Year end 2014 and NEW YEAR 2015 in Ukraine

The year 2014 has been an eventful year for Ukraine. The Russian invasion of Crimea is still the major problem which unfortunately many western nations appear to have forgotten. The Russian invasion of Eastern Ukraine continues.

Too many media sources continue to report about the 'Ukraine Crisis'. When the facts that should be reported are the 'RUSSIAN INVASION OF UKRAINE'.
The Russian President had failed to achieve many of his objectives in Ukraine. But one objective that has been achieved is the destruction of the economy of Ukraine.

Ukraine is suffering. The country needs help from the west. We all hope that 2015 will bring better fortunes for Ukraine.

However, one of the biggest problems that still plagues Ukraine is the disease known as 'corruption'.
Even with a new President and new Government in place, the old habits of corruption remain.

BUT...the only people that can STOP this deep seated corruption in Ukraine is in fact the PEOPLE of Ukraine. If only they would just STOP paying bribes to state officials and other people holding out their hands for bribes, the problem could be tackled.

My message for the people in Ukraine at this year end is ''PLEASE STOP PAYING BRIBES'
A brighter future awaits the country in 2015, if you the people will stop paying bribes to state officials and others. JUST STOP DOING IT.

Ukraine needs to get serious about Foreign Investors

In these hard times for the country, one would have thought that Ukraine would be welcoming foreign investors with open arms. Oh no.

The BBCU has a long track record of helping foreign companies in Ukraine. Admittedly these are not all multi-million dollar enterprises but they are all investors, where non-residents are bringing their own money to Ukraine to establish new businesses or to complete a trade agreement with a Ukraine based company. Naturally both include some foreign nationals working in Ukraine. Therefore they need a work permit and residents permits to stay here.

All of these foreign 'directors/managers' create local jobs and start to employ Ukrainian nationals.
This is want the country needs.

But try telling this to the decision makers at the Kyiv Employment Centre who are responsible for processing the vast amounts of paperwork we submit for each work permit for foreigners to work and develop their businesses here in Ukraine. If there is an excuse to delay or reject an application they are sure to find it. THINGS HAVE NOT CHANGED IN UKRAINE. In fact they might have got worse.

One of our client companies has already invested millions of dollars in to Ukraine over the past few years but still needs to bring nationals from its own country to provide training to local employees and help develop the business. But the process for obtaining work permits for this client is proving a major challenge with the 'forces of bureaucracy' in the Kyiv Employment Centre.

These foreign nationals are NOT displacing jobs from locals. Moreover, they are actually helping to create more jobs. The ONLY help these foreign companies need from the government of Ukraine is a few pieces of paper (ie work permits) to help investment to continue. Is that too much to ask?

Before anyone asks....we never pay bribes. :) Maybe here is the reason?

Ukraine - One year on (21st November)

Today it is one year since the start of the events that led to the 'Revolution' in Ukraine.

Who would have thought that it would lead to the country being at war with Russia?

The economy is weaker than ever. It will be very difficult to attract genuine foreign investors to Ukraine.

Is the country set on a course of surviving from hands outs from the EU, IMF and others?

Andrey Kurkov on the BBC web site says:

It is unclear how the current chapter of Ukrainian history will end. I remain optimistic in spite of the pain I feel remembering those who died in the battle for a new Ukraine and those who are still dying and risking their lives on the Donbas frontline.

I do believe Ukraine will withstand it all and will maintain her independence and that the Ukrainian people will hold on to their desire to live in a civilised state cleared of a corrupt elite and corrupt judiciary.

But without the European Union's help, Ukraine will not be able to achieve this. Not because the Ukrainians lack determination, but because beside Ukraine stands a Russia which needs Ukraine to remain as it was under Yanukovych and other presidents - weak, passive and corrupt.

See the article here

Ukraine Currency Collapse

Although many people are commenting on the collapse of the Russian ruble, they should be very concerned about the Ukraine Hrvynia.

The currency has devalued by over 47 percent since the start of the year. Exchange rates today stood at:

UAH/USD - 15.50

UAH/EUR - 19.00

UAH/GBP - 24.00

But I'm sure it might have changed while I was writing this.

The NBU (National Bank of Ukraine) claimed today that the Hryvnia will not go any weaker than 16.00 to the USD. I would not gamble on it.

For those of us in business who need to purchase foreign currency for transactions it is beyond any joke.

Corruption in Ukraine Continues

The owner of the Kyiv Post in Ukraine, Mohammad Zahoor recently wrote an article that appeared in the FT on the continuing problem of corruption in Ukraine.

I agree with his comments. Corruption is very deeply seated in both the public and private sectors in Ukraine. Far too many government officials (state employees) carry too much power and use it to extract financial gain from both individuals and businesses.

BUT.........I blame the people, the general public and business owners for continuing to support the corrupt system in Ukraine. Although many will claim they have no choice but to pay bribes or their businesses will suffer if they do not give in to demands from corrupt officials, it is THEY who maintain the system.

If the people of Ukraine really want to bring about CHANGE in the country and stop all this crazy corruption THEY THE PEOPLE can do it, just like they came out onto the streets in 2013 to start demanding change. They can do it again.

Moreover, the only thing people need to do to stop corruption is to STOP PAYING any bribes to government officials or anyone in the private sector. STOP giving money to police officers when they stop you for a so called speeding offence. STOP paying bribes to junior government employees to 'help you make things easier'. STOP paying anything to those higher up. No matter how much they may claim they will make your life difficult if you do not pay. YOU can make their life difficult by reporting them.

The days of being afraid are over. My advice to the people of Ukraine is to stand up and be counted once again and put a stop to all this continuing problem of corruption that is holding the country back from moving forward.

See the FT article here

Ukraine Elections - 26th October 2014

On Sunday 26^th October 2014, Ukrainians will have another opportunity to vote and choose which political parties will be responsible for the management of the country. Although Ukraine still maintains an unusual system of elections via a ‘party list’ system mixed with other systems, it is an opportunity for the people to choose the future direction of Ukraine.

The majority of the population have already decided that they wish to see a free and democratic country develop along a ‘Western European’ system.

Ukraine will need another 5-10 years to rebuild its economy and develop a system of governance and for its politicians to demonstrate that they can put people first and eventually cast off the old methods of soviet era bureaucracy, systemic corruption and the stigma of selfish greed among the so called elite.

