EBRD REPRESENTATIVE TO UKRAINE ACUNER SHEVKI:
«YOUR COUNTRY HAS A HUGE INVESTMENT POTENTIAL»
Reforms in Ukraine, the development of small and medium-sized businesses, the prospects of the agrarian market – these are the main issues around which the attention of the director of the European Bank for Reconstruction and Development, Shevki Acuner, is focused on.
DIPLOMAT talked with Mr. Acuner not only about these issues, but also asked about the investment attractiveness of Ukraine and the mechanisms of cooperation of the country with the EBRD and the future prospects of this economic partnership
HOW MUCH MONEY HAS THE EBRD ALREADY INVESTED IN UKRAINE? WHAT ARE THE UPCOMING PLANS?
– The EBRD has been operating in Ukraine for 24 years and has invested in the country more than 12 billion euros. We hope to reach approximately € 850-950 million investment per year at a minimum. Today, in the EBRD portfolio, there are about 400 lending projects from companies of various spheres. We expect the recovery of economic activity and, as a result, an increase in the needs of companies in working capital and investments.
However, our job in Ukraine is not only into provide money. We work fruitfully with government agencies to provide technical assistance and promote all processes of reforms.
TELL US ABOUT EBRD ACTIVITIES IN UKRAINE. IN WHAT WAY ARE THE BANK’S SERVICES DIFFERENT FROM OTHER OFFERS ON THE UKRAINIAN FINANCIAL MARKET? WHAT ARE YOUR BENEFITS TO THE BORROWER?
– Unlike other financial institutions, we have the opportunity to provide long-term financing. At the same time, our task is not just to provide resources, we really sit down with the client and talk about his business, share experiences. In addition, we always work on improving the business. This is where we see tremendous value for the client. For example, the implementation of the Trade Facilitation Program aimed at supporting export and import activities is beneficial for our clients and not only for them.
In addition to all these financial aspects, we also participate in the dialogue on policy and regulation of the agricultural sector. We provide technical assistance and a platform for exchange of views on the functioning of the meat industry and the dairy sector. The EBRD supports the formation and strengthening of agricultural cooperatives, self-government institutions in different sectors, as regulation should not be dictated solely by the state. That’s what we are working on.
WHAT ARE THE KEY REQUIREMENTS FOR COMPANIES TO RECEIVE FUNDING?
– For us, the reliability of the partner, the quality of the project, the transparency of their work are important. Following the EBRD mission, while funding, we are trying to increase the efficiency and competence of management, as well as the introduction of new technologies, in particular in agribusiness. The EBRD is actively committed to increasing financial support for Ukrainian agribusiness. At the same time the bank does not offer any special financial conditions for agricultural enterprises. Nothing special. However, I want to emphasize once again that we are using an individual approach to the specific needs of business projects. This is the very feature that has not been common to the market until now. We adapt loan repayment schemes or offer special terms depending on the project features.
WHICH AGRICULTURAL ACTIVITIES ARE MOST ATTRACTIVE TO THE EBRD IN UKRAINE?
– We support the maintenance of the balance and diversification of agribusiness in the country, so that it will enter a qualitatively new level of development. In addition, we promote and finance organic agriculture, packaging of Ukrainian processed agricultural products. These directions are important both for Ukraine and for foreign partners. If we talk about processing agricultural products, for example, the production of tomato paste and sunflower oil – this is an important direction for us, because it refers to the products with higher added value. Yes, of course, meeting agricultural needs in working capital still absorbs a lion’s share of EBRD’s lending resources.
WHICH TOOL IS THE MOST POPULAR AMONG UKRAINIAN AGRICULTURAL COMPANIES? SHOULD THEY DISCLOSE ADDITIONAL INFORMATION TO OBTAIN A LOAN FROM THE EBRD?
– Of course, the lion’s share falls on loans. At the same time, our loans are directed not only directly at production, but also on improvement of efficiency, in particular energy efficiency. For example, projects in the field of energy production, which stimulate bioconversion.
I’m not sure that what we want to know about a company to make a financial decision is additional information. I am convinced that every creditor must have such data. However, of course, if we talk about new customers, then we are, first of all, interested in the source of the origin of the invested funds. And, of course, we pay attention to reputational risks. Transparency of business and reliability of reporting are crucial for us. Equally important is respect for the environment, compliance with social and other standards, financial returns on the project. This should be a trustworthy company. But still the key point is the right partner, to help with other things is easier.
HOW DO YOU PROTECT YOURSELF FROM BAD BORROWERS?
– The flexibility of our approach is that we make possible any changes in our work, and from the very beginning we assume that unforeseen circumstances can create a new reality for business. Depending on the situation, we are trying to restructure the debt and work in new conditions. That is why, if we work with some company, we only do it as a long-term investor and partner.
In a number of situations, we restructured the debt payments and adjusted the payment schedule for agricultural companies if they had financial problems. However, as I have already said, the main idea is to support business. We have the opportunity to work, despite the difficulties that a company or industry can face as a whole. It’s good that such situations arise infrequently, otherwise we would be doing the wrong business.
