Big, fascinating but scary changes
Ukraine has never experienced anything like this. Everything has started to shift from its traditional places. There’s a new, clean Prosecutor General, and the intention to launch a land market seems absolutely serious. Most Ukrainians remain enthusiastic about everything that is happening. The public applauded the dropping of immunity for MPs, and the exchange of prisoners of war from Russia for war criminals from Ukraine. For many, the young face of the new premier is a refreshing change. Observers have also welcomed the majority of new appointments of reputable individuals. Consumer confidence is soaring. New MPs have piled tons of new bills to pass through the Verkhovna Rada. But these positive developments are accompanied by disturbing signs, such as the growing influence of oligarch Ihor Kolomoyskiy, and premature tax reforms. It’s too early to determine the balance of good and bad, but big changes are clearly on the way.
The new business season is also off to a strong start. Within just a few weeks, the Rada passed many important bills. Oleksiy Honcharuk was appointed premier; ex-premier Volodymyr Groysman’s Finance Minister Oksana Markarova has survived in her post; and Tymofiy Mylovanov, honorary president of the Kyiv School of Economics, has been appointed minister of Economic Development, Trade and Agriculture. All three officials espouse openly pro-Western, liberal values, and have never been implicated in rent-seeking schemes.
A fly in the ointment was the re-appointment of Arsen Avakov, the scandal-ridden and much-disliked interior minister. Rumors talked about a deal between Avakov and President Volodymyr Zelenskiy, purportedly under which Avakov protected Zelenskiy’s victory against a supposed military coup by Zelenskiy’s predecessor, Petro Poroshenko. That Avakov survived suggests that the rumors were not far from reality.
Honcharuk has presented ambitious plans to boost GDP by 40% over the next five years, which would mean a 7% GDP increase per year. The instruments he plans to use include land reform, fast-tracked privatization, concessions and so forth. The plan looks encouraging, provided it is properly implemented. Investors in warrants will benefit most from the potential boom.
A legal land market should finally start operating in 2020. The new leadership looks determined to carry out this reform. Honcharuk says that foreigners will have access to the farmland market, and that all the necessary legislation should be approved by the end of the year.
The economy is posting mainly good numbers. Consumer inflation slowed -0.3% m/m, or +8.8% y/y, in August. Consumer confidence is soaring, with retail trade up +10.1% y/y in July. The CAD narrowed on agro-exports, down to $864 million by July, vs. $1.6 billion a year ago. The hryvnia keeps strengthening, driven by non-resident purchases of UAH-denominated government bonds, and briefly broke UAH 25 per dollar at the start of September. The NBU keeps easing monetary policy, and cut the prime rate by 0.5 ppts, to 16.5%, in September.
On the other hand, industry continues to stagnate badly, at -0.2% y/y in July, and disturbing signals are arriving over budget collections: there was a 6.9% y/y drop in central budget revenues in August.
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