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Old 29th August 2014, 13:36
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Nick Gaidai: Large-scale deregulation can translate into billions of income for economy
Aug. 29, 2014, 2:38 p.m. | Op-ed — by Nick Gaidai

One of the goals Ukraine's government set for itself was to improve the nation's stance in the World Bank’s Doing Business ranking by making structural changes in its regulatory system. Currently Ukraine ranks 112th out of 189 nations.

Done on a massive scale and in conjunction with specialized foreign institutions, deregulation can bring amazing economic growth worth billions of hryvnias in income, not to mention cutting down the number of headaches for business owners and managers.

Deregulation is known as the process of eliminating excessive regulations for businesses, be it by slashing unnecessary permits and licenses, simplifying customs procedures and administration of taxes, decreasing the frequency of inspections, or even cutting down the number of state control bodies. In broader terms, deregulation is not so much about limiting state intervention in business activity though organizational, legal, administrative, or economic measures, but more of a paradigm shift in relations between the state and business.

The paradigm, which existed up until now and, in fact, still exists, is that of the state as a burden for business. The system was created over a period of many years, and its roots go far beyond Ukrainian independence in 1991. In fact, the Soviet regulatory system motto “regulate everything and keep a tight rein” became the model for independent Ukraine, leaving fruitful grounds for corruption. Supported by Ukrainian bureaucrats and complemented by “necessary” regulations, it has become a machine for terrorizing the Ukrainian business, sucking dry entrepreneurs’ funds and time, all of which could have been used to make businesses more competitive in local and global markets.

Understanding the necessity of breaking the chains of regulatory burden binding the hands and feet of Ukrainian business, team of advisors to the Minister of Economic Development and Trade was established to start the process of collecting, filtering, prioritizing, and implementing deregulation initiatives by working with representatives from business, professional business associations, industry experts, universities, and international organizations, among other groups.

It is worth mentioning that the past experience in deregulation was focused mainly on regulatory areas (i.e. permits, licensing, taxation, inspections, etc.) and improving Ukraine’s standing in the Doing Business ranking. In our view, such an approach has significant drawbacks for two key reasons: when looking at deregulation only through the prism of regulatory areas, many initiatives are ignored (e.g. moratorium on the sale of agricultural land, initiating tender on the sale of 3G licenses). The second problem is that although a country’s position in the Doing Business ranking is a litmus test for potential investors, it is relatively easy to manipulate the rankings without making real structural changes in a country’s business climate and therefore it should not be considered an ultimate goal of deregulation.

Given these drawbacks, the team of advisors employed an approach where regulatory areas were analyzed within the economy-wide deregulation initiatives, as well as within six key Ukrainian industries: food, agriculture, construction, electricity, oil and gas, and IT. Initiatives within these industries were then further broken down by respective value chains.

After initial assessments of past experiences in deregulation, conducted by various organizations, including, but not limited to Coordination Center of Reforms, Foundation for Effective Governance, International Finance Corporation, European Business Association, and the American Chamber of Commerce, about 1,000 deregulation initiatives, both economy-wide and industrial, have been collected. Further analysis narrowed down the total number of initiatives to 800. As a result of the prioritization based on experts’ assessment, 200 deregulation initiatives of a first priority were identified.

Another challenge was the way to quantify the economic effects of the implementation of deregulation. In this undertaking, the team of advisors closely cooperated with the IFC. Based on the methodology developed, the economic effect was split into three categories: industry growth, elimination of corruption, and the reduction of government spending. The total effect from the realization of 800 deregulation initiatives was calculated at impressive Hr 170 billion economic growth by 2020, Hr 125 billion of reduced corruption per year, and a yearly cut in government spending by Hr 40 billion.

As of now, the team has moved on to the implementation stage, which is the toughest area of focus since the realization of each deregulation initiative is politically challenging as they harm powerful interests. We expect significant resistance from government officials, who benefit from corruption, bureaucrats, whose powers will be reduced, and oligarchs, who are likely to lose market monopolies. For each initiative, we will identify our allies and opponents. As the implementation stage moves forward this information will be published on our website, *еформа регуляторної політики України.

Nick Gaidai is Advisor on deregulation to the Minister of Economic Development and Trade and a former Consultant with Roland Berger Strategy Consultants. He is a graduate of University of South Carolina and a board member at Professional Government initiative, association which unites Ukrainian graduates of western universities aiming at supplying highly-qualified candidates for positions in the government sector.
Nick Gaidai: Large-scale deregulation can translate into billions of income for economy
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Old 29th August 2014, 23:12
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INTERFAX UKRAINE 18:01 29.08.2014
IMF to send special mission to Ukraine to promote currency market reform - NBU chief

The International Monetary Fund (IMF) will send a special mission to Ukraine to promote the reform of the country's foreign exchange market, Governor of the National Bank of Ukraine (NBU) Valeriya Gontareva has said.