The time has arrived for fresh, young albeit inexperienced people to start making decisions that will benefit the population as a whole.  Let’s all hope that we will see many new faces appearing in the Verkhovna Rada (Parliament) next week.

The People of Ukraine

I think this simple short video explains how Ukrainians feel about their country.

Where is Ukraine?

Timothy Ash from Standard Bank in London provides an excellent summary of the current situation in Ukraine. Maybe he should give up the day job and become a full time journalist.

Commentary & Analysis, Timothy Ash, Standard Bank, London, UK, Mon, 1st Sept, 2014 

LONDON ---- I am amazed by the generally poor media & business commentary around Ukraine/Russia relations, which often belies a fundamental lack of understanding of the issues – maybe the demands of 24/7 news drives that to an extent. This is also apparent from commentary from high level Western diplomats and political leaders – either they do not understand, or would rather not understand the realities with respect to the Ukraine crisis.

So let’s try and make this as simple as possible.

Let’s start at the beginning, or at least for most of the recent focus on Ukraine. And therein, the Maydan protests are the obvious starting point – we could go back to the Vilnius process, but that’s possibly getting a bit too deep for a simplified analysis.

Maydan earlier in the year was about a bulk of Ukrainians’ desire to have a European perspective – to live by common European values, not necessary EU or Nato membership at that point of time. It was more about things like democracy, human rights, rule of law, protection of property rights, but really about living in a normal European country.

And they felt that the incumbent Yanukovych administration was not willing or able to deliver on that, arguably because of the anchor of too close ties to Russia. Only by securing an EU perspective did they think that their country could be reformed towards European core values, and bringing real improvements in their way of life.

Evidently Moscow finds the whole Maydan thing a threat to its model of development and security – and is particularly nervous about any NATO aspirations of Ukraine. Many Russians have also never really accepted that Ukraine is an independent country (albeit it has been fully independent for 23 years now) or indeed that Ukrainians are a different and distinct ethnic group – indeed,  seeing the collapse of the USSR in 1991 as a mistake, at least as it resulted in the “mistake” of bringing Ukrainian independence.

BULK OF UKRAINE'S POPULATION WANT A EUROPEAN PERSPECTIVESo the gist of it is that the bulk of Ukraine’s population want a European perspective, and to finally break away from domination by Russia, and Russia wants to stop this process, and through the recent advent of the CIS/Eurasian Union to actually pull Ukraine closer in terms of economic and political integration.

Whether it was security concerns or a desire to stall/destabilise Ukraine’s momentum towards Europe, Russia moved to annex Crimea back in March, and then actively promoted/supported separatist movements in South-East Ukraine – in the event, these only secured traction in two further oblasts/regions of Ukraine, i.e. Donetsk and Luhansk, collectively known as ‘the Donbas’ – Ukraine’s industrial heartland.

Note prior to the on-set of separatist demonstrations and unrest in April, there was scant evidence in Ukraine of any particular separatist cause/movement – opinion polls also showed 90%+ support across Ukraine for an independent Ukraine, and only around one-third support even in Donetsk for the separatist cause, with a majority still favouring an independent Ukraine. Opinion polls showed no oblast in Ukraine had majority support for joining Russia – and by a large margin, perhaps with the exception of Crimea.

In any event protests and conflict broke out in Donetsk and Luhansk, and these evolved into a war to all intents and purposes, with large scale casualties now on all sides. Throughout there have been strong indications that arms/fighters have been supplied across the border from Russia – separatist leaders have suggested at least 4,000 of the 10-15,000 separatist fighters are of Russian origin (either retired Russian soldiers, or soldiers “on leave”).

The Ukrainian military eventually regrouped, and managed to deploy around 50,000 troops to Donbas, eventually seeing significant gains on the ground – which up to a week or so ago laid the prospect that unless Russia escalated with the use of more formal troop deployments to Ukraine, that the separatist cause in Donbas would whither away. This led to some debate about whether Russia had achieved its objectives in Ukraine through the annexation of Crimea – and the destabilisation of Donbas, sufficient to stall/slow Ukraine’s drive to EU/NATO membership.

The assumption by some therein was that Moscow would assume that it had sowed sufficient uncertainty in the minds of Western leaders for them in effect to veto Ukraine's future NATO/EU membership. This charitable interpretation of Russian strategy assumed a benign de-escalation by Russia.

EVENTS ON THE GROUND IN RECENT DAYS NOW APPEAR TO HAVE CHANGED THE ABOVEEvents on the ground in recent days now appear to have changed the above. In particular, the government in Kyiv and NATO have signalled much larger and more direct Russian intervention in fighting in Donbas, which seems to have slowed/reversed the advances of the Ukrainian military – even suggesting a broadening of the conflict south towards the industrial port city of Mariupol.

The message now from the most recent Russian escalation (“invasion” or “incursion”) is that Moscow has made clear that it is unwilling to allow the defeat of the separatist cause in Donbas, and is willing to further escalate, by pumping yet more arms/kit into the conflict.

Moscow’s aim is seemingly (and perhaps now clearly) to force a military stalemate on the ground whereby a large swathe of Ukrainian territory – and important territory, given that it is Donbas – is beyond the reach of the Ukrainian government. Their assumption is that this will force the government in Kyiv, and the West, back to the negotiating table to negotiate over the long term future of Ukraine – and therein the agenda for Russia is No NATO, No EU and No Maydan (Moscow wants a broader coalition in office in Kyiv, more amenable to representing its views).

To restate, for Russia this is not really about backing the separatist cause in Ukraine, it is about shaping the long term future of the whole of Ukraine, and Ukraine’s geopolitical, economic and strategic orientation back east, and certainly away from the West.  Indeed, if Russia was doing all this really in support of the minority rights in Ukraine it would surely have rallied to the cause of minorities in Russia itself – and recent history therein has been about pulling back from a Federalist agenda/model.

RUSSIA HAS PUT THE BALL BACK IN THE COURT OF THE WEST/KYIV BY ITS RECENT ACTIONSIn effect Russia has put the ball back in the court of the West/Kyiv by its recent actions in Ukraine.  Herein the Poroshenko administration now faces a number of choices, with hugely difficult consequences and calculations to be made:

FIRST, First, negotiate a ceasefire with separatists and their backers in Moscow, and secure a longer term agreement which would require assurances of a pull back from Western orientation, and hence assurances of No Nato or EU membership for Ukraine. Moscow will also likely demand a Federal constitution to be enacted in Ukraine, with much more power decentralised to the regions, but whereby the regions have veto rights over key decisions at the national level, e.g. covering NATO and EU membership.

