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  • GDP Grew 4.2% Last Summer
  • Port Cargo Jumps 20%
  • PM Orders Privatization Fire Sale
  • Green Light for Big Canadian Investment
  • Rada OK’s 2020 Budget and Debt Agency
  • Hryvnia Debt to Far Outstrip Dollar Debt
  • Kolomoisky: IMF Deal Breaker?

Ukraine’s economy grew by 4.2% this summer y-o-y, indicating that the spring growth rate of 4.6% was not a fluke. First-quarter GDP growth was 2.5%, according to the State Statistics Service. The National Bank of Ukraine and the Economic Development Ministry recently upgraded their 2019 GDP forecasts to 3.5%. This would be triple the 1.1% forecast EU growth rate for 2019.

Through October, Ukrainian ports handled 20% more cargo than during the same 10 months last year, report the Sea Ports Authority. This is the biggest jump in six years and dwarfs last year’s increase of 2%. With bigger ships docking at Ukraine’s ports, the number of vessels was up only 2%, to 9,813.

Driving cargo to 130 million tons, grain exports were up 37%, to 44 million tons, and iron ore exports were up 33%, to 30.5 million tons. With dredging work complete at the nation’s five largest ports, the growth champions were: Pivdenyi (Yuzhne) +28% to 44 million tons; Mykolaiv + 20% to 27 million tons; Chernomorsk +23% to 21.1 million tons; and Odessa +19% to 20.7 million tons. On the Azov, Mariupol reversed a five-year decline and registered a 5.5% increase in cargo, to 5.3 million tons.

Prime Minister Honcharuk ordered ministries on Thursday to transfer at least 500 state companies to the State Property Fund of Ukraine by the end of December for privatization in 2020. At the same government meeting, Dmitry Sennichenko, the new head of the Fund, said five large privatizations are planned for 2020: Centrenergo, Elektrotyazhmash, Krasnolimanska Coal Company, Odessa Port Plant, President Hotel, and United Mining and Chemical Company, or OGKH. Of 3,643 state enterprises, the government intends to keep only 21%, or 776, said Pavlo Kukhta, deputy minister of economy, trade and agriculture development.

Unblocking Canada’s largest investment in Ukraine, Black Iron Inc. agreed with Ukraine’s Defense Ministry last week to buy a 12.6 km square parcel of land adjacent to the future iron mine in Kryvyi Rih. The Toronto-based mining company has agreed to pay for the land an undisclosed sum, which will be used to build military housing. In a first $463 million phase, Black Iron plans to produce 4 million tons of iron ore a year.

The Rada gave final approval Thursday to a $49 billion budget for 2020. The deficit will be 2.1% of GDP, within the IMF target. The budget includes a record $3 billion to be spent rebuilding and repairing roads. The government plans to earn $500 million from the sale of state companies in 2020.

The Rada also gave final approval Friday to the establishment of the Debt Agency of Ukraine, the Finance Ministry reports on  Facebook. Borrowing a government debt management model used in many EU countries, the Finance Ministry will set strategic goals only. The Ministry reports: “Acting as a separate central executive body, the Debt Agency will not be dependent on political factors, which is important for enhancing investor confidence and predictability of long-term public debt management processes.” Partly due to hryvnia appreciation, the public debt to GDP ratio is officially forecast to drop to 45% in 2020, down from 80% in 2016.

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The Finance Ministry plans to sharply raise its hryvnia portion of government debt, from 40% today to 66% by the end of the year, according to figures presented Thursday by Yuriy Butsa, Government Commissioner for Public Debt Management. “We will continue to increase the share of borrowings in national currency,” he told a Fitch Ratings conference in Kyiv. Next year, the government plans to borrow $4.9 billion externally and UAH 231 billion internally, currently the equivalent of $9.6 billion. State debt payments due next year are the current equivalent of $11.7 billion.

Energoatom, the operator of Ukraine’s four nuclear power stations and source of half of the nation’s electricity, is considering issuing Eurobonds for listing on the London Stock Exchange, the company reports. As a first step, the state company plans a legal roundtable on Thursday. Energoatom, officially the National Nuclear Energy Generating Company of Ukraine, has 13.9 gigawatts of installed electricity capacity. Last year, it recorded $180 million in net profit.

