Taras Kozak, owner of the investment company “Univer Capital”, told LDaily about how the financial sector is enduring a full-scale war, about cooperation with the National Bank of Ukraine (NBU) and other players in the financial market, about its prospects during military actions and conditions for normal existence after victory.
LDaily: How has the war affected the company’s operations?
T. Kozak: The large invasion that began on February 24th, of course, did not contribute to the normal operation of Ukraine’s economy, especially the financial sector; it was a major shock. We prepared for this, for scenarios where something similar would happen, but understandably, everything happened quite unexpectedly. What did we do? First and foremost, we thought about our employees. They received their salaries in advance, as we understood that in just a few days, access to banks and cards might not be possible. We had previously moved servers to the “cloud” so that infrastructure, electricity, and internet problems wouldn’t hinder work. And we essentially halted operations because there was a decision by the Securities Commission to stop the circulation of securities. There was uncertainty about how to act and how to live on.
A few days passed, and the Ministry of Finance began raising funds for military government bonds. We, as a major broker, of course, joined the initiative and began offering them online, as we had already transitioned online. So, every client could and can open an account, as they say, “from the couch,” without coming to the office; everything was automated. And we found that there is significant support from the citizens of the state in the form of purchasing these government bonds. That is, funds are being sent to the state treasury essentially to finance defense needs. New accounts are being opened, and people are sending money to buy military bonds.
By agreement of the entire market, commissions for these operations were zero for everyone. That is, the company earned nothing, understanding that the needs of the state are important, they are paramount at this time. So, for several months we essentially earned nothing, but we supported our employees: we paid salaries and gave clients from various parts of Ukraine, even from abroad, the opportunity to buy military bonds. Such securities were purchased through our company every month for tens to hundreds of millions of hryvnias. These are large sums. They consisted of payments sometimes of 5 thousand hryvnias, sometimes of a million. Our company’s work was organized in such a way as to help raise these funds. We are, of course, primarily grateful to the investors because these are mostly their funds, and with our help, they went to the budget. Gradually, everything settled down and started working.
I personally stayed in Kyiv all the time because I am also a deputy of the Kyiv City Council. We often held meetings, so I had to be present, as the issue of defending the capital of Ukraine arose not just in words but in action. This included helping with the provision of barricades that were being set up at that time with everything necessary – sand, metal structures, food, communication means, clothing, and even just water. The deputies took care of this, personally delivering these items, and I was among them. This was both work in the investment market with the inclusion of government bonds in the budget (other operations were not conducted: all other operations were prohibited) and work in the Kyiv City Council – voting, allocating funds, as well as volunteer activities in the form of helping the defenders. And a notable situation: on February 25th, deputies who wanted to receive weapons were given rifles. All those willing, including myself, received weapons. We decided that we would not leave Kyiv, even if the capital was surrounded, we would defend our city, we would fight back.
LDaily: Had you ever held a rifle in your hands before?
T. Kozak: Yes, because I once completed military training; I am a reserve lieutenant. I’ve shot with a rifle, I know how to do it. After that, my colleagues and I went to a shooting range again to refresh our skills, to recall how it’s done, how the recoil of a rifle hits the shoulder, how to shoot accurately. So, we prepared for a potential siege or even an attempt to capture Kyiv, and we decided that we would shoot.
LDaily: How is the company functioning now? Have you fully recovered?
T. Kozak: We can say that we fully recovered around the beginning of this year. We are rapidly opening a large number of new accounts. Currently, citizens are purchasing both military bonds and other securities. Trust in the economy, the country, and the state does not wane. An interesting indicator: before the russian invasion, the volume of the Ministry of Finance’s bonds, government bonds, was approximately 25 billion hryvnias, purchased by Ukrainian individuals. By the end of 2022, this amount had reached 30 billion. So, despite wartime, the amounts did not decrease but even increased. These are primarily military government bonds. Today, this amount is about 50 billion. So, in the first 8 months of 2023, it increased by two-thirds. If you track from the beginning of the war, then during this time the volume that citizens provide to the budget through government bonds has doubled, from 25 to 50 billion hryvnias. This indicates that our services are in demand even during the war, and that citizens invest, including in government securities.