"We agreed with the IMF that due to the forex market being so narrow, a fund special mission will come to our country, and together we will outline a plan of how we will build the correct structure of the currency market," she told reporters on Friday after a meeting of the central bank's board with the heads of Ukraine's 40 largest financial institutions.

Gontareva also noted that a meeting of the IMF Executive Board was scheduled for August 29, during which the allocation of the second tranche under the stand-by program is expected.

"We expect $1.5 billion [from the IMF] on September 3 and $0.5 billion from the World Bank in early September," she said.

As reported, the IMF Executive Board on April 30 approved a two-year SBA worth SDR 10.976 billion (about $17.01 billion) for Ukraine. Early in May, the IMF transferred the first tranche worth SDR 2.058 billion (about $3.2 billion), with SDR 1.29 billion (about $2 billion) allocated to the Ukrainian government for budget support.

The second-fourth disbursements scheduled for July 25, September 25 and December 15, 2014, respectively, will total SDR 914.7 million each, while the fifth-eighth quarterly disbursements of 2015 will amount to SDR 1.372 billion each. The ninth disbursement of SDR 686 million will be provided in mid-March 2016 if the terms and conditions stipulated in the program are observed.

The IMF mission arrived in Ukraine for the first review of the program on June 24 and worked until July 18. As part of the first review the sides discussed the adjustment of the macroeconomic forecast and the state budget for 2014, including due to the unstable situation in Donetsk and Luhansk regions.

On August 18, the Cabinet of Ministers approved a revised draft letter of intent of the government and the NBU to the IMF and a draft memorandum of economic and financial policies.
http://en.interfax.com.ua/news/general/220751.html


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Old 15th September 2014, 16:01
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Reuters: Ukraine sees economy shrinking six percent this year
Sept. 15, 2014, 4:21 p.m. | Ukraine abroad — by Reuters

KIEV, Sept 15 (Reuters) - Ukraine's economy may shrink by 6 percent this year due to the military conflict in its eastern regions, Finance Minister Oleksander Shlapak said in Monday.

But he said Gross Domestic Product could rise 2 percent next year if a package of new tax laws were to be adopted by parliament. The package of tax amendments is likely to be submitted to the parliament this week, he said.

(Reporting By Pavel Polityuk; Editing by Richard Balmforth/Jeremy Gaunt)Ukraine sees economy shrinking 6 percent this year | Mail Online
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Old 15th September 2014, 16:10
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Chicago recipe for treating Ukraine's weaknesses
Sept. 15, 2014, 10:51 a.m. KYIV POST

University of Chicago professor Roger Myerson wasn’t in Kyiv to speak about his 2007 Nobel Prize-winning mechanism design theory, a mathematical vision of how people and institutions interact in business and politics. He came in mid-September to discuss the merits of power redistribution. In Ukraine’s case, it’s having wealth multiplied in a way that promotes regional development.

A "tragic, but not surprising" contraction of the nation's economy, which the International Monetary Fund expects to reach 6.5 percent this year, could be managed by applying a looser monetary policy, Myers told the Kyiv Post in an interview.

Having more money circulating in the economy with lower interest rates makes capital much more accessible, the theory goes.

When asked how this particularly should be done, given local skepticism towards the policy working in Ukraine’s economy Myerson said: "I'm a Chicago economist and Keynesian economic stimulus (that bets on boosting demand mostly through increases in government spending) doesn't seem too compelling to me… The government needs to provide services, to provide military efforts and the Ukrainian people need to pay for that, and I hope that other countries in the world are providing financial support during the time of crisis."

One step could be broadening the tax base. "If a part of the public deficit is covered by foreign subsidies, monetary policy and inflation – that is understandable," he added.

Human capital-driven economic growth could work too. "How many of your educated people work at home and how many work in Europe and the U.S.? Something should be done in order to make them want to work at home," Myerson continued.

Letting regional governments earn money by privatizing assets located within their boundaries is another smart economic move. This would make them interesting to outside investors.

Myerson believes that many of Ukraine’s current problems could have potentially been addressed if the country had delegated central power to local governments. He said that after the EuroMaidan Revolution, many local leaders and even whole communities “felt they had no stake in running of the country.”

