Download - We’ve lost Ukraine… Or have we? A pivotal moment for investors Vira Nanivska Kyiv March 2011
We’ve lost Ukraine…Or have we?
A pivotal moment for investors
Vira NanivskaKyiv
March 2011
What’s happening in Ukraine? How deep is the problem? How does this affect investors? What’s the cure? What is the role of investors?
What’s happening in Ukraine?There is an incongruence between Ukraine’s current state
and its obvious potential due to its range of naturalresources, large domestic market, well educated population
and strategic location.
Ukraine is failing in most global ratings: In 2009, GNI was $2,800 per capita in Ukraine, compared to $9,340 in
Russia, and $42,450 in Germany.
In the Index of Economic Freedom, Ukraine ranked 164 among 183 in 2011, below Belarus, Russia and Uzbekistan.
In the 2010 World Bank Doing Business report, Ukraine’s investment climate was rated below that of Russia and Tajikistan. In terms of corruption, investors perceived Ukraine to be on par with Nigeria.
* Gross national income per capita 2009, World Bank. Source: http://siteresources.worldbank.org/DATASTATISTICS/Resources/GNIPC.pdf
How deep is the problem?
Democratic reforms are unfinished.
The government machinery was not restructured to align with free market democratic principles.
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District partyExecutive committee
Totalitarian political system
Regional partyExecutive committee
Town’s and Village’s community council, Executive Committee
One center of power legislative+ executive + judicial
One political party in power
All property in the hands of one p
Ministry Government
legislative executive judicial
Left Party Center Parties Right Party
Private Property
Private Property
Private Property
Regional State Administration Executive committee
District State AdministrationExecutive committee
Separation of 3 branches of power
Administration
Community council no
executive office
The community council of towns and villages
Community council no
executive office
Political leadership
How deep is the problem?
Unreformed executive branch
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legislative executive judicial
Left Party Centre Parties Right Party
Private property Private property Private property
Regional State AdministrationExecutive committee
District State Administration Executive committee
Central administrative machine
Community council no executive committee
The council community of towns and villages
Community council no executive committee
Political leadership
Fires Occur at All Levels, Between the Unreformed State Machine and Newly Established Institutions
How deep is the problem?
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Executive Branch - President
Administration of the President
Legislative Branch - Congress
Senate
House of representatives
General Accounting
Office (GAO)
Judicial Branch
Personnel department
Office of Personnel Management
Office of Management and Budget
Merit System Protection Board
(MSPB)
Equal Employment Opportunity Commission
Office of Government Ethics
The union of American government officials
American Federal Government Employees
Senior Executive
Service
Federal Bureau of Investigation
(FBI)
Cabinet Departments and Federal Agencies
Office of Inspector General
The system of educational institutions for training civil servants
Chief Human Capital Officers Council
Office of Management and Budget
VETERANS
MPA, BPA University Programs Office of Personnel Management Programs
PRIVATE SECTOR
Separation of Functions Among American Executive Authorities
Main Department of Public Service
8
HEAD
Financial Control in the Ukrainian Government
• The head of the government body is the sole arbiter of financial solutions regarding the budget and laws.
• Ratification is by that same official’s subordinate(s).
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HEAD
Permanent accountant
of the Ministry
Reportwww
Ministry of Budget
Permanent Inspector of the Ministry
Reportwww
Ministry of Finance
Internal audit
Reportwww
Reportwww
External audit expert
External reviews private companies
Reportwww
Branch Inspections
Reportwww
Financial Inspection
Administrative Inspection Reportwww
Financial Control of Government Bodies in France
Financial operations are controlled by permanent representative of the Ministry of Budget and of the Ministry of Finance on a daily basis;
Mandatory permanent internal audits and the supervision of independent state inspections and external private audits.
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The Principle of Institutional Separation of Functions in Democratic Executive Bodies
Employer Supervisory
Body
Body of Statistics
Policy-Making Body
Body ofEvaluation
and Training
Monitoring and
Inspection Body
Arbitration
Body of Statistics
Arbitration
Inspection and
ControlBody
SupervisionBody
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Democratic executive branch
EmployerPolicy-
Making Body
Body ofEvaluation
and Training
Ukraine has not yet separated functions in the Executive Branch
• Supervision• Employer• Policy-making• Evaluation and training • Statistics• Inspection and control • Handling complaints
Ukraine’s public service governing
body
How does this affect investors?The current state of public governance creates an uninviting investment climate.
The legal environment is unstable and constantly changing, making investment risky.
There is no protection for private property or fair competition. The government does not adhere to the principles of rule of law, transparency, and public participation in decision-making. Corruption is openly practiced, with no fear of punishment. Decision making procedures allow any official, quite legitimately, to block resolutions without any responsibility for the consequences. There is no fixed punishment for violating procedures.
What’s the cure?
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Apply European principles with effective legislation which:
– exposes violations and determines punishment for them;
– does not allow bureaucrats to make decisions at their discretion;
– secures the independence of control and inspection bodies from their audit subjects;
– is mandated to carry out regular control, auditing and monitoring of organizations, procedures, and standards;
– is mandated to audit the effectiveness of rules and regulations on an ongoing basis;
– is mandated to widely apply Deontological rules of professional conduct: what should and should not be done by a civil servant.
* Support for Improvement in Governance and Management (SIGMA). Source: http://www.oecd.org/dataoecd/4/58/829242.pdf
REFORM
Oversee compliance with the Constitution, human rights, national interest, the national budget, territorial integrity and national security.
CENTRALIZATION
Unifying legislation at the national level and bringing it in line with European standards.
Responsibility for the socio-economic development of territorial communities lies with its local elected governments.
Executive capacity at the local level to plan and spend their budgets.
Capacity in local communities to solve their most urgent problems.
DECENTRALIZATION
What’s the cure?
What is the role of investors?
Investors have great influence with their governments.
They can hold their governments accountable for making certain that technical assistance leads to concrete structural and institutional changes. Today, USAID assistance provides funds for projects and for project
leaders to evaluate their own project’s success.
They can continue strongly pressuring the Ukrainian government to follow through on promised reforms.