30-Somethings Remake Ukraine
The recent public squabble between two Ukrainian billionaires, President Petro Poroshenko and Igor Kolomoisky, over control of two state energy companies may create the impression that Ukraine's economic reforms have bogged down in traditional oligarch infighting. But this is not strictly true. In recent months, the intellectual backbone of Ukraine's reform effort has actually grown stronger. A team of Western-educated professionals has been cutting deeper and deeper into the soft underbelly of the country's mismanaged economy.
One of these is Adomas Audickas, a 32-year old Lithuanian who is in charge of sorting out Ukraine's state-owned companies. He graduated from the French business school INSEAD just last year, yet he's not a novice; he did the exact same job for the Lithuanian government as vice minister of economics. Now, Audickas is an advisor to Ukraine's economics minister, Aivaras Abromavicius, another Lithuanian.
For the first two months on this job, Audickas worked without pay. (Abromavicius had recruited him by outlining the ambitious task at hand.) Now, international donors fund his team of seven who sift through the Augean stables of Ukraine's public sector economy. After three months, Audickas isn't even sure how many state-owned companies Ukraine has; estimates range from 3,000 to 4,000. The number Audickas's group is working with is 3,350 -- 1,833 of them operational and the rest in various stages of bankruptcy and liquidation.
"It's like a private equity company with these 3,000 mostly inefficient assets," Audickas told me. "Its limited partners are the Ukrainian people, and they don't know much about the portfolio."
As a group, the companies -- mines, factories, farms, research institutes, energy producers -- lost 80 billion hryvnias ($6.1 billion at the September 2014 exchange rate) in the first nine months of 2014. Yet their combined revenue approached 9 percent of Ukraine's gross domestic product, and 91 percent of that revenue came from the 100 biggest companies. So Audickas is concentrating on these, pushing them to publish their accounts, put independent directors on their boards and hold themselves to performance goals. He's helping the companies determine which public services they provide at a loss, such as passenger train service in remote parts of the country, and separate these from the profitable activities in the firms' accounts.
Audickas is also looking at chief executive selection and pay. The various ministries that nominally run state enterprises now have to submit several candidates for open CEO positions. The candidates are to be screened by a nomination committee that includes government officials and academics. And the new executives are to be paid as much as their peers in the private sector. Many now get salaries of less than $1,000 per month.
Meanwhile, privatization plans are being drawn up. Ukraine doesn't need all these companies in its private equity portfolio. Audickas hopes that, eventually, the management of companies that remain in government hands will be centralized.
By drawing on his experience in Lithuania, Audickas hopes to get all this work done quickly. His target for a full asset review is just three months.
Why is this team of outsiders, near-volunteer at that, doing all the work? The economics ministry still has more than 1,000 staff, even after cutting 31 percent of the jobs since Abromavicius took charge. "Some of the civil servants are good," Audickas says, adding, "at doing what they're told. Perhaps they will develop more creativity and initiative as they go along."
Abromavicius's deputy Maxim Nefyodov, 30, who used to run the Kiev office of a private equity firm, says finding competent civil servants is a major headache because the government can't pay decent salaries. This is not only because it doesn't have the money but also because doing so is highly unpopular with voters. As a result, Nefyodov's pool of candidates is limited to independently wealthy people or patriots willing to live on their savings while working to change the country. Nefyodov himself falls into the latter category, saying he has enough money to last two years, and when it runs out he'll probably have to leave. Audickas, too, plans to leave after his task is completed. This project mentality reigns in many of Ukraine's government departments now run by former private sector professionals, and it creates an urgency to make the institutional changes sustainable so that professional civil servants can run the new system without breaking it.
When Nefyodov posted job openings on Facebook, ordinary Ukrainians reviled the move as a show of desperation. The deputy minister says, however, that he got 150 resumes in response, some from experienced private sector executives who want to help their country get rid of its central planning heritage.
Nefyodov is proud, for example, of dismantling a scheme under which a state agency collected money from food producers to build packaging recycling facilities but never built anything. Incomprehensible, corruption-generating regulations are rife. The government sets expiration dates for vodka and other products, for instance, and licenses the import and export of cars and compact discs. These and other pointless procedures are being phased out as fast as the cabinet and parliament can change the rules. Nefyodov, who has been a government official for only a month, asks businesses to complain about oppressive regulation and says he's been able to satisfy 90 percent of such requests so far.
"For 23 years," Nefyodov says, "we did anything but build a country." Now, he and Audickas and many other idealistic people in government are playing catch-up. The last time Ukraine had a window of opportunity to take the European path, in 2005, it didn't take advantage as it is now. The young technocrats willing to roll up their sleeves for little or no pay are perhaps the best thing Ukraine has going for it.
The country's poisonous politics could still undermine their efforts. Poroshenko's decision to remove Kolomoisky's managers from two state companies was not part of Audickas's plan; it was an effort to put the billionaire industrialist, who had built a private army, in his place. Populists in parliament and in the cabinet itself are unhappy with attempts to liberalize the economy. Poroshenko was elected in a landslide less than a year ago, but, according to a recent poll, only 20 percent of Ukrainians would vote for him today, and just 3 percent back the presidential ambitions of Prime Minister Arseniy Yatsenyuk. Yet if Ukraine doesn't push reforms hard enough, it could simply run out of money. The window of opportunity won't stay open forever.
"I understand that the pendulum will swing back toward populism," Nefyodov says. "What we can do is make sure it cannot swing too far."
Such is the cautious realism of an inexperienced bureaucrat whose working day ends at 1 a.m. I'm willing to bet the volunteer officials won't be entirely unsuccessful, though, even if they make some mistakes and lose some battles. The powerful grassroots movement that has put people like Nefyodov close to the commanding heights will last until Ukraine becomes more European, and less Soviet.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.
To contact the author on this story:
Leonid Bershidsky at email@example.com
To contact the editor on this story:
Mary Duenwald at firstname.lastname@example.org