“Decentralization can discourage separatism,” Myerson concluded.

It takes three key elements to make this happen, he says. First, parliament should either pass a law or the constitution should be changed to start the process of transferring power to local communities.

In Ukraine’s case, he says, there is a shortcut that can be used, at least temporarily. Under Ukraine’s constitution, the president has powers to appoint regional governors. It would make sense appoint local leaders who have the authority to speak for the local population, even if they come from a rival political camp.

Secondly, a local election would have to be held to propel new leaders to power at the local level. But most importantly, how money flows in the nation would have to change. Significant local taxes would have to stay in the communities, but also the finance ministry would need the “ability to allocate public money by transparent rules.”

The procedure for allocation would have to have clear rules. For example, money from the central budget could be distributed proportional to the population of a particular region or community.

In most countries of the world, Myerson says, “local governments are not fully funded by local taxes, but through transfers.”

Some 20-25 percent of public money has to be spent by the districts, who would oversee all local public functions such as elementary education and roads. District authorities, who would handle more complex public functions, would get another 10-15 percent of public cash, and the rest would make up the national budget.

He thinks this financial pattern would stabilize the country structurally. But government should be careful not to tip the scale in favor of provinces too much: when there’s a large province that can stand on its own as a country its leader might like the idea of divorcing from the nation altogether.

At the same time, in a country where power is devolved to the regions and communities, potential national leaders tend to rise from the local level, especially from big cities and the provincial leadership level. Chicago recipe for treating Ukraine's weaknesses
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Old 19th September 2014, 03:04
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Christian Science Monitor: Can Ukraine's aviation giant airlift the nation's economy out of crisis?
Sept. 18, 2014, 10:24 p.m. | Business — by Christian Science Monitor

Kiev, Ukraine — Dmytro Kiva has spent his life designing those gargantuan and ultra-rugged Antonov transport planes, the kind that always seem to get summoned when anyone in the world has a load that's too big, or too heavy for any other aircraft to haul.

Now the eagle-eyed, gray-haired president of the Antonov company has been handed a task that seems even more daunting than his fleet's heavy lifting. As ties with the company's traditional partner, Russia, go down the drain, he needs to take Antonov's sheaf of tried-and-true Soviet-era designs, plus some exciting new projects, and find new markets and investors for them in the West.

"We really need the West to turn its face to us. We understand that we urgently need to change the vector of our cooperation," Mr. Kiva says.

Antonov is the closest thing Ukraine has to an industrial "national champion" with international appeal that could help pull the entire country into the global economy. It not only has a venerable history, it also possesses a few cutting-edge, but largely untested designs that Kiva insists could find a solid niche in a crowded aviation market.

Most Western countries tend to favor their own producers, with tax subsidies, political support, and military contracts. And until recently Kiev-based Antonov, like most Ukrainian military manufacturers, had been somewhat joined-at-the-hip with the Russian defense complex, and therefore shunned in the West as an "eastern bloc" producer.

Hence, Kiva argues, if the West truly wants to pry Ukraine from Russia's embrace, it should give Antonov a political leg-up in its drive to find new markets. If a company like Antonov can't make it, he implies, what hope is there for Ukraine?

A manufacturer on the skids

Antonov has fallen on hard times since its Soviet-era heyday, when it built the world's largest transport aircraft, such as the An-124 Ruslan, which was the USSR's answer to Lockheed's C-5 Galaxy. The Ruslan is still the world's biggest cargo plane. Its would-be successor, the humongous An-225 Mriya – only one of which exists – is so powerful that it can sling more than twice the maximum load of a C-5.

Today the company survives by renting out its fleet of transport planes, and selling as yet small numbers of its new mid-range, short-take-off-and-landing An-248 passenger plane, which it hopes could put it into competition with companies like Canada's Bombardier and Brazil's Embraer.

But some of its most promising projects have been derailed by the near state-of-war that now exists between Russia and Ukraine, and the Kiev government's order to halt all military cooperation with Russia. Earlier this year Antonov swallowed a $150 million loss by tearing up a contract to supply the Russian Air Force with a military version of its medium-range An-148, in protest over the annexation of Crimea.

Then there was the now-defunct joint venture with Russia to build a new military transport plane, the An-70, that could haul troops and armored vehicles over thousands of miles and land on grass airstrips. It had been hoped the project would create tens of thousands of jobs in both countries, and provide Russian and Ukrainian armed forces with world-class airlift capabilities.

That's a vanished dream now, but Antonov owns the design for the An-70, and Kiva hopes it can be improved and offered to Western air forces. "This plane is unique," he says.

