“Shaheds are flying to Kyiv along the Dnieper,” a Telegram channel reported at night while I was writing these lines. For the Ukrainian people, it has already become a common occurrence.
The enemy is constantly trying to return Ukraine to the ancient times, when there was no technological development yet. Nevertheless, we survive to avoid succumbing to this destructive plan. However, our country is not moving forward. The Ukrainian population has only been surviving for 31 years. Apart from that, our politicians haven't learned how to develop a strategy. We are still looking for answers in the cases of the past, although we already have the “Diia” application and the digitalized agricultural sector. Citizens of Ukraine have one of the best foreign passports, but we do not have real economic freedom. In addition, we forget one language, but we don't learn English.
Ukrainians abroad create five times more GDP than Ukraine's GDP in 2021.
This impasse will end when the true Founding Mothers/Fathers emerge. Not "statesmen" who think in terms of the annual budget. Not "masters with experience", - the experience of wasting opportunities will not be needed.
They will not be geniuses – but they will have an idea of how Ukraine should develop and the courage to implement this plan. Their political ambition will not be to create such things as a "portfolio" or "a meter of the state border", but to create conditions for the manifestation of talents and leaders.
If our country faces a long stage of development and economic growth, then it is better to start this process earlier. The 30-year-long assertion by Ukrainian politicians that many changes in the economy are now untimely led to the fact that our country simply lost its opportunities and short periods of economic growth. Conditions for new industrial potential and infrastructure have not yet been created in Ukraine. The nation was not taught to think economically, the government did not make entrepreneurs and inventors the main actors of the labor market. Furthermore, officials did not protect the rights of investors and creators. It is worth noting that timely liberal reforms would allow Ukraine to triple its GDP in 2021. Such countries as the Czech Republic, Bulgaria, Poland, Lithuania, Turkey and many others have already taken this path.
Now, time has come for Ukraine to take the first step towards becoming a strong economy.
The formula for the modernization of Ukraine
Back in May 2022, at a forum in London, where representatives of international organizations, the government of Ukraine and the public sector were present, this formula was worked out:
- Not the restoration of the destroyed outdated infrastructure, but Modernization – modernization of all spheres, from infrastructure and economy to education and Ukraine's role in the world.
- Ukraine can and should take the lead in the formation and implementation of the Reconstruction and Modernization plan. Also, Ukraine must independently determine its own development strategy.
- Start Now – planning and implementation of plans should begin at the current moment, not after the victory of Ukraine
- Inclusive triangle – involvement of Ukrainian civil society and business in the formation and implementation of the Modernization of Ukraine plan. Exactly this configuration will allow the implementation of the anti-corruption policy and the realization of Ukraine's interests.
Seven months have passed since May, but we return again and again to the antitheses:
The first one is Resilience and Survival instead of Modernization. There is more and more understanding among international partners that Ukraine can become Europe's Next Big Thing. However, once again - even Ukrainian officials - return to the formula "if only everything could be restored".
The second one is the transfer of limited resources with the leadership of European institutions (but without separate institutionalization involving Ukraine). Distrust of the Ukrainian government dominates the decisions of our partners.
The third one is the notion that some new implementations are "irrelevant" in modern conditions. The basic approach of our authorities remains careful assistance and dealing with the problems that have already arisen. Anticipating Russian terrorist attacks on Ukrainian civilian housing, logistics, and energy infrastructure, we have been asking to close the sky over Ukraine since February. However, the West's refusal to do this gave Russia freedom of action. Today, there are other challenges that can become real, and it is necessary to reduce their impact now. This is a significant reduction of the Ukrainian agrarian sector (the 2023 harvest is approximately twice as low due to a lack of mineral fertilizers, increased logistics costs, lack of financial resources, etc.). Besides, the risk of fuel shortages due to a large number of generators, destruction of infrastructure, etc. In addition, one more issue is presented by the impoverishment of the population (poverty level may reach 30%+ next year). Another problem can be seen in the termination of entrepreneurial activity due to unpredictable actions of the state and lack of access to financial resources. In addition to these challenges, many other problems may arise. It is possible to prevent all this if we work on identifying risks and if the help of our partners begins to precede the actualization of these risks.
