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Ukraine: A View of the Future

  • Дуже маленький Маленький Стандартний Збільшений Великий
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Today, if we start talking about the future, most interlocutors will immediately cite futurologists.

Yuval Noah Harari, for example, the author of Sapiens or Ray Kurzweil of Google Corporation. Some may even name American think tanks, such as RAND Corporation. But neither does Ukraine stand on the sidelines – in 2016, Ukrainian businessmen founded the Ukrainian Institute for the Future analytical centre. What is the Institute and what vision of the future of Ukraine does it predict?

It is important to look to the future, because the world is changing in front of us at great speed. Even more important, we must not just prepare for change, but to stay competitive we must change ourselves – our knowledge, skills, and approach. This applies to both private companies and the state as a whole. In words, it sounds simple, but for Ukraine there is a problem with the vision of the future. Before independence, the functions of strategic thinking and long-term planning were actually banned. At that time, the centre of the Soviet Union was of course Moscow, which would have looked suspiciously at the formation of any predictive institutions, and most certainly ones in Kyiv.

After the collapse of the Soviet Union, the situation should have been corrected, but the state is dominated by the same thinking, limited in its solutions of current problems and all in manual mode. And where the bureaucratic machine has not coped with new challenges, business took over. The Ukrainian Institute for the Future predicts changes, models, possible scenarios, and openly publishes practical recommendations for policy-makers.

Great minds think alike

Founders of the Ukrainian Institute for the Future include six people: Igor Liski, Oleksiy Skrypnik, Anatolii Amelin, Taras Berezovets, Anton Gerashchenko, and Yuriy Romanenko. They are entrepreneurs, political consultants, and politicians. And although they represent different areas, they came to the idea of the need to create an Institute almost at the same time.

Director of economic programs at the Institute, Amelin, came with ideas from his experience in the public sector. Anatolii Amelin was a member of the National Securities Commission. He realised the state needed a strategy for development of the stock market, as in business. He gathered a team of analysts who practiced various models and studied the experience in various parts of the world. They realised that the stock market strategy without a strategy of the financial sector, of which it is a part, is impossible. But a strategy of the financial sector without the strategy of the country’s economy is also impossible. Why? Because the financial sector serves the economy. “In 2012, I realised for the first time that without the country’s development strategy, we could not build an effective economy or financial sector. A strategy of a part is impossible without a strategy of the whole,” says Amelin.

Five of the six future founders of the Institute met at the Aspen Initiative for Europe. With only nine others in the world, a tenth Aspen Institute was opened later in Kyiv, where the group quickly attracted interest in development.

Businessman Igor Liski initiated private project, Aspen Future within the Aspen Initiative, inviting methodologists and futurists to take part. Participants discussed the future, looked at how it might be modelled, how it might be created, and how it might be analysed.

At the same time, a closed group was working within CEO Club Ukraine, where participants discussed possible scenarios for the development of Ukraine and engaged in ‘foresight’ to model the future of the Ukrainian economy.

The CEO Club organised a trip to the United States, where one of the visits was to the authoritative analytical centre, Atlantic Council. This was a great discovery for the future founders of the Ukrainian Institute for the Future. They saw the work of analytical centres, and the format of the products they prepare. This was followed by visits to the Heritage Foundation and Kennan Institute. It became obvious that they were not just preparing a different format of intellectual product, which Ukraine did not have, they were working with future scenarios, forming new meanings, and creating new ideas for development.

At these meetings, groups of like-minded people were formed. It turned out that they were moving on parallel paths and thinking about the same thing. The team had two options. The first was to continue discourse about the future – to discuss, to study, to argue, but do nothing about their conclusions. The second was to become the subject and try to materialise their achievements. The team chose option two because they knew from experience that traditional social initiatives had little chance against their agenda. As a result, the Institute was created.

A vison of the future unites

How can entrepreneurs, political consultants, and politicians, who founded the analytical centre in Ukraine, find a common language? “It is difficult for Ukrainians to agree on the past, let alone the present, but we were able to agree on the future,” says Amelin. “We can jointly build the future of the country, in which everyone will have a place for their business, for development, for self-realisation.”