The Ukrainian Air Force has lost several of its Soviet-era transport aircraft – including at least one Antonov – in the fighting against rebels in the east. But that hasn't triggered any new orders, says Kiva. "The Ukrainian army needs this plane too, but I fear our state can't afford to buy it now. Serious production would require serious investment."

What options for Antonov?

Some cooperation with Russia survives. Civilian versions of Antonov's mid-range passenger planes are being produced under license in Russia, and Antonov still provides spare parts, for non-military use only, to Russian industries. But in the current climate of acrimony, marketing passenger planes to Russian airlines is a hard sale, especially now that the Russian-built Sukhoi Superjet-100 mid-range airliner is in production. And further fallout between the two countries could trigger Ukrainian sanctions on civilian aircraft.

"It doesn't profit either Russia or Ukraine to end this cooperation, but the logic of sanctions is in the driver's seat right now," says Nikolai Sungurovsky, a military expert with the independent Razumkov Center in Kiev. "This crisis was a wake up call. All these industries need to develop a new model of working, and start to reorient themselves on new markets in the West."

One thing that might help military companies like Antonov, he says, is Ukraine's recent decision to seek membership in NATO. "A lot of Western military buyers only deal with NATO arms producers. As we move away from Russia, and closer to NATO, they may take a new look at Ukrainian military products," Mr. Sungurovsky says.

Refitting a company

Critics say Antonov, a state-owned company, is old-style industrial behemoth that needs sweeping reforms. So far the Ukrainian government has talked about supporting Antonov through its painful transition, but not ponied up much cash. Experts say foreign buyers would be reluctant to buy a plane like the An-70 if the country's own air force isn't using it. And Western governments also want to steer business to their own manufacturers, rather than a struggling Ukrainian competitor.

Kiva says there are plans to transform Antonov into a Western-style corporation, and maybe even launch an IPO in London. "We hope we can raise the value of our company, and attract new investment," he says.

But he shrugs, and admits that none of that is on the company's short-term agenda. "Frankly speaking, as long as this war goes on everything will remain up in the air. No one wants to invest in an unstable state. What we need is peace." Can Ukraine's aviation giant airlift the nation's economy out of crisis? - CSMonitor.com
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Old 19th September 2014, 18:48
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International Business | Econoclast
Reasons to Welcome a Ukraine Deal
By ANATOLE KALETSKY | REUTERSSEPT. 18, 2014

LONDON — The war in Ukraine, which has had more impact on the European economy than any news from Frankfurt or Brussels, appears to be ending, despite the sporadic attacks that have wrecked previous cease-fire attempts. Investors have mostly assumed that the cease-fire would not hold — either because President Vladimir V. Putin of Russia is deceitful and greedy for more territorial conquest, or because the Ukraine president, Petro O. Poroshenko, would not accept the splintering of his country that Russia demands. But this fashionable pessimism is probably wrong.

The cease-fire no longer relies on good faith or benevolence, but on a convergence of interests: Mr. Putin has now achieved all his key objectives and Mr. Poroshenko has recognized that trying to reverse the Russian gains by military means would be national suicide.

Admittedly, there is still a “party of war” in Kiev, seemingly led by Prime Minister Arseniy P. Yatsenyuk, who has called on NATO to back his country in an all-out war with Russia. But this week’s vote in the Ukrainian Parliament on temporary autonomy for the rebel regions suggests that most politicians have abandoned hope of winning a war with Russia and understood that Western military assistance is not coming.

This may sound like a grimly defeatist analysis, but a modest victory for Russia was actually the least-bad outcome, given that there was never any chance that economic sanctions would stop Mr. Putin. There are several good reasons to welcome the incipient Ukraine deal.

First, this compromise is infinitely better for Ukraine, as well as for Europe, than a protracted war. Although Mr. Poroshenko has been forced to make major concessions by offering partial autonomy to the Donbass rebels, this was always inevitable.

Second, Mr. Putin shows no sign of wanting to extend Russia’s boundaries after absorbing Crimea and destabilizing Donbass. Mr. Putin has proved that he will fight against any further encroachment onto Russia’s boundaries by the European Union and NATO, which he now views as an expansionist empire. But this does not mean that he hopes to restore Russian control over countries already absorbed by Europe and NATO, like Poland or Lithuania. Whatever Mr. Putin’s personal ambitions, he clearly understands that Russia is too weak economically to compete directly against European and NATO “imperialism.” His record suggests a status quo leader trying to preserve existing spheres of influence.

