Democracy Watch, 2011 - Issue 24

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Ukraine’s political direction and business regulations are failing to attract investment, causing drops on nearly every international rating and lining the pockets of corporate raiders. Rather than fight the decline the government opts to impose new restrictions on freedom of speech instead.

The game of Ukraine is only as good as its rules

According to the International property rights index, Ukraine is number 127 out of 129 countries when it comes to the protection of private property(1). By adopting illusionary reforms of the court system and regulatory policy, the authorities become no more capable of establishing transparent and unified rules for the economic and political arenas.

As a result the country is loosing the confidence of foreign business. Foreign direct investment in Ukraine in the first quarter of 2011 was only 894.3 million US dollars.

As of 2011 Ukraine has fallen from 78th down to 89th place based on the Global Competitiveness Index, from 132th to 145th seat according to the Business Conditions Index and from 112th to 164th place according to the Index of Economic Freedom. By failing to confront the lack of economic transparency the current government, the members of which are primarily big business owners, play against themselves by failing to attract important investments into Ukraine, and their own projects in particular.


People First Comment:

Let’s face it… Our leaders simply don’t seem to understand how societies work. The majority of the world lives within the generally accepted principle that the rule of law is a good thing for society and that without the rule of law societies simply degenerate. In Ukraine our elite believe that they can fly in the face of modern civilisation and build a society that will work almost exclusively in their interests. They fail to see that their approach has negative consequences for both the people and themselves. The opposition in their turn has failed to offer any viable options or strike an effective compromise with the government for the sake of the nation.

In the first 3 months of 2011 foreign direct investment into Ukraine has fallen year on year by 73.75% as the international business community demonstrates that the business risk in Ukraine is just too high. Most of the money that is being invested is coming from Cyprus, in other words it is Ukrainian or Russian money coming home. In the past the politicians have been able to blame their singular inability to attract serious foreign investors on the economic crisis or the gas crisis or the Russians… but today the only thing to blame is current governmental policy.

Stability or stable decline?

2011 has not been a good year for Ukraine’s standing in many global ratings(2). Social development is down 7 places in the United Nations rating, dropping Ukraine to the 83rd position. Forbes magazine rate Ukraine as forth place in the world for ‘worst economies’ beating only Madagascar, Armenia and Guinea. The FBK, an auditing consultancy, Progress Rating positions Ukraine as second to last on a list of 101 countries.

Ukraine is falling in every respect: UN Human Development Index 64th to 69th; World's Best Countries to Live in 62nd to 73rd; Economic freedom 109th to 127th; Corruption 99th to 134th.
The negative estimate of Ukraine by international organisations covers such a diverse range as to rule out any individual political prejudices. It instead depicts a world with genuine concerns over the economic situation in Ukraine and the social impact of such a decline.

All eyes look to the President to stem this downwards slide and stop Ukraine becoming the black sheep of European politics.

People First Comment:

In January 2011 we published a league table using 2010 data of 25 major international ratings where Ukraine was either at the bottom or close to the bottom. However over the past 12 months, instead of improving the outlook the current government has succeeded in reducing the national rating of Ukraine across more international indicators.

Human development: Minus 5 places
Social development: Minus 7 places
Best countries to live in: Minus 11 places
Economic freedom: Minus 18 places
Corruption perception index: Minus 35 places

The worst of which is the 35 position fall in the corruption perception index which must be an all time record for a government that claims to be fighting corruption. Add to this the FBK Progress rating where Ukraine is 100th out of 101 countries and it is little wonder that the good people of Ukraine have virtually given up on the whole political system when their elected officials have presided over an social and economic environment which now ranks Ukraine as the 4th worst economy in the world. At this rate the government stands a good chance of reaching the Guinness Book of Records for the fastest rate of national decline in Ukrainian history, if not in the modern world.

Corporate raids return to Ukraine

The practice of illegally seizing businesses from their rightful owners is returning in Ukraine. Ukraine’s corporate raids arise out of competitive conflicts and usually involve pressure from law enforcement authorities and a final court decision that favours everyone except the lawful owner. Recent examples include: "Indar" Kyiv plant, "Investor" Kharkiv joint-stock company, "Rosava" plant in Bila Tserkva, "Nemiroff" distillery and many others. Just four years ago Mykola Azarov, at the time first Vice-Minister, claimed that corporate raids had been eradicated in Ukraine.