Ukraine’s macro economic indicators look “excellent,” Anders Aslund, Atlantic Council economist, told the US-Ukraine Business Council. Inflation is falling toward the 5% a year target, allowing interest rates to fall “sharply” next year.

The big problem, Aslund said, is Igor Kolomoisky, the former co-owner of the PrivatBank who has been lobbying for the return of his nationalized bank. By contrast, the IMF and the G7 countries seek to the recovery of $15 billion that evaporated during the 2014-2015 banking crisis, including $5.5 billion from PrivatBank. “The whole IMF mission is about that,” Aslund, who is based in Washington, said of the IMF team that arrived here Wednesday from Washington. “I would expect an IMF agreement, as soon as there is a Kolomoisky agreement. Without a Kolomoisky agreement, no IMF agreement.”

Although Ukraine can now raise needed money on international capital markets, that favorable environment depends on an IMF seal of approval that comes with a 3-year Extended Fund Facility. Without that deal, foreign direct investment will remain low, Aslund said. “I would not invest in Ukraine before the situation is resolved.”

The High Anti-Corruption Court is to decide pretrial restrictions for Oleksandr Pysaruk, the former first deputy governor of the National Bank of Ukraine. Currently, Chairman of Raiffeisen Bank Aval, Pysaruk is a suspect in a five-year-old bank bailout case. Pysaruk worked for the IMF until August. His detention coincides with the arrival this week of the IMF team, composed of former work colleagues. Another former central bank official detained in the case, Alla Shulga, had stepped down last week as a member of the Ukreximbank Supervisory Board.

The central bank denies any wrongdoing and is “angered” by the naming of Pysaruk as a suspect. “Together with the first post-revolutionary central bank management team, he was at the forefront of banking sector reform – the reason for Ukraine’s currently healthy, transparent and reliable banks,” the bank says in a statement. Mr. Pysaruk is a professional banker with an impeccable reputation, which has been praised both by the IMF, where he has worked for the last three years.”

  • Farmland Market Passes First Vote
  • A Market Would Draw Billions into Ukraine Ag
  • IMF Hopes for “Quick Result” on Deal

Lawmakers voted Wednesday to allow a farmland market, removing a ban first imposed in 2001. Subject to a second vote, the market is expected to inject billions of dollars of investment into Ukraine’s 43 million hectares of farmland. This is the equivalent of one-quarter of all the farmland in the EU.

With the Economy Ministry calculating that the average market price of land to be $2,200, the total value of Ukraine’s farmland would be $95 billion. Allowing farmers to use their land titles as collateral for bank loans will add 1.5 percentage points to Ukraine’s GDP growth in the 2020s, predicts the World Bank.

As passed, the draft bill says foreigners will not be able to buy land until 2024. But on Monday, President Zelenskiy said the issue will be put to a national referendum. Before the vote, Davyd Arakhamia, leader of the Servant of the People Rada faction, said a ban on farm land sales to foreigners will be in the final version. He told reporters: “If this amendment is not introduced, then there will be no second reading in our faction either.”

A ban on foreigners buying land will reduce competition, the World Bank tells Interfax-Ukraine, noting that several European countries went through a transition period before allowing foreign investment. The bank said: “There are different practices in Europe: some countries allow foreigners to buy agricultural land, and some do not, others forbade the sale for several years.”

Concorde Capital’s Alexander Paraschiy writes: “Without the participation of foreigners, the land ‘reform; will have a little positive effect on the economy. In this way, the government will be burying one of the most promising reforms on its agenda. Moreover, the biggest buyers of land will be the same oligarchs who are so reviled by the public.”

With Ukraine’s food exports to the EU growing every year by double digits, the EU mission to Ukraine came out strongly Wednesday for a market. The EU supports the government’s plans to open the land market in Ukraine, a move that could unleash the huge potential for Ukraine’s economy,” the office posted on Facebook. “Small farmers should stand at the center of this reform.”

Before the vote, Iuliia Mendel, the president’s press secretary, wrote in Novoe Vremiya: “Land reform today is a determining factor for economic growth. Because without defining the ownership of the land and the proper mechanism of its protection, it is impossible to talk about investments in the production and processing industry, where additional value is formed, not the banal trade in raw materials. That is why it is supported by all international partners of Ukraine.”