In effect by so-doing Kyiv would secure the return of Donbas to its de-jure (if not necessarily de-facto, as per Crimea) administrative “control”. This would likely make short term economic development/recovery easier. However, the price would likely be a return to the model of development prior to Maydan – of autarchic oligarchic elites plundering the population and the economy not really going anywhere fast, but this would rather be a model for stagnation and decline.

All the above would be difficult for any Ukrainian government to sell to the people of the Maydan, or indeed the wider population, which now appears to have changed through the current conflict to become much more ardent in support of Ukrainian independence, and the Western orientation.

Therein note that support for NATO membership for Ukraine, which was always low, pre-Maydan (single digits) is now in a majority, and support for the EU is now approaching two-thirds. Thus, it seems that delivering on Russia’s “terms” might just result in the destabilisation of the domestic political situation in Ukraine itself. Such a scenario buys short term peace, but ultimately results in long term failure for Ukraine.

I find the chances of the above at this stage to be fairly low – maybe 10-15%.

SECOND ----  Second, try and pursue a military solution. This would require re-arming, and heavy investment in the Ukrainian military, but the plan would be to raise the stakes and cost for Russia of its continued stay in Donbas. This might also suggest a long-running conflict, with huge human and economic costs for both sides.

For Ukraine, it also might imply an uncertain outcome, as Ukraine could lose such a conflict with Russia, and hence lose even more territory than currently occupied by Russian troops and separatists. But the strategy would be to ramp up the cost to Russia that it blinks first and backs-off – Ukraine could become Putin’s Afghanistan, and hence ultimately the source of his own decline.

The chances of the second scenario are perhaps 35-40%.

THIRD ---- Third, the authorities in Kyiv could simply accept the status quo in Donbas and Crimea, but reach a temporary ceasefire with Russia and the separatists, but without giving up on its Western orientation. In effect the result would be a frozen conflict scenario, akin to that in Trans-dniestr, Abhazia, South Ossetia or even Nagorno-Karabakh or Northern Cyprus. The government in Kyiv would try as best to get on with the task of rebuilding the rest of the economy, and delivering on the IMF reform agenda.

They would have the advantage therein of a strong, and re-invigorated feeling of national identity on the part of the bulk of the population, and willingness to sacrifice for the national good and to ensure independence and security. The problem with this strategy is though rebuilding and recovery will be acutely difficult with Donbas remaining out of the control of Kyiv, as the region accounts for 13-18% of GDP and around 27% of industrial output.

There is nothing to suggest that oligarchs would pump money back into the Donbas economy with such uncertainty over its long term future – similar in many respects to the problems currently besetting Crimea. We would also add that this also assumes that Moscow opts not to further escalate – to try and make life even more difficult for the government in Kyiv, and to try and ensure the failure of the Maydan administration and the re-orientation of Ukraine back eastwards.

The assumption has to be that Russia will still go out of its way to make life difficult – via trade disruptions, sanctions, blockades, and using the energy and default card via the 2015 Russian “bail-bonds”.  Ukraine’s only hope in this latter regard would be massive financial support/backing from the West – to make up for the loss of Donbas, and this would require something much larger than the existing USD17bn IMF programme – there has been talk of a “Marshall Plan for Ukraine”, albeit things therein seem to be moving very slowly.

In effect though the West needs to give the government in Kyiv enough assurances that its Western orientation will be supported both through real progress in technical preparations connected to NATO/EU membership, and cash, to ensure the survival of the Maydan administration.

I would probably attach a similar probability to the third as to the second scenarios.

The balance hence would be any other scenarios, of which I am sure there are many.

Disclaimer: This material is non-independent research. Non-independent research is a "marketing communication". The above commentary represents a personal view, is not investment advice or Standard Bank research, but may contain extracts from published research.

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A FEW UPDATED THOUGHTS ON DEVELOPMENTS IN UKRAINE

Commentary & Analysis, Timothy Ash, Standard Bank, London, UK, Sun, Aug 31, 2014

LONDON ---- Obviously late last week the crisis in Ukraine took yet another turn for the worse, with the government in Kyiv and NATO claiming increased Russian intervention in SE Ukraine. The reports suggested more open and substantive Russian involvement on the side of separatists, with the latter seemingly opening another front to the South of Donetsk and Luhansk, on the approaches to the large industrial and port city of Mariupol.

The intervention of more substantive Russian forces appears to have stemmed the tide of Ukrainian military victories which had appeared in the weeks prior to be offering the prospect that Ukrainian forces could clear Donbas and re-secure Ukraine's borders thereby bringing a speedy end to the conflict.

What we have perhaps learned from the separatist assault towards Mariupol, and indeed Putin's own new statements of support for Novorossiya, is that Russia is not content with letting the separatist cause die a death in Donetsk and Luhansk as some had claimed - remember some had claimed that changes in the leadership of the separatists in recent weeks indicated preparation for perhaps a withdrawal by Russia.

RUSSIA'S STRATEGY IS MUCH CLEARER

It now seems much clearer that Russia's strategy is not just about Crimea, but rather and in addition perhaps to create a frozen conflict on the ground in Donbas. Such a scenario creates scope either for enlargement of Russia's borders, partially through the concept of Novorossiya, or to deliver on Russia's broader objectives of preventing Ukraine's Western orientation partially by destabilising Ukraine through military intervention.

Clearly Putin is not willing to accept defeat in Ukraine, and has constantly proven his willingness to raise the stakes, through ever greater intervention and escalation.

Note that the above suggests the scenario playing out of further Russian intervention in Ukraine - as we presented in our own scenarios analysis from a few weeks back.

Interestingly, the Russian media focused on an inteverview given by Putin this weekend, whereupon he hinted that talks needed to be held over potential "statehood" for SE Ukraine. If true this would be a notable development, and further strain relations between Russia and Ukraine/the West.

Albeit not that Putin's press secretary has subsequently denied that Putin meant the breakaway of SE Ukraine from Ukraine proper, albeit after the annexation of Crimea, Ukraine and the West will no doubt be cautious in interpretating Putin and Russia's statements in this regard.

