How kleptocracy is feeding the fires of protest in Ukraine

While Canada is, for the most part, on the sidelines, it does have a role to play

EDMONTON, AB, Jan 27, 2014/ Troy Media/ – Canada has strong emotional ties to Ukraine, with nearly 1.5 million Canadians claiming some Ukrainian heritage. Yet bilateral trade is nearly non-existent and Ukraine remains a mystery to most Canadians.

The protests in Kyiv are shedding light on this often forgotten part of the world and the kleptocracy that has brought Ukraine to the verge of bankruptcy.

Kleptocracy literally means “Rule by Thieves” and is more broadly described as a system where the government and ruling elites misappropriate public funds and power at the expense of the wider population. In the case of Ukraine, the ruling elite is centred around President Viktor Yanukovych’s Party of Regions, which has its powerbase in the Russian-speaking east of the country and has alienated the Ukrainian-speaking west of the country by its pro-east agenda.

The business environment in Ukraine has stagnated since independence: corruption permeates the entire society and the country has perpetually failed to transition into a market economy. The Global Competitiveness Index published by the World Economic Forum ranks Ukraine and 143 other countries. Ukraine ranks: 134thin property rights, bribery 133th, legal framework 141st, customs procedures 138th, and in soundness of banks 142nd.

A recent World Bank’s Doing Business Index of 185 countries shows similar results. Ukraine ranks 137th overall, compared to the regional average of 73 and Poland’s 55th place ranking. Particularly troubling is investor protection that ranked Ukraine a lowly 117th, compared to the regional average of 62.

Many international companies have left Ukraine: Marathon Oil in 2008, BG Capital in 2011, and Renaissance Capital last year. The companies that are now investing are large resource companies searching for shale gas and led by Shell and Exxon. These companies are large enough to avoid many of the business risks associated with the corruption inherent in a kleptocratic system.

The current protests began when Yanukovych rejected EU integration and signed an agreement with Russia. Most Ukrainians, in both the East and the West, support EU integration because outside forces have been the only control to the systematic corruption of Yanukovych’s inner cabal.

EU integration for Yanukovych, however, was never about choosing between Russia and the EU. He was simply balancing the interests of Russia against those of the EU/U.S. in order to extract considerable concessions from Moscow. He succeeded. What was misread by most people in the west was that the $160 billion Yanukovych demanded from the EU for integration was a negotiating ploy to maintain this East/West balance and extract the best deal from Europe to keep his kleptocracy from collapsing.

Even with the rejection of EU integration, Yanukovych has not closed the door on Europe or given into Russian hegemony. He is still seeking the fulcrum point between East and West and will rebuff Russia’s economic influence, as he did when he came to office and rejected outright the list of factories, newspapers, and steamships that Putin’s people wanted to take over.

Both Russia and the EU helped create the current situation by mishandling and misunderstanding the true intentions of the governing elites in Kyiv. The onus is now on the EU to be the lead in resolving the crisis, because Russia’s goal is simply to engorge its own system of kleptocracy.

Canada is, for the most part, on the sidelines but that does not mean it has no role to play. It must publically support change, but not by threatening sanctions or by using bombastic and empty rhetoric. It must advance the cause of reform through soft power led by our institutions; specifically, we can assist in the areas of education and capital.

Canada has some of the best business and law schools in the world and should be sharing this knowledge through exchanges and joint programs that advocate ethics over corruption. By educating the next generation of leaders, it will contribute to long term change.

In addition, Canada has for many years been a source of capital for start-up companies. Unfortunately, there is currently a dearth of Eastern European companies on its money exchanges: they are choosing London, Germany, or Poland. If Canada streamlines its regulations, as many businesses in Canada are advocating, and attracts these companies, it will influence the business culture of Ukraine and bring them up to our standards.

If we do this not only Ukraine but Canada as well will benefit and be able to participate in more trade and transactions like the recent acquisition of TriOil Resources by PKN Orlen S.A. of Poland.

Ryan Lijdsman is a Canadian-based international business consultant. Follow Ryan on twitter @ryanlijdsman

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