Among the founders are two politicians – Oleksiy Skrypnik and Anton Geraschenko. Skrypnik started out as a businessman. He is a co-founder of a large software company in Lviv called ELEKS. It is interesting to note that ELEKS created the visual effects for one of the Batman movies. Now he is a People’s Deputy of the Samopomich party. The second politician among the founders is Anton Gerashchenko, a Deputy of the Narodniy Front party. The Institute sees no risk in this situation, because both Skrypnik and Geraschenko represent two competing political forces. One is in opposition, the other in coalition. The team of founders is united not by political discourse or belonging to political groups, but by the future of Ukraine.

Since half of the founders of the Institute began their career as businessmen, they are familiar with the synergy partnerships in business create. Different people who have not worked together before make a business plan and strategy and implement it together. Although it is much more difficult to manage the country than an enterprise, the approach is very similar. In fact, the Ukrainian Institute for the Future is developing an effective “business plan” for the country.

Full transparency and shared studies

Almost 75% of the budget of the Ukrainian Institute for the Future is formed by the founders. Another 25% include donations from other Ukrainian businessmen. All income and expenses are public and available to everyone on the website of the Institute and in annual reports.

Transparency is also applied to products. All that is created by experts and analysts of the Institute are open source documents. All studies are published on the website and can be freely read, downloaded, and used. Part of the work of the Institute has already become a basis for normative documents, which several ministries work with, without even referring to the authors. The Institute doesn’t care.

The founders say that it is more important for them not to recognise authorship, but to fill the vacuum of the right ideas with effective solutions. However, these solutions are not just the fruit of brainstorming. The Institute’s proposals were evaluated cross different scenarios with regard to the impact of each decision.

According to Liski, the Ukrainian Institute for the Future as an analytical centre, free from the influence of political and business groups, forms a program of actions and priorities through the work of independent experts. “The collaboration of business, politics, and public sector participants retains objectivity in the work of the centre. We generate ideas and make the results of our research and even working materials available. It is important that we offer not just pure ideas, but results of the analysis and their viability – calculations of the cost of implementation as well as analysis of strengths and weaknesses,” he says.

The first-ever interactive model of Ukraine’s economy

In November 2018, the Ukrainian Institute for the Future presented a mathematical model of the Ukrainian economy. Previously, such developments were created in the depths of academic institutions and were not available to the general public. The model of the Institute however works online and is open to everybody. It allows you to manually change important parameters and shows the real-time impact of these changes on income, budget, and the economy as a whole until 2030. Economists of the Ukrainian Institute for the Future worked for a year and a half on the creation of the model together with German economists and mathematicians from Ludwig Maximilian University of Munich.

The Ukrainian Institute for the Future sees the greatest benefit of the model in the possibility of calculating the effectiveness of proposed policies and legislation. The mathematical model of the economy appeared on the eve of the election year in Ukraine. It can be used to compare the election programs of presidential candidates and political parties and to assess the consequences of their implementation. As far as I know, even in developed democracies there are no such publicly available tools.

Given the current global political reality that exists in Ukraine, the economic model can be called a “Populismeter” because it shows the negative impact of “simple solutions” that politicians so abundantly provide. Such a tool for assessing the impact of policies and legislation will be useful for politicians, Ukrainian businesses, and foreign investors.

Innovative economic strategy for Ukraine

The Ukrainian Institute for the Future plans to present its own strategy of economic development for Ukraine up to 2030 in Q1 of this year. This term does not coincide coincidentally with the time span, which uses a mathematical model of economics from the Institute. The strategy will be run through the model and each proposed solution will be reasoned using the language of algorithms and numbers.

The vision proposed by the Ukrainian Institute for the Future is quite bold – experts say that by 2030 it will be possible to increase the annual nominal GDP to USD 1 trillion. This figure is amazing when you consider that in 2018 the nominal GDP of Ukraine will actually be eight times less than the stated goal of the Institute.

To achieve this result, the Ukrainian economy should grow by more than 18% annually for 12 years. Is it possible? We uncovered some details regarding this issue in an interview with Amelin. But to get the whole picture, you’ll have to wait. According to the Ukrainian Institute for the Future, the strategy will be presented in February-March 2019, prior to the domestic presidential elections.