Perhaps this was all meant as a subliminal warning as to what could happen if Russian interests were not taken on board in re shaping Ukraine's future. That is this was meant to improve Russia's negotiating position in any subsequent peace talks.

HUGE DILEMMAS FOR POROSHENKO AND THE WEST

The above creates huge dilemmas for both the Poroshenko administration in Kyiv but also the West, in terms of how to counter this new and present danger/threat from Russia.

For Poroshenko the problem is a frozen conflict in Donbas arguably fundamentally threatens the durability and sustainability of an independent Ukraine. Donbas is critically important to the Ukrainian economy - accounting for anywhere between 13% and 18% of GDP, and containing some major industrial and transport infrastructure, including steel plants, oil refineries and coal mines.

Arguably this is why Russia has focused its intervention in Donbas, as it assumes that it will force Kyiv back to the negotiating table with Moscow to deliver on its broader strategic objectives of No NATO, No EU and No reform minded Maydan administration.

Therein is the huge dilemma for Poroshenko as the past year has arguably fundamentally changed Ukraine, with Maydan, the loss of many lives during the ousting of the Yanukovych regime, and now several thousand killed in the conflict in SE Ukraine, opinion in the country has now decisively turned away from Russia, and towards Europe.

NATO MEMBERSHIP UNLIKELY

By way of example, on the critical issue of NATO membership, while before the outbreak of the Maydan protests, and the unrest in SE Ukraine, popular support for Ukraine's NATO membership was in single digits, recent opinion polls now show majority support.

Therein the Ukrainian government is currently pushing thru legislation facilitating a drive for NATO membership - even though NATO itself is likely now to be reluctant to accept Ukraine as a member as long as Russia is opposed.

Simply put, how can a Poroshenko presidency compromise on such key tenets of popular thinking now in Ukraine, as EU/NATO membership and a broader reform agenda. Compromise is also made that much more difficult by the onset of the campaign for early parliamentary elections set for October 26.

Those same elections are expected to bring a large majority for Ukrainian statehood parties, and those likely opposed to any move back away from a Westwards orientation.

The best perhaps that can now be hoped for is for some form of temporary ceasefire on the ground, which halts the fighting but which unlikely addresses the underlying issues. Donbas would remain beyond the reach of the administration in Kyiv, which would add deadweight to an already hugely challenging economic policy challenge - and piecemeal support therein from the West.

Ukraine would, meanwhile, likely focus on re-armament, and for Russia would increasingly pose an even greater security threat - in effect the two states would likely remain daggers drawn, with the border resembling more that between Turkey and Greece, or Armenia and Azerbaijan.

RUSSIA WILL CONTINUE TO TRY AND MAKE LIFE DIFFICULT FOR UKRAINE

Russia will, meanwhile, continue to try and make life difficult for Ukraine by imposing trade restrictions and in effect embarking on a trade war with Ukraine. The danger of a larger, full blown conflict between the two sides will likely remain ever present.

The more immediate focus will be various efforts to broker some sort of ceasefire and peace agreement.

Poroshenko has himself promised to reveal some sort of peace plan over the next week, albeit this is unlikely to be that different from plans already tabled, and including the offer of some decentralisation of powers to Donbas (but stopping short of Federalisation which remains acutely unpopular in Ukraine), on the proviso that separatists lay down their arms, foreign fighters depart and the OSCE assumes monitoring over the long Ukraine-Russia border.

We doubt that Russia will accept anything which hinders its ability to re supply separatists in SE Ukraine, and indeed the de facto control of territory already in the hands of separatists.

The EU has, meanwhile, given itself one week to decide on another round of sanctions to be rolled out against Russia - presumably in coordination with the US. The assumption is that the EU wants to give negotiations to secure some form of ceasefire/peace in the Russo-Ukraine conflict a further chance - albeit numerous efforts/rounds of talks over the past 10 months to try and resolve the on-going crisis have achieved very little.

The one week delay probably says more of the weak state of Europe and the divisions therein over its approach towards Russia, than the chances of some form of peace agreement being reached within the week.

MANY EUROPEAN LEADERS ARE CLEARLY DESPERATE TO AVOID ROLLING OUT FURTHER SANCTIONS

 Many European leaders are clearly desperate to avoid rolling out further sanctions, for fear of damaging their own business interests and relations with Russia - personal and professional. Therein it is still fairly remarkable that both the EU and the US have failed to adequately describe events on the ground as a Russian invasion, but prefer instead to use the term "incursion".

The difference is obviously in the assumption as to the timeframe for Russian intervention - invasion implies something large in scale and permanent, incursion is rather smaller in scale and temporary. That said there is little to suggest that Russia's intervention in Ukraine is temporary, and as events surrounding Crimea, Abkhazia, South Ossetia, and Trans-Dniestr have proven, such interventions can quickly become permanent when it comes to Russia's recent interventions in the near abroad - there is now a well honed script for these.

Our assumption still is that reaching a permanent peace deal will be acutely difficult still. And this still suggests the likelihood of yet more Western sanctions iterations, however weak and feeble these may end up being. Suffice to say that we do not expect the "sanctions malaise" which currently hangs over Russian markets or the economy to lift that soon.

What form of sanctions can we expect? Well the problem is still that securing unanimity within the EU for any such sanctions is painfully difficult, with the pace/scope only really driven by the weakest link - and there are many.

Many might still argue that it is incredible how soft and feeble existing sanctions have been despite the remarkable events we have seen on the ground, including the Russian annexation of Crimea (which trampled over international agreements), the downing of an international airliner, the loss of well over 2,500 lives in the conflict to date (including the loss of Russian troops this figure could perhaps be much higher than this), and clear evidence of a direct Russian invasion/incursion into Ukrainian sovereign territory.

LIKELY EXPECT MORE RUSSIAN INDIVIDUALS AND CORPORATES TO BE SANCTIONED

We can likely expect more Russian individuals and corporates to be sanctioned, and this time perhaps deeper sanctions on arms trade with Russia - there has also been hints of restrictions on SWIFT transactions with Russia, albeit it may yet be too early for such action to be rolled out.

NATO is, meanwhile, meeting on September 3 in Wales - the English and Welsh fought for centuries despite also having many common roots, which is hardly auspicious in terms of the current Russo-Ukraine conflict. Ukraine is probably hopeful of some signal of its potential membership, albeit I would expect NATO members to hold back from this at this stage for fear of further infuriating Russia.

