Over the past ten years, Ukraine has experienced economic growth only once—in 2006–2007, amid a massive influx of foreign currency. Then we encountered a persistent crisis.
But against the backdrop of global decline, the situation in Ukraine has always been far worse. What's the secret?
I suspect the government's core function has been compromised. Classically, it should guarantee stability and predictability. This is best achieved through adherence to the rule of law. Given uniform rules for everyone, hundreds of thousands of anonymous entrepreneurs thrive simultaneously, and this leads to economic growth.
In Ukraine and similar countries, however, state leaders are engaged in a completely different process. Since Kuchma's time, for the past eleven years, a permanent process of property redistribution has been underway, with the participation of the authorities. The forces that have come to power are attempting to seize property from the forces that lost. Only the slogans and the figures change.
At the macro level, these are "raids" and "masked shows," reprivatization, and systemic criminal cases. At the petty level, these are visits from tax police officers, tax collectors, or "hungry" prosecutors. On the surface, everything is legal. In essence, it's a redistribution.
At the same time, each new regime had its own distinctive style of expropriating property from others. Today, this process is even more cynical than under Viktor Yanukovych. The "Family" expropriated openly, while the expropriators of Petro Poroshenko's time hypocritically hid behind revolutionary slogans and patriotism.
The problem, as always, isn't the phenomenon itself. Amidst the behind-the-scenes struggle and the absolute fragility of the concept of protecting private property, Ukraine is losing its chance for economic growth.
Foreign ministers or fancy conferences won't help here. International donors can continue to pour billions into Ukraine, but this money will go down the drain and become a debt burden for our children and grandchildren.
An entrepreneur at any level must understand that prosecutors or police won't come to them tomorrow demanding they hand over their business. Otherwise, they'll resort to "black cash," hiding money in offshore accounts, and using "envelopes."
The Yushchenko and Tymoshenko Era: A Blow to the Owner's Instinct
During the reigns of Leonid Kravchuk and especially Leonid Kuchma, Ukraine was awash in "carve-ups." They were dividing up not so much each other's property as the state's.
In the 1990s and first half of the 2000s, corporate raiding and targeted privatization flourished. Capital accumulated during the turbulent 1990s was actively laundered. It was then that now-respectable businessmen, including Viktor Pinchuk, Rinat Akhmetov, Kostiantyn Zhevago, and Ihor Kolomoisky, acquired former state assets.
Any seizure of state property required approval from the relevant ministry and law enforcement agencies. If the process involved a very large asset, the president's approval was required. Viktor Pinchuk received special privileges after marrying Kuchma's daughter.
A sad fate befell only the oligarchs who dared to openly oppose Kuchma: Pavlo Lazarenko, Petro Miroshnikov, Yulia Tymoshenko, and many others. Otherwise, a strong central government provided the new owners with guarantees that were never to be found again. Ironically, it was the Kuchma era that laid the foundation for the "economic miracle" of Viktor Yushchenko's tenure.
The privatization of major assets followed a clear legal framework. The most lucrative state-owned enterprises never fell into the wrong hands. In this sense, there is no difference between the businesses of Rinat Akhmetov, Viktor Pinchuk, Dmytro Firtash, Ihor Kolomoisky, Oleksandr Yaroslavsky, and Kostiantyn Zhevago.
The 2004 Maidan revolution brought its own realities to the process of property redistribution. It awakened the protest sentiments chronically dormant in every Ukrainian. As with any classic revolution, the Maidan gave the right to use force—provided it was done in the interests of the people.
By that time, the best state-owned enterprises had already been seized. Therefore, the new government began squeezing out those who already had assets.
In February 2005, Prime Minister Yulia Tymoshenko proposed a mass reprivatization plan. President Viktor Yushchenko supported her. "The revision of privatization terms will affect several dozen facilities—those where there were significant violations of national laws," the new president said at the time.
For about six months, a "blacklist" of enterprises potentially reverting to state ownership has been circulating in the media. Initially, it could have included approximately 3000 entities.
Many oligarchs from the Kuchma era hid abroad, simply fearing revolutionary expropriation and criminal prosecution by the "orange" government. The horror was further fueled by the seizure of the Kryvorizhstal plant from Rinat Akhmetov and Viktor Pinchuk and its resale to India's Mittal Steel in the only fair auction in Ukrainian history.
It was a golden time to restore social justice once and for all. It was with these expectations that voters cast their ballots for Yushchenko. But the issue of reprivatization presented a major dilemma. The idea of a wholesale review of tender results is a good one, but it needs to be based on transparent criteria. Let's publish the list, make claims against everyone! And demand additional payments—to the state budget! If they refuse to pay, we'll sell.
Instead, the "orange" government attempted to manually launch reprivatization, thereby completely discrediting both itself and the very idea of fairness.
