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Friday, March 16, 2018

Egypt is afraid to deal with the Ukrainian exporters

Egypt cancelled the contract with the Lviv bus plant, thanks to which Ukraine could attract hundreds of millions of dollars and provide employment to thousands of Ukrainians. This is a Prime example of how the national Bank and the government closed the doors to foreign investment, which provokes the collapse of the hryvnia and further impoverishment of the population.

The failure of Ukrainian exports, the main source of foreign exchange, which largely depends on the GDP of Ukraine, contributes not only to fiction with the opening of European markets and the disruption of trade relations with Russia. Ukrainian exports kills with his own hands, the local Central Bank, which in 2014 introduced currency restrictions in the country and only two years later, talked about the need for liberalization of the foreign exchange market. Restrictions have been relaxed since the beginning of June, but visible results yet.

“The situation with the buses is only one of the strokes available in the country problems caused by the prolonged monetary restrictions

One of the striking examples of how the actions of the regulator suffers the Ukrainian business, but the abrogation of Egypt’s tender for the supply of Ukrainian 289 buses cost $ 89 million with the possibility of prolongation of the contract up to 2 thousand buses cost $ 460 million. The tender in 2015 won the Ukrainian company City Transport Group (CTG management company “Lviv bus plant” LAZ).

After the victory of Ukrainians in the tender, the parties signed the corresponding contract in the presence of Prime Minister of Egypt Ibrahim Mehleb, the Governor of Cairo Galal al said and the Ambassador of Ukraine in Egypt Gennady Latiya.

The Ukrainian company was to supply low-floor 12-metre buses LAZ A-183-CNG, made specially for the Egyptian tender. Under this contract, the FFA is intended to create 1600 jobs, but the company is full and was not renewed. The Egyptians did not accept the economic limitations of the Ukrainian authorities, and they abandoned the contract. A good deal came to nothing.

“In 2015, CTG has won a tender to supply 289 buses to Cairo for $ 89 million. But due to the economic situation in Ukraine, the inability of government agencies to provide the necessary state guarantees, as well as in connection with the adoption of the law on the obligatory sale of incoming prepaid currency, Egypt canceled the tender,” – said General Director of CTG Igor Churkin, Interfax reports.

Thus, Cairo did not suit the economic context of performance of the contract. Requirement Egypt government guarantee means that the customer fears problems with the implementation of the order, which will be paid the money due to foreign exchange restrictions.

However, the Ukrainian manufacturer of buses will have a second chance to get this order, but on other terms of payment,” says Churkin.

Egypt in the near future intends to announce a tender for the purchase of buses, now on 400 of these buses and still with the possibility of prolongation of the contract up to 2 thousand buses, at $ 460 million.

However, Churkin urges the Ukrainian authorities to help, because the contract with Egypt opens the prospect of creating more than 18 thousand new jobs in five years. The government of Ukraine has a good chance to secure the inflow of currency into the economy of Ukraine, if Ukraine will provide real support to domestic producers with the provision of the resulting contract hard currency credit lines”. Plus the need to provide financial guarantees in local currency, and optimize the export laws, asking the General Director of the Ukrainian manufacturer of buses.

And this once again confirms that, against the background of the imaginary of European integration and the rupture of relations with Russia the real demand for Ukrainian goods is not in the EU and Asian markets and the markets of the Middle East, and without the necessity of signing hard of the Association agreement. However, the Egyptian contract clearly demonstrated the Ukrainian authorities that the development of exports also need relief in respect of the foreign exchange market.

“The situation with the buses is only one of the strokes available in the country problems caused by the prolonged monetary restrictions. The obligation to sell all foreign currency revenues obtained in advance, a period of weakening of the hryvnia significantly increases the risks of failure of long-term contracts. This creates a situation where received as a Deposit currency is sold, and the hryvnia depreciates, in the end, funds for the execution of the contract, which stretched over several years, not enough” – said the first Vice-President of the Russian Union of engineers Ivan Andrievsky. “This is a serious barrier, especially for long-term export contracts. For engineering industry, production of which is about 10% of all Ukrainian exports in money terms, it is even more serious constraint,” he adds.