The fourth one is that instead of inclusiveness, such concepts as the inflexibility of the state system, over-bureaucratization and constant attempts by politicians to discredit business and the public sector remain a reality.
On the sidelines of numerous conferences, our international partners repeat one word: corruption. However, what is behind it?
Western big business that is considering investing in Ukraine asks the question: "Is Ukraine corrupt? So you haven't worked with (name of African country) yet. The president is corrupt there. The whole government there is corrupt. Even the president's dog is corrupt there."
Well, yes, the scale of corruption in Ukraine is getting bigger (including thanks to our enemies), they are doing this to reduce aid and investments from the West. Albeit, its scale is really impressive – corruption was the first thing to recover since the end of February. There is another important point in this regard. Western businessmen say: "You can convince me that Ukraine is not so corrupt that it makes sense to invest now. However, my partners are sure of the opposite and if I start investing, what will they think of me? That I took part in your corruption?".
That is why we need a fight against corruption in the field of communication, and essentially (destruction of its economic prerequisites).
However, we all – both civil society in Ukraine and international partners – were wrong about the way to fight corruption. Administrative measures and the creation of anti-corruption institutions have been the basis of the struggle for the last eight years. Although, without destroying the economic prerequisites of corruption, we will not change the social contract and eradicate it.
Corruption Hydra (a term we proposed back in 2014) cannot be defeated by "cutting off heads" - by punishing individual corrupt officials.
This is due to the fact that in Ukraine, the tax system, customs system, regulatory system, rights protection system do not correspond to the level of economic development and challenges.
The only way to defeat this Hydra is to detach it from the state budget, destroy the economic prerequisites of corruption, and move to a new social contract.
The sources of corruption are the commercial activities of state-owned enterprises, the tax system inadequate to economic challenges, the customs system, public procurement, and the regulatory system.
According to our decision, the following changes should happen:
- total privatization (several dozen strategic enterprises should remain in state ownership);
- anti-corruption tax reform (not only the reduction of tax rates, although, in fact, the reduction is an important element of the destruction of the current agreement "inadequately high taxes - the possibility of avoiding their payment due to an agreement with the taxman");
- customs with the recognition of the customs bases of trading partners, the involvement of outsourcing international agencies and other solutions;
- strengthening of AMCU and the influence of industry associations to prevent state and local tenders with a predetermined winner;
- a regulatory "guillotine".
Implementation of all these reforms will not only significantly reduce the level of corruption, but also reduce budget expenditures and trigger economic growth. According to the calculations of the Anti-Corruption Tax Reform team, in the worst case scenario, this set of reforms may lead to budget losses of UAH 150 billion in course of one or two years. However, this is the worst possible scenario, when the help of partners will be needed to cover the possible insufficient amount of budget revenues with a financial resource. Nevertheless, eradicating corruption in our country is worth it.
There is one more point that we have to agree on with international partners: The transformation period. European integration is a great opportunity for Ukraine (for the EU as well, but this is a separate topic of modernization of the Union itself). However, to be integrated as a poor country with limited access and a "deeply" corrupt state is to lose another decade to "frozen growth." We need a transition period lasting 3–5 years for an economic breakthrough in the conditions of a liberal economy, total deregulation and special conditions for access to European markets. During this period, we will have the time to lay the foundations of the new economy, begin modernization of the infrastructure, and develop small and medium-sized enterprises.
Ukraine, as the most suitable country for doing business, investments and self-realization of a person, due to its loyal legislation system. This is what we should strive for, namely, economic freedoms and protection of rights.
