year and negotiate for funding. It would take six months to approve, and by that point half the fiscal year would have gone by with no access to funding. Now there’s a formula and each community gets a share of the tax revenue. To complement the economic development program, we also have an urban planning program, which allows people to get involved in their own community development. However, our landmark program is on academic leadership. We’ve always believed that education is the key to success. We started the Ukrainian Leadership Academy, which is now in its fifth year with 633 graduates and 280 students located on seven campuses across Ukraine. These academies offer a different way of teaching for Ukraine. Ukrainian schools are still dominated by Soviet-trained teachers. Concepts like democracy, philosophy, civics, they didn’t feature. We use a model of leadership academies utilized by Israel. They have a gap year program to prepare students for military service. We don’t have mandatory military service here and Ukraine, but utilized the gap year idea for the year between high school and university for Ukrainian students. We also give scholarships to fund educational opportunities in the US and Canada. Because we aren’t a big government agency, we’re able to be quite nimble with our funding choices. For instance, we funded a program called ProZorro that created transparency in the Ukrainian government procurement process. No one would fund it when the idea was proposed. We gave them seed funding of $75,000 then ultimately contributed almost $750,000 for one program and an equal amount for the sale of assets. ProZorro saved over $3 billion for the Ukrainian state budget, and drastically increased transparency and accountability in a system that previously suffered extensive corruption.

If you are affiliated with a major organization like the American Chamber of Commerce, you are protected and shouldn’t have trouble with corruption

Corruption in Ukraine has been a challenge historically, and is a core focus of the government’s reforms. What would you say to investors who may have concerns about Ukraine as an investment destination because of this reputation, and how can yourself and other industry leaders get the message out about the real story on the ground?

When I was a lawyer, clients would come to me and ask how to deal with corruption in Ukraine. I always advised them to be transparent, make clean deals, and resist the urge to be sucked into the system. If you are affiliated with a major organization like the American Chamber of Commerce, you are protected and shouldn’t have trouble with corruption. Individual investors, more in some industries than others, are potentially exposed. Oil and gas is a notoriously hard market to police, for instance. Due diligence is important. Knowing your partners is important. I always advise Westerners to not allow a local partner to have a majority stake in their company. It doesn’t work. Keep a full majority so that you don’t open yourself up to blackmail. A proposed change in the law will allow investors to conduct transactions under English law, which I think would be an important step towards eliminating corruption.

WNISEF sees the big picture of the economy—and has unlocked $1.8 billion for Ukraine and Moldova. The government’s reform process has made major steps to improve the investment environment in Ukraine to propel the country towards the government’s target of attracting $50 billion in FDI. What changes have you seen as part of this reform process that makes you especially optimistic and excited about the future investment climate?

Some of the reforms are more demonstrative and visible and although they may not make a big difference on the investment side, they go a long way in sending the right message. Getting rid of parliamentary immunity is a very big deal. It shows that the parliament will no longer be the refuge of criminals. People joined Parliament if they had a criminal past because they could protect themselves. The land reform is also a good idea and will have a positive impact on the investment climate provided it is rolled out in a fair and equitable way. People in Ukraine are afraid the oligarchs are behind the reforms and that a small cluster of wealthy people will snatch up all the land from the poor farmers. There has to be accurate plot mapping, a clear transparent process about buying procedure, and a PR campaign so that all Ukrainians understand how the process will work. In terms of other reforms, there are 100 other laws the government has enacted. However, enacting laws is the easy part. Enforcing and coordinating them is the hard part. The laws need to be integrated. There is also a notion that Ukraine should be enacting legislation with the ultimate goal of joining the EU. That’s important, but people need to understand that the EU has a very different body of law and harmonization will take time. However, I’m optimistic. This clearly was a generational election with lots of young people stepping up. They’re motivated and I think they’ll get a lot accomplished. But they need to recognize that some things will work and some won’t, and that’s all right.

Through WNISEF, we have programs for young kids, and specific ones for young girls, that teach them how to code and develop apps that help their communities

What role do you think US investors will play in the future of Ukraine?

I don’t expect a wholesale investment by Americans, but there are traditional industries of interest, such as natural resources IT is obviously where the big value add of Ukraine is for the American market. The industry was not here two decades ago and has become an incredible boon to Ukraine. For the first two decades the focus has been outsourcing. Now, the next evolution is in app software creation, and Ukraine is doing well here. While the education system here has its flaws, Ukraine has excelled in STEM, and has a wealth of engineering graduates. There is a whole generation of Ukrainians who know how to code and develop software. Through WNISEF, we have programs for young kids, and specific ones for young girls, that teach them how to code and develop apps that help their communities. There are many success stories in Ukraine already. The R&D for it is here. Grammarly is a Ukrainian company, for instance. Ukrainians developed Petcube, Gitlab, and many other popular IT companies here. This is where the future is. Ukraine is strong in AI, big data, blockchain, etc. WNISEF is involved in an organization called the Digital Transformation Institute, which is helping Ukrainian firms digitize. We see this as the way forward over investments in brick and mortar companies.

What would you tell prospective investors about why they should enter the Ukranian market now?

It’s easier to come into an emerging market than a finished market. The notoriety Ukraine has gained in the past year in the US media is besides the point. For investors who understand that you can make a lot of money in a place that’s not perfect, Ukraine has tremendous potential. You must do your due diligence, as you would with any investment, and it can be done.

What role do you think US investors will play in the future of Ukraine?

I don’t expect a wholesale investment by Americans, but there are traditional industries of interest, such as natural resources IT is obviously where the big value add of Ukraine is for the American market. The industry was not here two decades ago and has become an incredible boon to Ukraine. For the first two decades the focus has been outsourcing. Now, the next evolution is in app software creation, and Ukraine is doing well here. While the education system here has its flaws, Ukraine has excelled in STEM, and has a wealth of engineering graduates. There is a whole generation of Ukrainians who know how to code and develop software. Through WNISEF, we have programs for young kids, and specific ones for young girls, that teach them how to code and develop apps that help their communities. There are many success stories in Ukraine already. The R&D for it is here. Grammarly is a Ukrainian company, for instance. Ukrainians developed Petcube, Gitlab, and many other popular IT companies here. This is where the future is. Ukraine is strong in AI, big data, blockchain, etc. WNISEF is involved in an organization called the Digital Transformation Institute, which is helping Ukrainian firms digitize. We see this as the way forward over investments in brick and mortar companies.

What would you tell prospective investors about why they should enter the Ukranian market now?

It’s easier to come into an emerging market than a finished market. The notoriety Ukraine has gained in the past year in the US media is besides the point. For investors who understand that you can make a lot of money in a place that’s not perfect, Ukraine has tremendous potential. You must do your due diligence, as you would with any investment, and it can be done.

Grammarly is a Ukrainian company. Ukrainians developed Paypal, Whatsapp, and many other popular IT companies here

What is the role you’d like WNISEF to play in the future of Ukraine?

WNISEF’s main orientation is education. We think that it’s important to educate the next generation of good citizens who understand that their role in this world isn’t just to make money for themselves but to give back to society. That’s what the Israeli program showed us. Service is not something that people know automatically. They need to learn it. These young idealistic Ukrainians are interested in giving back to their community. Those who come back after studying overseas understand that opportunities are much better for them here. The jobs are good and the market is less competitive. They don’t have to emigrate to live a good life. The focus on education has become a mantra for us because we’ve realised that’s the way to have a lasting impact.

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