Good evening. Given the standing room only, Mr President, you will need to get a bigger “Ukraine House” next year!
It is an honour to be invited to speak at this investment panel. Not an ordinary event for me. More emotional than that. My five and a half years as EBRD President has coincided with a major shift in the political and economic direction of Ukraine, and in EBRD’s role in the country.
Investing in Ukraine is a subject we at the EBRD have a lot of experience of.
We were set up in the year that Ukraine became an independent state and since that time we have invested more in the country than any other entity.
The current total figure is €12 billion. A large proportion of that has been over the last few years.
Over the whole of that period we have been by Ukraine’s side in good times and in bad.
We have done so because the challenges and rewards of working there illustrate in the starkest of fashions what EBDR’s mission is actually about.
We were founded, after all, to further the transition to ‘market-oriented economies and the promotion of private and entrepreneurial initiative’.
Together with our Ukrainian friends, we have done so in highly effective and public ways, with big ticket investments in infrastructure, energy and agribusiness, as well as in medium-sized enterprises.
We have also supported smaller enterprises through our partner banks.
We have also been active in supporting reforms, a fact that is perhaps less publicly known than our financing activities but no less important.
Our investments have leveraged those reform efforts and we have successfully weaved measurable reform milestones into our lending conditions.
To give you just two examples of that:-
With EU support, we have put reform support teams in key ministries.
And within Naftogaz we are to this day helping transform that company into one that Ukraine can finally take pride in.
Naftogaz’s incorporation of a detailed, agreed Corporate Governance Action Plan was a condition of our provision of a $300 million facility for gas purchases.
As good friends should, we have not been and will not be shy of offering advice to Ukraine and its authorities when we see setbacks to reforms.
When and where appropriate, we have also sung their praises louder than anyone else.
The improvement in the Ease of Doing Business survey is a testament to Ukraine’s progress.
In this context let me congratulate the government today on the recent passage of the Law on Privatisation.
The task now is to enact this law via an accelerated privatisation programme.
Actions like that will matter enormously if the forthcoming new Foreign Investors’ Council is to be a success.
- A scientific approach
Today I want to show how we measure Ukraine’s performance against a number of benchmarks the EBRD uses to quantify economic progress.
I mentioned earlier that we as a Bank are dedicated to the cause of transition.
We now define the six qualities which make for a successful modern market economy, where transition is heading, as follows:
We apply a combination of these benchmarks to all the countries where we invest and to all our projects.
We are already actively working to promote all of these qualities in Ukraine.
You will by now have spotted the close relationship between those qualities, the flow of investment and growth.
Put simply, the more any single economy displays these qualities, the more investment it will attract and the faster and more sustainably it will grow.
I speak here not only as the President of EBRD.
But also as a firm friend of Ukraine. A strong believer in the country, its people and its potential.
I also want to stress the fact that we would like to do even more business in Ukraine.
Of our total € 12 billion investment, no less than €3.5 billion has been made since the Maidan events.
We want to - and we can - invest even more if the investment climate improves.
We want to lead the way for many others to follow in our footsteps.
So, to begin with Resilience, a financial sector clean-up, and consolidation and recapitalisation have indeed made Ukraine’s banks more resilient.
The energy sector too has benefitted from the diversification of gas imports and reforms, although the latter are still a work in progress.
We have seen progress on Competitiveness as well. We would see more progress if state-owned enterprises had less of a grip over the economy, if the business climate was more robust and if productivity and innovation were higher.
On Green, Ukraine continues to be one of the world’s most energy-intensive countries, three times more so than the EU average. The country should focus on energy efficiency, diversifying energy sources and improving municipal services and infrastructure.
EBRD has have received significant donor funds for energy saving investments in Ukraine. For example, the E5P fund has provided close to EUR 110 million in grants to renovate the inefficient district heating sector.
However the investments need to be combined with the necessary reforms and so I urge the Ukrainian Ministries to help with the implementation of these reforms.
On Inclusion, private sector growth is hampered by gender gaps at the workplace and in access to finance, as well as by the uneven distribution of skills.
