Does the business plan to invest in 2020?

07/ 02/ 2020

Does the business plan growth and development in 2020, which predictions it makes in the macroeconomic context, how do the banking system, retail, pharmacy, energy, startups, etc. plan their activities – these topics were discussed on February 6, during the traditional EBA Global Outlook: Boosting Investments. Watch the live broadcast of the meeting at Facebook Tomas Fiala, EBA President, CEO of Dragon Capital, emphasized that the country’s macroeconomic situation is currently one of the best in 20 years. Last year turned out to be even better than the business expected. The authorities have demonstrated greater reform orientation, which prompted capital inflows and strengthened the hryvnia. As a result, inflation dropped to 4.1% and international reserves increased to $ 25 billion. Due to the strengthening of the hryvnia and balanced fiscal policy, public and guaranteed debt fell to 51% of GDP. At the same time, a positive signal was the signing of a new gas transit contract and obtaining $ 3 billion by Naftogaz, which, hopefully, block budget revenue shortfalls. This year, the business expects the adoption of land reform, which will add 0.4% to economic growth in 2020 and 0.7% in 2021. Tomas Fiala expects the economy to grow 4.0% this year and 3.7% next year. Inflation will be 5.2% and 6.1% in 2021. As for the hryvnia exchange rate, the average annual exchange rate is expected to strengthen further this year, and the year-end exchange rate is projected at UAH 24 / USD in 2020 and 25.5 UAH / USD in 2021. Given the high dependence of the budget on external financing, one of the main risks for the economy is the refusal to cooperate with the IMF. Other risk factors are the state of the world financial markets and the dynamics of commodity prices of Ukrainian exports (metal, ore, grain, etc.). However, the business is committed to positive work and investment. “The macroeconomic situation and financial stability are important prerequisites for business growth in Ukraine. In banking system, we assess the macroeconomic situation today as favorable and have cautious optimism about further progress, - said Alexander Pisaruk, Chairman of the Board of Raiffeisen Bank Aval. - Successful reform of the banking sector was a significant contribution to macro-financial stabilization. Effective coordination of monetary and fiscal policies has led to a decline in inflation to the lowest level in Ukraines history. We have no reason to doubt in the National Banks forecast concerning further decline in the interest rate. We can expect a reduction in credit rates to 10-12% for reliable borrowers this year. Oleksiy Kredisov, Managing Partner of EY Ukraine, focused more on the labor market and human resources. He stressed that, unfortunately, Ukraine is gradually losing its competitive advantage - people. Just in last year, according to an EY survey, 600,000 people migrated from the country (almost 3% of the countrys total population), about 250,000 died. It should be noted separately that the number of candidates for vacancies has decreased three times. However, wages have increased by 15% in recent years. Overall, he confirmed that the positive dynamics of economic growth is currently being traced, but it is important to capture and understand this trend in order to keep it up as long as possible. Alex Lissits, IMC General Director, noted that for success in agriculture several factors are important - finance, people and land. Thus, there are problems with staffing on all fronts, and especially in rural areas. Although over the past 3 years wages have grown by about 120%, however, there is no particular shift in productivity. In order to understand the situation, Ukraine needs about 6 years to improve its productivity and to be on par with its competitors. At the same time, the country should take a focus more on robotics, education, etc. As for the land market, he stressed that business expectations are high enough, however, the land reform phase can last 7-8 years. In general, he was more restrained in his projections, since there is still a lot of work to be done. Igor Landa, CEO of BT Invest Ukraine, has focused on retail development and construction in Ukraine. He also supported the view that investment development will continue. Thus, on the example of Invest Ukraine, he explained that now the company invests in Kiev and Kyiv region, as people are migrating from big cities to the capital and abroad. At the same time, the problem with staffing is very acute in retail as well. For instance, today the company has 750 vacancies, salaries growth of office workers is 8-10%, for workforce - 20%. A few more trends - globalization on the market and increasing retail consumption. Oleg Nikonorov, CEO of Regional Gas Company, presented how the gas market looks like. He noted that now it is important to pay attention to infrastructure development as Ukrainian gas system was built for consumption of 120 billion cubic meters of gas, however, the actual consumption is 30 billion cubic meters. Therefore, the redesign of gas networks requires investment. He stressed that it is time for Ukraine to start using new types of energy. In particular, hydrogen. We have all the opportunities to produce this fuel and we will test its delivery capabilities. In this way, Ukraine will be able to reduce Europes backlog and return to the current gas market agenda. Inga Andreieva, Director General of Mastercard in Ukraine: Ukraine has significant investment potential. Thus, according to estimations of the National Bank of Ukraine, as of the end of 2019, the amount of cash in the hands of Ukrainians accounts for 390 billion UAH. It is the funds that can be used in developing the country’s economy, significant internal reserves. The development of cashless payment will irrevocably increase the transparency of the economy, as well as the investment attractiveness. The cashless payment is growing consistently, and today the payment infrastructure in Ukraine is represented by over than 300 thousands of commercial payment terminals, 89% of which are contactless, 8 out of 10 operations with payment cards are cashless, and the quantity of online payment, for example, with Mastercard cards is increasing annually at the rate of 100%. At the same time, the development of cashless payment infrastructure has great potential: currently, there are 7,5 payment terminals per 1 thousand Ukrainians, which is insufficient, especially for the regions. In the future, we will see more interest from investors in developing technological and innovative decisions in fintech, and this will be stimulated by the regulatory initiatives, namely implementing the Revised Payment Services Directive (PSDII) and establishing the foundation for the open banking. At the global level, we attentively study different possibilities of developing such decisions. For the last two years, thanks to the cooperation with fintech-programs and companies, the clients all over Europe have already been able to use the advantages of Mastercard investments at the sum of over 90 million USD. Eugene Eric, CEO of SolarGaps, introduced the voice of startups, described how he managed to attract a grant of EUR 1 million and also expressed positive expectations from 2020, as the company will continue to invest and develop.