NATO also seems likely to hold back from agreeing to directly arm Ukraine - albeit there is nothing to stop individual NATO and EU member states deciding to increase unilaterally their own level of military backing for Kyiv. NATO is likely to make some strong statements of disappointment with Russia's actions in Ukraine - talk if cheap after all - and perhaps push forward preparations for reinforcing members bordering Russia in the event of more direct and specific threats appearing.

In summary, the West is struggling to come to terms with a new and more aggressive Russia. Many would rather ignore the facts on the ground, as they face difficult choices and risk damaging business interests.

MANY IN THE WEST WOULD PREFER THE GOVERNMENT IN KYIV TO APPEASE MOSCOW

Many in the West would prefer the government in Kyiv to appease Moscow, but the problem therein is selling any such scenario to the people of Ukraine who now more than ever appear set on their Westward course, and away from Russia.

Large numbers of lives have been lost and what we are perhaps seeing still is the birth of a Ukrainian nation. Ukrainians seem willing to fight in defence of their country and, if this is added to Russia's determination to keep a tight grip on Ukraine, this all bodes ill still for the future.

NOTE:  The above commentary represents a personal view, is not investment advice or Standard Bank research, but may contain extracts from published research.

The Battle for Cyprus

The island of Cyprus is reliant on tourism which represents approximately 12% of GDP.  The latest figures from the Cyprus state statistical service shows a 22.6% increase in the number of visitors from Russia in July 2014. Over 116582 Russians visited the island compared to 96641 in July 2013.

There was a small dip in the number of visitors from Britain but still the largest number at 127152 for July 2014 compared to 132566 in July 2013.

The total figures for the first seven months of this year are: British 478882, Russians 372457, Sweden 57676 plus many tourists from other countries around the world. During 2013 Cyprus welcomed 2.4 million visitors and it looks like 2014 will see an increase on the previous year. Tourism income brings in around €2.0 Billion per year.

Cyprus is still seen an an ideal location for those who are seeking to purchase a holiday home or retirement or investment property. 

Ukraine - Could it get any worse?

It would be fair to say the business environment in Ukraine is well and truly ****ed.

Even before the Russians started trying to dismember parts of Ukraine the country was in a mess.
Unemployment is high. Inflation is out of control.
Public finances are in a mess. Although we now know that Yanukovych stole billions, it is doubtful if any of the stolen money, even when found will find its way back to Ukraine.
The government is in a mess. The public sector remains part of the old soviet system of doing things, or usually the system of not doing anything. Always easier to say NO just in case.
The parliament is still made up of members from the old regime and old way of doing things for their own personal gain. God forbid they would think about doing anything for the people of the country.

Businesses are not doing much and their employees are going unpaid for many months.

Oh...and the currency has gone into steep decline.  So, not a good environment for doing business in Ukraine.

The level of corruption is probably a little less than what it was under the old regime. We hope.
Many commentators claim that the black economy in Ukraine is over 60 percent.
There is still a massive hole in the country's tax collection. The road to recovery is going to be a long way.

Ukraine is at war with Russia

On 17 July 2014 in Ukraine an horrendous event showed how 'terrorists' could murder 298 innocent people.

Malaysian Airlines flight MH17 flying from Amsterdam in The Netherlands to Kuala Lumpur in Malaysia was shot down from 33000 feet by a surface to air missile. The missile was launched by terrorists operating inside eastern Ukraine. The terrorists are Russian citizens.

These terrorists receive all their equipment and support from the Russian Federation. Nearly all the terrorists are serving or former members of the Russian FSB, GRU or any number of so called 'elite' units from Russia. The thing they all have in common is that they enjoy killing people.

It is impossible to compare these terrorists to what we normally assume to be terrorists in other parts of the world. They are not like the PIRA in Northern Ireland. These terrorists are equipped with TANKS, HEAVY ARTILLERY, SAM SYSTEMS and other sophisticated military equipment. They are supplied by Russia with everything they need. They are allowed to pass freely across the border between Russia and Ukraine as Russia controls many of the crossing points.

So, it is obvious that we should not be referring to these people as terrorists any longer. They are RUSSIAN citizens. Therefore they are acting on behalf of the Russian Federation.

Russia has declared war on Ukraine but has never made any pubic statement to this effect.

Ukraine needs to stop ACTING like a Rich Country

Many, if not all people who visit Ukraine for the first time arrive in Kyiv. One of the big surprises for them is when they discover the high prices on the Ukraine residential property market. The overall market has not picked up since the crisis of 2009 but prices are still in what I call the ‘crazy category’

Why should property in Ukraine be more expensive than the following countries in the EU? :

Malta, Slovenia, Romania, Cyprus, Latvia, Estonia, Croatia, Lithuania, Hungary, Portugal and Bulgaria

So we can say that Ukraine is more expensive than 12 EU countries.

See: http://www.globalpropertyguide.com/Europe/square-meter-prices

What is so special about Ukraine? Some locals will claim that it is due to the demand of not enough housing stock in the first place and people just want to have their own place to live and are prepared to do anything to have their own place of residence. Some property developers would claim it is just a simple of case of supply and demand.

Since the financial crisis and the on-going problems with the economy and political unrest in the country, prices have still not reduced.

Moreover, there is a major difference in how new properties are sold in Ukraine. They are not really finished when they are sold although the developer will be doing no further work after you have paid. Why? – Well in Ukraine the normal practice is to sell property in the ‘core and shell’ state. Which means the property is a bare shell, no windows, (but maybe sometimes), no doors, no plaster on the walls, no floors, no ceilings just a brick shell with water and electricity and sometimes gas supplied. The rest is up to you. The ‘rest’ will probably cost the same if not more than the sales prices to fully complete the property ready for living.

Can you imagine an EU citizen buying a property in Malta or Cyprus or Portugal which had been completed to a state where it cannot be used for living?

The secondary market (used market) is a little easier as the buyer would be able to move in without too much extra expense?  But, most of the property stock in Ukraine is still made up of apartment buildings constructed during Soviet Union times. Buy WHY should an old place be so expensive? Here is one example chosen at random. A 2 bedroom apartment in Kyiv, 75 SQM in an old building. The asking price is a crazy $210,000 - http://www.apartments.kiev.ua/sale/kh3v37s.htm

It is any wonder that so many Ukrainian people get the surprise of their lives when they visit EU countries for the first time and see things are much better and lower priced that back home.

