Ukraine Market Report — Q3 2017
The association agreement entered fully into force on 1 September, and a set of social sector reforms passed in the autumn. The reform programme reached its midpoint with a clear pattern in what had succeeded.
Overview
The association agreement with the EU entered fully into force on 1 September, its trade provisions having applied provisionally since 2016.
A group of significant reforms passed in the autumn: health financing, pensions and education.
The health financing reform
The most commercially consequential of the three. It rebuilt the financing model around the principle that money follows the patient — a national purchasing body contracting for defined services rather than funding institutions for existing.
Its relevance to business is indirect but real. A health system funded by capacity rather than by service delivered is a permanent fiscal drain and produces poor outcomes for the workforce. Changing the financing mechanism was the precondition for changing anything else.
The primary care component worked. The hospital-level restructuring lagged, for the same reason every reform in this archive lags: it required the institutions being reformed to reduce themselves.
The reform programme at its midpoint
Three years after 2014, the record sorted cleanly.
Working: banking resolution, energy tariffs, electronic procurement, central bank independence, fiscal decentralisation, health financing architecture.
Stalled: judicial reform, prosecutorial reform, privatisation of state enterprises.
The distinguishing feature is the same throughout. Reforms implemented by building new systems or removing failed institutions succeeded. Reforms requiring the cooperation of those whose position they reduced did not.
For a company, this is the practical test to apply to any announced Ukrainian reform: does the design require cooperation from the party it constrains? If yes, expect formal adoption and not implementation.
Macro position
Growth continuing. Inflation somewhat higher than target. Currency stable. Labour shortages spreading.
Sectors
Agriculture — strong.
IT services — growing rapidly.
Construction — recovering, labour-constrained.
Power generation — working through the coal substitution problem.
What the quarter settled
That the reform programme's success rate was determined by design rather than by political commitment, and that the pattern was stable enough by 2017 to predict outcomes in advance.
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