Ihor Burakovsky, who heads Kyiv’s biggest think tank – Ukrainian Institute for Economic Research and Policy Consulting – has published a very detailed report into the fight against corruption in Ukraine since the Euromaidan. The report was presented in the West, including in the European Parliament and European Commission, and in Ukraine.
While most analysts have followed the building of new anti-corruption institutions there has barely been any publicity and analyses of the successful closure of numerous key areas which were sources of massive corruption. The report estimates that Ukraine has made savings of $6 billion from the fight against corruption. In an interview with this author, and in his conversation with well-known economist Anders Aslund, Burakowsky admits that this is a conservative estimate and that the sum is very likely to be higher.
Ukrainians should be proud of the fact they can show they could fight corruption. Burakowsky believes the key test for political forces in the 2019 elections will be whether they will accept these changes as positive developments for Ukraine or instead use populist rhetoric to denounce everything associated with Petro Poroshenko with the sole purpose of winning power.
On many occasions the report warns that the reforms and changes made in Ukraine since 2014 can be reversed. The key test will be who will be elected in Ukraine next year and whether these political forces will consolidate the reforms and changes that have been undertaken so that Ukraine reaches a point of no return by the 2024 elections.
The gas sector, once a notorious cash cow for presidents, has been reformed and the state gas company Naftohaz Ukrainy no longer eats up 5% of GDP in subsidies and is the biggest payer of taxes to the state budget. These reforms include qualitative improvements in Naftohaz Ukrainy’s management system, an investment and legal framework for the functioning of a gas market based on market pricing, import sources were diversified and the ability for corrupt arbitrage between low household utility prices and high gas prices was reduced. The report calculated this saved $3 billion per annum in government losses.
The restructuring of Naftohaz Ukrainy under the EU’s Third Energy Package will separate its pipelines and twelve underground gas storages. Naftohaz Ukrainy which will retain control over the country’s largest gas producer, UkrGasVydobuvannya. Populist Batkivshchina and the Radical Party oppose many of these gas sector reforms, including leasing (not to be confused with privatizing) the pipelines that are under the control of the newly formed company Main Gas Lines of Ukraine. Leasing the gas pipelines would attract foreign investment, increase corporate transparency and expand competition on the domestic market.
De-regulation has progressed with the aim of removing excessive administrative bureaucracy for business through simplification of the regulatory procedures. Ukraine’s ranking in the World Bank’s Doing Business has improved from 112 in 2012 to 76 in 2018 due to the reduction in the number of required licenses and permits and simplified tax administration. Of the 112 items in the Government Action Plan on De-Regulation, 57 have been implemented.
Closing down tax loopholes has been undertaken through the introduction of electronic administration of VAT (from 2016), automatic VAT refunds (from April 2017), special risk assessment criteria monitoring system (RACMS) (from July 2017). Steps were taken to close conversion platforms used for money laundering. The Ministry of Finance has launched an automatic electronic register of value added tax (VAT) reimbursement in order to place greater controls over an area that had been prone to high levels of insider corruption.
Until the Euromaidan, public procurement has been a major area of corruption. In 2014, a law on Public Procurement Practices was adopted and in January 2015 the law ‘On State Procurement’ was amended to facilitate the ProZorro electronic system of public procurement. In December 2015, parliament adopted new legislation in line with EU regulations mandating all central government bodies and state monopolies to switch to procurement through ProZorro from April-August 2016. All purchases over 50,000 hryvnya are to be made publicly through ProZorro.
ProZorro has sold the assets of bankrupt banks and is preparing for auctions in the forthcoming privatization of small and medium businesses. The ProZorro system increased transparency in government procurement and closed a major area of corruption. Transparency and monitoring of the new system was increased through the State Audit Office.
In May 2016, the ProZorro Electronic Procurement System won that year’s World Procurement Award.
In 2014, the State Agency for Science, Innovation and Information of Ukraine was transformed into the State Agency for E-Governance in Ukraine. In that same year the United State Open Source Web Portal was launched which as of January 2018 included 28,000 data sets about 2,000 information administrators.
In April the Supreme Council amended the law ‘On Access to Public Information’ and in July 2015 the law was adopted on ‘On Amendments to Certain Legislative Acts of Ukraine on Enhancing Transparency in the Sphere of Property Relations with a View to Preventing Corruption’. Access to government spending has become more transparent with all public funds managers by law required to disclose information to the E-Data Portal https://spending.gov.ua.
Ukraine was the first country to join the Global Register of Beneficiary Owners putting it ahead of some European and North American countries in disclosing ownership of businesses and properties. Ukrainian legislation on beneficiary owners is ahead of the global transparency standards and more advanced than the May 2015 EU Money Laundering Directive requiring members to establish a register of ultimate owners.
In the EU, but not in Ukraine, access to such information may be limited by online registration, payment of fees and the need to explain why you were seeking the information. In the US, such legislation has yet to be adopted with draft bill S. 1454 in the Senate. Ukraine outperforms many countries in the disclosure of draft laws (7th place), state procurement (11th place) and state statistics (38th place).
Since 2014, Ukraine has successfully introduced reforms in the fight against corruption in two areas:
- Closing of major sources of corruption.
- Creation of new anti-corruption institutions.
The third, making Ukraine’s ruling elites accountable before the law – which we should remember never existed in the Tsarist and Soviet Empires – is next in the fight against corruption. If this goes ahead is dependent upon the outcome of the 2019 presidential and parliamentary elections where populists are threatening to reverse Ukraine’s reforms.
The 2019 elections will decide two questions.
The first is whether the third aspect of the fight against corruption can be implemented. Ukraine’s president who is elected in 2019 will no longer be able to use excuses to explain why there are no criminal trials of elites.
The second will be the well-known US political scientist Samuel Huntington’s two turnover test. If democratic reformers and European integrators win the elections, as in 2014, Ukraine will be a European democratic country by 2024. By the 2024 elections therefore, it will no longer be possible for domestic populists and foreign aggressors to de-rail Ukraine’s integration into Europe.
Taras Kuzio is a non-resident fellow at the Center for Transatlantic Relations at Johns Hopkins-SAIS