Is it any wonder they want to leave Ukraine?

Ukraine is a poor country yet it continues to act like it is for rich people only. Things need to change.

The British have invaded The Netherlands - So what?

A few months ago President Putin ordered the invasion of Crimea.
Crimea is part of Ukraine. Putin now claims that Crimea is a part of the Russian Federation.
Russians continue to invade eastern Ukraine and kill Ukrainians on an almost daily basis.

Despite the on going weak threats from western leaders about sanctions against Russia, nothing
appears to deter Putin from doing exactly what he wants. Ukrainian people still fear that Russia
will invade the whole of Ukraine.

Yesterday Putin attended the world cup final in Brazil. He was greeted by fellow criminal
Mr Sepp Blatter, President of FIFA and German Chancellor Angela Merkel.
The world cup will take place in Russia in 2018......maybe.

A few days ago Angela Merkel announced that Germany had deported a US Intelligence operative
from Berlin after it was alleged the 'spy' had been monitoring German activities.
Moreover, Putin continues to demand peace in Ukraine and will do ''all he can to help in the
peace process.''

Also yesterday Russian tanks and other military vehicles and soldiers entered eastern Ukraine.
No doubt Putin will quickly deny that they are Russians.

So......I wonder. Let's say that the British had invaded The Netherlands a few months back.
The British government had then declared that The Netherlands were now part of the United Kingdom.
The British army special services were continuing to kill Dutch people on a daily basis.
David Cameron declared that ''They are not British soldiers but Dutch activists responsible for this.''

Would David Cameron have got the same welcome in Brazil?

Ukraine Economy - Very Bad

During the past few weeks I have come to the conclusion that the economic situation in Ukraine is BAD....VERY BAD.  It is always difficult to find out what is really going on in Ukraine because people are reluctant to tell the truth.  Perhaps now is the time for Ukrainians to admit that the situation is worse than most people realise.

The time has come for Ukraine to stop 'acting' like a rich country. Why do I say this? Well take a look at the price of property for sale in Kyiv for example or the price of Motor Vehicles.  The price of property is way beyond prices in EU countries plus I'm sure most people already know that buying a car in Ukraine is one of the most expensive markets in Europe.

There is far too much ‘acting’ still going on in Ukraine. If you have ever visited a typical Ukraine company HQ office you find the very best quality usually Italian designed furniture, drinks cabinet, floors, reception etc.  The whole place shows luxury at the so called VIP standard.       (I admit it is not always the same outside Kyiv). I have visted many during the past years.  They want to create the illusion that they are a very successful organisation and they assume that this is the only reason you will want to do business with them. As we say back in the UK, ‘’It’s all smoke and mirrors.’’ Just a trick. But more accurately I call it acting. Why? Well because you will also find the same company with the luxury show off office has not paid its employees for many months as it will have informed them that ‘due to the crisis’, we have no money for salaries.

I remember when we opened our first office in Kyiv and wanted to buy some office furniture. Each furniture retailer we talked to assumed that because we are a ‘foreign business’ we would be spending a lot on buying the very best/most expensive furniture. I remember our secretary at the time being very disappointed that we had not purchased the best Italian furniture instead of the boxed standard IKEA style furniture we did buy and still have today. I admit that in British culture a business never wants to show that it has wasted money in buying ‘fancy furniture’ for its first office or any office. It is the opposite in Ukraine culture.

The same applies to motor vehicles. In Kyiv you will still see some of the most expensive cars on the streets everyday. Black coloured top of the range Toyota Land Cruisers, Range Rovers, Porsche Cayenne, Mercedes Benz ‘S’ class are everywhere driven by so called ‘Successful Businessmen’. But yet again it is all part of the acting.

In 'normal' countries when in a crisis the prices of most things stay the same or usually come down significantly.  We know that many people in Ukraine own their own properties without any mortgage and they are lucky when compared to the people in Western Europe.  But I can assure you these people in the west would never pay the prices in Ukraine. Moreover banks in Ukraine are not so ready to provide mortgages these days.

The following countries offer LOWER property prices than in Ukraine.
Hungary, Portugal, Bulgaria, Cyprus, Lithuania, Croatia, Estonia, Latvia, Romania, Slovenia, Malta, Slovak Republic. This applies to both sales prices and rental prices.

In my opinion it would be better for Ukraine to face the truth and downscale.
Prices need to come down significantly before we see any signs of a recovery in the economy.
And stop all the acting. Get real.

EU Residency Programme via Business Investment -2014

The BBCU has launched a special project to help Ukraine citizens to acquire residency status in a mainland EU country during 2014. Ukraine citizens are required to invest in an EU based business that has been approved by government.

The investment leads to:
1. Automatic provision of a 5-Year EU Temporary Residents Permit
2. Spouse and young family members included
3. Followed by a 5-Year EU Permanent Residents Permit

Minimum investment including all government fees and lawyer’s fees is just
EUR 49,875.
Property purchase is NOT required.

Only citizens of Ukraine may apply.

Further details: Tel: +380 67 444 1381
Email: gerald.bowers@bbcu.com.ua

British Passports - For Sale - If you have £1 million or more.

This has been a matter of concern for me and most other right thinking British expatriates for a long time.

If you are Russian and you have £1 million or more you can buy your way into the UK and obtain a British Passport very quickly.

Very unfair for expat British passport holders who wish to return to the UK and are married to a non-EU citizen. More on that later.

A British Tier 1 (Investor) visa allows wealthy foreigners to fly into London if they have £1 million or more of their own money. They need to invest £750,000 of this into British government bonds, share capital of a company or even just loan capital in an active British company. In return they will obtain residency for their dependent family members also and retain control of their money. If the investment remains in the UK the ‘investor’ can then obtain permanent residency and after 5 years a British passport. Moreover, for those who can invest £5m or even £10m the waiting time for permanent residency and a British nationality is reduced to 3 years and then 1 year for the really big investor.

Some critics of the evil empire (oh sorry I meant Russia), claim that the vast amount of Russian money in London is having an impact on decision making by the British government regarding the introduction of sanctions against Russia in response to the attacks on Ukraine and the invasion of Crimea. But to be fair I recently read an analysis which showed Russian investors to be only around 1% of activity in the ‘City of London’. But I think we all know there are a lot of rich Russians now living permanently in the UK and mainly in London.

