Ukraine Revolution Fails Business as Graft Envelops Bureaucracy
Thirteen floors above a snow-covered
complex on the outskirts of Kyiv, in a half-built high-rise,
Egor Popov wondered aloud when the warren of dusty rooms would
be ready for move-in: maybe next year, probably not.
Presales on the 1,210-unit Sun Gate’s fourth wing, still a
concrete-and-brick skeleton accessible only by a shaky open-air
elevator, may be delayed, he said. Not because of a lack of
financing or demand for flats. The issue is the nine layers of
red tape and graft requests that are part of finishing the
project, said Popov, a spokesman for TMM Real Estate Development
Plc (TR61), Ukraine’s only publicly listed developer.
A year after Ukrainians rose up against the pro-Russian
policies of then-President Viktor Yanukovych, business leaders
still wait for an end to corruption and cronyism, promised by
the revolution’s leaders. Even as war rages in the east and the
deepest recession since 2009 shows no sign of lifting, the
president, premier and foreign minister said in the past week
that graft is the nation’s biggest threat. Ukraine ranks as
Europe’s worst on Transparency International’s corruption index.
“Man cannot live by patriotism alone,” said Popov as
blue-and-yellow Ukrainian flags fluttered from balcony railings
across the courtyard. “The year that’s passed hasn’t brought
many positive things to ordinary people. Bureaucracy and
corruption just haven’t changed.”
As foreign investors flee the former Soviet republic,
Ukraine relies on a $17 billion loan from the International
Monetary Fund to stay afloat. The hryvnia has lost 45 percent
against the dollar this year, the biggest decline among all
currencies tracked by Bloomberg. Central bank reserves are at
$12.6 billion, the lowest level since March 2005.
IMF Departure
It may get worse. IMF negotiators left Kyiv on Nov. 25
without an agreement needed for disbursement of a $2.8 billion
installment of the loan. Two days later, lawmakers met one of
the key concerns by agreeing on a government coalition, a month
after snap parliamentary elections.
Parliament is scheduled to vote today on whether to approve
new cabinet members following October elections. The cabinet’s
“key challenge” will be to fight “total corruption,”
President Petro Poroshenko said last week.
Ukraine has been in tumult since December 2013, following
Yanukovych’s surprise about-face on his promise to sign a
European Union trade agreement, the first step in eventual
membership. Instead, he sided with Russia, sparking mass
demonstrations that choked Kyiv’s city center for months and led
to the deaths of more than 100 protesters.
Crimea Takeover
The country was rocked further by Russia’s forced
annexation of the Crimea peninsula in March and the ensuing
conflict in the eastern regions of Luhansk and Donetsk. Ukraine,
the U.S. and the EU accuse Russia of financing and supporting
the separatist effort with military aid. Russia denies
accusations it is fomenting the conflict, saying it is only
supplying humanitarian aid to pro-Russian rebels.
Even so, business leaders and economists say the government
should have done better in stamping out corruption and red tape
and has been hiding its failure behind the war effort.
Business people “are frustrated by the lack of progress,”
said Nicholas Burge, the head of the European Commission’s trade
and economic delegation to Ukraine. If the incoming government
fails to implement changes in its first six months, “then that
window will have been lost.”
European Bank for Reconstruction and Development President
Suma Chakrabarti, who met with Poroshenko and Prime Minister
Arseniy Yatsenyuk on Nov. 25, said the two leaders agreed on
establishing a Ukrainian “business ombudsman” by year’s end.
One Year
“There is much more political commitment” to fight graft
than a year ago, Chakrabarti said in a phone interview after the
meeting. “But it will not happen tomorrow. No country has ever
managed to tackle corruption in one year.”
Ukraine ranks 144th among 177 nations in last year’s
corruption-perception list by Berlin-based Transparency
International, unchanged from the year before. The World Bank’s
Ease of Doing Business index shows Ukraine at 96, better than
only Bosnia Herzegovina in Europe.
Investigative journalist Tetiana Chornovol, appointed in
the spring to lead the anti-graft office, quit in August. She
said it was useless because there is no political will to
conduct a full-scale war on corruption.
One sign of action can be seen on the website of Ukraine’s
prosecutor-general’s office, which regularly reports on arrests
and seizures. Few names are given in the announcements, mostly
companies only, and progress of the cases isn’t publicly
available.