Watch the live broadcast of the meeting at Facebook

Tomas Fiala, EBA President, CEO of Dragon Capital, emphasized that the country’s macroeconomic situation is currently one of the best in 20 years. Last year turned out to be even better than the business expected. The authorities have demonstrated greater reform orientation, which prompted capital inflows and strengthened the hryvnia. As a result, inflation dropped to 4.1% and international reserves increased to $ 25 billion. Due to the strengthening of the hryvnia and balanced fiscal policy, public and guaranteed debt fell to 51% of GDP. At the same time, a positive signal was the signing of a new gas transit contract and obtaining $ 3 billion by Naftogaz, which, hopefully, block budget revenue shortfalls.

This year, the business expects the adoption of land reform, which will add 0.4% to economic growth in 2020 and 0.7% in 2021. Tomas Fiala expects the economy to grow 4.0% this year and 3.7% next year. Inflation will be 5.2% and 6.1% in 2021. As for the hryvnia exchange rate, the average annual exchange rate is expected to strengthen further this year, and the year-end exchange rate is projected at UAH 24 / USD in 2020 and 25.5 UAH / USD in 2021. Given the high dependence of the budget on external financing, one of the main risks for the economy is the refusal to cooperate with the IMF. Other risk factors are the state of the world financial markets and the dynamics of commodity prices of Ukrainian exports (metal, ore, grain, etc.). However, the business is committed to positive work and investment.

“The macroeconomic situation and financial stability are important prerequisites for business growth in Ukraine. In banking system, we assess the macroeconomic situation today as favorable and have cautious optimism about further progress, – said Alexander Pisaruk, Chairman of the Board of Raiffeisen Bank Aval. – Successful reform of the banking sector was a significant contribution to macro-financial stabilization. Effective coordination of monetary and fiscal policies has led to a decline in inflation to the lowest level in Ukraine’s history. We have no reason to doubt in the National Bank’s forecast concerning further decline in the interest rate. We can expect a reduction in credit rates to 10-12% for reliable borrowers this year”.