One of the greatest benefits from obtaining an investor visa is that there are no English language requirements. No tests are required. So provided you have £1m plus you can get into the country and be awarded a residents permit without uttering a word of English.

The unfairness of this system is mind boggling. A foreigner can enter the UK with his/her family without any restrictions if they have a £1m + investor visa. But a British citizen who has been living abroad for many years and married to a ‘Non-EU Citizen’, will face many barriers when he/she is seeking to enter the UK with his spouse for permanent settlement. British citizens must be able to show a minimum income of £18600 per annum from a job based in the UK or show significant savings to ensure their spouse will not be a burden of the state. The amount increases if they have dependent children. Moreover this income level must be shown to have been achieved for at least six months before the spouse is allowed to join the British citizen in the UK. What the UK government will also fail to take into account is any income generated within the EU or rest of the world.  So take for example the case of Steven and Sarah* who have been living in the UAE for the past 8 years. Steven is a British citizen and Sarah is a Canadian passport holder. They have built up a successful business in Dubai which produces an annual personal income to them of over $50,000 (£29500) They can still own and control the business even when they live back in the UK, but the current rules say they cannot enter the UK. Income must be earned in the UK only. )* names have been changed)

There is a great conflict between British law and EU law and both laws are not good for the British citizen who wishes to live in the UK with his Non-EU spouse. However, if the same British passport holder was a citizen of another EU country then life gets much easier.  Any citizen and his/her family from an EU country can enter the UK to find work or stay permanently without any questions from the UK Immigration Authorities. Is it any wonder that many British passport holders seeking to return to the UK are obtaining citizenship from other EU countries first.   Ireland is one friendly EU country who helps to do this.

Take another example. Peter and Tanya (not their real names). Peter is British and has lived in Ukraine for over 10 years. He married Tanya a Ukraine citizen in 2006. Ukraine is a non-EU country.  They live in Kyiv but have decided to relocate to the north of England. Peter does not have any job or business in the UK at present but he intends to set up his own business on return. Until he can show his income is at least £18600 per year, Tanya will not be allowed to join him in the UK. However let’s say for example that Tanya was married to a man from Poland, an EU country, they would both be able to enter the UK without any questions.

Let’s face it we all know that the British government introduced these new restrictions to reduce the high number of so called British citizens from bringing their wives/husbands and children into the UK from Asian countries and being a drain on state benefits, schools, hospitals etc. (Note that I can be non PC.) J   But the system has affected the wrong people as usual.

The British are not the only ones to offer investor visas. Two faced British people are quick to criticise other countries like Bulgaria, Spain, Malta, Cyprus and Latvia for introducing investor visa systems. These are all EU countries and a passport from one of these countries entitles the holder to go and reside in ANY EU country including the United Kingdom.

There are far too many Russians living in London and the rest of the UK already via the investor visa route. So my advice is, why not jump on the band wagon if you have £1m or more and go to live in the UK. If the British government are low enough to grant so many visas to Russians they will do it for anyone.

Personally I would recommend Cyprus as the best country for an investor visa leading to citizenship. Please contact me should you need further details. J

gerald.bowers@bbcu.com.ua

Inauguration of a New President - Ukraine

Tomorrow Saturday 7th June 2014 the country will witness the inauguration
of the 5th president of Ukraine. After securing over 53% of the vote in the first round
Petro Poroshenko a well known billionaire businessman will be sworn into office.

Who would have thought that change would come about so quickly in Ukraine.
The majority of people in Ukraine achieved victory by removing the previous
president who proved to be a corrupt criminal who stole billions from the state.

The people have high expectations from Poroshenko. Being the new president of Ukraine
must surely be one of the most difficult jobs in the world right now.

As a former businessman we all hope that Poroshenko will lead by example and ensure that
Ukraine develops a business friendly environment. He claims that one of his main priorities
will be to take the country closer to the EU and develop higher/improved standards.

Ukraine needs to be pulled out of the 'soviet union system'of doing business.
Since independence in 1991, the country has failed to break away from Russian influence.
There is now a chance starting in 2014 to finally make the break.

If Ukraine could achieve the same level of economic development as its neighbour Poland
that would be a significant achievement. The country has the full backing of the US and EU
behind it now to really achieve something. The new president and maybe soon new government
should focus on running the country for the benefit of the people of Ukraine.
This will be a first in its history and will require a major change in the mentality
of its elected politicians.

The world will be watching to see if genuine change can be brought about in Ukraine.

Tougher Action Needed Against Putin NOW

So the illegal referendum went ahead in Crimea yesterday. We were anticipating a strong reaction from the EU and other western countries today but nothing of significance has happened. A list of 21 people from both Ukraine and Russia will have their assets frozen. Maybe I missed something today?

Talk about an anti climax. The people of Ukraine were again hoping that the ‘west’ would step in a do something significant to stop further Russian aggression. Diplomacy is clearly not working. Putin and Medvedev must be laughing in the Kremlin every night. The time has come for tough ACTION.

Here is my list of proposed actions:

1. STOP all flights in and out of the Russian Federation immediately. Europe should refuse to accept any flights.

2. Close the border (100% not half way) between Ukraine and Russia and stop the movement of all goods going to Russia.

3. Kick Russia out of the G8 immediately.

4. Suspend Russia from the UN

5.  STOP all banking transactions between Russia and the rest of the world.

6. FREEZE the bank accounts of ALL Russian citizens in Europe. Yes ALL.

The EU should stop worrying about upsetting Mr Putin. He should be made to SQUEAL and feel the pain as a result of his actions.

Many many foreigners, myself included are ashamed of the weak actions taken by the EU.

The New Ukraine

Last night the proposed members of the new interim government in Ukraine were introduced to the people standing at Maidan. Today the parliament will decide and vote. Maybe there will be some further changes but at least by the end of today the country should have a new government.

Changes are taking place very quickly in the ‘New Ukraine’. Many changes can only be for the better and here are a few that I and many others would like to witness further:

1. Corruption – It has to stop at ALL levels in Ukraine. It would appear that everyone knew that Yanukovych and his regime were stealing money from the country and it was well known that ‘government people’ would never do anything to help you unless you provided some financial incentive. But it is not just those at the top who were corrupt. All throughout the system of government including the vast majority of state employees people were expecting a bribe. If you didn’t provide what they wanted then it was guaranteed you would have many problems. For example trying to obtain a work permit, residents permit, building permit, electricity connection the list is endless……there would be someone in the chain who wanted a payoff and sometimes these payoffs were huge in comparison to the work required. THIS HAS GOT TO STOP immediately.

