Q&A with pro-Ukraine investment banker Michael Bleyzer
by Vlad Lavrov, Kyiv Post Staff Writer
Jan 27, 03:03

Michael Bleyzer is president and CEO of SigmaBleyzer, an American investment banking group that manages the assets of the Ukrainian Growth Fund III, which owns Volia Cable. An American citizen, Bleyzer was born in Kharkiv in 1951 and moved to the United States at age 27.

Prior to founding SigmaBleyzer in 1994, he held senior managerial positions at the Exxon Corporation and Ernst&Young. The Post met with Bleyzer at his office on Jan. 25, days after Viktor Yushchenko was sworn in as president of Ukraine.

KP: What are your impressions about what's going on in Ukraine at the moment?

MB: I am certainly euphoric. I think it is absolutely incredible what has happened in Ukraine. I think for the first time since independence Ukraine is a hip, cool and sexy country. That makes my job, which is explaining to people in the world why Ukraine is a good place to come and invest, why Ukraine is a good place to come and visit, why Ukraine is worth talking about Ѓг it makes my job much easier.

I was here throughout the height of the Orange Revolution, going to Maidan every day. In my lifetime, this was one of the most exciting times. I think what happened was an incredible transformation of civil society; a period of cleansing some of the bad and horrible things that happened in this country over the last 10-12 years. And the good things that also happened here were underestimated and overlooked, because the negative things were never fully admitted or disclosed the way it should have happened in any honest and transparent society.

I think that [the changes spurred by the Orange Revolution] are unprecedented. I think that no other country has had this incredible sociological experiment that succeeded in a very short period of time without any violence. There were similar conditions and events in other places like Georgia, but the scale and the significance of this event has no parallels.

That is what has made Ukraine a wholly different country. From being this obscure, backward and strange swamp that people just didn't know what to do with, all of a sudden [it is totally different].

When we were trying to help a group of companies organize an inaugural ball, before the ball I had some friends come with me to look at the set-up. When they saw the multiple screens playing the revolution music and videos, one of them commented, ⌠There is one thing that Ukrainians know how to do, and that is to run a really cool and hip revolution. Nobody has had a revolution that was so cool!

It was in many ways an MTV-style revolution. If MTV were staging a revolution, they could not have done a better job than what the Orange Revolution actually did by itself. That is the incredible beauty of it, which showed the conviction and goodness of the Ukrainian people, but it also showed the energy and young spirit of the Ukrainian nation.

I think Ukraine is in. And that is the big news.

When I left Ukraine on Nov. 29, I went to London and then to the United States. In an elevator of a good hotel in London, there was a Brit standing next to me. I was wearing an orange sweater, and he asked me, ⌠Are you wearing Ukrainian colors? I replied, Yes, there is a good reason for that. He said, I know; this is absolutely unbelievable.

It is not just the support, but the absolute fascination of the world as to the events here [that strikes me].

KP: Did you ready yourself for Plan B Ѓг Yanukovych becoming president?

MB: The answer is yes. For us, it meant essentially retreating from Ukraine.

We believe that from an investment attractiveness point of view, those countries that are in the process of EU accession, or are at least making progress in their reforms that would lead to their closer integration with Europe, are the best places to invest. And that will continue to be the case, certainly within the next decade or more.

Had the other side won in this country, it would be next to impossible to get additional investments into this country, especially if that other side had won, as they intended to, by falsifying the elections. You simply cannot keep this quiet, you cannot give the impression this is legitimate, when everybody knows it is a lie.

It would turn Ukraine into a so-called banana republic, and getting money to invest here would be extremely difficult. So for us Plan B was slowing down and probably trying to wind down our business over here.

KP: What's happening in the business community now? Do you see a line of investors wanting to come to Ukraine?

MB: Yes, I do see that. It is absolutely amazing. I am getting phone calls from investors who only a few years ago were avoiding even talking about investing in Ukraine. Now they tell me they want to do it immediately.

KP: Could you forecast how FDI will grow over the coming years, under the most optimistic scenario?

MB: Ukraine has a very fast rate of economic growth, one of the fastest in the world. With the rating agencies keeping Ukraine at a reasonable non-investment grade, it would probably be a couple of years until it reaches investment grade. Assuming that the government takes the necessary steps that will help fight inflation and keep the national currency stable, I would expect that FDI will continue to grow.

Ukraine is close to reaching $2 billion per year [in FDI], which will be a tremendous success. However, based upon our studies, Ukraine would be capable of attracting and successfully deploying as much as $5 billion per year.

Having $5 billion per year over the next, say, 10 years could make a dramatic contribution to Ukraine's success. The domestic investments will continue to grow, but they will not be sufficient to finance all the growth that is necessary.