Experts and Ukrainian businessmen alike can only see the problem of corporate raids escalating. According to Antiraid, a Ukrainain entrepreneurs Union, there are currently more than 10 professional raid groups in Ukraine. He mentions over 800 cases that his organisation has confirmed as corporate raids. The Antiraid Union’s investigations inform that over the past five years 3.5 thousand corporate raids have taken place, valued at between four and five billion US dollars.(3)

If the authorities fail to prevent raids from engulfing the entire country, Ukraine will be completely and irreparably discredited in the eyes of the world’s investors.

People First Comment:

Sadly this is what happens when groups within society are allowed to live above the law and the legal system is corrupted to the point of paralysis. The recent riots and looting in London are a classic example of what happens when those at the bottom of the ladder challenge even civilised authority, whilst in Ukraine we have the opposite where a small group of the financial criminals, seemingly backed by political immunity, believe they can challenge the social integrity of an entire nation..

One of the higher profile cases was the raid on a large jewellery factory in Kiev where around 40 men wearing something similar to Militia uniforms ‘invited’ the director to sign over his company to new management. He was given 5 days to think about the offer. On the deadline 75 similarly dressed men arrived, beat him up, trashed his offices and gave him till Monday to reconsider. Over the weekend he and his family left the country taking all the legal documents and the company seals effectively shutting down the company. What did the thieves achieve… nothing apart from depriving a few hundred innocent employees of their livelihood.

This is happening all over Ukraine as a direct result of the breakdown of law, order and the legal system. The lawlessness of the current environment simply encourages this type of banditry but there will come a point when there is nothing left to raid and that is when the bandits will start turning on each other. Four years ago Vice Prime Minister Azarov stated categorically that corporate raids were a thing of the past… so how come the phenomenon has returned with such force under his Prime Minister-ship?

Access denied: new law threatens online free speech

The parliament of Ukraine has registered a draft law (N6603) governing restrictions on the use of the Internet. This law if approved will require all the Internet publications in Ukraine to register as information agencies; imposing strict standards of information and taxation on electronic media(4). By reclassifying Internet publications as information agencies the authorities will be able to choose which publications are, or are not allowed to be seen. This is what a direct pressure on the freedom of speech really looks like.

The authorities are well aware of the Internet’s capacity to distribute anti-authority information, consolidate of protest groups and coordinate their actions.

The law appears set to be approved by late autumn. If so all entities from online news portals to individual bloggers will have to apply for registration approval. Lets hope that common sense, or common disapproval, will win out over fear and the Internet will remain a free territory in Ukraine.

People First Comment:

In his analysis of the role of the Internet in the 2004 Orange Revolution, Joshua Goldstein of the Berkman Center for Internet and Society suggests that the lack of legal restrictions on Journalists’ use of online media was one of the key enabling factors of the historic Ukrainian uprising(5). The reason for this is that Ukrainian legislation has always viewed online communication as ‘personal’ rather than mass-broadcast, freeing it from the threats of defamation charges that motivate self-censorship in the print, radio and television media.

Times however, appear to be changing. By enacting this new law the Authorities will on the surface be able to properly regulate, and collect taxes from, online publications. However, in the background they will have become the gatekeepers of online free speech; able to refuse or remove licences from anyone whose posts offend their political sensibilities. If this is indeed the intended affect then the following steps are clearly defined: see Belarusian President Lukashenko’s 2010 decree (NO.60), which has entirely removed Internet user anonymity or the long-standing great firewall of China that ‘protects citizens from dangerous information’ by denying them access to any accounts of Chinese affairs not authored by the State.

If the true purpose of this legislation is to combat the popular uprisings of the future, perhaps the authorities would do better to focus on developing policies that restrict the incentive to protest, rather than the method of its mobilisation. Dissent is not an Internet-only phenomenon; revolutions have happened for thousands of years, usually when one too many freedoms are taken away.

In reality the ruling authorities should not worry that the internet will turn voters away as the opposition is degrading at a similar rate due to their singular focus on the war for their own seats in the government. If it were not for their equal unpopularity they would at least have created a protest movement of a few thousand people out of millions dissatisfied with this government.

Quote of the week:

No choice we can make as a nation lies between our history and our geography. We can hardly change either of them. They are immutable. The only choice we can make as a nation is the choice about our future.

Paul Keating
24th Prime Minister of Australia (1991–1996)

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