We are also improving the operation of our various services. This includes the “Investor’s cabinet”, foundations, interaction with counterparties, with the stock exchange, with the settlement center, and with depositories. That is, there are many intermediaries in the securities market, and each of them performs their essential part of the work to ensure that services are reliable and safe for investing. We see that from the beginning of this year, there has already been a need for the economy to raise funds, not only through banks but also through the stock market.
In particular, our company sold “Nova Poshta” bonds for 1.6 billion hryvnias. These funds, of course, went to the development of this enterprise. Other companies are also raising funds, and we see that investors are responding, buying securities, providing funds for company development. Of course, with interest, because we understand that investors need to earn. And around the winter of 2023, at the beginning of spring, all operations in our market were effectively restored.
LDaily: How do you currently assess the state of Ukraine’s economy?
T. Kozak: Last year, Ukraine’s economy lost about 29% of GDP. However, it’s pleasing that in the second quarter of 2023, there was already growth – 18% (compared to the corresponding quarter of the previous year). This shows that the Ukrainian economy is quite resilient. Of course, the war is a shock, as a large part of the territory came under occupation, and many Ukrainians – actually millions, up to 10 million – left the country. Now they are returning, reviving old enterprises, and starting to create new ones. They need funds for development, and the state helps by partially financing them, providing money with interest. And the economy responds by not stagnating.
However, not everything is so good: there are imbalances, problems in the economy. But it turned out to be quite resilient and is performing better than expected. In particular, foreign exchange reserves have actually exceeded the maximum levels that have been throughout the history of independence. Inflation is much lower than both our National Bank and our Western partners, including the IMF, expected. And we believe that the economy this year will grow overall compared to last year, although not as significantly as we would like, but it will be close to 5%.
LDaily: Does external assistance contribute to the stabilization of Ukraine’s economy? What are its pros and cons?
T. Kozak: External assistance, both financial and military, is critically important for the survival of our state. Of course, the defense forces are now primarily fighting with equipment and resources provided by our partners. However, financial assistance is also coming in. Frankly, without the financial aid we receive from the United States, the European community, and other donors and creditors, the Ukrainian economy would be in a much worse state. There would be massive inflation, a drop in the hryvnia exchange rate. We actually saw this when the aid was still quite meager: last summer there was a significant devaluation, with the hryvnia to dollar rate exceeding 41-42. Now, when citizens and companies see that aid is coming in regularly and in the volumes we actually need, the market reacts. The fact that the dollar rate is now around 38 hryvnias (and was, I repeat, 41-42) indicates trust in the economy and the national currency. I even believe: if the situation doesn’t worsen, the dollar rate might even drop lower than it is now – perhaps to around 35-34 hryvnias per dollar. Again, provided that this aid is regular and for this, the state must fulfill its obligations to partners. This includes fighting corruption, more efficient state management, working on the privatization of state enterprises, reforms of the judiciary and law enforcement agencies – tasks for the Verkhovna Rada and the government. And they are still lagging behind with these reforms. However, slowly the situation is changing for the better, and partners continue to finance us because in some areas we still meet their requirements.
LDaily: What needs to be done to stabilize Ukraine’s economy?
T. Kozak: One could say that it has already stabilized under the current conditions. For it to perform better, the war needs to end. There won’t be significant improvement during wartime. We need victory, liberation of territories, security guarantees, and only then will investments flow into the country, without which economic growth is impossible. We need vast volumes of investments, primarily foreign ones. This includes money, technology, and control over these funds. Because we understand that everything can disappear. This has happened repeatedly. Investments are needed to restore and modernize infrastructure and enterprises in general, activate new directions in the economy – IT, the military sector (I mean miltech), and the rest. Ukraine has shown that our engineers, especially in military technologies, work wonderfully. In wartime conditions, we create technological means of combat, weapons that have not existed before. And this commands respect. I believe that after the war, we will become a country that will produce very popular weapons and will be able to sell them worldwide.
LDaily: How quickly can Ukraine’s economy recover after the war ends?
