The problems of underinvestment and bank lending, which are necessary for the economic development of Ukraine, and thus raising the well-being of the people, are the talk of the town these days. There are different reasons that have influenced such state of things: from unaffordable for business interest rates to ineffective state management in the sphere of monetary and investment policy, risks connected with the war and so forth.
Apparently, the events of 2014 led to the outflows of foreign investments from the country and a dramatic reduction, brought almost to nothing, in bank lending. The national economy sustained a serious impact; the majority of corporate borrowers lost an opportunity to service their loans, primarily foreign currency loans.
As a result, there came up the first and the main problem, owing to which, even nowadays, Ukrainian business cannot count on a cheap financial resource, which might make it able to restore actively. Since 2014 the phrase “debts are paid only by cowards”, which clearly reflects the realities of protection of creditors’ and investors’ rights in Ukraine, has become popular in business circles. Let alone the rights of creditors in the country where there is no rule of law and, therefore, the corruption of courts and law-enforcement bodies is rampant – basic proprietary rights are not more than a declaration. Seventy registered cases of forcible seizures of agricultural enterprises in 2017 (twice as much as for the entire 2016 year) illustrate the point. Nowadays, unfortunately, the situation when both small and large farmers protect their harvest with weapons in hands is becoming the norm.
These realities are mirrored in such ratings as Doing Business, where the weakest spots of Ukraine are registered. Apparently, investors who are familiar with the similar analytics, or who add a high bonus because of investment risk, or in the majority of cases, avoid investing their capital in the region. Similarly, both west and local banks do – they take into account all possible interest rate risks and sift through only the most reliable borrowers.
However, it would be fair to say that not only a corrupt official gets in the way of low-cost funds’ arrival in the country’s economy. Actually, business environment in Ukraine has been always notable for its non-transparency. Practically, all industries were introduced in the shadow economy, the share of which by various estimates amounts to 40-60%. The business process management only in individual cases was provided according to the international standards, and business models of the company were designed, to put it mildly, on the non-competitive terms. If before 2013-2014 both banks and investors put up with this to some extent, then in 2017 the situation changed. Nowadays, Ukrainian banks state that there is an acute shortage of a decent lender and there are reasons for this.
Global trends in banking regulations, in the section of conformance to anti-corruption standards and organization’s requirements, which fight with money laundering, made investors’ and creditors’ requirements for a potential borrower more strict. Commonly accepted global business standards are being gradually implemented in Ukraine and it happens primarily owing to investors, who dictate their conditions.
In fact, business appeared not be ready for new requirements. On the one side, shadow business continues to thrive, stories about speculations in the sphere of state purchases, lobbying for the interests of large monopolists and other business achievements will hit news headlines in mass media. On the other side, the economic downturn, a decline in demand, the financial solvency of the customers, foreign market foreclosure and inability to raise low-cost funds for the development make business look for opportunities to optimize their own expenses and business processes and run business partially in the shadow. However, it is important to understand that it is a dead end on the way for business development. Eventually, necessary reforms will be carried out at the national level, which will enable investors and creditors to have a more optimistic view of Ukraine and include it into their strategic plans. Up until that time, business should be ready to switch to new, transparent and comprehensible for creditors and investors standards. It should withdraw from a double-entry bookkeeping system, envelope salaries, nontransparent ownership structure and management and non-market working conditions. And the one who will understand this earlier and switch faster will be able to raise low-cost funds, by means of which he will carry out modernization, increase turnover and leave his competitors far behind.
To sum up, it may be said that an economic development, a pay rise, an increase of social standards in Ukraine are directly related to foreign investments and public credit availability, volumes of which are insignificant nowadays, while financial resource within and beyond the country is sufficient. According to the NBU, banks expect a loan growth in all segments during next 12 months but it is highly unlikely that there will a loan boom, as there is a range of unsolved systemic issues abovementioned. To change the situation for the better is quite possible but both state and business have a hometask to do.