Lift­ing cur­rency re­stric­tions will ease way for Ukrainian ex­porters


Ukraine’s ex­ports reached $43 bil­lion in 2017. But a coun­try of 42 mil­lion peo­ple could do a lot bet­ter.

Ukrainian en­trepreneurs aim­ing for for­eign mar­kets have suf­fered cur­rency re­stric­tions for quite some time. But that might change, as the long-awaited eas­ing should go into ef­fect on Feb. 7.

Pre­vi­ously, Ukraine’s cur­rency reg­u­la­tions on ex­ports were made un­der a 25-year-old de­cree of the Cab­i­net of Min­is­ters, and re­lied on a bureaucratic ad­min­is­tra­tive sys­tem for reg­u­lat­ing for­eign ex­change op­er­a­tions. Al­most ev­ery op­er­a­tion re­quired mul­ti­ple li­censes, most of which are com­pletely ob­so­lete to­day.

“The new law will pro­mote more con­crete, more un­der­stand­able and at the same time more busi­ness-ori­ented leg­is­la­tion from the Na­tional Bank of Ukraine,” said Olek­sandr Ru­denko, a se­nior lawyer at KPMG Law Ukraine.

For ex­am­ple, be­fore if a con­tract were bro­ken for one day and cur­rency wasn’t re­ceived in time, then all for­eign eco­nomic ac­tiv­ity was pro­hib­ited for the com­pany, mem­ber of par­lia­ment Mykhailo Dovbenko said on June 21, be­fore the new law was adopted.

But now, af­ter the law was signed by Pres­i­dent Petro Poroshenko on July 4, the num­ber of re­stric­tions for ex­porters might be lifted early next year, ex­perts pre­dict.

Ma­jor changes

Af­ter the eco­nomic cri­sis hit Ukraine in 2014–2015 as a re­sult of the state bud­get be­ing robbed of bil­lions of dol­lars by then-Pres­i­dent Vik­tor Yanukovych and his cronies, as well s Rus­sia’s war against Ukraine, the coun­try’s ex­ports hit a ma­jor low.

In 2014 ex­ports de­creased by 14 per­cent com­par­ing to pre­vi­ous year reach­ing $54 bil­lion. In 2015 it plum­meted even more — by an­other 30 per­cent and reached $38 bil­lion, ac­cord­ing to Ukraine’s state sta­tis­tics agency.

But since 2016, ex­ports started to grad­u­ally grow. Even though the coun­try still hasn’t reached its his­toric peak in 2012 of $69 bil­lion in ex­ports, the progress is ob­vi­ous — Ukraine is on the right track again.

For the first four months of this year ex­ports amounted to $15.5 bil­lion, or 13 per­cent more than for the same pe­riod in 2017, ac­cord­ing to Cab­i­net of Min­is­ters of Ukraine.

How­ever, ex­porters still have to deal with the old cur­rency reg­u­la­tion sys­tem be­fore the law will fi­nally come into force, and while they are an­tic­i­pat­ing the pos­i­tive changes, they still have to deal with the old rules for a cou­ple more months.

Cur­rently busi­nesses are obliged to sell 50 per­cent of their for­eign cur­rency earned from sales on the Ukrainian in­ter­bank for­eign ex­change mar­ket, ac­cord­ing to Mykola Larin, project man­ager of ZED, an as­so­ci­a­tion of ex­porters and im­porters.

“With this new law such cur­rency re­stric­tion must be com­pletely re­moved,” Larin said.

An­other se­ri­ous re­stric­tion that ex­porters are deal­ing with has to do with time lim­i­ta­tion for ex­port-im­port op­er­a­tion pay­ments, which is highly con­trolled by com­mer­cial banks and tax au­thor­i­ties.

Pay­ments should be re­ceived within 180 days from the date of cus­toms clear­ance. With the new law the dead­line will be ex­tended up to 365 days.

For the past four years, it was one of the most bur­den­some re­stric­tions, ac­cord­ing to Ru­denko.

“This cur­rency re­stric­tion cre­ated prob­lems for those im­porters and ex­porters who, for ob­jec­tive rea­sons… could not pay on time,” he said.

Ac­cord­ing to Maria Repko, deputy di­rec­tor of Cen­tre for Eco­nomic Strat­egy, a Kyiv-based think tank, there will be no such painful cases when a large transna­tional coun­ter­party sim­ply does not re­turn funds on time due to the fea­tures of its busi­ness, and the Ukrainian com­pany au­to­mat­i­cally falls un­der sanc­tions.

