Independence Day 2005: the year after, and the bill for it
The first national day since the Orange Revolution arrives with the coalition that made it visibly cracking, growth down from eleven per cent to under three, and investors asking a question nobody wants to answer directly.
The fourteenth Independence Day is the first since the events of last winter, and the official framing today is continuity: the country changed its government without changing its borders, its currency or its debt service. That is a genuine achievement and worth marking. It is also not what anyone in business here is talking about.
What they are talking about is the number. Growth has fallen from above eleven per cent last year to somewhere under three this year, and industrial output in the metallurgical regions has been flat or negative for several months. Part of that is a base effect and part of it is the steel cycle turning, exactly as it always does. But a meaningful share is domestic, and denying that has become a small industry in itself.
The re-privatisation problem
The new government arrived with a list. Depending on which minister was speaking, it contained somewhere between three thousand and thirty enterprises whose privatisation was to be reviewed. The intention was defensible — several transactions in the previous decade were indefensible on any reading — but the execution created a condition that no investor can price: an open-ended possibility that a title acquired legally might be revisited administratively.
The consequence was immediate and measurable. Foreign direct investment inquiries that had spiked in January went quiet by March. Domestic groups stopped committing capital to anything with a horizon longer than eighteen months. Several mid-sized transactions that would have closed this spring are sitting in escrow waiting for clarity that has not arrived.
The Kryvorizhstal case is the test that matters. The plant was sold last year in a process widely regarded as arranged; the courts have annulled that sale, and a new open auction is being prepared for the autumn. If that auction is genuinely competitive and the proceeds are visibly larger, the government will have made its argument in the only language investors accept. If it is not, the review programme will be remembered as a transfer rather than a correction.
The coalition is coming apart
The public dispute between the prime minister's office and the presidential secretariat has stopped being deniable. Accusations of corruption are being made in both directions by people who campaigned on the same platform nine months ago. A government reshuffle before the end of the year is now the base case rather than a risk scenario.
For business planning this matters less than it sounds and more than people admit. Less, because the ministries that issue licences, certify products and process customs declarations continue to function through political churn — they always have. More, because the March 2006 parliamentary election will now be fought between the two halves of the coalition rather than between the coalition and its opponents, and the constitutional amendments that take effect in January will hand the resulting parliament powers the presidency currently holds.
What improved anyway
It would be a distortion to present this year as pure regression. Customs valuation practice has become markedly more predictable for importers who declare honestly, which is a real change with real cash-flow consequences. VAT refunds to exporters have improved. The shadow share of imported consumer electronics has fallen sharply, which hurts the businesses that relied on the old arrangement and helps everyone competing against them. Several of these changes will outlast the government that made them.
Inflation is the counterweight. Consumer prices are running above thirteen per cent, driven by a wage and pension increase that was politically necessary and fiscally expensive, and by food prices. The exchange rate was revalued in April — an unusual direction — which cut import costs but squeezed exporters at precisely the wrong point in the steel cycle.
Reading the anniversary
Fourteen years in, the useful question is not whether Ukraine is European or russian in orientation. It is whether the rules that apply to a business on a Tuesday are the same rules that applied on the previous Friday. On that measure this year is genuinely mixed: better at the border, worse in the boardroom.
The lesson that survives is about sequencing. A government that wants to reset property rights and attract investment in the same year has to complete the first task visibly and quickly, or it will fail at both. Ukraine is currently demonstrating this at some cost, and the demonstration will be referenced in this archive for years.
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