By Mark Curtis (Mark Curtis is the editor of Declassified UK, and the author of five books and many articles on UK foreign policy)
Amid the devastating war in Ukraine, British economic aid to the country is focused on promoting pro-private sector reforms and on pressing the government to open up its economy to foreign investors.
Recently-published Foreign Office documents on its flagship aid project in Ukraine, which supports privatisation, note that the war provides “opportunities” for Ukraine delivering on “some hugely important reforms”.
The government in Kyiv has in recent months been responding positively to these calls. Last month, president Volodymyr Zelensky signed a new law expanding the privatisation of state-owned banks in the country.
It follows the Ukrainian government’s announcement in July of its ‘Large-Scale Privatisation 2024’ programme that is intended to drive foreign investment into the country and raise money for Ukraine’s struggling national budget, not least to fight Russia.
Large assets slated for privatisation currently include the country’s biggest producer of titanium ore, a leading producer of concrete products and a mining and processing plant.
Ukraine envisaged privatising the country’s roughly 3,500 state-owned enterprises in a law of 2018, which said foreign citizens and companies could become owners.
The process stalled as a result of coronavirus and then Russia’s invasion in February 2022. But hundreds of smaller-scale enterprises are now being privatised, bringing in revenues of UAH 9.6bn (£181m) in the past two years.
“The resumption of privatisation amid the full-scale war is an important step, which is already yielding results,” Ukraine’s economy minister Yulia Svyrydenko said last month.
Another law enacted in June 2023 allows large-scale assets to be sold to foreigners or Ukrainians during the current martial law regime.
‘Good governance’
Britain’s main economic aid project in Ukraine runs from 2022-25 and is called the Good Governance Fund. One of its aims is to ensure that “Ukraine adopts and implements economic reforms that create a more inclusive economy, enhancing trade opportunities with the UK”.
A recent project update from the Foreign Office is explicit about the goals. It states these should see “the invasion not only as a crisis, but also as an opportunity”.
It notes: “Ironically, despite the horrific circumstances in which interventions are being delivered, the operating context has provided a unique opportunity to really demonstrate to the GoU [government of Ukraine] and the Ukrainian population the importance and effectiveness of targeted technical assistance interventions designed to deliver reforms that generate tangible benefits”.
These reforms are also variously described in the UK project documents as “better integration with Euro-Atlantic markets” and “aligning it [Ukraine] more closely with Western markets”.
A Foreign Office spokesperson told Declassified:“The UK is committed to supporting Ukraine to not only win the war but to win the peace, by emerging as a strong, prosperous, and free nation.
“The Good Governance Fund’s work in Ukraine has strengthened Ukraine’s economic resilience and future growth, and its performance has been commended by the Independent Commission on Aid Impact who scrutinise aid spending.
“We will continue to support a Ukraine-led effort to emerge from the war with a modernised economy resilient to Russian threats.”
Advancing privatisation
One key strand of the Good Governance Fund project is direct support to privatisation in Ukraine.
This involves a seven-year sub-programme called SOERA (State-owned enterprises reform activity in Ukraine), which is funded by USAID with the UK Foreign Office as a junior partner.
SOERA works to “advance privatization of selected SOEs [state-owned enterprises], and develop a strategic management model for SOEs remaining in state ownership.”
UK documents note the programme has already “prepared the groundwork” for privatisation, a key plank of which is to change Ukraine’s legislation.
“SOERA worked hand-in-hand with GoU and proposed 25 pieces of legislation of which 13 were adopted and implemented”, the most recent documents note.
SOERA has also worked with the deputy economy minister to begin mapping “thousands of SOEs, which will be a launchpad for further state property transfer”.
The aid project has run alongside the Ukraine Recovery Conference process, in which the British government hosted an international summit in June 2023.
This sought to “help Ukraine to unlock the investment and expertise it needs to rebuild as a resilient democracy with a green and modernised economy and the ability to deter and withstand future Russian aggression”.
Mainly, the conference aimed to encourage private sector investment in Ukraine and “to cement Ukrainian commitment to advancing the reform agenda”, as the Foreign Office puts it.
Declassified made a freedom of information request asking the Foreign Office to provide the briefing notes for then foreign secretary James Cleverly for the conference. It replied saying the request was “too broad”.
“The UK is hoping to reap benefits for UK firms from Ukraine’s reconstruction”, observes a report on British aid to Ukraine earlier this year by the aid watchdog, ICAI.
Conditionality
Britain’s privatisation agenda in Ukraine is part of a wider push by the World Bank and the International Monetary Fund (IMF), which routinely promote privatisation in low income countries, often as a condition of providing aid.
Zelensky’s recent announcement on state-owned banks is based on World Bank recommendations and gives international donors a role in selecting financial advisers for the sales.
Earlier this month the World Bank announced it was allocating $593m to support Ukraine’s private sector, focused on “improving the regulatory environment”. The initiative will “strengthen our deregulation efforts”, economy minister Svyrydenko said.
One of the conditions imposed by the IMF in last year’s $15.6bn loan to Ukraine is for the government in Kyiv to produce a strategy on privatisation.
Similarly, the European’s Union’s recently-agreed Ukraine Plan – which will provide 50bn euros to Ukraine in grants and loans during 2024-27 – is also conditional on, among other things, the “entry into force of the legislation on corporate governance of state-owned enterprises”.
Rustem Umyerov, the head of the State Property Fund, which presides over Ukraine’s privatisation strategy, said in July that “international partners support the start of large-scale privatization and are ready to facilitate pitches to the business communities in their countries.”
“The search for strategic investors… is an opportunity for their development and a path to leadership in the world market”, he added.
Foreign investment in rebuilding Ukraine’s economy is being coordinated by the world’s largest asset manager, Blackrock.
‘Strategic communications’
Ukraine’s economy shrank by around a third in the first year of the Russian invasion, leaving the government in Kyiv searching for new sources of finance.
The country’s state-owned companies have often been inefficient and a notorious source of corruption, and most analysts regard private sector reform as critical.
Kyiv is not proposing to privatise all state-owned companies. The Ukrainian government notes that privatisation can benefit the country by reducing subsidies, provide income to the state budget, and “increase public benefits through market-oriented products and services”.
But privatisation can also do the opposite, as British citizens need little reminding – it can create private monopolies, reduce accountability to government and overcharge the public.
The key goal for Western states supposedly ‘aiding’ Ukraine’s privatisation process is to find access to new markets, and to bring Ukraine into their commercial orbit, fully detaching it from their rival, Russia.
A sign that the Ukrainian public needs persuading about this Western-backed privatisation is that the US/UK’s SOERA project includes a public relations dimension. One of its goals is to “assist the government in strategic communications to enhance reforms”.
Source: ScheerPost
