Ukraine has set an ambitious goal for itself of attracting FDI worth $50 billion by 2024. But achieving this will first require building trust and credibility in the country’s institutions. With the macroeconomic conditions now in place for significant growth, and a youthful new government that is working in top gear to enact critical reforms, Minister of Economic Development, Trade and Agriculture Tymofiy Mylovanov argues that Ukraine is getting it right this time, and intends to prove it to the rest of the world
You are in charge of a “super-ministry” that brings together various strategic areas of government. Why was it done this way?
My department rolls together the ministry of economy, economic development and trade with the ministry of agriculture. In Ukraine, agriculture is an important part of the economy, accounting for around 40% of our exports and posting double-digit growth year on year. I additionally have a few functions from the ministry of social affairs, specifically related to labor market regulations.
What is your view of the state of the Ukrainian economy right now?
My own take on the economy is that, as every other country, we face the problem of technological upgrade, investment in education and new job creation, and we need to ensure that nobody is left behind. When people are left behind, you get populism and resistance to change as a result. So we need to manage this process very well. We have two job markets in Ukraine: one has educated people who have business and language skills, and these people are in demand. There is now a demand in Ukraine for academics and economics experts, but that was not the case 15 or 20 years ago. So the job market for people like myself looks good. But for people without a PhD in economics, who don’t speak English, who lack the soft skills required by today’s job market, it is not so good. So as we invest in technology, we create an industrial base for the economic process, we create infrastructure, we create new companies. There are more vacancies created in the new market while others are destroyed in the old market. But we need to bring people along for the ride. If we don’t do that properly, we create an additional social burden in terms of unemployment benefits, and we create political resistance to change. This is a critical issue, and it has not been done properly over these past years of change, preventing Ukraine from taking off. You have to bring the people with you as you make reforms.
So it’s not just about growth, but about thinking of the way in which you grow?
Yes, and it’s thinking about creating opportunities as well as wealth. We want people to be able to earn for themselves and participate in the markets in a sovereign way, so they can be self-sufficient. We want to distribute not just money, but opportunities as well. In a developing country like Ukraine people do not immediately see the benefits of change. There are very few examples of people who have built a career through education rather than through connections or business. So there’s a market failure there, as people don’t see the importance of investment in education, and as a result there’s a market failure when we create new jobs.
Why is the time right for Ukraine to grow?
My impression is that Ukraine could be on the verge of a breakthrough. It’s not the first time, but this time we have a pretty good macroeconomic situation in relation to other comparable countries. For a country that aspires to catch up with Europe, 3.7% may not be the type of growth that we have seen in other successful countries. It is not yet an economic miracle. But for our kind of countries, the World Bank expects an average growth of 1.8%. The global outlook is becoming more conservative, yet in our case the forecast has been reviewed upwards, and this is because of our stability and continued efforts towards responsible economic and fiscal policies. We are now starting to see the results of responsible behavior that were lacking in previous administrations. This creates the background that boosts consumer and business confidence and which can be converted into economic growth. There is a good chance that all of this is going to come together and work out, and I will do everything it takes to prove to others that this time is the right time for Ukraine.
You have said that one of the goals of the mergers of these two ministries was to accelerate the pace of privatization of state enterprises, as well as innovation in agriculture, and expanding access to international markets. How relevant will the US be in this transition?
The US is important to us for several reasons: it is an economic partner, as we buy coal and other products from them, and we want to increase our trade. It has always been a good partner economically but also politically in our transition to democracy. Despite ups and downs, the overall trajectory is good. We are working extremely hard to reform our country. I myself have spent over 15 years teaching in the US, so I feel that I understand the country. I like their values, and I want Ukraine to become more like the US in many ways, such as in education and business.
Land reform is one of your key projects. What can you tell us about it?
We want to launch the land market reform, but with a broad view that takes many other things into account. We are worried about food safety and security. We want rural development and the price of land to reflect its real value. We want the land to be used efficiently. We want taxes to be paid to the local communities. We want landowners to get a fair price whether they sell or lease the land, and we want businesses to compete and be able to get the resources they need. Right now there is a very imperfect market, but we believe that such a market will bring rural development and also boost growth elsewhere in the economy.
What about privatization?
This is where there are many opportunities for investors. There is a national debate on how much foreign investment in land should be allowed, but we definitely want to see investment in the agricultural industry. It doesn’t have to be land, although it can be. It could also be infrastructure and all kinds of businesses and value-added production. Our productivity per hectare is still not on a par with developed nations and there is so much we can do to improve that. All of this creates opportunities, including for US companies already operating here. As for privatizations, we need to demonstrate that we are a reliable partner that protects property rights, conditions and rules. This takes time but I hope to demonstrate that we are moving forward on this as well.
The prime minister has talked about the need to increase transparency. How can the use of statistics and data help shape the future of Ukraine?
We need to build the credibility of the government and the powerful elites. We have started with basic things like property rights, and we have opened land registries so people can check the records and exercise their rights. The people who benefit from these rules will want to uphold them. We have done a lot of work on this. We also want to have more transparent appointments in government, regulatory bodies and state-owned enterprises. We are making the procedures clear and identical for everyone.
What will be the role of FDI in this journey of growth in a country that seeks economic output of 6 to 7%?
We need to build trust in the institutions and credibility in the government. These two elements are critical. Otherwise the public and the investors will not create business. It may indirectly create credibility when reputable US players come into the country. And we can learn best practices from other countries and from experts in order to build that credibility.
Which sectors would you like to see more US involvement in?
I think infrastructure is very important, whether through private investment or PPPs or concessions. We are opening some ports to concessions. We also have a lot of interaction with the IT industry and hope for more activity there. And we can do a lot more in the services sector. We can have companies come in and help us with e-commerce, real estate, energy, particularly gas and alternative energy sources. It is important for us to become energy independent, from Russia in particular. There are opportunities in defense as well.
The perception of the country is very important to investors. How is Ukraine being perceived now, and what would be a fair perception?
We should do a lot more to promote and explain what Ukraine is today. I work with investors who have been here in the last 30 years and who have been burned by the policies of the previous governments. But we are here to demonstrate that we respect investors’ rights. If people see a visible difference and get their problems solved, word of mouth will spread. We would also like to see some landmark deals to serve as an example for others to follow. We have a list of relatively large projects and we are assessing the probability of them happening next year. This is where we need to do our homework and convince specific companies and people that this government is different. If we fail, investors will not come. If we work well and everyone believes that we are working well, the people will come and there will be a critical mass to ensure that markets move forward, even if there is some initial resistance. So it is a bit of a self-fulfilling prophecy: if everyone believes that good things will happen, they will make it happen.
What is the difference between now and 2014?
The difference is that back then, there was a war as we decided to turn towards the West. Now we have removed some major roadblocks, and if you look at the productivity of parliament and the cabinet, some miraculous work has been done: laws that had been delayed for years are being passed in weeks. That ability to move forward will continue, and eventually investors will believe in us.
Do you have any last message for US investors?
Watch the land market reform. If we get it through, then we mean business.
It is something that we haven’t been able to pass since 2001, and if we manage it, it’s going to be a different world. It is going to be symbolic in many ways. The macroeconomic conditions are already in place. Now we need to do something that smells of real change.