Igor Mazepa: Having money and not making money on it is as bad as not having money at all
1 December 2023
Concorde Capital CEO Igor Mazepa talks about global economy trends and investment options amid the pandemic
Igor Mazepa, an investment banker, CEO and Founder of Concorde Capital investment company, spoke about global economic developments, the context of investing amid the pandemic, as well as sectors and businesses he opts for in his exclusive interview for the Zagorodnaya Nedvizimost magazine.
There is a perception that there is a surplus of money in the world today that needs to be invested somewhere.Is it really so?
It is true. I will go one better and say that having money and not making money on it is as bad as not having money at all.
Is Ukraine on trend?Do we have such a surplus of money?
Clearly, as a part of the financial world, Ukraine cannot be out of trend. Therefore, when trillions of dollars are printed in the United States, Americans are the first to access them. Then the money spreads across the globe, including Ukraine, and thus we have more foreign currency. Over the past two years, the statistics shows that the growth of household income by 7-10% a year goes hand in hand with the rise in household savings. After people meet their basic needs, they start thinking how to make money work.
How has the last COVID-19 year influenced the financial and investment markets?
We saw a huge number of people willing to buy domestic government bonds. This led to an increase in their price and, accordingly, to a drop in their return. Last year, people were unprecedently active in buying government bonds. This year, the trend has gained momentum. According to analysts at Concorde Capital, people invested a record
UAH 3.7bn in government bonds in Q1 2021.
What is the reason behind the growing interest ordinary people, not businessmen or institutional investors, show in government bonds?
As the rate of the most conventional instrument, bank deposits, is critically low, Ukrainians have chosen to make money with the help of a more exotic instrument, government bonds. This has become a market for domestic investments that will drive the stock market as well. We are witnessing the trend in the Eastern Europe and even Russia. I am sure we will have a fully functional stock market in a couple of years.
Do you mean an active market?
I do, since now we cannot call it active. The stock market is where investors with money meet companies that need the money for development. We need both sides to meet one another as often as possible.
Where would you advise to invest money now?
I would have offered government bonds earlier, but now, as I said, the rates of return have gone down to about 10-11%, while inflation stands at 8%. This return is no more attractive. Bank deposits are even less attractive. That is why I prefer investing in business.
What kind of business?
For example, in the Dobrobut medical chain.
Do you mean in the healthcare sector?
Rather, in a company that has every chance to grow in terms of capitalisation three to five times over the next five years. I have also invested in MakeUp, an online beauty products retailer, which roughly doubles its size and value annually. Moreover, there are several ambitious projects in suburban real estate that is now booming.
What is a priority for you, a sector or a company?
First, I choose a sector that is booming and then I look for attractive companies with good growth prospects.
IT sector is now considered the most promising investment option.You have not mentioned it.Isn’t it attractive to you?
Why? The same MakeUp is quite an IT company, a retailer with a very important IT component. As for the IT industry in a broad sense, it is not that easy. I have some experience of investing in this sector, and I can say that only 10-15% of projects take off. Indeed, successful IT companies are on everyone’s lips and make a lot of money. But these companies make just 3-5%. Therefore, the sector has its risks, which are quite big.
What about cryprocurrencies?
This story is yet hard to understand. Although I have got a wholly new attitude to it over recent months. It is mainly because cryptocurrency is already used for payments not only in the shadow or black markets, but also in everyday life.
Where do things stand in Ukraine?
You will be surprised, but the cryptocurrency penetration in Ukraine has one of the highest rates across the globe. This is largely because the compliance polices of our domestic banks are among the most stringent. For an ordinary transaction, you need to go through the strictest verification procedures and explain the sources of your money. Even a small transaction can sometimes last for weeks. Waiting does not come cheap. Therefore, many businessmen often circumvent banking regulations, choosing cryptocurrency as the most reliable way to pay. As crypto is highly volatile, its holders bear currency risks. Now, there is already a cryptocurrency pegged to US dollar, and it is becoming a popular instrument of payments and savings.
An instrument of savings or an instrument of earnings?
Last year, investing in this market turned out to be the most profitable.
But it was last year. Now everything can change.
Clearly, every investment bears a risk, and this market is still obscure for many. That is why it is attractive.
Why did you decide to invest in real estate, particularly in suburb real estate?
I embarked on my investment journey into suburban real estate as back as in 2005 when I had a couple of million dollars available and a friend who offered me to invest in a land plot. These 10 hectares stood idle for a long time until life circumstances brought me there, and I realized that I really wanted to live outside the city. I place high demands on a place to live: there must be a forest and a water body, front line, as I like to walk out of my house, get into a boat, and sail, for example, to Odessa. So I came up with an idea to build for myself and like-minded fellows GoodLife Park. Then the demand for top-notch real estate at reasonable prices led to the idea of the Shelest suburban resort. Unlike GoodLife Park, Shelest was a fully informed investment decision. When I bought the land plot, I already understood what and how it would look like, how much needed to be invested, and how much the project would generate.
Where would you not recommend investing in the real estate market?
Investing in offices and shopping malls are dubious for me now. All current trends indicate that many people will continue to work remotely after the pandemic, as this is beneficial for both employers and employees: the former need less space for rent and lower operating costs for the maintenance of offices, and the latter do not need to spend time and money on commuting. Retail is rapidly migrating online.
In early March, the government launched a 7% mortgage loan programme.How will it impact the real estate market?
Mortgages have always made the market vibrant. Indeed, the 7% UAH-denominated mortgage loans offer good terms and opportunities for ordinary people to buy housing. For now though, this is a quasi-social project.
Isn’t it a financial instrument?
We can speak of the programme as a serious financial instrument when it starts generating billions of hryvnias. Now it is difficult to talk about its significant impact on the market. For it to function properly, mortgage loans should be granted by commercial banks. So far, the banks have been acting only as agents of the government in this programme. One of the reasons is that banks remember very well how the government deprived them of their right to demand repayment of loans, especially those denominated in foreign currencies, after 2008, and they lost a lot of money as a result.
Given this context, the fact that Ukraine and the world have available money, and expected global economic growth, how will the investment market develop?
The pre-pandemic global economy was growing at 3-4% annually, driven by fast growing economies such as China and India. Last year, it shrank by 4%. Forecasts for 2021 are varying, but I tend to believe that it will bounce back. The pandemic has hit a number of sectors, such as aviation, tourism, and hospitality, but has catalysed the development of others, such as e-commerce or online learning. Therefore, the final economic effect will be about zero on average. Meanwhile, the globe has printed a lot of money that will cause some inflation, but I am not a big fan of apocalyptic scenarios. I suppose that a long-term growth of the global economy at 3% a year is quite realistic.
“I suppose that a long-term growth of the global economy at 3% a year is quite realistic,” Igor Mazepa.
Will it be the case this year or next year?
There was an assumption that it would take place this year, but the world is still crazy over the pandemic. The worst thing is that many Western governments continue playing on populism and stimulating inaction by paying their nationals huge unemployment benefits. If you don’t do anything and get, say, 80% of your regular income, why should you bother and work at all? It becomes a habit over time and may turn into a key long-term risk of the global economy.
Source: Igor Mazepa‘s exclusive interview for the Zagorodnaya Nedvizhimost magazine https://zagorod.com.ua/category/magazine/
