Protests before the Verkhovna Rada of Ukraine: how bad will the agricultural industry feel?
The development of agro-industrial complex (AIC) faces challenges as it is. Military actions in the Donbas region, the lack of the law on land – all this steadily deters investors and prevents farmers from running their business.
Another protest in Kyiv is likely to add up to these problems. As a matter of fact, no one can damage the agrarian sector or economy anymore – things are nowhere to get worse. Only time can tell if it can worsen the situation. Because much depends on the actions of authorities first and how quickly and efficiently they can resolve this conflict. Secondly, the IMF’s opinion on this can also influence the situation greatly.
It is no secret that the Cabinet of Ministers has long promised to adopt the land reform and anti-corruption laws among many other things. Much of this list has not been implemented. For instance, an adoption of the land reform was promised in spring but that not happened. IMF took this failure rather calm and no one left Ukraine without the loans promised.
But when it comes to other requirements, particularly, gas prices and taking anti-corruption measures — the IMF is inexorable. Pursuant to the agreement, Ukraine pledged itself to raise the gas prices by 17% for 2017-2018. Yet authorities do not intend to honor that pledge and their attempts to enter an agreement with the International Monetary Fund have led nowhere. Now, the question on raising the gas prices is postponed until April 1. Such position, as well as other non-feasance, makes the next tranche difficult to obtain.
The protests in Kyiv, however, can suspend cooperation with the IMF completely, which is crumbling as it is as we can see. Suspend until the year’s end if not for more. So, it is hard to tell when Ukraine obtains the new loan. Without this money, it will be hard to provide a sufficient financial support for the Ukrainian agriculture. In addition, the country must settle $1.1 bn. of the external debt and another $1.47 bn. as service payment. It is a lot of money and a big test for the Ukrainian budget.
And protests may interfere with the timely approval of the state budget for 2018. The Verkhovna Rada was ought to review the current draft on October 19 but postponed it until the next session scheduled for November 7. Would parliamentarians again be prevented from doing so? There is no exact answer. But the longer the budget is being adopted, the later the payments envisaged begin, including for the agrarian sector.
Finally, the protests can cause panic on the western exchange markets, where the shares of Ukrainian companies float. In this case, the latter will substantially drop in price. The panic on exchange markets can also result in appreciation of the dollar and prices in Ukrainian stores increasing with it.
On the other hand, all this is just an assumption. The situation in the agrarian sector is now relatively calm. Foreign investors continue to invest in Ukrainian agrarian enterprises. Thus, the Singaporean Olam International Ltd plans to build a grain terminal in Ukraine. One of the largest agrarian groups in Ukraine “Kernel” has also stated that they received investments from the European banking syndicate amounting to $200 mn.
Ukrainian investors are also alert. For example, the agrarian company NIBULON plans to build two new grain elevators before July 1, 2018. All this shows that neither European nor domestic investors do not see the protest as a relevant problem yet. Only time will tell if they are right to do so.
This post is also available in: Russian
Artem KovbelPartner, Head of Financial Investigations