With the IMF team working in Kyiv, the bank’s Europe Director hopes for “a quick result.” Hopefully, we will get a quick result,” Poul M. Thomsen, director of the IMF’s European Department, tells VOA. “While progress is encouraging, there are some unresolved issues.” He praised Ukraine’s progress, saying the country “has successfully stabilized the macroeconomics, pursued good fiscal policy, good monetary policy, secured central bank independence, started clearing the financial sector.” However, he warned: “We are particularly concerned about corruption and governance and I think the new government needs to step up its efforts in this area.”

As Ukraine’s banks recover from the 2014-2015 crisis, bank profits hit $2 billion for the first nine months of this year, up 4.4 times y-o-y, reports the National Bank of Ukraine. Of the nation’s 76 operating banks, 66 are profitable. Over the summer, retail lending was a hot sector, increasing 30%, compared to July-September 2018. In the third quarter, hryvnia deposits of individuals were up 12.7% y-o-y.  Despite National Bank’s interest rate cut to 15.5% last month, 12-month retail deposits enjoy an average annual interest rate of 15.8%. The central bank attributes this high level to competition among banks.

  • Rough Games Stem from Banking Crisis of 5 Years Ago
  • Strong Investor Demand Drives Down Bond Yields
  • Ukraine’s Rivers of Grain: Harvest up 5%, Exports up 10%

The IMF is pressuring Ukraine’s new government to go after former bank owners to retrieve assets that evaporated during the 2014-2015 banking crisis. In the Pysaruk case, arrest warrants were issued Monday for eight people – three former National Bank of Ukraine officials and five former executives of VAB bank. The National Anti-Corruption Bureau, or NABU, charges that Pysaruk and his colleagues approved a $50 million emergency loan to the failing bank. The collateral was real estate, with appraisals reportedly falsified to 25 times real value. One month later, the central bank closed VAB. The money was never recovered. NABU says the number of indicted bankers – public and private – could go over15.

As the central bank number two, Pysaruk worked with then-Governor Valeria Gontareva to close almost 100 insolvent banks. Today, Gontareva lives in self-exile in London, complaining of death threats and refusing to return to Ukraine. “Terror is intensifying,” she said of Pysaruk’s detention. “He and I were cleaning all these Augean stables.” The central bank has rallied behind Pysaruk. Yakiv Smoliy, the current bank governor, cut short an overseas trip and flew home. The bank’s top leadership went to court on Tuesday and offered to cover bail for the three former officials. Pysaruk’s bail was set at $1.25 million. The central bank said in a statement: “He stood at the source of the banking-sector reform, thanks to which we have healthy, transparent and reliable banks now.”

Foreign business leaders are reacting negatively to the arrest of a well-known banking figure. Before joining the central bank during the banking crisis, Pysaruk worked almost a decade for ING. Only 48 hours before his arrest, Pysaruk appeared before 500 businessmen and women at the Kyiv International Economic Forum, speaking on a panel called: “Investment Attractiveness of Emerging Markets: Risks and Opportunities.”

Four business chambers, led by the American and European ones, issued a statement last night, saying they are “deeply concerned about the recent events taking place around the current Chairman of the Board of Raiffeisen Bank Aval and former First Deputy Governor of the NBU Oleksandr Pysaruk. Cases such as this will be closely watched by the business community as they make investment decisions. The business community urges responsible state authorities to appropriately respond to such cases, taking into account the principles of fairness, equality, and protection of all citizens despite their positions and political views.

Concorde Capital’s Alexander Paraschiy writes: “Pysaruk has a strong reputation in Ukraine’s banking sector, having worked for the IMF and Ukraine’s biggest international bank afterward. Most likely, the IMF won’t welcome NABU’s move.”

Strong investor demand allowed the Finance Ministry to cut bond interest rates across the board in its weekly bond auction on Tuesday. Offering 2-year dollar bonds for the first time in two months, the Ministry found demand was 2.2 times supply. The government placed $305 million worth of bonds, reducing the cut-off rate from 5.5% in September to 4.25% per annum.

