Independence Day 2020: a quiet anniversary and a law that took nineteen years
No parade, restricted gatherings and a pandemic recession. Also: parliament finally lifted the farmland moratorium in March, which will matter longer than anything else that happened this year.
The twenty-ninth anniversary is being marked without a parade, with restricted public gatherings, in the middle of a pandemic that has closed borders Ukraine spent a decade opening. The contraction this year will be around four per cent — painful but, notably, milder than 2009 or 2015. The economy is more diversified than it was, and agriculture and IT have both grown through the crisis.
But the event of 2020 happened in March, and it will still be shaping this country in 2040.
The farmland moratorium is over
On 31 March parliament passed a law opening the agricultural land market from 1 July 2021. Ukraine has around forty-two million hectares of agricultural land, roughly a quarter of Europe's arable total, most of it exceptional black soil, and since 2001 none of it could legally be sold. It could only be leased — from around seven million individual owners who received plots in the 1990s privatisation of collective farms and could do nothing with them.
The design is deliberately cautious. From July 2021 only Ukrainian individuals may buy, with a cap of one hundred hectares. From 2024 Ukrainian legal entities may buy, with a cap of ten thousand hectares. Foreigners remain excluded unless a referendum decides otherwise. Prices are subject to a floor tied to the normative valuation for the first years.
Almost every economist would design it differently. The caps limit consolidation, the exclusion of foreigners limits capital inflow, and the phased entry of legal entities creates a three-year distortion. But the moratorium had been extended ten times because no government could survive the politics, and a flawed opening beats a nineteenth extension by a wide margin.
Why this matters commercially
Three effects, in order of appearance.
First, credit. Land that cannot be sold cannot be pledged. Ukrainian farmers have financed themselves through trade credit from input suppliers and grain traders at effective rates far above bank lending, because they had no collateral a bank could realise. A functioning land market makes agricultural mortgage lending possible for the first time, and that is worth more to sector productivity than any subsidy.
Second, investment horizon. Under leases, typically seven years and often shorter, nobody invests in drainage, liming, soil structure or perennial plantings, because the return arrives after the lease expires. Ownership changes the calculation on every long-payback improvement.
Third, the seven million owners. Most are elderly, rural and receive lease payments that are small in absolute terms. The ability to sell converts a dormant asset into cash in exactly the parts of the country where cash is scarcest.
The rest of 2020
A new IMF stand-by was agreed in June, smaller and shorter than previous programmes. It came after a difficult spring in which the government replaced the head of the central bank, a change that markets read as a loss of independence and priced accordingly.
That episode is worth noting because it goes to the question raised in last year's entry. A government with no coalition constraint has, on the evidence of this year, put pressure on exactly the independent institutions built after 2014. The Constitutional Court has also become a locus of conflict, with rulings that have unpicked parts of the anti-corruption architecture.
For businesses, the practical translation is that Ukraine's institutional trajectory has become genuinely uncertain again after five years of slow improvement. Price legal risk on the assumption that the last five years' gains are not yet locked in.
Twenty-nine years in
A pandemic year with a four per cent contraction and a land reform is, on balance, a good year for Ukraine. That sentence would have been unimaginable in 2015, and it is a reasonable measure of how much macroeconomic resilience the hard reforms bought.
What it does not measure is whether the institutions holding that resilience in place will still be independent in five years. That is now the open question, and 2020 has made it more open than it was.
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