Privatization 2020 – last chance for modernization

Dmytro Shvartz
16:20, 07 February 2020
Economy
679 0
Opinion

In recent years, everyone has been talking about the need for large-scale privatization of state property in Ukraine. This thesis has repeatedly been voiced by top officials, while the changing leaders of the State Property Fund have painted bright prospects, but the implementation of these plans has always ended in failure. The state budget never received the planned revenues, while the fixed assets of enterprises accumulated in the 20th century continued to wear out in the absence of investments.

As a result, state-owned enterprises still remain a hotbed of shadow schemes, a vivid confirmation of which is the recent detention of people offering five million dollars for appointing the right person to the post of head of the Odesa Portside Chemical Plant. That's given that the company is known primarily for its multimillion-dollar debt and several failed sale attempts.

There are more than a dozen such large state-owned enterprises in Ukraine, and, unfortunately, those interested in further parasitizing on state property are unlikely to voluntarily let the situation change.

The question is how the current government really sees the issue, calling the resumption of privatization one of the main reforms to be implemented in Ukraine.

Judging by the statements by President Zelensky, this Gordian knot should be cut in the coming months.

The question is how the current government really sees the issue, calling the resumption of privatization one of the main reforms to be implemented in Ukraine

To date, the team in the person of the head of state, parliament, and government has already carried out preparatory work, which the new head of the State Property Fund, Dmytro Sennichenko, is called to implement.

At the World Economic Forum in January in Davos, Switzerland, Zelensky announced the incentives, through which he seeks to attract foreign investors to Ukraine who would risk investing their money in modernizing the national economy.

Zelensky promised winners of tenders for the sale of state-owned enterprises, which will invest more than $10 million in Ukrainian assets an unprecedented concession in the form of exemption from income tax over the next five years.

In addition, he announced a new investment nanny program, according to which each investor bringing in our country investment worth $100 million and over will receive a personal manager from the government.

This initiative, rather, is designed to create new companies, industries and services, but if desired, it can be applied to large privatization objects.

Many experts agree that the president's new initiative is unlikely to greatly improve the investment climate in our country. The recent bidding for the transfer of the Kherson port for concession, that's still in limbo, confirms the idea. It was won by a foreign company, but the results were disputed in a Ukrainian court. By the way, Zelensky himself, learning about the court blocking, promised to "reset the judicial system".

In the near future, the Government and the State Property Fund will have to decide what to do with almost four thousand state enterprises, of which more than a thousand simply need to be liquidated due to the lack of real assets and the inability to resume work.

In the near future, the Government and the State Property Fund will have to decide what to do with almost four thousand state-owned enterprises

Each day of delay only increases the number of illiquid assets supported by the state's resources and piles up problems.

Of course, critics of the intensification of privatization may continue to insist that the state could search for effective managers for each state-owned companies, and not get carried away with mass-sale promotion.

However, it is time to stop rushing around and start moving in the chosen direction. In recent years, we have already realized that finding several thousand highly qualified honest professionals who agree to move from the private sector to the public sector, with a clear prospect of lower income, is an impossible task. This, moreover, will not eliminate corruption temptations.

Therefore, a resolute revival of privatization is now seen as the only right move. The Cabinet of Ministers a few weeks ago prepared and submitted to Parliament a substantially reduced list of strategic state-owned enterprises, which for now should be left in state ownership, while everything else should be put up for sale.

The year 2020 should be a turning point: either the country finally begins, overcoming resistance, to sell assets and lay foundations of a new economy, or it can forever forget about modernizing its industry and infrastructure in accordance with the requirements of the 21st century. And those responsible for this process should understand that society and foreign partners will not accept any excuses in case of failure, because many of the barriers to which the predecessors attributed failures are now gone. And the declared political will and unity of the new government's team in this matter only reinforce high expectations.

One can only hope that the attempt to resume privatization will finally succeed

Perhaps with some SOEs it will be necessary to look specifically for a specific foreign investor who will take on risks that may be unacceptable for domestic businessmen. In addition, the arrival in Ukraine of a large European, American or Canadian businesses with their significant resources, technologies, and anti-corruption will inevitably improve many Ukrainian markets, which are now suffering from monopolism and underdevelopment.

And here the "investment nanny" project may come in handy. One can only hope that the attempt to resume privatization will finally succeed, and Ukrainian state-owned enterprises will receive effective owners, and the state treasury will receive billions in investment.

Dmytro Shvarts

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