Later, both President Viktor Yushchenko and "Lady Yu" herself tried to convince everyone that there would be no reprivatization. Tymoshenko even denied the existence of a list of 29 properties.
This was a pivotal moment in modern history. Irreversible shifts occurred in the psychology of Ukrainian property owners. For more than a year, Ukraine's largest industrial groups froze their development investments. They realized that no law would protect their property rights, and the government was engaging in blackmail.
Since 2005, the owners stopped investing their own money in the business. By 2008, this approach backfired on many of them. They simply didn't have time to complete modernization, which they chose to finance with foreign currency loans. For example, Sergei Taruta lost his metallurgical group—he was forced to cede control of his business to Russians.
On an economic scale, the international financial crisis compounded the consequences of the country's "skillful" governance, and Ukraine became the world leader in the collapse of all indicators. The crisis reached the very bottom.
The Yanukovych era: looting
Driven by renewed protest sentiment, the population voted en masse for Viktor Yanukovych. Under the Party of Regions, corporate raiding disappeared, but a gradual "squeezing" of assets in favor of the so-called "family" emerged. In addition to young oligarchs like Oleksandr Yanukovych, Serhiy Kurchenko, and Artem Pshonka, Rinat Akhmetov and Dmytro Firtash could also be included in this category.
During the "early Yanukovych" era, stories circulated around the country about Yuriy Ivanyushchenko's group, which staged violent raids on private enterprises and sought to transfer property rights to Yanukovych's structures. A year later, everything had boiled down to the organization of the "family's" coal schemes, parasitism on the budget and the National Bank, the privatization of the best enterprises, and a centralized system of tax collection. Everyone, even Kolomoisky's enterprises, paid taxes.
Incidentally, the sell-off of "lucrative" state-owned enterprises continued under both the late Tymoshenko and Yanukovych. Numerous chemical plants, regional power companies, regional gas companies, and Ukrtelecom were sold off after Kuchma.
But it's only natural that the dominance of the "family" gave rise to another profound economic crisis. During the four years of the Yanukovych era, businesses made virtually no investment in their own development. Initially, preparations for Euro 2012 saved them from complete collapse, but later, nothing could.
The Poroshenko Era: A Forceful Reorganization Under the Manifesto of Euromaidan
Like the Orange Revolution of 2004, Euromaidan gave the right to use force, but on a much larger scale.
If in 2005 Tymoshenko exploited the people's interests, then in 2015 there are numerous violations not only of the letter of the law, but also of its spirit. In the context of war, this right has become literally unlimited.
Imagine you and your friends broke into someone's house and stole several cars to resell. That's grand theft, with all the consequences. But you and your friends broke into Mezhyhirya and stole luxury cars that belonged to Viktor Yanukovych's family. You call yourself one of the "Self-Defense Hundreds." You have nothing to fear.
The new government has a revolutionary, unlimited right to approach anyone with any threats. Especially after the shootings on the Maidan. Especially after Yanukovych's flight. Especially after the outbreak of war in Donbas.
And where there's no legal option, they now prefer to act by force. The goal usually remains the same: to redistribute or take a kickback in exchange for immunity.
This means that the worst lawlessness is happening with the direct participation of law enforcement agencies. The "criminal power" exists only for news consumers. All those who recently worked for Yanukovych are now at the epicenter of multi-billion-dollar operations. Smuggling is taking place on the Crimean border and in the ATO zone.
The redistribution of property has been taking place outside the media spotlight for over a year. Under Yanukovych, criminals would approach owners, but now security forces of all stripes are "squeezing" their assets. The Ministry of Internal Affairs is closer to Prime Minister Arseniy Yatsenyuk, the Security Service of Ukraine (SBU) and the Prosecutor General's Office (GPU) are closer to the president, and the State Fiscal Service (SFS) and the courts are working ad hoc, serving the interests of various parties.
The "tax pits" and "cashing-out" schemes haven't disappeared either. Under the cover of the National Bank, a network of currency exchange offices operates across Ukraine, which fundamentally disregards currency laws. Bank bankruptcies are used to launch targeted attacks against "foreign" oligarchs, while the Deposit Guarantee Fund is used to redistribute billions of dollars in assets to benefit "internal" oligarchs.
A selective approach is evident. For example, Konstantin Zhevago is being squeezed out through the transfer pricing mechanism—instead of applying equally to all oligarchs, it somehow targeted only the owner of Ferrexpo. Dmitry Firtash's titanium mining and processing plants, gas, and titanium production facilities were taken away. And most recently, the land under his Niko-Terra terminal. Tariffs for his regional gas companies are being tightened, in an attempt to coerce the pro-Russian oligarch into negotiations over the fate of the Inter television channel.
The socially just idea of reprivatization has been discredited once again. Oddly enough, it doesn't apply to all oligarchs based on transparent criteria, but only to one—Rinat Akhmetov.