Ukraine has introduced administrative restrictions in 2014, in order to prevent capital outflow and collapse of currency market. In particular, there were restrictions for individuals on the withdrawal of currency from the accounts and its purchase, to get individual licenses for the withdrawal of capital and the mandatory sale of 75% of foreign currency earnings by exporters, as well as a temporary ban on the payment of dividends for 2014 and 2015. Moreover, these measures were supported by then even the International monetary Fund, although traditionally it stands for the freedom of movement of capital. Russia, incidentally, did not go on this way, although similar measures were lobbied by the adviser to the Russian President Sergei Glazyev. The Russian Central Bank has chosen a different strategy, releasing the ruble float freely.

The export to Ukraine is one of the main sources of foreign exchange for the country. The second source is the translations of Ukrainian migrant workers. Due to the fall in exports to Ukraine sorely lacking currency. In the first quarter of 2016, Ukrainian exports fell to 9.8 billion against $ 19 billion for the same period of 2013, i.e. before the coup in the country. “Without the growth of export of currency we can not see. Therefore, the risk of devaluation is always present on the Ukrainian currency market. Before the day was bought and sold currency in the interbank market of about $ 2 billion, and now not more than 200 million dollars. The fall is striking. Currency is not enough,” said Ukrainian economist Alexander Okhrimenko. The failure of exports in recent years is also related to the closure of the Russian market and the sharp drop in world prices for agricultural products and ferrous metals.

But the currency restrictions imposed by Ukraine, affected not only exporters, but even more so the Ukrainian population and foreign investors, says Vadim Iosub of “Alpari”.

Currency restrictions is a problem of the entire Ukrainian economy. “About any mass attracting foreign investments with such tight monetary constraints could not be and speeches, and internal resources are insufficient to run the recovery processes. State guarantees for Ukraine is to attract investors are unlikely for investors is a country with a high level of risk and global uncertainty. The authorities ‘ ability to regulate in the country the situation is questionable,” – said Andrievsky.

How sad picture with foreign investments in Ukraine, says statistics. For the first quarter of 2016, the balance of the financial account balance amounted to plus 260 million dollars, while for the first quarter of 2013 was plus $ 4.9 billion.

So, the balance of direct foreign investment amounted to plus 1.3 billion dollars against $ 1 billion in the first quarter of 2013. However, there is nothing to rejoice. This was largely due to the increase of capital of Ukrainian banks by foreign investors, specifies Ukrainian economist Oleksandr Okhrimenko.

But the balance of portfolio foreign investment was minus $ 57 million in the first quarter against growth of 2.85 billion in the first quarter of 2013. Even worse is the case with foreign investment in private businesses, indicates Okhrimenko. For the first quarter of 2016 from Ukraine went abroad private foreign investment 730 million dollars more than it is. For comparison: in the first quarter of 2013 Ukraine has gone private investment for $ 2 billion more than it took, then there was the reverse situation.

For Ukraine, where the export share is 40-50% of GDP, the devaluation of the hryvnia was ruinous, and a word about the fact that the weak national currency will help exporters, appeared tales. “The theory that the weak national currency helps exporters, Ukraine is not working. It can and does work in Russia, where the main export is oil and gas, which are produced in Russia. In Ukraine, the main export is grain and metal and for their production it is necessary to use imported gas, diesel fuel and mineral fertilizers. Therefore, to export flexible (unstable) course of the same disastrous way as for import”, – says Alexander Okhrimenko.

Two years later, to the national Bank of Ukraine at last it came, and he realized the necessity of eliminating foreign exchange restrictions. But the trick is that now the regulator can make things worse. Ukrainian regulator drove himself in a vicious circle: if the head of the NBU Gontareva now sharply removed exchange controls, the outflow of currency abroad might derail the currency market of Ukraine, does not exclude Okhrimenko.

That is why the Ukrainian regulator began to soften currency restrictions very slowly. So, since June 9, 2016 exporters are obliged to sell on the interbank market is already not 75%, and 65% of export earnings. Ukrainians in the exchanger will now be able to purchase at one time the currency is not 6 thousand UAH, and already on 12 thousand UAH, etc. However, all these point breaks have not led to the normalization of the situation on the currency market. This requires a large market liberalization and time.

For business, and for the Lviv bus plant specifically, this means one thing – a new international tender, able to launch the production, to give thousands of Ukrainians work, and the Ukrainian budget – tax revenues, will float away into the hands of another country.

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