We commend the Ukrainian Health Ministry’s recent steps to remove discriminatory conditions for women’s employment by abolishing its order #256, which banned women from being employed in 450 professions.
For larger and systemic change to occur – and it will have to – Ukraine needs also to build the pipeline of women with technical qualifications relevant to high-value sectors, where they are currently under-represented, improve work place flexibility to accommodate women entering marriage and motherhood, and strengthen women’s access to finance and entrepreneurship skills, to help them start, operate or expand a business.
EBRD stands ready to help across this inclusion agenda.
And on Integration Ukraine needs major investment in its infrastructure, new and old, if it is to catch up with its regional neighbours.
- Good Governance
Which brings me to the sixth transition quality - Good Governance - a quality I want to talk about at more length.
And talk about very frankly.
It is particularly important for Ukraine because a recent survey of foreign investors identified corruption and a lack of trust in the judiciary as the main barriers to FDI.
And, after all, Good Governance goes to the very heart of the relationship between the state and its institutions and the citizen, and to the health today and tomorrow of the private sector.
Many of you here today know this from your own experience.
The fact is that the level of trust in institutions in Ukraine is one of the lowest in all the countries where we work.
This is despite the considerable efforts of real reformers within Ukraine, and back up from the international community.
And despite the Ukrainian people’s aspirations to be part of the larger European space, certainly as far as values and standards in public life are concerned.
I say this while recognising the reforms in the spheres of governance and deregulation which have been enacted so far.
But they are not enough in themselves.
Ukraine needs to address such problems as non-transparent policy-making and its dependence on political pressures, weak institutional capacity, the lack of effective enforcement and corruption which is still pervasive.
The establishment of credible and independent anti-corruption institutions would be one of the most important ways of improving Ukraine’s economic prospects and deliver the transparency and accountability that its people demand and expect of public officials.
If it wants to be seen as an attractive investment destination, Ukraine must adopt proper safeguards against the harassment of businesses by unscrupulous and corrupt officials.
The proposal to create the High Anti-Corruption Court could be a positive step in this direction. It needs to be consistent with the high international standards for such institutions.
We also need movement now on reforms in public administration, the judiciary, the tax regime, the struggle against corruption and the legal framework for corporate governance.
And we still need more clarity over what the policy on state-owned enterprises and privatisation actually is.
The state must take the lead in inspiring and requiring good governance across the economy, starting with state-owned enterprises and the banks.
To sum up, Ukraine cannot afford to waste this year.
I know the President and the government understand the importance of this agenda.
I believe in their commitment to change, to better governance.
Enhancing good governance and strengthening the institutions leading the fight against corruption are critical because they, more than anything else, will improve the business climate.
Without that, investment and therefore growth will dry up.
In fact, the time to go further on good governance is now.
It will be tough. Vested interests will resist.
But better governance has proven to be politically popular elsewhere.
Why not in Ukraine?
And if real progress can be made, the payoff for Ukraine will be enormous.
- Support for Ukraine
Ladies and gentlemen, I seem to spend much of my time pledging support for Ukraine and its people.
I did so at the London conference convened to support reforms last summer.
And again at the YES conference in Kiev in the autumn.
I do so once again in front of you here in Davos, although in the same breath I am also airing our concerns about the country’s standards of governance.
But there comes a time when those closer to the centre of the action, not outsiders, should have the final say.
It is ultimately up to the Ukrainian people to decide whether the down payment on reforms and the transition that I believe in is delivering real value.
It is, to my mind, most certainly an improvement on life before the Maidan uprising.
But acceleration is now very much in order.
This is not the moment to focus on personalities or parties or be carried away by the cut and thrust of electoral campaigns.
Now is the time to focus on the national interest.
And to press ahead with the changes required if Ukraine is to attract more investment and its economy is to enjoy sustained rates of growth.
That is the leadership Ukraine needs.
That is the leadership Ukraine deserves.
I know, Mr President, that is the leadership you and your team will do your utmost to provide.
EBRD will be with you in this important endeavour.
Just as we have been over four tumultuous years of modernisation and change in Ukraine.
Thank you very much.