Therefore, reaching $2 billion this year would be an ambitious target, but certainly achievable, and there's the potential we could exceed that. But setting our sights on the $3-4 billion per year range is quite possible, if the government takes certain, necessary steps.

KP: What are those steps?

MB: This is an opinion of a businessman: I think the key thing that the new government could do is to start communicating with the population in a different way. True transparency is when the government is engaged in open and honest dialogue. There could be nothing better than when the leader of the country is talking to the country's people on a regular basis; to explain in very simple terms what the problems are and how they can be addressed; to explain to them that some of the problems were many years in the making and you simply cannot change them [immediately].

However, it is vitally important to begin educating people. For example, raising pensions and minimum wages may feel good, but if this leads to inflation it's totally meaningless, as with more money you would actually be able to buy less. At the same time this would also begin to destroy the economy.

So one of the very first things that the new government will need to do is to get its fiscal house in order. There is a clear danger that Ukraine, with the populist moves made in the last couple of months, will have a budget deficit at close to five percent of GDP instead of being at 1 to 1.5 percent, which is quite sustainable. [A high budget deficit] will reasonably quickly lead to both inflation and loss of credibility.

To get its fiscal house in order, [the government] has to review its spending, as well as its tax treatments.

Looking into the tax area is going to be a very important short-term goal, to make sure you have the right balance of receipts paid to the government, but at the same time taxation levels that can stimulate business development.

Another area that you cannot wait to work on is to define the role of the government. The government's role should be limited. Today, if you could actually [eliminate] the complexities of setting up new businesses, it would shortly lead to an explosion in the creation of small- and medium-sized enterprises, which is how you can sustain economic growth.

It is very important to unleash the power of private capital by getting government intervention out of business; it will lead to a very quick payoff.

Civil service review is also very important. You need to understand the types of people who will be working, how to motivate them, and how many civil servants you need.

You need to get really motivated and dedicated civil servants that are being paid accordingly. At the same time, punishment for bribes has to be increased significantly, otherwise you cannot fight corruption.

Overall, I think that this government has several very charismatic leaders, which does two things: it makes Ukraine more appealing to the West, but more importantly it makes it more interesting for its population.

KP: What about reviewing some of the recent privatizations?

MB: I am in favor of reviewing some of the most dramatic cases which are on everybody's mind and which are such bad examples. I think it would be difficult to move forward without bringing them to closure.

I would be against having multiple reviews, like re-dividing the capital. It would take a tremendously long time and [lead to great] expenses, it would lead to tremendous problems, and it would be impossible to do it completely fairly.

I would take one or two showcases and review them, trying to be fair and objective. In some cases, getting additional compensation would be sufficient if there is enough assurance that that would have been the market price had the tender been run transparently; in other cases it is possible that re-tendering them would be the option.

However, this is a less attractive option, as it will send a very bad message that the old government giveth and the new government taketh. So I would certainly be very careful not to do a lot of those things.

KP: Would you want to be in Yushchenko's shoes at the moment?

MB: No, I would not want to trade places with him, because it in fact is extremely challenging and extremely difficult. However, I feel so strongly about this country that I would be willing to help in any way I can.

KP: What's the biggest challenge Yushchenko and his government are now facing?

MB: I think it is changing the way this country is governed. To define exactly how the new government, including the whole public administration sector, should look, so that the country can be efficient. I assume that once you define it on paper, it would look very different from what it is now, with much fewer people, with very different jobs, with many ministries and committees simply disappearing completely.

Then the most unpopular step should be made Ѓг you have to fire every single civil servant in the country. Next day, you start re-hiring them on a very competitive basis into the new structure. If you do that you will significantly undermine, or hopefully break the back of the worst obstacle toward progress that Ukraine faces the nomenklatura. Many of them would be back in their jobs, but on a competitive basis, having had to prove their skills.

In the beginning we talked about the cleansing of civil society. Now the same thing needs to happen with the public administration.

KP: Are you afraid people might be disappointed in Yushchenko and his government?

MB: I never said it will be [a rosy future]. We are going through an incredible period of excitement, and we are now at the stage when an incredible victory has been achieved.

All my life I have been a great believer that it is important to celebrate victories. People work very hard, and if they don't celebrate victories, they don't really know what they have been working for.

Now it is time to celebrate victory, and that is why I am so enthusiastic. You have to take the time to do that. Several days, not several years. And I think we are pretty close now to the end of this celebration. It is important to actually have that done.

So from this point on, am I optimistic? Yes. Am I naive enough to think everything will be great and immediately so? Absolutely not. In fact, yes, I am concerned about being disappointed. My main concerns are that implementation is so much more difficult than any planning.

However, if this government is truly transparent, and talks with the people all the time, and if they are able to convince the people that they are in it together, that will go a long way. It will buy them time, and therefore the problems of the bumps on the road and there will be many will be easier to deal with.