I just arrived in Ukraine and wasn’t sure about the local laws, so I asked a passing policeman, “Can I park here?” He looked at me and my car. He paused to think. He looked back at me and back at my car. He paused to think again and finally said “ehhh, ok, I don’t mind.” But when I asked if the next passing policeman “would mind,” he refused to answer. I quickly learned that having a law and enforcing a law is not always the same thing – whether you are obeying it or disobeying it.
After I shared this story in a few meetings with local businessmen and investors, they nodded their heads and explained how doing business in Ukraine has a very similar problem. Ukraine achieved its independence in 1991 after the fall of the Soviet Union, but democracy and prosperity remained absent as widespread corruption and a culture of state control prevented meaningful political, economic and civic rights reform. In 2004, the Orange Revolution forced authorities to overturn a presidential election and implement a more democratic government. However, the country is still considered to be run by powerful oligarchs with endemic corruption. Since the fall of the Soviet Union, the country has been a focal point in the Western and Russian struggle for regional influence. It is divided with those, particularly in East Ukraine, seeking a stronger alliance with Moscow and others, particularly in West Ukraine, striving for stronger integration into the European Union. A likely and beneficial approach may be to engage in both directions, but permanently align with neither.
This geographic position provides tremendous opportunity for Ukraine. Ukraine has potential to become a leading exporter with high economic growth due to its convenient export access to Russian and European markets, very cheap labor and a potentially strong domestic market of 46 million people. However, until they start showing signs that they will attempt to fix their corruption, lower / simplify their business tax structure, make it easier to enforce contracts and start providing more tangible incentives to foreign investors, I will not be an optimist on their economy. It is crucial for them to leverage European trade agreements to work towards having more European legal and business standards. Otherwise, it is unlikely that their economy will experience significant and sustainable growth. Economic growth often requires a country to be more attractive than its peers and currently Ukraine has similar benefits of countries like Poland and the Czech Republic, but with a significantly less reliable business and legal environment.
One thing to note about Ukrainian people is that while they appear very stern and serious in public, they were some of the best hosts I have ever encountered. Hospitality and the ability to form warm and informal relationships are central to the Ukrainian national character.