2. Respect For The Rule of Law – This will be a difficult one. There is no culture of respect for laws in Ukraine. People do not abide by agreements. If Ukraine really wants to be a ‘European country’ it must stop acting like the wild east in the early days of post-soviet Ukraine. The police are in Ukraine are probably the most corrupt in Europe. Judges in the courts just cannot be trusted and bribes decide most decisions. Massive changes are required in the legal system. But maybe the one positive thing is that from now on people will no longer be afraid of the police.

3. Goodbye Government Mafia – The Yanukovych regime had zero respect for the citizens of Ukraine. Members of the government and parliament acted like they were far superior to everyone.  Drivers in Kyiv would witness the way that the regime would travel around in their expensive cars at high speed with total disregard for the law and other people. I doubt we will see any more showing off from Bentley/Roll Royce/ Mercedes drivers/owners. The government and parliament need to show RESPECT towards people.

4. Free from Oligarch Control – The country can no longer be controlled by a few billionaires. If they all disappeared today the country would still function without them. They are not gods but people who took advantage of post-soviet Ukraine and acquired many assets quickly. Moreover these few billionaires are not needed in parliament or government.

5. Free The Banks from Government Control – The new government needs to be reminded that soviet days are over, finished, no more. The Ministry of Income/Finance or whatever it will be called now should NOT be controlling what banks can do with their customers. Tax payments by individuals and businesses are NOT the responsibility of banks. The National Bank of Ukraine needs to stop acting like big bad brother. If someone wants to send a little money to their relatives in another country they should NOT have to jump through hurdles created by the government. Likewise receiving money into Ukraine should not be a nightmare experience for bank customers. THE PEOPLE MUST BE FREE TO DECIDE.

6. Allow a FREE MARKET ECONOMY to develop – Prices are far too high for many goods in Ukraine and in particular in the capital city of Kyiv. Ukrainians who have travelled to other countries are always shocked to discover how much cheaper they can by goods outside Ukraine. Clothes, food, cars, and even property are far too expensive in Ukraine and are the result of high margins set by traders. Ukrainians need to wake up and stop paying crazy high prices for simple goods and services. Why should Ukraine be more expensive than EU countries? Small and medium size enterprises need to be given the opportunities to develop in Ukraine through a genuine free market and not be controlled by big companies or government.

None of this will be easy. The new government will have tough decisions to make. Presidential elections will be held on 25th May and we all hope that a clear winner is chosen by the people and that the election process is void of any corruption. However the country also needs to make a clean sweep of the parliament and hold elections sometime during 2014.

This year Ukraine can finally bring about the changes that are badly needed to set the country on a path towards greater prosperity for all its citizens and not just a select few as in the past.

I’m sure the majority of people from Western Europe welcome the development of a New Ukraine.

The People Triumph in Ukraine

Well, the people of Ukraine finally did it.
Just in two days:

1. The Parliament voted to remove the President (328 votes from 450)
2. Passed laws to enable the release of Yulia Tymoshenko
    (she is now free from prison and on her way to Kyiv)
3. The people have full access to the Yanukovych presidential palace on the outskirts of Kyiv.
4. New Interim Ministers have been appointed.
5. Elections will be held on 25th May 2014
6. Created/amended a new constitution in Ukraine providing the Parliament with greater powers.

The past months in Ukraine the world has witnessed real people power. At times it appeared that the criminal regime of Victor Yanukovych would over power the people with force using the police and berkut and many unknown forces who we later saw to use violent force against unarmed Ukrainian people.
Too many lives have been lost and thousands injured in the process.

The determination of Ukrainian people has been exemplary.

Lets all hope and pray that this is now a bright new beginning for the country.

Ukraine – The Last Revolution - The only way forward or just a crazy idea?

The situation in Ukraine is looking more like stalemate every day. President Yanukovych has no intention of standing down and his Party of the Regions intend to stay in government. The opposition and ‘The People of Maidan’ are still demanding the resignation of both the President and his government. The next presidential election is exactly 12 months away.

Although the EU and US continue to release statement after statement condemning the government of Ukraine for its actions and both threaten sanctions against senior government people nothing appears to be working. Much rhetoric about a peaceful settlement will not change the peoples mind about Yanukovych. It is obvious that ‘The people of Maidan’ and maybe the rest of the country have decided – He must go.

You would have to be a complete idiot to not see that Yanukovych and his ‘Business family’ and The Party of The Regions are a corrupt criminal regime. They are not professional politicians. They care little about the people of Ukraine.  The regime places all emphasis on business. But only their business, the rest can go to hell. The parliament is run like a VIP club for the elite. Anyone trying to run a business in Ukraine who is not connected to the elite or a member of the Party of the Regions will come up against a whole range of problems from various government departments.  The threat of a visit from the Ministry of Revenue and Duties hangs over the heads of most business people. There is no independent civil service in Ukraine. Government employees are expected to do what they are told by the Party of the Regions. The same applies to Judges, Police, Teachers, Doctors and anyone that is paid by the government.

You would also have to be a complete idiot to not realise that the people will NOT give in this time. They have had enough. They have had enough of the so called elite club stealing their money year after year after year. The people want to live in a real democracy free from the fears of living under government control. Therefore this will be the last revolution in Ukraine. What of the future?

What is the way forward? – Well I’m sure that the majority of people in Ukraine would also agree that they have had enough of the same old faces in politics. They know that the current politicians including many in the opposition are corrupt. Ukraine has an unusual government system where the cabinet is still appointed with people from outside the parliament. You do not need to be a member of parliament to be a member of the government.

Therefore…here is my crazy idea. The next parliamentary elections in Ukraine will take place when the people decide but with a special restriction on candidates. Any current or previous member of parliament would be banned from running as a candidate in the next election. Members of the government would still be appointed by the NEW president and NEW prime minister but EVERY single member of the next parliament would be a new face. Parliamentary elections could be held at the same time as the Presidential election in February 2015.

This would help to provide Ukraine with a fresh start. This would help people to come forward as candidates who would not have considered it possible before due to the ‘party list’ system.

We all know that Ukraine NEEDS a fresh start.