At hryvnia auctions, demand for 3-year bonds was almost four times the supply, the equivalent of $100 million. Compared to an auction three weeks ago, the cut-off price fell 200 basis points, to 13.12%. Demand for 1-year and 6-month securities was close to the supply. Despite weak demand, yields fell 25 basis points for each security – to 13.75% for 1-year bonds; and to 14.1% for 6-month bonds.

With the grain harvest still underway, Ukrainian farmers have threshed a record 70.8 million tons, more than the 70.1 million tons threshed during all of last year, also a record. By year’s end, Ukraine’s grain harvest will be up by 5.5%, to 74 million tons, predicts Timofei Milovanov, Minister of Economic Development, Trade, and Agriculture. Champion oblasts are Vinnytsia – 5.8 million tons; Poltava – 5.4 million tons; Cherkasy – 4.4 million tons; and Kharkiv – 4.3 million tons. With the mild weather of recent weeks, the sowing of winter crops is almost complete.

Since the grain marketing year started July 1, grain and bean exports are up 40% to 21 million tons, the Agriculture Ministry reported last Monday. For the full year, the USDA forecasts that Ukraine’s grain exports will be up 10% y-o-y, to a record 55 million tons.

  • Rada Debate Starts on Creating Europe’s Largest Farmland Market
  • With Public Support Weak, Zelenskiy Proposes Referendum on Foreigners Buying Black Earth
  • Fork in the Road: Cuba or Canada?

The Rada starts to debate bills to create a farmland market in Ukraine. The government bill calls for launching the market next Oct. 1. Sales to foreigners would be delayed until Jan. 1, 2024. This bill would limit land holdings by one company to 15% of an oblast’s farmland and to 0.5% of the nation’s total farmland. There are 10 alternative draft laws. The ban on farmland sales has been in place since 2001.

A national referendum should be held to decide whether foreigners or foreign-controlled companies will be allowed to buy Ukrainian farmland, President Zelenskiy said in a four-minute videotape address posted on Facebook. Saying the government has inserted this new step in its draft farmland market bill, he said: “Foreigners and companies in which there are foreigners among the founders will receive the right to buy Ukrainian lands, Ukrainian land plots only if the consent of the people of Ukraine is given in an all-Ukrainian referendum.” There about 1,000 foreign-owned farming companies in Ukraine, largely cultivating leased land.

Designed to be implemented gradually, the land market is expected to inject billions of dollars into Ukraine’s farming sector, already the main source of exports. The investment could double productivity, doubling grain exports in a decade – from 50 million tons of grain last year to 100 million in 2030. This would propel Ukraine above the US in grain exports.

The largest farming country in Europe, Ukraine has 30.4 million hectares of privately owned farmland, divided into 13.9 million land plots, the State GeoCadaster reported on Nov. 1. In addition, the state owns 10.2 million hectares of farmland. The State GeoCadaster plans to complete an inventory of state-owned land by the end of this year.

Polls show that public support for a land market is weak. In a nationwide Razumkov poll conducted in June, 50% of 2,017 people polled said farm landowners should have the right to sell their land. More recently, a similar size Rating poll conducted in October found that only 31% of respondents favored allowing farmland sales. In the Razumkov poll, support for a land market was greater in Western Ukraine – 62% – and greater among actual landowners – 56%.

Despite the vaunted fertility of Ukraine’s black earth, farmland rents generally are lower than in neighboring countries. According to the recent Rating poll, 30% of owners say they earn $40-120 per hectare per year; 23% earn $120-200, and 21% earn more than $200. By contrast, Eurostat reports that the annual farmland rent in Poland is $259 per hectare and $268 in Bulgaria.

Inviting a national debate over the government bill, Zelenskiy noted that farmland markets are not allowed in “North Korea, Tajikistan, Venezuela, Cuba, and Congo.” By contrast, he said: “In other countries of the world, in neighboring Poland and Belarus, in Germany, France, Italy, Canada, the USA, Japan, Israel, and China, land markets exist.” Zelenskiy charged that for 20 years politicians have manipulated the issue. “Old politicians scared ordinary people, sowed a number of myths in their heads,” the 41-year-old president said. “Perhaps they are lobbying for someone’s interests, those for whom it is advantageous for Ukrainians not to own the land.”

