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This Thursday, the Verkhovna Rada (the parliament of Ukraine) considers a historic proposal to replace 25-year-old foreign exchange legislation with an entirely new law that will open our country to international investors and make it easier for Ukrainian businesses to operate globally.
Technical though it may seem, liberalization of our arcane foreign exchange controls will make Ukraine a much more investor-friendly place and will help the country take its rightful spot amongst the major European and global economies.
For nearly four years now, we at the National Bank of Ukraine (NBU) have been working to stabilize the macroeconomic situation and create a solid foundation for economic growth in Ukraine and prosperity for all who live and work here.
We have come a long way during that time. My new post-revolutionary team took over the National Bank in 2014, finding ourselves in an incredibly difficult context. Ukraine was not only experiencing military aggression from Russia in the East, but the profound economic turmoil that coincided with it — since, our team at the National Bank have worked tirelessly to stabilize the situation and tame inflation.
Today, the banking system is in better shape than it ever has been in the history of independent Ukraine thanks to the clean-up and reforms implemented since 2014. All of the obligations that the National Bank took on under the last IMF (International Monetary Fund) memorandum have been fulfilled.
External markets are also favorable for Ukraine as economies of our trade partners are recovering and commodity prices are high.
We must maintain this momentum, make life better for businesses and support investment. The time has come for large-scale foreign exchange liberalization. The proposed law moves us toward that goal.
To say it is overdue would be an understatement. The key legislation setting out our current currency control rules is a full 25 years old and it has not aged well. In the 1990s when Ukraine was struggling to tackle the Soviet legacy, set its economy on market rails and control capital outflows, highly restrictive rules on foreign currency transactions made sense. Today they are out of place and are holding back growth.
Out of Ukraine’s patchwork of foreign exchange laws, about 70 percent of the rules are about prohibiting or restricting things. This means administrative burden, delays and complications for Ukrainian businesses trading with overseas partners, foreign investors repatriating their investment or dividends, for Ukrainian freelancers doing work for overseas clients and many others.
The regulatory system we have had in place for the last quarter of a century no longer reflects the business environment in Ukraine. Our highly qualified, multilingual workforce and our innovative approach to development has seen an ever-increasing amount of interest from foreign investors looking to set up in or outsource operations to Europe.
Our tech sector is but one example: a thriving industry worth around $5 billion. We boast the largest number of IT professionals in Europe and play host to numerous multinational brands including Google, Microsoft, Samsung, Boeing, eBay, Siemens, IBM and Huawei, who all have research and development centers here.
Our start-up environment too, is leading the way for our European peers. A number of high profile software start-ups, including the now-famous writing app Grammarly, have gone global and are used by millions every day. It is a lucrative sector: One of the most notable start-up deals we’ve seen came from Ukrainian-born augmented photography start-up Looksery, who was acquired by Snapchat for $150 million.
When the draft law developed by my team, entitled “Currency Law,” is approved by parliament we can expect more and more success stories to come forward. The law will move Ukraine’s foreign exchange regulation from a position of “if it’s not expressly allowed, it’s forbidden” to “if it’s not expressly forbidden, it’s allowed” — a much more helpful stance for our banks and businesses looking to operate internationally. Households back home will benefit too as more jobs are created.
This reform will be some of the best news for business to come out of Ukraine this year. It will help give investors into Ukraine peace of mind and minimal administrative burden when it comes to doing deals or repatriating profits. As the ease of doing business continues to increase, so too will our country’s ability to secure the investment we need.
Looking at the big picture, this is Ukraine opening up to the world and taking a step forward on the (long) road of its EU integration ambitions. European Commission experts were involved in developing the new law and it takes inspiration from relevant EU Council regulations. This law is about the free movement of capital, which is crucial for well-functioning economies in today’s world.
That goal is always in sight for us. To achieve greater integration into the European economy, and our place globally, we must operate at the same level as our European counterparts. This means transparent operations and investor-friendly policy required to work together with international businesses. In addition, it means financial stability, as the “Currency Law” provides the National Bank with power and tools to prevent and get over the crises whatever origin and development they have. That is another reason why the draft law received the support of the International Monetary Fund.
We, the National Bank of Ukraine and myself as its new governor, have a unique opportunity to help secure sustainable growth and prosperity for generations of Ukrainians — Ukraine has much to offer the world, and it is the NBU’s job to make sure that everyone can benefit.
—Yakiv Smolii is the governor of the National Bank of Ukraine.