Bank Accounts
The website did say that the frozen bank accounts of Serhiy Arbuzov, a Yanukovych ally who served as prime minister and fled
to Moscow in February, were unexpectedly unfrozen in Nov. 21 for
24 hours by a court in Kyiv. Arbuzov is on an international
wanted list and is a suspect for misappropriation of money,
Svyatoslav Lahanyak, the first deputy head of the main
investigation department of the Prosecutor-General’s office,
said in televised remarks on Channel 5 yesterday. He said in a
statement that no money left the country during the period when
the freeze was lifted.
Arbuzov’s press service didn’t pick up a call to its mobile
phone and didn’t immediately answer an e-mailed request.
At TMM, the developer, Financial Director Larysa Chyvurina
said some bureaucrats are “highly inventive” and manage to be
“more successful than most businessmen” — on salaries of
3,000 hryvnia a month.
This year, a state work safety inspector demanded $5,000 to
sign off on the final inspection of a completed TMM site, she
said. TMM refused. It doesn’t pay bribes, Chyvurina said.
“Authorities should finally give business, either small or
large, the chance to move forward and develop,” she said.
Trying Hard
Prime Minister Yatsenyuk told lawmakers on Nov. 26 that he
has been less than successful at rooting out corruption, though
he refuted the idea that his administration hasn’t tried.
“Am I satisfied with my work? Of course I’m not, because
one always wants to do more and to do better,” Yatsenyuk said a
day before he was re-elected to lead the cabinet. “But have we
done everything we could? I can tell you clearly, yes we have.”
Foreign Minister Pavlo Klimkin said during a news
conference on Nov. 26: “We are fully committed to undertake a
reform program in the key spheres, including fighting
corruption, the rule of law and decentralization. These would be
the key preconditions for success of the whole reform program.”
At least, executives and analysts say, politicians are now
allowing freedom of speech and are trying to reorient the
country toward the EU and away from Russia. More than 4,300
people have died in fighting between pro-Russia rebels and
Ukrainian forces in the east.
European Values
“We have authorities with pro-European values and moods,
and this is what people took to the streets for a year ago,”
said Anna Derevyanko, the head of Kyiv’s European Business
Association. The association’s third-quarter report, issued Nov.
13, found that 11 percent of Ukraine’s top managers said
corruption was on the rise, versus 7 percent a year ago.
Even so, the violence has cut into business. Kyiv-based
Winner Imports Ukraine, which supplies Ford, Volvo, Jaguar, Land
Rover and Porsche models to car dealerships, pulled out Crimea,
and the eastern provinces of Donetsk and Luhansk.
ArcelorMittal (MT) Kryvyi Rih, the Ukrainian branch of the
Luxembourg-based steelmaker, spent more than 2 million hryvnia
on bullet-protective vests and uniforms for 280 workers who had
been drafted to fight in the east and couldn’t get equipment
from the state, said Serhiy Teslyuk, the company’s deputy CEO
for labor safety, in written comments.
Workers are growing increasingly unmotivated as the
promises of the winter revolution fizzle, executives say.
Employee Spirits
“I feel an emptiness in people’s minds and souls,” Alex Lissitsa, the chief executive of Warsaw-traded agriculture
producer Industrial Milk Co. “I’m very concerned about how to
keep up employees’ spirits.”
Fashion brands New Look (BCI), OVS, River Island, Esprit, Lee
Cooper and Tengelmann Group’s German Obi home-improvement chain
are among foreign investors leaving Ukraine. Foreign direct
investments fell to $606 million in the third quarter, less than
half the level of the same period a year before.
TMM’s Popov says he’s still willing to be patient, even as
his company sometimes has to go to multiple offices for the same
approvals.
The new open environment helps offset that, he said. In the
past, companies were afraid to brag about successes in press
releases because they feared potential raiders with links to the
state, he said.
“For businessmen, it was a huge step forward, in the sense
that we can speak freely and not be afraid to do so,” he said.
For Related News and Information:
Ukraine to Pick Business Ombudsman by Year-End, EBRD Says (1)
Yatsenyuk Needs Year-End Dash to Secure Cash, Steady Ukraine (1)
Ukraine Premier Warns of War After Winning Confirmation Vote (2)
Ukraine Crisis News: EXT2
Top Eastern Europe Stories: TOP EEU
To contact the reporters on this story:
James M. Gomez in Prague at
jagomez@bloomberg.net;
Kateryna Choursina in Kyiv at
kchoursina@bloomberg.net;
Aliaksandr Kudrytski in Minsk, Belarus at
akudrytski@bloomberg.net
To contact the editors responsible for this story:
Gelu Sulugiuc at
gsulugiuc@bloomberg.net
Anne Swardson