Zelenskiy’s personal prestige – and control of the Rada – may carry the day. In a nationwide Razumkov poll completed last Thursday, Zelenskiy ranked as the nation’s most trusted politician. He enjoyed the trust of 68% of respondents. Dmytro Razumkov, chairman of the Rada, came in second with a 52% rating. [The Razumkov Center is named after Dmytro’s father, Oleksandr Razumkov, who died 20 years ago].

Aerial photography of all of government-controlled Ukraine is to be completed this spring and all farmland information must be entered into the State Geocadaster by Aug. 1, Prime Minister Honcharuk ordered. “The land cadaster should be 100% completed next year,” he said. “There can be no talk of a land market until there is one database.” Aerial photography of the first two oblasts, Lviv and Volyn, is to be completed next month.

With the debate starting this week, the World Bank expressed strong support for a farmland market in Ukraine.The World Bank strongly endorses the plans of the Ukrainian leadership to open the agricultural land market,” the Bank’s Ukraine office said Saturday. “Land reform is needed for Ukrainian farmers to buy and sell agricultural land, access credit, invest and diversify, as well as landowners to get proper return for their most valuable asset.”

“It raises economic growth as well as living standards of all Ukrainian people by unleashing the country’s agricultural potential,” said the Bank which has worked for two years with Ukrainian officials to draw up a market transition based on successful models elsewhere. “The planned reform also includes measures to limit land concentration, stop raider attacks and provide financial assistance for small farmers. Two decades of a closed market and non-transparency that fosters corruption are enough: the time for land reform is now.”

From the private sector, Tomas Fiala, CEO of Dragon Capital, dismissed words of caution voiced Saturday morning at the Kyiv International Economic Forum. “Use this window of opportunity – political opportunity and political will – at an early stage,” urged Fiala, a Czech national who founded Dragon in Kyiv in 2000. “Because, over time, this desire may diminish, and advancing such unpopular reforms would be more difficult.”

Prime Minister Honcharuk shows no sign of backing down on a core free-market change for the new government. He said: I am surprised by the rhetoric when someone comes and says, ‘You own this apartment, but I do not allow you to sell it, because I care about you’. There is no reason why we should limit Ukrainians from selling their real estate. The same goes for the land market.”

  • From Car Parts to Skis, EU Investors Build Factories in Ukraine
  • Tech Skills Impress China’s Jack Ma
  • Dropping Inflation to Pull Down Interest Rates
  • No Longer a Fluke: This Year’s Harvest to Top Last Year’s Record
  • Free Market Voices Prevail at Kyiv International Economic Forum 

Moving jobs to Ukraine from the EU, Swiss-based Calyx Capital Advisers is doubling its Ukraine production plants, to four. Next year, it moves a home appliance control panel factory from Poland to Ivano-Frankivsk, where it will employ up to 1,000 workers. Also next year, Calyx breaks ground in Bila Tserkva’s new industrial park for a car parts factory, eventually moving 450 jobs from Germany.

Longer term, the company is studying taking over 25,000 square meters of the massive ZAZ or Zaporizhia Automobile Building Plant, to create an EU-oriented parts and service ‘business campus’ that would employ 5,000 people. Tobias Hundertmark, the managing partner of Calyx, told the UBN at the Kyiv International Economic Forum: “Ukraine can be the big manufacturing center for the future. Poland – you can’t find the people. Hungary is too expensive. Of the big countries, there is only Romania and Ukraine.”

Head N.V., the sports equipment manufacturer, is building its largest manufacturing plant in the world in Vinnytsia. The $100 million factory should employ 1,000 people by 2025. “Ukraine offers by far the best prospects for future manufacturing,” Johan Eliasch, CEO of Head, told the UBN at the Economic Forum. “Eastern European labor costs have gone up almost to the level of Western Europe – there are now only two places: Ukraine and Bulgaria,” he said, noting the labor-intensive process of making skis, boots, and bindings. Eliasch said Head scouts looked at Zakarpattia, where Fischer, their Austrian rival, makes skis. But he said: “There are no workers left.”