T. Kozak: This is a complex question. What do we mean by recovery? If we rebuild “Azovstal”, it is not going to be restoration, it should be modernization. We have a vast number of outdated enterprises, a large state sector that needs to be privatized, because a private owner is more efficient than the state. New companies, enterprises, factories, power plants, roads, bridges, railways, etc., need to be established. This requires specialists. Without them, recovery is impossible. And here arises a question: on one hand, how many people will return? Can Ukraine initiate these processes with a challenging demographic composition, with a shortage of young people who continue to go abroad for education and many of whom stay there? On the other hand, a vast number of retirees remain here and require state assistance. To what extent will our demographic situation allow us to provide the labor force necessary for these processes?
So, it’s hard to give a definitive answer. I think as a country, we will have to intensify our immigration policy, meaning we’ll need to attract foreigners to our economy and somehow “convert” them into Ukrainians. They might look different from us. Maybe they won’t have white skin. However, people who come here should become Ukrainians so that we can be a successful nation overall. It seems that without an immigration policy that attracts new “Ukrainians”, the economy will stagnate.
LDaily: Which sectors will develop the fastest and best?
T. Kozak: I believe that first and foremost, it will be miltech, meaning the creation of new weapons. We have a vast amount of developments that have already been tested by the war. Of course, it will be the agro-sector and agro-processing because as soon as we get security guarantees – our lands will be cleared of mines and various explosive objects, and investors will flood in to profit from our wonderful land. Both in the direct sense – by growing and improving crops, and indirectly – by processing the fruits of our land into products that can be exported.
Also, Ukraine has significant advancements in the IT sector. I believe that IT will also be strengthened. In particular, our electronic passport in “Diia” shows that we can genuinely create the latest, most modern information mechanisms and tools that don’t exist anywhere else in the world. However, this requires massive changes in education, so that Ukrainians can program from school, gain knowledge in university, undergo internships, and by 23-25 years old, become good professionals in this direction.
LDaily: How quickly will the infrastructure develop?
T. Kozak: Infrastructure will also be developed. It needs to be improved to make the economy work faster and more efficiently. Of course, once we have security guarantees and can then build bridges, upgrade and improve housing, and power structures. I believe we can enhance the extraction of minerals, as Ukrainian subsoils contain a vast amount of minerals that are scarce worldwide. Near these deposits, processing enterprises will likely be established. There will also be positive trends in oil and gas extraction. We have significant reserves, and the state should make this sector investment-attractive. So far, unfortunately, there has been a lot of corruption in it. By combating corruption and attracting foreign investors, I think Ukraine will export energy minerals, oil, and gas, process them into electricity, and also export it. Once we become a member of the EU, we will have access to a large, duty-free, tax-free EU market. And I am confident that this will lead to the establishment of a vast number of enterprises in Ukraine. Since our production base is relatively weak, it can be significantly strengthened, producing individual components, cars, other equipment, to export them to the EU and other countries. So, our prospects seem very promising. However, everything hinges on two things. The first is victory, and the second is security guarantees.
LDaily: When will the stock market start working so that investments come to Ukraine?
T. Kozak: The stock market is already operational.
LDaily: How efficiently?
T. Kozak: If you track the state’s funds raised in the budget through government bonds, it’s quite efficient. Currently, the majority of these bonds belong to commercial companies, banks, individuals, especially non-residents. So, the entire infrastructure is already built. There are exchanges, clearing, depositories, and brokers.
What’s missing? Right now, there’s a lack of capital. These are the funds working in the economy, and there’s not enough of them. Banks mostly handle the redistribution of capital. They attract funds from individuals and legal entities, and usually, a significant portion of these is invested in government bonds. Economic lending is weak. I think we can build a model where banks will be redundant, and then companies – just like the state and various municipal entities, cities, regions, districts – will be able to attract financing directly from individuals and legal entities through bond issuance. To do this, investors need to be protected so they don’t end up as, excuse the colloquial term, “losers”. Because so far, all the troubles, unfortunately, were tackled by the investors themselves, and the state’s protection of their rights was at a very low level. Currently, the situation is improving, albeit quite slowly. There’s still a lot of work to be done in this direction to ensure that investments, whether from individuals, legal entities, or foreigners, are protected. That is, investors’ rights are extremely important, and the state has so far not given them due consideration. It’s very easy in our country to offend an investor: as if it’s their own fault for investing in a particular enterprise. Meanwhile, the enterprise might have defrauded them or stolen their funds – nothing happens, and the investor loses their money. This diminishes trust in the economy, the financial sector, and particularly the stock market. If the state can demonstrate even a few cases where it’s not the investors who are punished by losing funds, but those who stole them, I believe significantly more funds will flow into the stock market. So, the first thing that’s lacking is capital. Although the money exists – in banks, in bank cells, “buried” somewhere, abroad, or simply as cash someone has. And they are losing their purchasing power. When people realize that investing money in government bonds is safer than keeping them in dollars under the mattress, at that moment we will see a real capital market in Ukraine. However, as I mentioned, a lot of work still needs to be done, with the protection of investors’ rights, with financial literacy of people, with law enforcement, and judicial systems.
