Independence Day 2018: pressure on the sea, and an election in view
Twenty-seven years. Growth is holding above three per cent, an anti-corruption court has finally been legislated — and shipping through the Sea of Azov is being squeezed in a way that no insurance policy prices correctly.
Twenty-seven years, and the anniversary finds Ukraine in the most stable macroeconomic position since 2013 while a specific and under-reported pressure is being applied to one of its trade arteries.
Start with the good news, because it is real. Growth will finish above three per cent. Inflation is falling toward single digits. Reserves are close to eighteen billion dollars. The banking system, after the clean-up and the nationalisation of the largest institution in 2016, is adequately capitalised and lending again, cautiously. Public debt has stabilised as a share of GDP.
The Sea of Azov
Since the spring, vessels bound for Mariupol and Berdiansk have been subject to prolonged inspections in the Kerch Strait. Delays of several days are now routine. Some shipping lines have withdrawn from the route entirely; others have raised rates to cover the demurrage risk.
The economic target is precise. Mariupol and Berdiansk handle steel, grain and coal from the eastern regions, and Mariupol in particular is the outlet for the two largest metallurgical plants still operating in government-controlled Donbas. A shipping route that becomes unreliable does not need to be closed to do damage; it simply needs to be slow enough that buyers switch to a supplier who can commit to a delivery date.
The volumes moving through the Azov ports have fallen substantially this year, and the cargo has partly shifted to rail toward Odesa and Pivdennyi — which is more expensive, adds days, and consumes rail capacity needed for the grain harvest.
For anyone with contracts touching these ports, three practical points. Check whether your force majeure and demurrage clauses contemplate administrative delay as distinct from weather or port congestion. Confirm your cargo insurance covers detention rather than only loss. And where you can, dual-route: a supply chain that can switch between Azov and Black Sea ports is worth the extra contracting effort this year.
The anti-corruption court
Parliament legislated the High Anti-Corruption Court in June after two years of resistance, several IMF deadlines and an unusually direct international campaign. The court will begin work next year.
The design matters more than the headline. Its judges are selected with a decisive role for a panel of international experts, which is the provision that was fought hardest and that determines whether the institution is real. Ukraine already has an anti-corruption bureau that investigates competently and a specialised prosecutor; what it has lacked is a court that convicts. Cases built over four years have died in the ordinary courts.
Whether this works will be visible within about two years, in a simple metric: final convictions of senior officials that survive appeal. Until that number is above zero, treat the reform as unproven.
The election year ahead
Presidential elections are due in March 2019 and parliamentary elections in the autumn. This has predictable consequences that anyone operating here should plan around.
Fiscal policy will loosen. Pre-election spending on pensions, public wages and subsidies is a fixture of every Ukrainian electoral cycle, and the IMF programme will come under strain accordingly. Gas tariff increases required under that programme have already been postponed once.
Regulatory decisions will slow from about November. Licences, permits, tax rulings and privatisation transactions will all move more slowly or not at all until the political picture resolves in late 2019. If you need an administrative decision in Ukraine, get it before the winter.
Twenty-seven years in
The pattern of the past four years is that Ukraine has become significantly better at macroeconomic management and marginally better at rule of law, while its external environment has become harder in ways that no domestic reform addresses.
That combination produces an economy that is more stable but not faster-growing: three per cent per year does not close the gap with Poland, it widens it. The reforms of 2015 and 2016 were about survival, and they worked. What has not yet been attempted is the set of changes — courts, land, state enterprise governance — that would produce five to seven per cent. The next government will inherit that question.
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