You don’t have to be a bitcoin to appeal to investors3 April 2018
Concorde Capital General Director Igor Mazepa offered his view of what Ukraine’s reputation should be to attract investors in a column for the Reputation Activists annual ratings.
It would seem that in our open world, where any information about business or economics can be gained in a single instance, it’s numbers and facts that should determine the value of any asset. But in reality, as in the last century, fundamental indicators aren’t necessarily definitive for the value of a business. Empirical research still shows that up to 50% of the value of the world’s largest companies is determined by factors other than profit, earnings or material assets. As long as investment decisions in the world are made by people – with their complicated motivations, fears and ambitions – the role of such intangibles as reputation will remain important.
That not everyone in the world relies on the logic of numbers has been demonstrated in recent years by the cryptocurrency market. It’s an instrument that isn’t backed by any fundamental assets. It’s an instrument that grew only because it became suddenly popular to acquire. This fad surged on the expectation of a quick profit, and that very expectation was based merely on the value of bitcoin doubling in the last year (and even last month). But just when that “asset” demonstrated that it can lose its price just as quickly as it can gain it, demand began to dissipate. So cryptocurrencies have already lost any reputation as a reliable method for multiplying capital. This loss can be observed from the plunge in the popularity of bitcoin in recent weeks, with all the subsequent consequences for its price.
The story of bitcoin is a direct analogy to Ukraine in the 2005-08 boom period. At the time, Ukraine was a type of cryptocurrency: a little understood but very profitable investment. The country’s reputation, which every self-respecting investor should invest money in, was gained after the Orange Revolution of 2004. Many of those abroad believed at the time that the revolution could not only take the country out of political stagnation, but also establish the preconditions for explosive economic growth. At a particular moment, these expectations were even backed by figures as real GDP growth exceeded 7% in 2006-07. But as it turned out later, the “explosive” growth was merely a consequence of high global prices for resources, as well as active foreign investments driven by the very same “Ukraine fad.” The fundamentals capable of supporting further growth in the value of Ukrainian assets were absent, and we couldn’t create them. All the investments, as it turned out, had a speculative, short-term character as foreign capital fled Ukraine upon the emergence of the very first crisis. The country’s popularity faded and all that was left was the experience of financial losses from investments, as well as a better understanding of what Ukraine is. And this acquired knowledge doesn’t draw interest to our country, which is not very technologically advanced, still corrupt, loaded with debt and simply not very safe for business.
In essence, we had the reputation of a cryptocurrency country before the first bitcoin even emerged. But that’s not a bad thing because our country needs a quality new reputation anyhow. This reputation should be that of a reliable partner with whom beneficial and long-term relations can be formed. And maybe we won’t secure explosive growth on any Ukrainian indices, but we are obligated to create an image of an economy in which the rights of investors and lenders are protected, and in which the rules of the game aren’t mired by “innovations,” but are understood and transparent to all. Transitioning to this new level of quality is impossible without carrying forward with reforms, enhancements to foreign currency exchange and free movement of capital, and improved protections of the rights of creditors. It’s impossible without a just judicial system, the absence of which forces even powerful players and state structures to reach economic agreements in legal systems abroad. And it’s impossible without land reform, the absence of which leaves us with the reputation of a Third World country.
This column was prepared for the Reputation Activist annual ratings. https://focus.ua/repactiv/394517/