Andrew Swart, partner of an international consultancy, believes that a progress in economy and development of Ukraine can be expected only if the state turns face to people.

I was involved in developing an economic development strategy for the Republic of South Africa (RSA) some years ago. Today I’m doing the same in Ukraine and can say that the two countries and their economic agendas show much in common.

Apartheid legacy

The RSA economy had a very special structure during the apartheid with politics and economy being closely connected. All economy principles resulted from the apartheid policy. For example, the transport system was meant for black workers to go to industrial areas and come back home as they were allowed to live only in segregated districts. The whites resided in other places. After the apartheid regime collapsed, the segregation system was abolished too. The transportation system mostly lost importance and the entire infrastructure basis for the economy had to be created anew.

As the previous regime legacy is being dismantled, you can come across similar problems in Ukraine shifting from the old soviet system to a more modern western approach. Look at Donetsk. The mining and metals sector in Donetsk belonged to a huge soviet industry. Donbass would make mostly metal products exported to Russia and other parts of the USSR for completion. Therefore, the bigger part of value was added outside Ukraine. In fact, the big potential for economy growth and prosperity was being exported together with steel. As in the RSA, where the “shadow" economy never generated capital, the entire capital was exported into an “official” economy.

Parallel features can be traced although Ukraine was developing under a socialist system with an explicit waiver of the market and private property, while the RSA took the capitalism path. The economy followed a political logic in both cases.

A slowdown path

Note that economic restructuring in the RSA isn’t over yet. The regime changed in 1994, so it has been 15 years so far. The first 5 or 6 years witnessed intensive transition processes followed by a reform slowdown. Nelson Mandela resigned (in 1999 – editor’s note) and was succeeded by Thabo Mbeki. In a sense it was a roll-back from a too rapid and radical change. But it happens in every country: an economy in transition includes stages of accelerated reforms and phases of regress and consolidation. Ukraine is showing this trend too – after quick changes during the orange revolution you are going through a post-transition consolidation.

And in fact, the structural reforms in the RSA advance much faster than in Ukraine. Yet we should not forget that the RSA was on the verge of a civil war before the reforms started. The situation there was nothing like your peaceful orange revolution.

As to the structural reforms in Ukraine, the forecast is, in general, optimistic. However, changing the mentality is vital. Everything depends on mentality more than on other factors. In the RSA the black population went through colossal changes in the mindset moving from second-rate people to the white-equals category. This happened almost overnight when the racial inequality was abolished and the mentality changed very quickly. The changes in mentality have not taken place in Ukraine yet, for example trust to public institutions. They are still underway. The chaos in the national government, regrettably, fuels the engrained mistrust to public institutions, leaders, regulation and government. This must change and the question is how to encourage trust to public institutions and government. My multi-country experience shows that the system must switch the focus from the state to a person, an ordinary citizen. Soviet intuitions were state-committed. They cared about regulatory entities, not customers. Everybody was looking upwards, not downwards. A change in mentality would be possible only when the system “makes a turn”. However, working in Ukraine even today, in Donetsk oblast for example, we see the hunger for change, especially among businessmen. This economic motivation will influence the reforming progress better than any political slogan.

Social expenditure

Ukraine must be careful about changing its social system. Yes, it is awkward and inefficient, but it can’t be fully dismantled over a short time span.

I believe that maintaining the current level of social support is a major imperative. Your people, especially pensioners, have relied on the government for all their lives. They can’t suddenly change and become self-employed.

The RSA implemented a wide social program. Amounts per one person were not high and the program ensured a relatively low level of support, yet it covered great masses of population. A national pension system and other programs implemented on the national level run in this country today.

These processes accompanied economic reforms and were realized together with them. We should not forget, however, that the economic context favoured everything a lot. The RSA was a market economy than and the economic boom decade was going on in global markets in 1993-1995. The budget was funded well and the national budget deficit never exceeded 3-4%.

In addition, the RSA is a very developed economy, more developed than that of Ukraine (RSA population is 49.05m people; population of Ukraine is 45.7m people. The GDP at purchasing power parity is $489.7 billion in RSA and $337 billion in Ukraine – editor’s note). The RSA has much capital as it is a capital-forming economy in contrast to Ukraine, where the capital was being pumped out for the past 40 or 50 years.

African Football

It is worth noting that large infrastructure projects might mitigate the aftereffects of the current downturn (on measures to tackle the downturn see BUSINESS #8 of 23.02.09, pages 14, 15; #10 of 09.03.09, pages 38-40; #11 of 16.03.09, pages 12, 13. – Editor’s note.).

I don’t believe it is right to construct football stadiums and business centers within the framework of the EURO 2012 preparation program. I am concerned about EURO 2012 infrastructure programs as it looks like they are focused on single use models.

In all cities preparing to host EURO 2012 the funds allocated for the Championship projects are to be spent on the programs aimed at long-term economic development rather than on the projects, which will not be relevant any more after the football championship is over. For example, the priority must be given to highways, railway road transportation and air traveling, that is to the key transportation hubs.

As for infrastructure development Ukraine could use the experience of the Republic of South Africa (South Africa), which is getting prepared for World Football Championship 2010. We have written this Championship Preparation Program for the government. The whole work is being done under the general tourism development strategy in the country. For 20 years the Republic of South Africa has had quite an aggressive tourism development strategy and today RSA has become one of the most popular tourist areas in the world. All the works connected with the World Championship Preparation strictly correspond to this tourism strategy. “Tourism” and “football” state-run agencies have quite close relations.

There are few cities where projected infrastructure investments can be really called as “poor” investments, that is, the investments aimed only at construction of stadiums, etc. Most actions “cover” the whole economy. For example large-scale upgrading of Cape Town Airport, which makes the airport meet the latest international standards. Cape Town is a large tourist city; and this is a very important fact.

Now, think about the Lviv Airport. How can it handle 25,000 football fans? Even now it has the capacity to handle just 5 planes per day. It will be quite hard for Kyiv International Airport Borispol to serve EURO 2012. When elaborating the tourism cluster development strategy with the Foundation for Effective Governance within the framework of the Donetsk Regional Development Project and Lviv City Development Project we considered Lviv and the Carpathians Mts as a single tourism package. Today, most tourists coming to Lviv are tourists from other tourist places. Nobody encourages rich tourists to come to Lviv. As for tourism potential Lviv reminds me Prague as it looked like 10-15 years ago. Look at Prague now! Krakow has also become a large tourism centre just recently. I believe that in 10 years Kyiv and Lviv will also see foreign tourist flocks.

BUSINESS Case File

Andrew Swart, partner of international consulting firm Monіtor Group

Date and place of birth: April 30, 1969 in Windhoek (Namibia).

Education: Cape Town University (South Africa), a BSc and an MSc in Chemical Engineering. He also holds an MBA from the University of Cape Town (South Africa) and is a registered Professional Engineer and specialist on strategic planning.

Career: worked for Fluor Corporatіon (Irving City, Texas, USA, one of the world largest engineering companies with revenue in 2008 being $22.32bn.), for Anglo Amerіcan PLC. (London, Great Britain, one of the world largest mining houses with revenue in 2008 being $26.311bn.), partner of Monіtor Group (Toronto, Canada, since 1983, 30 representative offices in the world largest countries, economic consulting).

Marital status: single

Hobbies: sailing and downhill skiing