MBS Blog

Feeling the effects of the current Global Economic Crisis, there is little doubt that Russian and Ukrainian Governments are preparing to let their currencies slide even further. The question remains as to how low they will go and what effect they will have on these emerging market economies.

In Ukraine, the hryvna is now hovering around 6 to $1USD, having lost more than 20% over the last 60 days.  The Russian ruble is also getting battered and could see levels against the U.S. dollar that it has not experienced since the financial crisis of the late 1990s.

Devaluations in either economy could exascerbate already high levels of inflation. Russia is particularly vulnerable as it relies on imports of basic food products, plus it derives a significant portion of its revenues for oil and natural gas exports. As oil revenue has declined, and subsequent market interventions have depleted Russia’s foreign currency reserves, Russia could be hit with a higher degree of stagnation than Ukraine. In fact, Ukraine may be able to weather a devaluation better than Russia.

The industrial sector located in Eastern Ukraine could benefit from the lower prices of their steel and chemical products, making their products competitive with China and South Korea. The Ukrainian agricultural sector could also benefit from devaluation.  The fomer “bread basket” of Imperial Russia and the Soviet Union, could regain this title, but with exports to Europe and Asia. This vastly under utilized sector could see a surge in foreign investment next year, or whenever the global credit markets become unfrozen.

In the meantime, businesses and individuals are going to have to adjust to the new reality.

Anton Olff

Technorati Tags: Global Economic Crisis, Ukraine, devaluation, currency reserves, hryvna, Russia, ruble, dollar, Eastern Ukraine, China, South Korea, Soviet Union, exports, Europe, Asia,

We have all heard the “war stories.”  Sit at any pub, club, bar or cafe in Ukraine where ex-pats congregate, and the topic of conversation will eventually turn to the difficulty in getting things done here.  The inevitable comparsions between how easy things are accomplished in the United States, the U.K. compared with Ukraine begets the question: “why are you here then?”

Of course, we know the reasons.  We are here to make  money, and lots of it.

Here is the attraction: excellent geographic location between Europe and Russia, a developing market with a population the size of France,  rising incomes, burgeoning consumer demand, and a seemingly less anti-business regulatory and tax environment than the mature economies of the United States and Western Europe.

That all sounds great. So why is so difficult? Why do businessmen, particularly foreign businessmen feel like they are pioneers or as one American real estate developer said to me, “like one of those characters in the HBO TV series Deadwood.”  Yes indeed!! Here are the top reasons, in no particular order.

1. Corruption- you always pay…and then pay some more…and everyone has their hand out.
2. The Government- or should we say, lack thereof. The rules change on a daily basis.
3. Business Culture- not exactly Western, not exactly Soviet. The customer is wrong!!!
4. Work Ethic- more for less…work that is. I get my salary whether I do a good job or bad job.
5. Bureaucracy- you always need one more paper or permit…but the office is closed today.
6. Transparency- you always find out afterwards. Information is seldom volunteered.
7. Punctuality- are you kidding? Ukrainians rarely show up on time for meetings.
8. Contract Negotiation- signed, sealed, delivered…and then undone. Just when you think you are ready to move forward, the contract needs to be renegotiated. Of course, you are the one who must “negotiate.”
9. Visibility- you want to be noticed. You want your product and services to be recognized …but you have to be discreet too.
10. Bias- not xenophobia on the part of Ukrainians which can certainly be a factor, but more importantly the bias of foreigners. Ukraine is not, and may never be an easy place to conduct business. Hard to accept. Even harder to deal with, but a fact unlikely to change.

Anton Olff

Technorati Tags: Asia, Bias, Bureaucracy, Business Culture, Contract Negotiation, corruption, Europe, France, mature economies, Punctuality, Russia, Soviet, tax environment, The Government, Transparency, U.K., ukraine, United States, Visibility, Western Europe, Work Ethic

Website copy for www.therapy-now.net, March 2012

Website development for Elephant Head Software, February 2012.

BOZONGO.COM being developed for launch, January & February 2012

MBS working as consultant on AparthotelAmerikano project December 2011