The results of the year of war for the economy
Much has been said about the stability of the Ukrainian banking system, the heroism of energy workers, the speed of postal operators and the stability of telecoms. In addition, Ukrainian business has proven its patriotism and stability more than once. During this large-scale aggression of the Russian Federation, 90% of entrepreneurs (research by Advanter Group, CID) implement humanitarian projects and help the Armed Forces of Ukraine and the Territorial Defence Forces. If in March 85% of enterprises stopped, as soon as in May this indicator decreased to 35%.
Considering this fact, it can be seen that the business continues to recover, looking for new business models and export markets.
Moreover, since September, enterprises have been actively creating new jobs.
What is particularly pleasing is that business has learned to unite in recent years. Also, business associations have strengthened. In the end, 95 business associations created the Coalition of Business Communities for the Modernization of Ukraine. Representatives of the coalition entered the Economic Headquarters together with representatives of the government.
At the horizontal level, entrepreneurs are actively creating clusters.
At the same time, business received both help and destructive influence from the state.
Blocking of tax invoices affected 50.4% of enterprises (Advanter Group research). Along with the overpayment of income tax, tens of billions of hryvnias were "removed" from the business for the benefit of the state budget.
Given the decrease in bank lending, business was left without a financial resource, which led to a significant weakening of both domestic investment and the rate of recovery of business activity and the return of jobs.
As a result, there was a transfer of the activity of patriotic businesses to other countries - because the question of business survival arose. In total, according to our estimates, as much as about 12% of the added value was "relocated" from Ukraine to neighboring countries.
The deterioration of conditions for business and actual destruction of liberal reforms allowed the state to pursue a policy of creating unfavorable conditions for business, filling the state budget at the expense of blocking business activities (blocking tax invoices, which are eventually removed through court decisions, actually means free crediting of the budget at the expense of business, which already in February and March paid taxes in advance on its own initiative).
As long as attractive conditions are created for Ukrainian business in Poland, Lithuania, Romania, Bulgaria, the Czech Republic and other neighboring countries, and in Ukraine itself the conditions are aimed only at the destruction of business in this country, it is impossible to hope for a quick recovery of the economy, and even more so for breakthrough economic growth. The policy of the anti-liberal power bloc lays the foundations for an economic disaster.
The consequences of which are the expected decline of the agricultural sector in 2023, the mass relocation of creative and IT businesses, the opening of industrial enterprises outside of Ukraine, the lack of direct foreign investments, even in spite of ready-made war risk insurance procedures.
Global challenges and opportunities
The year 2022 became a turning point for the world in the sense that most of the risks of the phase transition have already become a reality. Nuclear blackmail has already stopped scaring politicians – and forced them to act. Europe quickly (phenomenally quickly for the European bureaucracy) found a way to abandon cheap Russian energy carriers.
In 2023, the US will have to undergo internal political transformations, particularly in the Republican Party, in order to get rid of the destructive effects of former President Trump's policies.
China is focused on domestic economic and social (COVID, poverty) problems. In addition, that country in 2022 encountered the actual loss of opportunities for a quick war scenario in relation to Taiwan due to the discredit of Soviet and Russian military technologies and the armed forces of Russia, which could be an ally of China in such a war. Accordingly, China will spend the next five years rebuilding its army and economy.
Meanwhile, Saudi Arabia, India, Brazil, and Indonesia will strengthen their influence on global world processes. Furthermore, in a strategic perspective, this will make the world safer and reorient it to the joint solution of global problems of humanity.
The economic crisis, which has been postponed since 2017 by the refusal of world institutions to recognize the need for radical changes in the financial sphere and the economy in general ("just not in my term" is the Western analogue of the Ukrainian "irrelevant") and the provision of huge sums of money to the world economy, is already approaching its lowest point. Although, we will still see recession and high inflation in the EU and, possibly, in other countries and regions in 2023, this should already be the last period of turbulence before the beginning of the formation of a new financial and economic model of the world (neo-capitalism).