A foreign investor is sought for the sale next year of Centrenergo, the nation’s largest coal-fired electricity producer, Prime Minister Honcharuk told the Economic Forum. State-controlled Centrenergo draws on three plants – one in Kyiv, one in Kharkiv and one Donetsk – to produce 7,600 MW of power. “Centrenergo is the top priority for privatization. And I want this company to be privatized by an external, real player. And the government will do everything for a strong player to come here.” Last month, Dmytro Sennichenko, the new head of the State Property Fund, said a new court decision has cleared the way for the sale of the massive power company.

Jack Ma, often seen as a global ambassador for Chinese business, said on a visit to Kyiv that he will invite his business partners to visit Ukraine. Considered China’s richest man, Ma, co-founder of Alibaba Group, told the Economic Forum he was impressed by the tech skills he saw during his meetings at Kyiv and Kharkiv universities. Noting, Ukraine’s young, free-market government he said: “Such a wonderful combination like this cannot fail.”

President Zelenskiy invited Ma to open in Ukraine an Alibaba R&D center oriented toward the EU. Zelenskiy said: “We want to completely reboot Ukraine so that people like you appear in the country.” Later, Ma visited Kyiv’s Unit.City innovation park, home to several R&D centers. In the last decade, foreign companies have opened 100 R&D centers in Ukraine. These companies include Boeing, Ericsson, Huawei, Oracle, Samsung, and Siemens.

For foreigners at the forum, Zelenskiy gave a 10-second pep talk on Ukrainian brainpower: “It was Ukrainians who provided humanity with the first helicopter, rocket engine, artificial satellite, made prototypes of the X-ray and the CD, invented a Zip Code, electric tram technology, built the world’s largest aircraft, and created PayPal and WhatsApp services.”

Measures will be taken to boost Ukraine’s oil and gas production, Oleksiy Orzhel, the new Energy and Environment minister, promised the Forum. Ukraine produces only 1.2-1.4% of its confirmed reserves each year – less than one third the European average of 4-5%, he said. Through September, Ukraine produced 15.3 billion cubic meters of gas, up 0.6% y-o-y.

ICU predicts this year’s grain harvest will be 75 million tons – 7% above last year’s bumper harvest of 70 million tons. In the mix, Corn remains king, dropping only 1% from last year’s record harvest, hitting 35.3 million tons. The dynamic crops are Barley +23% to 9 million tons; and Wheat +14% to 28.2 million tons.

Heard at the Kyiv International Economic Forum:

“Ukraine has good Internet because we don’t have a Ministry of Internet,” said Prime Minister Oleksiy Honcharuk. “We want to take down business restrictions on labor and land. The role of the state in the economy has to decrease… Our government is not afraid and ready to make decisions – to remove barriers and restrictions. Restrictions on the right to dispose of their land, to the movement of capital, severe restrictions to regulate the labor market — this definitely has no place in the future.”

“Ukraine is overtaking Turkey this year to become the top market for the EBRD,” said Matteo Patrone, EBRD regional managing director. He expects new EBRD lending to Ukraine to hit €1.1-1.2 billion by the end of December. Noting that Ukraine does not have a natural resource bonanza to create a “Red Bull economy,” he said: “All they can do is hard work, structural reforms, rule of law, de-monopolization, and de-regulation – all anchored to accord with the IMF.”

“What I heard most was ‘opportunistic’ – they are searching the globe, looking for niches of growth,” Tomas Fiala, CEO of Dragon Capital, said of views of attendees at Dragon’s recent annual investor meeting in Kyiv.

“I am going back in the market sooner rather than later – the opportunities here are very strong – IT, food tech, bio tech, e-commerce,” said Lenna Koszarny, CEO of Horizon Capital. She noted that Horizon’s current $200 million growth equity fund “is almost wrapped up,” with nine done deals and three in the pipeline.

“An international court of arbitration – we think that is a good idea,” said Koszarny, speaking as Chair of AmCham Ukraine. In a recent poll of AmCham members, 74% cited Ukraine’s courts as the top obstacle to business – a finding that drew applause from Forum attendees Saturday morning.

“In a few months you will see a new Labor Code,” said Economy Minister Timofiy Milovanov, referring to the existing code, which was first adopted in 1971. Calling for liberalization, the new government often says it is easier to get divorced in Ukraine than to fire an employee.

The original English version is from our partner UBN – Ukraine Business News. For more information and news archive, go to: www.ubn.news.