It is not difficult to understand why Ukrainians complain about the economy. We are products of the Soviet Union's predictable economy and haven't yet fully adapted yet to the vibrating and ever-changing market economy. We understand that slumps in prices, changes of partners, variations of supply and demand, and changes in consumer tastes and preferences are natural, but are haunted by nostalgia for the stability and predictability of the demand economy, which served as a wall we could hide behind for rest. The free market has deprived us of these privileges, so the tears over the stability and predictability shed by the descendents of the planned economy are quite understandable.
It is more difficult, however, to comprehend why foreign businessmen in Ukraine complain. After all, they were brought up in the competitive market environment and know no other rhythm of entrepreneurial activity. Some of them unfairly blame Ukraine's "unpredictable market" for their failures.
Frankly, the rules governing this country's economy are unpredictable. This is obvious. But there is a certain (and forgive my pun) predictability about the unpredictability. This is the rule of growth, a naturally determined continuous perfection based on both your personal experience and the experience of the people sharing the same fate with you. The foreign businessmen who understood this principle work in Ukraine rather successfully and with enviable prospects.
Some businessmen - both Ukrainian and foreign - have profited by and wish to continue to profit by exploiting the very uncertainty that so sidetracks others. They are accustomed to working in chaos. They see reforms that would make the economic conditions more predictable or that would change the rules - either legislatively or administratively - as a direct threat to their continued profitability.
Businessmen ready and willing to accept improvements in legislation are vexed by a different demon: They never know when, if ever, laws will be enforced or regulations implemented. Changes arrive as a bolt from the blue, usually in the form of an enforcement audit. This is Ukrainian reality.
This is reminiscent of the situation in 1941. Everyone from Stalin to the average citizen knew that the war against fascist was imminent. Everyone prepared for the coming war, but when the first attack eventually come, it was unexpected, and with tragic consequences.
Complicating matters further, there are laws, and there are imitation laws. Few observers are able to know the difference. The Cabinet of Ministers (we have had seven since independence) issues all manner of resolutions, most of which are declarative. A declarative resolution - an imitation law - has no effect unless it is ratified. Even if ratified may or may not wend their way down through the bureaucracy to the enforcement level.
Given the country's legislative and administrative vagaries, is it any wonder that merely having laws on the books is of little help when it comes to making predictions on either a macroeconomic or microeconomic level?
As a result, prognoses advanced by foreign audit companies and graduates of the country's most prestigious business schools are largely unhelpful, and entrepreneurs give little credulity to these forecasts.
Analysts from the Economy Ministry and the European Bank of Reconstruction and Development forecast Ukraine's GDP growth for the first quarter of 2003 at between 4 percent and 4.5 percent. They were surprised when the figures showed an actual increase of 7 percent during the quarter, because it contradicted a universally accepted axiom that the first quarter of a year reflects economic growth witnessed during the last quarter of the preceding year. Fourth quarter 2002 GDP had been 4 percent. In fact, 2003 GDP was 8.5 percent - twice the amount projected and despite a poor grain crop. Other segments of the economy lagged the industrial sector, which registered growth of 15.8 percent - the highest in 35 years.
Analysts in Western countries are rarely so far off in their estimates. Here, the mistake was a pleasant one - the government ended the year with more tax revenue as a result - and the error was not the fault of poor analysts, but rather the result of the number of non-typical processes characteristic of the Ukrainian economy.
To some extent, those non-typical processes are to be expected. We are witnessing a great large-scale conversion of the military-industrial complex. In Soviet Ukraine, the military-industrial complex consisted of approximately 3,700 plants and factories, some of them giants with more than 50,000 employees. After the collapse of the Soviet Union, Ukraine reduced the number of military enterprises to 300, leaving some 3,000 plants waiting for orders that will never be placed, without money, which was lost during the period of hyperinflation, without any conversion plan and even without leadership.
Through a miracle of professionalism, patriotism and enthusiasm, some of the plants' workers began to restructure, modernize, and reorganize bankrupt factories, and they are beginning to emerge from the ashes. Last year, machine building, which was the core of the former military complex, managed to achieve impressive growth of 35.8 percent.
Although we still primarily export raw materials and semi-finished products, hope for positive changes in foreign trade emerged. We hope to start trading in high-tech goods, among them Ukrainian aircraft, commercial rockets and modern heavy transport machines. Step by step, the non-ferrous metallurgy plants are resuming their activity.
Slowly but surely, Ukrainian high-technology products are entering the international marketplace. Ukrainian plants produce 17 out of 22 basic technologies used in rocketry. The country is among the top ten shipbuilding nations, and one of the biggest weapons exporters. We are also in the top seven countries to produce aviation equipment. Despite the state of lethargy, science has survived and is recovering. Statistics also indicate that our devastated electronics industry is reviving as well: Ukrainian-made computers and mobile telephones are on the market. Ukraine is also positioned to continue its leadership in the development, manufacture and export of arms.
Experts say that in 2005 Ukrainian industry will have rebounded to where it was in 1990. Given the remarkable progress that is being made, this is merely a reminder of the gravity of the setback that was dealt to the country, and to the progress that has been made by applying modern technologies, finding and staking claims to market niches.
Despite the obstacles, foreign capital continues to come to Ukraine. The example set by courageous foreign investors who have been here for years are inspiring new players to enter the country.
Foreign businesspeople with whom I've spoken over the past several years know that Ukraine will eventually and inevitably find its footing. They say that the same laws that work in other countries with market economies will invariably be adopted and work here.
As a result, from the very start they tuned their entrepreneurial activity to these universal principles and the rules of the market economy. They were sure that Ukraine would soon find its place in the world economy. And in the meanwhile, when there was an opportunity to use flawed laws to make a profit, they did not miss it. But when these favorable conditions disappear, they will not consider it time to leave. They will be ready to compete in that arena as well, as they have in other countries.
That is not to say that there will not be victims as Ukraine moves into the economic mainstream. Investors who took advantage of the chaos alone, believed promises made by unscrupulous officials, and are unready or unwilling to operate in a competitive environment will surely lose. But far-sighted businessmen who laid foundations for sustainable enterprises will outnumber the losers.
The chaos of reforms is natural. The ability to thrive in a chaotic environment is grounded in the ability to accept the chaos for what it is, to understand the tendencies that result, and to find the right ways to use them.
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