A critical number of social changes has also accumulated, the main driver for them is no longer millennials, but all those who have adopted new values and behavior models (infantility, impressions instead of burdensome assets, global thinking, entering different communities, etc.). Two billion people play online games. Meanwhile, 42% of people in the world are ready to give up work in favor of games (of course, if they are provided with unconditional basic benefits). Education, family relations, sex, brands have already become a game - in the broadest sense of the word. Apart from that, work and the state also become a peculiar concept of the game. Tomorrow - when 80% of technical specialists in Ukraine will be able to control combat drones through " Diia.Defence" - state security will also become a game.
In 2022, a breakthrough in quantum computing was made (IBM released a quantum processor with 433 qubits and plans to release a 4,000-qubit processor), China and Japan set records for the speed of operations, and the most powerful European quantum computer with more than 5,000 qubits was launched in Germany. Humanity has accumulated a hundred zettabytes of data on the Internet, and we cannot do without fundamentally different approaches to data analysis in matters of digital security, studying the universe and human nature, and curbing the consequences of global climate change.
Apart from that, CRISPR/Cas9 genetic scissors reveal the causes of a wide range of diseases and lead the scientific community to invent new ways to treat them.
Furthermore, space telescope named after James Webb recorded the GLASS-z13 galaxy, which is more than 13 billion years old (it is the oldest known object in the universe).
NASA's DART space mission has proven in practice that a shock probe can deflect a space body if there is a threat of collision with the Earth.
Moreover, for the first time, it was possible to obtain more energy from a thermonuclear reaction than was spent on it - which opens the way to the creation of an inexhaustible source of clean energy and brings humanity closer to the creation of thermonuclear power plants and thermonuclear rocket engines.
It would seem strange to watch how scientists around the world study the genome and galaxies for 100 million light years during those terrible events taking place in our country, when Ukraine is fighting for survival and future. However, this is all also about our future - about the survival of humanity, about our ability to resist probable new challenges.
In general, next year we will see the beginning of fundamental reforms of the world security system, global institutions, the neo-renaissance of the EU, the reconstruction of Russia and the entire post-Soviet space. Although, what role does Ukraine play in these processes?
Scenarios for Ukraine
In 2021, in almost all of the strategy sessions that were held for business and the government, the scenario for our country included two main points:
- the beginning of large-scale aggression or "neither peace nor war" strategy;
- economic degradation, "wringing out" of business ("hetmantsevization" of the economy as a term comes from the name of Danylo Hetmantsev, chairman of the Verkhovna Rada Committee responsible for financial, tax, and customs policy) or liberal reforms. Although in most communities the scenario without war and with reforms was chosen as the most likely, our government still prepared in advance the methods of business relocation and strategies for how to support family and employees in the event of the outbreak of war, etc. If a year ago preference was given to the positive scenario, then at this year's strategy sessions, the majority chooses the negative one.
The main points of the next year's strategy are now:
- victory/peace or continuation of hostilities until the end of 2023;
- economic recovery and growth or a weak economy and further "hetmantsevization".
Prolongation of the war and economic decline - as the most likely (in the opinion of many business and public associations and experts) scenario, aptly called "Invincibility" at one of the sessions.
All this is again about our resilience (however, more often - "survival"), and not the ability to take advantage of even the worst conditions for fundamental changes and breakthroughs.
It is worth noting that even under a positive scenario, namely, a victory over Russia can be our economic defeat. Today, the decline in business activity (Ukrainian Business Index works best as an early market signal of a change in the situation) is associated with both missile attacks and blackouts, as well as state actions (lack of funding, blocking of the tax invoices). The unpredictability of the actions of the state or the corrupt actions of public officials result in the suspension of investments, the acceleration of the transfer of business activity outside Ukraine.
Therefore, the key factors are precisely the positive signals from the state for business and the real fight against corruption.
