The annual Adam Smith conference on Ukraine held in London last week was once again the most prominent investment summit bringing together Ukrainian businessmen and potential foreign investors from a variety of sectors and industries. Attended by nearly five hundred delegates, the success of the event confirmed that Ukraine is firmly on global investment radar. In contrast to previous two summits organised by Adam Smith Conferences, this year’s was marked by the presence of high level British politicians such as Geoff Hoon, Minister for Europe.
Opening session
Speaking at the opening session, Hoon confirmed British support for Ukraine's eventual membership talks with the EU. While recognising the fact of ongoing political turmoil in Ukraine, Hoon argued that democratic process will pay economic dividends.
"Democracy gives Ukraine a competitive advantage over countries like Russia, just like India enjoys a competitive advantage over China" Hoon said.
Timothy Barrow, British Ambassador to Ukraine said trade between Britain and Ukraine is on the rise. Last year, Barrow said, Ukrainian exports to the UK grew by 32%, while imports from Britain increased by 21%.
All speakers agreed that Ukraine’s economic fundamentals are looking healthy. Olexander Savchenko, deputy governor of the National Bank of Ukraine (NBU) told the conference that Ukraine can expect more than 7% GDP growth in 2007. January growth figures, he said, were very impressive.
Savchenko explained that one of the accelerators of growth was increasing credit activity among banks. While acknowledging that the share of banking assets held by foreign banks has reached some 27%, Savchenko added that there are as yet no intentions to limit the participation of foreign banks.
Commenting on monetary policy, Savchenko said the main task for the central bank is to bring down inflation to more moderate single digit levels. Recent energy price hikes have unleashed strong inflationary pressures calling into doubt the NBU's ambitious inflation target of 7.5% in 2007.
While inflationary pressure may be on the rise, other indicators, such as current account and central bank reserves, deputy governor said look stable. A current account deficit of 2% is quite normal and manageable in comparison to countries like Romania and the Baltic States, Savchenko said. Meanwhile, central bank reserves have now reached USD 300 million covering 4.4 months of imports and the NBU, Savchenko said, would like to bring the level to five months of imports.
Transport and communication
Mykola Rudkovskiy, Ukraine’s Minister of Transport and Communications who spoke directly after deputy governor, presented his vision for transport and communications sector.
In his opening remarks he called for transparency in the sector, promising that Ukrainian railways and major ports will be subjected to international audits this year. "I would like to point out neither me nor anybody on my team have any tolerance towards corruption whatsoever. We're very determined to eliminate sources of corruption wherever possible and in any way possible."
According to Rudkosvskiy, his ministry is implementing a new electronic system for international truck permits and is keen to de-bureaucratise port procedures while creating more competition among terminal operators.
Rudkovskiy admitted that imperfect laws and legal practice is one of the major impediments slowing down investment in Ukraine. The minister however invited investors to "get down to business" and named a number of infrastructure projects which could attract private funding.
The government, he said, has allocated USD 15 billion to build a network of 5,000 kilometres of highways meeting European quality standards. The government is considering of carrying out these works on a concession basis inviting a consortium of local and European companies to participate and has already been in talks with the French companies Venci and Bugeaux.
Another important area highlighted by the minister was railways. Rudkovskiy said "Ukrainian Railways have to invest over USD 2 billion over the next couple of years into its lines, infrastructure and rolling stock."
The next big project linked to railways, according to Rudkovskiy, will be high-speed trains that may arrive in Ukraine within the net three years linking major Ukrainian cities. The ministry is currently negotiating with the French company Alstom to provide 20 high speed trains at a cost of USD 70 million each.
The next priority area mentioned in Rudkovskiy presentation was developing strategic airports. The problem, he said, is that the airports at the moment belong to municipal authorities, which do not have the necessary resources to invest in improved runways and new safety equipment.
Rudkovskiy said he was therefore trying to bring airport assets under central state control with a view of attracting long term investment.
Ukraine’s ports are also in need of private sector funds, the minister said, adding that policymakers were currently working on the first draft of legislation on private-public partnership.The latter could become a potential vehicle for private sector investments, while bringing international container terminal operators to Ukrainian ports such as Yuzhniy and Illichivsk, building on the experiences of China and Singapore.
Rudkovskiy finally tackled the privatisation of fixed line operator Ukrtelecom. According to the Minister, Ukrtelecom is worth USD 4 billion, yet the sale is not feasible in 2007 because it needs more time to gain value. “Proper pre-privatisation steps in the next two years would drastically increase the market value of Ukrtelecom. If Ukraine is to sell [Ukrtelecom], it should it in the best way possible. If I were you, though, I'd be buying."
Other sessions
The next few sessions focused on investor perceptions and experiences in Ukraine, key growth sectors, the banking sector and investment climate.
Top foreign investors in Ukraine such as Mittal-Arcelor and Telenor provided their account of opportunities and challenges facing the country. Telenor, which is still locked in a battle with the Alfa Group over Ukraine's largest mobile phone operator Kyivstar, highlighted the need to strengthen the legal environment in the country.
Narendra Chaudhary, Chief Executive Officer of Arcelor-Mittal for Asia and the CIS provided a case study on the benefits of foreign investment at Ukraine's largest steel plant, Kryvorizhstal. The plant was bought by Mittal in the largest Ukrainian foreign investment transaction in 2005.
As a result of acquisition, Chaudhary told the audience, the plant managed to increase production from 6.1 million to 6.9 million tonnes. Other benefits include a significant productivity increase, greater energy efficiency, higher salaries to employees and a 43% increase in tax contribution to the state budget.
Speaking at the same session, Ukraine's largest private holding company System Capital Management (SCM) showcased the benefits of improving corporate governance and increasing investment.
Maxim Timchenko, CEO of SCM’s energy holding DTEK spoke about the need to address the anticipated energy demand and supply gap. He argued in favour of allowing private sector players to increase the efficiency of the energy market.
DTEK, the largest private electricity producer in Ukraine, was also the main sponsor of the third day sessions dedicated entirely to energy issues. Attended by Minister of Fuel and Energy Yuri Boyko, it was one of the first such gatherings of principal stake-holders in Ukraine's energy market.
The session was also attended by Lord Truscott, the UK Parliamentary Undersecretary of State for Energy, Yevhen Bakulin, Chairman of the Board, Naftohaz Ukrainy, representatives from the European Bank of Reconstruction and Development (EBRD) and foreign investors in Ukraine's energy sector such as AES and Shell.
The common message emanating from all the speeches at this third Ukrainian Investment Summit was that now Ukraine has a real opportunity to act in order to convert the existing opportunities into real economic growth.
