A woman enters a bank which re-opened near a barricade in central Kiev on 25 February, 2014. Photograph: Getty Images.
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Investors hesitate as Ukraine teeters on the precipice

In recent days Ukrainian bonds suffered the worst selloff on record and the stock index fell 2.8 per cent

As central Kiev has descended further into violence, the complexity of the divisions - beyond a simple fissure between east and west - have become apparent.

The focal point of the Orange Revolution of 2004-05 was simple: Viktor Yushchenko was the legitimate winner of the presidential election and the people went onto the street to protest the rigged ballot that gave Yanukovych the presidency. Protests were peaceful, the movement had a single figurehead and the objective was clear.

The situation in 2014 is far more complex. Demonstrations were triggered by Yanukovych’s decision not to sign a wide-ranging association agreement with the European Union - a decision the western media attributed to pressure from Russia.

This obviates the role ill-informed EU policy played. In demanding a final, all or nothing, response from Ukraine, a country in need of emergency funding, Yanukovych was left with little room for manoeuvre. President Vladimir Putin was offering cash. The EU was making promises and in so doing, Brussels misplayed its hand.

Branding Yanukovych as "pro-Russia" ignores the competing pressures within Ukrainian politics, particularly when he has taken significant steps to strengthen relations with the west. Ukraine is one of Europe’s most promising energy frontiers and hosts Europe’s third largest shale gas reserves. In November 2013 Kiev signed a production sharing agreement (PSA) with Chevron of the US, worth up to USD 10 billion, to explore for and produce shale gas in the Oleska field in western Ukraine. This was followed in January 2014, with the signing of a similar deal with Royal Dutch Shell for the Yuzivska field in the east of the country.

Conventional oil and gas exploration deals are also being signed. Ukraine agreed a PSA with an ExxonMobil-led consortium to exploit a field of the western coast of the Black Sea.

The signing of such deals with western oil majors is a significant departure from what has gone before. Even under Yushchenko’s pro-western leadership after the Orange Revolution, western companies were largely shut out the country’s energy sector, or put off by uncertain legislation.

Yanukovych, who became president in 2010, in contrast, has been more pragmatic in terms of opening the hydrocarbons production to the west. Efforts have also been made to significantly improve the legislative environment.

Despite this evolution, Ukraine has limited room for political and economic manoeuvre, a fact the EU appears to have ignored during negotiations. Irrespective of the international orientation of its leaders, the Ukraine remains heavily dependent on Moscow for its gas supply, with Russian imports accounting for 60 per cent of consumption. In retaliation for the Orange Revolution, Moscow raised gas prices and cut off supplies in 2006 and 2009, amid pricing disputes. The agreement that ended the 2009 cut-off left Ukraine paying some of the highest prices in Europe.

Unless Ukraine is able to develop its shale gas reserves and wean itself off dependence on Russian energy this cycle of economic vulnerability will continue.

Investors are ditching assets; punishing Ukraine for the protests. In recent days Ukrainian bonds suffered the worst selloff on record and the stock index fell 2.8 per cent. Yields on government bonds maturing in June reached an all-time high of 34 per cent, trading a yield on the 2014 note traded a record 23 per cent about the rate on debt maturing in April 2023.

Ukraine is grappling with a record current-account deficit and foreign reserves are at the lowest level since 2006. The country has USD17 billion of liabilities coming due, excluding interest, through the end of 2015 and at the time of writing Moscow has delayed a USD2 billion purchase of Eurobonds citing "technical delays".

The EU is threatening sanctions, a move that will have limited short-term impact and will do little to end the bloodshed, particularly if Putin opens his cheque book.

In the medium term, Ukraine’s gas reserves and agricultural output have the potential to make it a relatively wealthy country. In the short term, investors are panicking, sending the economy to the brink of a precipice.

The insurance market has all but closed its books to new Ukrainian risk. While there is relative optimism around Ukraine’s prospects over a six month time horizon, in the immediate term underwriters and investors want to minimise their exposures.

It is unclear where the protests go from here. Yanukovych won a relatively free and fair election and it could be considered a loss for democracy if he is forced from office. If he succumbs to pressure who should replace him? The opposition, unlike 2004-05, cannot offer an undisputed successor. It is a disparate grouping with several figureheads, radical elements and no clear leadership.