Third, the precedent of carving out parts of Ukraine is not necessarily catastrophic for the operation of international law in Europe. Russia’s annexation of Crimea was not, as is often claimed, the first attempt since 1945 to move European borders by military force. Borders have been forcibly changed in the breakup of Yugoslavia, the Turkish invasion of Northern Cyprus and the “frozen conflicts” in Moldova, Georgia and Azerbaijan.

Finally, what about the economic consequences for Russia and Ukraine? For Ukraine, which has the potential to challenge Poland as the dominant power in central Europe, and to overtake France as Europe’s leading agricultural producer, the key question is how much help the European Union will actually provide by way of financial support and technical assistance. Whether Europe is genuinely willing to devote the huge resources in money, time and manpower necessary to reform Ukraine is much more important for the country’s future than the precise terms of a Donbass autonomy deal.

For Russia, the long-term effects of the Ukraine crisis are equally ambiguous. Russia is certainly suffering from the economic sanctions. In the long run, however, it could reap economic benefits from the sanctions, while its politics become even more authoritarian. Russia’s economy is at present based on exporting energy to finance the importing of Western consumer and capital goods — a glaring example of the “natural resource curse” described by textbooks of development economics. But textbooks often fail to mention that the resource curse is a logical consequence of the classical free-trade idea that every country should specialize in whatever it makes most efficiently and import other goods.

A country that wants to become less dependent on exporting resources must, by definition, take steps to reduce its imports and support domestic production of the goods and services it wants to consume. While policies of self-reliance have sometimes proved disastrous, protection of domestic industries has been crucial for economic development in Japan, South Korea, China and Brazil, as well as the United States and Germany. Russia, in its development since 1992, has zealously applied the theory of comparative advantage.

If sanctions push Russia onto a path of greater self-reliance, its manufacturing and service industries will surely grow faster, even if their quality falls further behind Western standards. If Mr. Putin wants to strengthen domestic industries he will have to improve business and strengthen the rule of law. In short, the Ukraine confrontation and subsequent sanctions could help to transform Russia into a poorer economy that is less flashy but better balanced and ultimately stronger. http://www.nytimes.com/2014/09/19/bu...deal.html?_r=0
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Old 25th September 2014, 02:31
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Solar power will be available for every Ukrainian
09.07.2012 | kyivweekly.com.ua
Parliament passes bill that will allow private households to sell solar electricity to the grid, as well as provide a Feed-in-tariff for biogas power generating plants.

Parliament passed the bill №10183 “On Amendments to the Law of Ukraine ‘On Electricity’ (regarding further stimulus of power production from alternative energy sources)” at the first reading. This bill intends to oblige utility companies to buy surplus electricity from households produced by rooftop solar modules with a capacity up to 16 kW. At the same time, households do not have to obtain a license for producing electricity. Meanwhile, the rates for small householder’s rooftop systems with a capacity of less than 16 kW will be set at the highest level at a ratio of 4.0, as opposed to ground-mounted, which is scheduled to decrease from 4.8 to 3.5.

“By installing solar panels with a capacity up to 16 kW, it is possible to be fully equipped with electricity and sell the surplus to the grid while receiving a very good income. In this case, Ukraine will take the path of Germany, which has achieved such great results in alternative power generation due to a good Feed-in-tariff for companies as well as for private households that have sold the surplus to the grid and profited by it. At the same time, people have fully provided themselves with electricity and returned their investments into installations very fast,” said Vitaly Kovach, Director of the Renewable Energy Association “Alternative”.

The bill intends to introduce a Feed-in-tariff for electricity produced from biogas and solid domestic wastes (SDW) starting from January 1, 2013. Pursuant to the bill, the ratio of Feed-in-tariff for electricity from biogas production will be 2.7, from SDW – 3.0. SDW power plants should follow the standards of pollutant emissions.

“This bill is crucial. It creates incentives for stakeholders to make investments in alternative power generation development, which is deficient now. Ukraine is energy dependent on other countries. That is why the only way for us is to develop this sector,” commented MP Yuriy Miroshnichenko, one of the bill’s authors.

In addition, the construction of wind farms and solar power plants, as well as announced projects on bio- and a hydro-energy, are also major objects of foreign investments.

“This is a huge potential for investments: we expect EUR 1 billion of investments this year,” predicts Mykola Pashkevych, chairman of the National Agency of Ukraine for Ensuring Efficient Use of Energy Resources. Solar power will be available for every Ukrainian Pulse of Week energy market Kyivweekly.com.ua
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