Friday, March 20, 2009

Reflections on a visit to Odessa and Kiev

Invited to speak at Odessa and Kiev by the IBR Institute of International Business Relations at "Masterclasses" on the current crisis, I found Odessa mostly worn down with age but, where it has been provided with minimum maintenance recently (a few blocks around the new port), quite beautiful. The architecture is mostly imperial Russian/ Mediterranean with a strong whiff of Italian and French influence - bits of the city (e.g. the Potemkin Stairs, when one is looking up from the bottom) are even reminiscent of New Delhi.

Kiev (or Kyiv) is astonishingly well-spruced. About 15 miles across, it takes quite a bit of travel and I was surprised at how much money has been poured into the city (perhaps the lion's share of all the money that the country has received or been able to generate since its independence from Russia in 1991?). It is certainly the most modern of all the cities in Europe and, in spite of that, still remains beautiful and distinctly itself.

Having looked at the situation in the country a little in preparation for my visit, and having had discussions with an interesting range of people while there, here is my summary: the national currency is losing value; the country imports a huge amount as there is practically no industrial production and hardly any internationally-competitive local products; the majority of businesses have taken a hit; the country's main "industries" are construction, real estate and finance - all affected by the current global downturn; panic and aggravation is the dominanat mood, combined with a lingering trace of arrogance on the part of the rich.

What does the country need to do to cope with the current crisis and even use it as a springboard for a breakthrough?

1. Introduce one or more complementary currencies immediately. That will help to provide a floor below the crisis, without providing potential for hyperinflation whenever and as soon as the economy begins to recover. There may be some loss of tax revenue (depending on how the complementary system is designed) but that should be more than offset by avoiding the otherwise-inevitable need to print more and more of the otherwise-monopoly currency.

2. Immediately consider how to support the agricultural sector and make it viable again. This is the single biggest sector with the potential to take the country into the future. The whole of agriculture has not only been shamefully neglected but even abused.

3. Encourage mergers and acquisitions in the IT sector so as to form at least 3 to 5 nationally-important firms: the country has good prospects in IT but needs a national agreement regarding how to encourage this sector without actual subsidy. There may also be other advanced technological sectors that the country can prioritise.

4. The key thing is for the country to create a "brand" for itself. When one thinks of the USA one thinks of size, reach, good value for money and reasonably competent products in almost every field (with a few excellent products in some fields); when one thinks of Germany one thinks of really high-tech but very high-value products; when one thinks of Japan, one thinks of high-tech products that are good value compared to German ones but higher-tech than American ones; when one thinks of China one thinks of cheap and cheerful mass products which may or may not be up to scratch; in the case of Armenia, one thinks of an incredibly rich culture and a beautiful country which has suffered a holocaust of its own and is in a challenging situation; when one thinks of India, one thinks of IT. In each of these cases, the stereotypes may be right or wrong - the point is that one has something to go on and/or challenge. In the case of Ukraine, what does one think of? There is a blank. At best one thinks of the country's dispute with Russia and considers Ukraine in the light of a pipeline of Russian gas to Europe - not exactly flattering.

But the notion of a pipeline is not the worst one to build on for creating an image for the country: considering its size and geographical position, Ukraine could build for itself a reputation as a logistical champion.

So there is an opportunity for the people of Ukraine to take the initiative for a new revolution, that will force its political class, which is mostly focused on enriching itself, to do the minimum necessary for the country. In doing so, the political class will find that it can enrich itself even more - and without forcing the country to move even further back economically and socially. It would be a win-win for everyone. Sphere: Related Content

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