The departure of Yanuckovych does not provide a viable solution. There is widespread concern in Ukraine about the level of corruption in government. Even if Yanukovych is removed from office corruption will not necessarily diminish. A big question is how intrinsically entrenched Russian business interests are within Ukrainian politics and commerce, as these systemic flaws pose the greatest threat to the development of a democratic system.

JLT Head of Credit & Political Risk Advisory

Felipe Araujo
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Hull revisited: What happens when a Brexit stronghold becomes City of Culture?

We report from Hull, to find out if you can replace the kind of nostalgia that led to a Leave vote with cultural investment.

At 75 metres long, the offshore wind turbine blade erected across Queen Victoria Square, in the heart of Hull, is a sculpture intended to mark a new chapter in the city’s history. For the next 12 months, Hull, a city of more than a quarter of a million people in the northeast of England, will be the UK’s City of Culture.

The 28-tonne blade hails from the local Siemens plant. The German technology company employs around 1,000 people in the area, making it Hull’s biggest single employer.

Seen up close in this context – laid dormant in the middle of a town square instead of spinning up in the air generating energy – the structure is meant to remind passersby of a giant sea creature. It is also, I’m told, an allusion to Hull’s rich maritime history.


All photos: Felipe Araujo

Nostalgia is a big thing in this part of the country. At one point, Hull was the UK’s third largest port but technology and privatisation drastically changed that. The battle over cod fishing with Iceland in the waters of the North Sea 40 years ago has also dealt a major blow to a region with a long and proud trawling tradition.

People here still talk about a bygone era when the fishing industry provided jobs for everyone and there was enough money to go around.

Fast forward to 2017, and the country’s new capital of culture is the same city that voted 67 per cent in favour of leaving the EU last June. Its new-found prestige, it seems, is not enough to erase years of neglect by a political class “too busy for commoners like us”, as one resident puts it.

“More than a message to Brussels, it [the Brexit vote] was a message to Westminster,” Paul Leeson-Taylor, a filmmaker born and bred in Hull, tells me. “For the first time in a long time people in Hull felt like they had the chance to change something, and they took it.”

But while speaking to people on the high street and hanging out with locals at the Community Boxing Club in Orchard Park, one of the city’s most deprived areas, there is one word that consistently popped up in conversation – more than any specific policy from Westminster or the much-hated rules “dictated” by Brussels. Foreigners.

According to official figures, Hull’s population is 89.1 per cent white British. Still, immigration is big on people’s minds here.

During my two-day stay in the city, I find myself being the only black person in most places I visit – I’m certainly the only black guy at the boxing club. So when someone begins a sentence with “I’m not racist but…”, I know a tirade on immigrants is about to ensue.

“There are just too many of them,” Nick Beach, an estate agent whose Polish clientele is a big part of his business, tells me as he is about to teach a boxing class to local children. Beach was born in Shepherd’s Bush, in West London, but has been living in Hull for the last 20 years.

“When I go down there these days and go into Westfield shopping centre, it is very rare you get an English person serving you now,” he says. “I just find it disappointing that you go into your capital city and you are a minority there.”

These are the much-discussed “left behind”, a white working-class community that has gained particular prominence in a time of Brexit and Donald Trump. Under economic pressure and facing social change, they want to have their say in running a country they claim to no longer recognise.

For Professor Simon Lee, a senior politics lecturer at the University of Hull, immigration is only a superficial layer when it comes to explaining the resentment I witness here. For him, the loss of the empire 70 years ago is still something that as a country Britain hasn’t come to terms with.

“The reason for us to be together as a United Kingdom has gone, so what is the project?”

As destiny would have it, a foreign company will now play a major role on Hull’s economic future, at least in the short term. In the wake of the Brexit vote, there were widespread fears Siemens would pull out of the region and take its factory elsewhere. With the massive blade looming large in the background, Jason Speedy, director of the blade factory in Hull, assures me that isn’t the case.

“The Brexit decision has made no difference. We have made our investment decision, so Siemens, together with the Association of British Ports, has put in £310m. It’s all full steam ahead.”

As Hull becomes the country’s cultural hub for the next few months, the hope is that its residents stop looking back and start looking forward.

For Professor Lee, though, until there is a complete change in the power structures that run the country, the north-south divide will remain – with or without the EU. “The way you kill nostalgia is to have something new,” he said. “The reason why people here are nostalgic is because there is nothing to replace it with.”

Felipe Araujo is a freelance journalist based in London. He writes about race, culture and sports. He covered the Rio Olympics and Paralympics on the ground for the New Statesman. He tweets @felipethejourno.