As a verdict on the current economic system, a few numbers will be shown:
- Ukrainians registered 12,000 companies in Poland this year;
- after this year's drop in GDP by 35%, next year we expect (i.e. "work on"?) growth by 1–3%. That is, we deliberately refuse to search for breakthrough solutions for accelerated growth;
- UAH 160 billion was artificially taken to the budget from business (overpayment of taxes, blocking of the tax invoices), but banks actually do not lend to the real sector of the economy, — business was left without access to financial resources;
- 90%+ of decisions in business court cases against the actions of the tax authorities are passed in favor of the business. However, 90% of entrepreneurs optimize the payment of taxes in different ways (from sole proprietors for whom salary plays an important role to individuals who embezzle revenues from the state budget at the stage of tax collection). Still, 90% of entrepreneurs finance or help Territorial Defence Forces / Armed Forces of Ukraine, implement humanitarian projects.
What else needs to be said about the inadequacy of the tax system, the economic policy of the state in general and the economic realities of Ukraine?
We need freedoms, protection of rights, the most attractive conditions for doing business (as a temporary compensation for war risks and a small domestic market, low productivity), access to financial resources, and the state and society's focus on development.
Furthermore, let's add to the risks of the future the demographic crisis in Ukraine (migration, declining birth rate, aging population), post-war trauma, misunderstanding of the socio-demographic map of the country at the state level, and the geography of the location of productive forces. Apart from that, the probability of compromises of Victory and peace: Ukraine will be satisfied only with the liberation of all territories and the demilitarization (preferably deconstruction) of Russia and its payment of reparations, but the Minsk-3+ scenario remains possible.
How to prevent worst-case scenarios from unfolding and realize opportunities?
Reestablishment of Ukraine
We can take advantage of this terrible but decisive moment in our history. The war of national liberation should also become liberation from post-Soviet models in society and economy, in culture and education.
The re-establishment of Ukraine, namely, new social arrangements can be based on what unites us. Namely, to unite everyone – both those who are at the front and those who are abroad, different in age and experience. After all, history (and even the experience of participating in reforms) divides our people. While the desire for a better future unites it.
This year, we discussed the strategic future of Ukraine with dozens of communities. The Civil Society Manifesto ("Luhansk Declaration", supported by more than 250 organizations) and the Memorandum of the Coalition of Business Communities for the Modernization of Ukraine were created. Discussions will continue in the new year and will not stop in the future. However, at a certain point, civil society (its representatives may be called the Founding Fathers and Mothers) and the state authorities must fix the idea of the future and start creating new policies and new inclusive institutions based on its description.
So, what can Ukraine become for every Ukrainian?
- A strong, successful country that is respected and of which I am proud.
- A country in which there is a lot of work, in which I can provide my own family with well-being, education, medical care, and this is the result of the economic development that we are creating.
- A comfortable, safe state that will take care of those who cannot take care of themselves.
- The country of the best opportunities for development and innovation, realization of one's own talents and aspirations.
- A country that needs me.
What to do now
For next year, the budget foresees economic growth of 3% (compared to minus 35% this year), as well as justifying the lack of radical changes with another thesis that such an approach is not relevant now.. Just like in 2014, 2016, 2018, 2020.
However, the New World needs new meanings, policies, and relations.
The task of a doctor today is not only to treat, but also to teach a responsible attitude to health. So is the task of the state and civil society – to help citizens think independently and take responsibility. We have to overcome our social paternalism.
We live in the best country.
We just need to ignore those who say that nothing will work out in our country, that corruption is insurmountable, that there are scoundrels in business and therefore there is no need to carry out liberal reforms.
It is necessary to stop looking at Israel or Korea, Singapore or Cyprus and finally make our own progress.
To believe in our ability to be the Next Big Thing, not only for Europe.
We will be both the center of the world security and the center of a new culture.
Video clips will be shot in Ukraine not because it is cheap, but because it is beautiful and modern, has cool professionals and sky-high creativity.
Here, in Ukraine, will be the financial center of the New Economy.
And the first cyberocracy.
And a magnet for talent.
And a startup country.
We will do all this. Do not believe those who say that all this is just "rosy dreams". Fire those who demand bribes.
Avoid the desperate.
Don't waste time on haters.
Glory to our defenders!
And we thank everyone in the world who supports Ukraine.