Oleksiy Kredisov, Managing Partner of EY Ukraine, focused more on the labor market and human resources. He stressed that, unfortunately, Ukraine is gradually losing its competitive advantage – people. Just in last year, according to an EY survey, 600,000 people migrated from the country (almost 3% of the country’s total population), about 250,000 died. It should be noted separately that the number of candidates for vacancies has decreased three times. However, wages have increased by 15% in recent years. Overall, he confirmed that the positive dynamics of economic growth is currently being traced, but it is important to capture and understand this trend in order to keep it up as long as possible.

Alex Lissits, IMC General Director, noted that for success in agriculture several factors are important – finance, people and land. Thus, there are problems with staffing on all fronts, and especially in rural areas. Although over the past 3 years wages have grown by about 120%, however, there is no particular shift in productivity. In order to understand the situation, Ukraine needs about 6 years to improve its productivity and to be on par with its competitors. At the same time, the country should take a focus more on robotics, education, etc. As for the land market, he stressed that business expectations are high enough, however, the land reform phase can last 7-8 years. In general, he was more restrained in his projections, since there is still a lot of work to be done.

Igor Landa, CEO of BT Invest Ukraine, has focused on retail development and construction in Ukraine. He also supported the view that investment development will continue. Thus, on the example of Invest Ukraine, he explained that now the company invests in Kiev and Kyiv region, as people are migrating from big cities to the capital and abroad. At the same time, the problem with staffing is very acute in retail as well. For instance, today the company has 750 vacancies, salaries growth of office workers is 8-10%, for workforce – 20%. A few more trends – globalization on the market and increasing retail consumption.

Oleg Nikonorov, CEO of Regional Gas Company, presented how the gas market looks like. He noted that now it is important to pay attention to infrastructure development as Ukrainian gas system was built for consumption of 120 billion cubic meters of gas, however, the actual consumption is 30 billion cubic meters. Therefore, the redesign of gas networks requires investment. He stressed that it is time for Ukraine to start using new types of energy. In particular, hydrogen. We have all the opportunities to produce this fuel and we will test its delivery capabilities. In this way, Ukraine will be able to reduce Europe’s backlog and return to the current gas market agenda.

Inga Andreieva, Director General of Mastercard in Ukraine:

“Ukraine has significant investment potential. Thus, according to estimations of the National Bank of Ukraine, as of the end of 2019, the amount of cash in the hands of Ukrainians accounts for 390 billion UAH. It is the funds that can be used in developing the country’s economy, significant internal reserves. The development of cashless payment will irrevocably increase the transparency of the economy, as well as the investment attractiveness. The cashless payment is growing consistently, and today the payment infrastructure in Ukraine is represented by over than 300 thousands of commercial payment terminals, 89% of which are contactless, 8 out of 10 operations with payment cards are cashless, and the quantity of online payment, for example, with Mastercard cards is increasing annually at the rate of 100%. At the same time, the development of cashless payment infrastructure has great potential: currently, there are 7,5 payment terminals per 1 thousand Ukrainians, which is insufficient, especially for the regions.

In the future, we will see more interest from investors in developing technological and innovative decisions in fintech, and this will be stimulated by the regulatory initiatives, namely implementing the Revised Payment Services Directive (PSDII) and establishing the foundation for the open banking.

At the global level, we attentively study different possibilities of developing such decisions. For the last two years, thanks to the cooperation with fintech-programs and companies, the clients all over Europe have already been able to use the advantages of Mastercard investments at the sum of over 90 million USD.”

Eugene Eric, CEO of SolarGaps, introduced the voice of startups, described how he managed to attract a grant of EUR 1 million and also expressed positive expectations from 2020, as the company will continue to invest and develop.