In December 2014, Igor Kolomoisky's right-hand man, MP Borys Filatov, headed a special commission to review the privatization results. At its very first meeting, the then-governor of Dnipropetrovsk Oblast raised the issue of reprivatizing Ukrrudprom—a case that would have involved not only the former "King of Donbas" but also Pinchuk, with whom Kolomoisky was slated to purchase. Another outcome of the meeting is that close attention is now being paid to the performance of the Odesa Port Plant, which Kolomoisky is vying to purchase. As we recall, the governor was shot down mid-air—three months later, the president ceremoniously dismissed him from his post. Kolomoisky himself briefly found himself at the forefront of the government's attack. He was persecuted in the cases of Ukrnafta, Ukrtransnafta, and Ukrtatnafta. The redistribution mechanism, grandly dubbed "deoligarchization," has now affected him.
Naturally, Kolomoisky repelled the attack. Moreover, he and Poroshenko have a rare reciprocity. A man who is likely loyal to the former governor has been appointed to run Ukrnafta. The State Fiscal Service no longer requires the company to pay taxes. Ukrtransnafta will, after all, refine oil previously pumped from state pipelines in Kremenchuk.
Even the wild idea of creating a vertically integrated oil company between the state and Dnipropetrovsk-based enterprises is being actively pursued. Based on the experience of the early 2000s, the existence of such behemoths usually ended with the shadowy and almost free privatization of state property.
Now Petro Alekseevich and Igor Valerievich are "friends" against Akhmetov, jointly pursuing the issue of reprivatization. On July 30, the Kyiv Commercial Court, acting on a lawsuit filed by the Prosecutor General's Office, overturned the privatization of 25% of Dniproenergo by Akhmetov's DTEK. In April 2015, one of Kolomoisky's companies filed a similar lawsuit, but the Donetsk oligarch managed to defeat it—as well as the court ruling against another of his companies, Zakhidenergo. Kolomoisky was on bad terms with Poroshenko at the time, and this explains the court failure. Things are different now.
In all the processes of "deoligarchization," it's completely unclear what the state and the people of Ukraine will gain from it. And most importantly, how will economic growth begin under such conditions?
It's almost guaranteed that Akhmetov will fend off the attack. Perhaps not immediately. But this isn't about Akhmetov.
Since the victory of Euromaidan, the smell of property redistribution has been in the air. It began with visits by "Self-Defense hundreds" to the homes of wealthy Kyiv residents demanding ransom, and later escalated to blackmail by security forces and more than a little bizarre operations in the ATO zone. Reprivatization is merely an episode that arose much later and reinforced these shameful trends.
And in this sense, it doesn't matter whether Kolomoisky dispossesses Akhmetov or Akhmetov dispossesses Kolomoisky, or whether Poroshenko dispossesses Yanukovych and Firtash. What matters is the precedent itself.
We're not even talking about foreign investment, which every new government pronounces like a mantra. Oleg Ustenko, Executive Director of the Blazer International Fund, is absolutely right. If Ukraine wants to attract clean money from abroad, it should first and foremost think not about reprivatizing things, but about improving the country's investment climate. Otherwise, capital will only continue to flow out of Ukraine, through offshore companies, "envelopes," and all sorts of schemes.
Foreign corporations in their right minds aren't planning to invest in Ukraine anyway. How can we expect them to participate in the sale of state property through tenders? After all, they're threatening to return even Kryvorizhstal to state ownership! Under these circumstances, the only ones who will participate in State Property Fund tenders are Russians and domestic oligarchs. They could do so through shell companies in Austria, Switzerland, or Cyprus. Or through investment banks.
This behavior is hardly consistent with the new government's own statements that state-owned enterprises must be sold off as quickly as possible, and immediately at any price—the main thing is to make the economy as private as possible, not state-owned. Naturally, this redistribution contradicts Poroshenko's own promises.
Since the victory of the Euromaidan, private property in Ukraine has been under threat. Just as under Tymoshenko and Yanukovych, Ukrainian businesses are reluctant to invest in their own development. You don't need to be the Lithuanian Minister of Economy to understand how this will end: a new, protracted economic crisis under the banner of the Euromaidan.
Poroshenko, who talks about de-oligarchization, is surrounded by friendly oligarchs and overseers on all sides. He controls the Prosecutor General's Office and the Security Service of Ukraine, which are not working to uphold the rule of law.
This isn't schizophrenia or amnesia. It's a process typical of Ukraine: words obscure real actions.
No one plans to stop. After the local elections in the fall of 2015, the balance of power will shift once again. And in a couple of years, it's likely that Poroshenko's inner circle will be the ones being dispossessed. The habit of picking other people's pockets is ingrained in our DNA. So is the habit of living in constant economic crisis.
According to the information portal, Ukraine is without corruption. www.corruption.net
Subscribe to our channels on Telegram, Facebook , Twitter , VK - Only new faces from the SKLEP section!