But that’s not all the changes the new law brings to ex­porters.

Af­ter the law will en­ter into force, the con­trol for ex­port-im­port op­er­a­tions less than Hr 150,000, or $5,300, will be abol­ished. Pre­vi­ously, all for­eign ex­change trans­ac­tions fell un­der the con­trol of the NBU and tax au­thor­i­ties, re­gard­less of the amount of con­tracts.

A sig­nif­i­cant num­ber of con­tracts made by small busi­nesses usu­ally do not ex­ceed 5,000–6,000 eu­ros, ac­cord­ing to Larin.

“It is un­known yet how strict banks and the State Fis­cal Ser­vice of Ukraine will be to the col­lec­tion of doc­u­ments,” Repko said.

One per­son who feels the pains of the cur­rent cur­rency reg­u­la­tions in prac­tice is Vla­dymyr Golo­dynets, gen­eral di­rec­tor of Kolonist win­ery.

His win­ery pro­duces about 240,000 bot­tles an­nu­ally, and about one per­cent of which are ex­ported to Poland and Eng­land.

“When we buy a cork stop­per for wine in Por­tu­gal, bar­rels in France, or bot­tles in Moldova, then we face cur­rency re­stric­tions that pre­vent us from buy­ing prod­ucts on time,” said Golo­dynets.

Ac­cord­ing to Golo­dynets, for such con­tracts it is nec­es­sary to give in­for­ma­tion about the fi­nal ben­e­fi­ciary, but some­times such in­for­ma­tion is sim­ply not avail­able, like state com­pa­nies in Moldova, where the win­ery buy­ing bot­tles.

In ad­di­tion to the changes al­ready listed, busi­nesses no longer will need to have in­di­vid­ual li­censes for in­vest­ing abroad.

“It can be care­fully as­sumed that it will make it eas­ier for com­pa­nies to in­vest abroad, like open­ing sales of­fices or ser­vice cen­ters,” Repko said.

Pend­ing NBU de­ci­sions

De­spite all of the im­prove­ments in the up­com­ing cur­rency reg­u­la­tions, the NBU will still have the main over­sight in cur­rency reg­u­la­tions and con­trol, ac­cord­ing to Larin.

By the end of the year, the cen­tral bank will fi­nal­ize reg­u­la­tory acts and make them pub­lic.

Only af­ter that busi­ness will un­der­stand how the new law will work, whether there will be real im­prove­ments, or if it is made sim­ply for a tick for the Eu­ro­pean Union, which re­quires chang­ing the cur­rency leg­is­la­tion, ac­cord­ing to Iev­geniia Lytvynova, CEO of Club of Ex­porters of Ukraine.

“The an­ti­cor­rup­tion law has also been adopted, but ev­ery­thing works as be­fore, so we must wait un­til the law on the cur­rency will work on the facts,” said Litvi­nova.

But al­ready now it is known that the NBU still will be strongly em­pow­ered to im­ple­ment pro­tec­tion mea­sures in cur­rency reg­u­la­tion for ex­porters if the eco­nomic sit­u­a­tion wors­ens or any crises ap­pears.

It can eas­ily set dead­lines for pay­ments for ex­ports and im­ports, lim­its on for­eign ex­change trans­ac­tions, or re­serve funds for for­eign ex­change trans­ac­tions.

“Ev­ery­thing can quickly change for ex­porters each time the NBU will “turn on” or “turn off” a but­ton called Con­trol,” said Larin.

Be­fore the ba­sic nor­ma­tive acts will be of­fi­cially pre­sented for cur­rency reg­u­la­tions, it’s very hard to pre­dict how it will make life eas­ier for ex­porters, or if it will only be a cos­metic change, ac­cord­ing to Repko.

“Mem­bers of par­lia­ment change three times a year — they toughen mea­sures, then they make them eas­ier. That’s why ev­ery­thing will de­pend on our reg­u­la­tor,” Golo­dynets said.

A man walks by freight con­tain­ers at a Odesa cus­toms unit on Aug. 29, 2016. Ukraine’s cur­rency reg­u­la­tions on ex­ports were made un­der a 25-year-old de­cree of the Cab­i­net of Min­is­ters lim­it­ing ex­porters’ busi­ness. But that might soon change un­der a new cur­rency re­stric­tions law that should go into ef­fect on Feb. 7. (Volodymyr Petrov)

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