TELL US ABOUT THE PROCEDURE FOR ASSESSING CREDITWORTHINESS AND SOLVENCY OF THE COMPANY FROM THE POINT OF VIEW OF THE EBRD?
– First of all, I have to study the financial profile of the company and say what is good and what’s bad. In the first place, we want to see an adequate level of equity. For us, quality management is important, and the ability of management structures to respond to the challenges of the business environment. Next, we estimate the possibility of generating the required cash flow from the project, and this aspect is considered as a reliable way to make the right decision. We do not pursue mortgages. First of all we look at cash flows. Of course, we also take a loan, but the key factor in our decision is the power of the generating cash flow.
Moreover, we do not reach the stage of denying the client or a potential client. This is a process of immersion in a broad discussion. As a result, a potential customer sees if we are a suitable partner for him, and we can understand whether he is suitable for us, whether he is a creditworthy customer for us.
Of course, not everyone who comes to us gets funding. There are many reasons for this: insufficient business transparency, poor financial sustainability of the project. There may be various reasons for this, but we seek to finance the projects that meet our criteria.
NOW ABOUT THE TOPIC THAT IS VERY CLOSE TO YOU IN THE CONTEXT OF THE DEVELOPMENT OF THE AGRO SECTOR. WHAT IS YOUR VIEW ON THE PROSPECT OF THE LAND REFORM IN UKRAINE?
– Everybody acknowledges the fact that the land reform should be an inclusive process involving all stakeholders. The EBRD has taken a number of initiatives, such as meetings with large companies, land associations, cooperatives, small landowners, as well as financial institutions to find out their ideas and consolidate them. The Government, together with experts from the IMF, USAID, the European Union, etc., has formed a working group on these issues, the first meeting of which took place in June 2017 in Kyiv.
I believe that there are good reasons to rely on the fact that, with the joint work of the Government, the IMF and other parties, the reform will be adopted in the near future. However, the main thing is not when, but how the reform will be implemented. We do not want to develop something that will not work, just in order to meet the deadline. Today, all are focused on creating an appropriate structure, an appropriate land market mechanism that will work efficiently in Ukraine.
WHAT MODEL OF THE LAND MARKET WILL BE THE MOST EFFICIENT FOR UKRAINE?
– The land reform must only pursue one goal – to ensure the constitutional rights of people to buy and sell land so that people can use land assets in the same way they use any other one. The land reform must ensure that Ukraine fully utilizes its agricultural potential. Also, as a result of the reforms in the Ukrainian economy, resources and financing should be available to increase the capacity of your agricultural sector. Thanks to this funding, Ukrainian farmers will be able to afford better equipment, respectively, to become more productive.
I am convinced that enterprises also must have the right to buy and sell land in the controlling form. You want to create a very transparent model and adequate control so that the land should not be expropriated by monopolistic forces or foreign structures. In addition, the land is a very sensual asset, and the issue of the land reform is highly politicized.
For our part, we support small and medium-sized farmers, help them develop. They should be able to receive financing in accordance with the market rates in the financial market. I do not want to use the word “cheap”, because “cheap” is usually a state policy. For example, if the government wants Kyiv to become a completely “tax-free” city, then this is purely state policy. However, a financial institution, lending to farmers requires market rates. On the other hand, these rates should be such that the borrower at the expense of his product could both repay the loan, and get profit.
WHEN DO YOU THINK WILL BE THE BEST TIME TO OPEN THE LAND MARKET IN UKRAINE?
– When they will be ready for this in the political environment. It is clear that we cannot turn the page one morning and the land reform will be realized. First, we must create all the conditions for this, we need to achieve political and broad public support and understanding for the success of the reform. However, I know that much is being done in this direction.
WHAT CAN UKRAINE IMPROVE IN THE FINANCIAL SECTOR?
– The financial sector is one of the most difficult ones. Unfortunately, so far there are no banks in the market that can demonstrate full confidence in the protection of their rights as lenders, but without such confidence they are not ready for active lending. Until the issues with problem loans are resolved, banks will not engage in active lending to the real sector.
And here I will return to the theme of the land reform, because these issues are very much related. Fundamental for banks is the desire to lend on mortgaged land. Agricultural companies that do not have sufficient financing also want to do this. However, for the bank and agricultural companies to start cooperation, it is necessary that the rights of the creditor be protected.
CORRUPTION IS A SERIOUS BARRIER TO INVESTING IN ANY COUNTRY. HOW DO YOU ASSESS THE POTENTIAL OF UKRAINE IN COMBATING THIS PHENOMENON?
– You have many rules and laws that say how to deal with this phenomenon. And the urgent question today is compliance with these laws. You have the NABU, which sends cases of corruption to the courts. However, if the court does not make a quick and fair decision, people start to lose faith in the justice system and punishment for corruption.
There is an issue that everyone has to decide for himself. Ukrainians must say no to corruption. Show on your example that you do not support corruption. All your society is facing the problem of corruption of individual choice, so if you want to fight the withdrawal of capital, you have to answer honestly to yourself – what is your attitude to this problem.