LDaily: What would you recommend choosing – a deposit or government bonds?
T. Kozak: Definitely, government bonds. Because what are banks? They attract deposits at 12-15% from citizens, companies, and invest them… again, in government bonds or certificates of the National Bank, earning a 4-6% margin! At the same time, out of these 12-15%, citizens also pay tax, resulting in an actual 10-12% net income in hryvnias per year. However, if you purchase government bonds, firstly, all the income goes to the citizens, which currently is 18-19%. Secondly, there’s no tax at all, so it’s pure income. Considering that our inflation is around 10-12%, investing at 18% tax-free is excellent. The purchasing power increases by 6% every year. That’s very good; it’s a significant figure. You can buy more goods and services than if you had placed those funds in bank deposits.
LDaily: How is the situation improving with regard to government bonds?
T. Kozak: Government bonds come with a full state guarantee. Yes, during the war, deposits also have a guarantee from the Deposit Guarantee Fund, but after the war, this guarantee will decrease to 600 thousand hryvnias. Meanwhile, for government bonds, the state guarantees the full repayment of the entire amount with all its assets. Therefore, by these three parameters, government bonds are better: higher profitability, greater reliability, and no taxes.
LDaily: How would you currently characterize the policy of the National Bank of Ukraine (NBU)?
T. Kozak: The NBU’s policy is one of the pillars that allowed Ukraine to navigate through challenging times. The NBU timely implemented necessary measures to halt the outflow of funds from the country. The bank prevented a large emission – throughout the past year, it amounted to 400 billion hryvnias. That’s substantial, but much less than the government wanted. To finance expenditures, the government wanted to simply get “easy” money printed by the NBU, which would have led to devaluation and inflation. Instead, the NBU, in collaboration with the Ministry of Finance, found a compromise: the National Bank issues only 400 billion hryvnias, and the Ministry of Finance, responsible for budget revenues, finds the rest by attracting funds either domestically or internationally.
Plus, the previous work of Valeriia Gontareva’s team, which in 2014-2016 and subsequent years, cleaned up the financial system. Even the onset of war did not lead to the collapse of the banking system; no systemic bank halted its operations. Thus, citizens could always access their funds on accounts without queues, delays, or panic. In the early days of the full-scale war, there was indeed an increased outflow of funds from the banking system. People wanted to stock up on cash to ensure they could buy essential items. The National Bank, having cleaned up the banking system in the mid-2010s, essentially made it quite resilient. Even during wartime, the financial and banking system, in my view, continued to function excellently. The banking system absorbed the economy’s defaults, which naturally occur, especially when part of it falls under occupation, and those enterprises couldn’t settle their loans. However, the National Bank provided refinancing to banks, understanding that this money wouldn’t disappear, as happened in 2008-2009 and 2013-2014. Now, almost all the money the National Bank provided to banks has been returned. Moreover, the banking system has surplus funds, which it places in government bonds, deposits, and National Bank certificates. Let’s say, for the first year of the war, I would give an “A+” to the National Bank.
There are difficulties starting the second year of the full-scale invasion. The National Bank sometimes delays certain necessary decisions. Perhaps this is correct, as they have more information and analytics, so they have a clearer view. I think it’s time to gradually release the currency market and reduce the discount rate. And the National Bank has started doing this. There’s a need to work more actively on creating alternatives to the banking market. That is, the stock market, capital market, financial companies, pawnshops, etc., should work for the economy. There are certain questions here, but overall, the National Bank operates quite efficiently.