Security issues and education reform are in focus too

Although the economy is arguably one of the most important factors of the country’s development, which is most closely watched by business, sphere of interests of the Ukrainian Institute for the Future are not limited to it. We can’t model the future of Ukraine without taking into account the challenges of security, or education. The Institute conducts research on the current conflict in the Donbas and Sea of Azov, on the policy of the country’s nearest neighbours and openly shares its results. Most recent examples include a study on the policy of Hungary, a report on the future of oligarchs, and monitoring populations of the occupied territories through a focus group.

The Institute is also working on an education strategy. Without educated and qualified people no breakthrough economic strategy really works. The difficulty is that you cannot just copy the education system of another country. It also requires a vision of the future. Children who started school this year will finish in 2030. These next 10-12 years will change the world so dramatically that these children will not be ready for the future. Not to mention the older generations. Their knowledge will be irrelevant. The Institute is working on an agenda for the education system of the future, so that today’s children get the necessary skills to survive in a rapidly changing world. For example, in December last year, the Ukrainian Institute for the Future initiated a discourse on university reform by publishing the report “The future of higher education in Ukraine: seven steps to an evolutionary leap”.

UIF predictions for Ukraine’s economy in 2019

In December 2018, the Ukrainian Institute for the Future presented its forecast on the dynamics of the Ukrainian economy in 2019. Experts reviewed the trends of 2018, external and internal risks for development, and simulated three possible scenarios: pessimistic, optimistic, and basic. According to the basic scenario, with a probability of 70%, real GDP of the national currency will grow by 2%. This will achieve a nominal GDP of USD 135 billion.

Ukraine’s economy is too dependent on commodity markets. This forecast is based on the fact that commodity markets are moving in a sideways trend or show sluggish growth. At the same time, Ukrainian exports will decrease by 0.3% at the end of the year, and imports will increase by 1.6%. In this case, the trade deficit will grow to USD 11 billion and the current account balance to USD 4.0 billion (3.0% of GDP). The balance of payments will remain in the black only at the expense of revenues from Ukrainian guest workers. By the way, according to the Ministry of Social Policy, Ukrainian workers transferred about USD 11 billion to Ukraine in 2018.

The baseline forecast assumes that Ukraine will receive an IMF tranche of USD 1.2 billion or place Eurobonds, supported by the IMF. This will make it possible to make the planned payments on foreign debts. However, NBU reserves will fall below USD 17-18 billion by the end of 2019. The total investment in dollar terms will decrease by 5% compared to 2018. At the same time, foreign direct investment throughout the year will remain at a low level of USD 1.5-2 billion, as in 2018.

In 2019, the pre-election increase in social standards planned in the budget will be implemented. Pensions and minimum wages will increase. This will stimulate domestic consumption and be a driver of economic growth along with the growth of public spending.

An important parameter for many Ukrainians is the exchange rate of the US dollar to the hryvnia. Against the background of panic and speculation on the eve of the elections, the US dollar may rise in price above UAH 30 during the year. However, according to the Institute’s forecasts, the average annual rate will be UAH 29.7 per dollar. By the end of 2019, experts forecast inflation of 8%

At the same time, the Ukrainian Institute for the Future sees a number of opportunities that can help the economy develop faster. Controlled default, for example, and the restructuring of external debt in November-December 2019. The completion of judicial reform and the guarantee of property rights could also play a positive role. The Institute sees potential in the changing of elites in the upcoming elections, which could transpire as protests of the creative class, including the return of migrant workers.

Ukraine should also enter new markets and look for new product niches. The potential continuation or escalation of the US trade war with China in this context is not only a risk, but also an opportunity for Ukraine to occupy free markets. An interesting possibility would be a target-controlled emission for large infrastructure projects, which provide for the purchase of GPP with part of the profits.

To be continued

According to western standards, the Ukrainian Institute for the Future is a very young institution. During these two and a half years, however, it has become an important centre for research and the formation of agenda. It is noteworthy that in the absence of experience in designing the future of government agencies, it was private business that took the initiative and created the think tank, attracting the attention of politicians and businessmen in Ukraine and beyond.