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Op-ed

Ukraine Crisis: Yanukovych and the Tycoons

by Anders Aslund, Peterson Institute for International Economics

Op-ed for BBC News
December 11, 2013

© BBC


President Yanukovych is widely seen as living in symbiosis with Ukraine's tycoons. Initially that was largely true, but after becoming president in 2010, he quickly concentrated not only power but also wealth in the hands of his family—turning the big businessmen against him.

The surviving tycoons now see Mr. Yanukovych as the greatest threat to their survival, which has made most of them supporters of the European Association Agreement that the president shelved last month.

In February 2010, when he was elected, Viktor Yanukovych enjoyed support from most of the big businessmen. He quickly formed a cabinet that represented—by my count—nine different enterprise groups. But through a rapid series of governmental changes, he reduced this number to two by December 2013.

At present, the government—and increasingly the economy—are dominated by a group of young businessmen who are friends with Mr. Yanukovych's eldest son Oleksandr, 40. They are widely known as the Yanukovych "family."

However, who owns what is not exactly clear, and it is possible that in fact much of the wealth might belong to Mr. Yanukovych's real family.

These young businessmen from Donetsk, Mr. Yanukovych's eastern home region, hold all the key economic positions in the government as well as the powerful post of interior minister.

Mr. Yanukovych has used a salami tactic against the tycoons.

Young businessmen or corporate raiders buy out their enterprises one after the other. These sales have been described as not very voluntary, given that the "family" controls law enforcement, courts, and the tax authorities.

They have expanded in traditional heavy industry, media, and banking. Hardly any big businessman now dares to oppose Mr. Yanukovych any longer. Most try to be neutral.

Clear Reprimand

The only prominent exception is Ukraine's "chocolate king" Petro Poroshenko, the owner of the popular Roshen confectionery manufacturing group.

Mr. Poroshenko has been on the stage of Kiev's Independence Square together with other opposition leaders.

He was one of the leaders of the 2004 Orange Revolution. His Channel 5 TV gave extensive coverage to those mass protests and is doing so again.

Being mainly in agriculture, chocolate, and the sugar business—sectors not so dependent on the state—Mr. Poroshenko is not as vulnerable as businessmen in heavy industry. He is also uncommonly courageous.

Among the pre-Yanukovych tycoons, only Rinat Akhmetov and Dmytro Firtash may still be inside the president's tent.

Mr. Akhmetov has been the wealthiest person in Ukraine since 2000, and his loyalists hold six cabinet jobs.

Mr. Akhmetov's holding company System Capital Management (SCM) has almost doubled the number of its employees from 160,000 to 300,000 during Mr. Yanukovych's presidency—mainly by buying steelworks from other tycoons but also through purchasing utilities from the state.

Mr. Akhmetov has been a close partner of Mr. Yanukovych since the 1990s, but he used to be perceived as the senior partner. Now, he is clearly a junior partner.

SCM owns steelworks in several European countries, and steel exports to the European Union are vital for its future. Therefore, SCM has maintained a strong pro-European position.

Still, it raised eyebrows when the company issued a press release on December 2—just days after Mr. Yanukovych refused to sign the deal with the European Union and protests in Kiev were broken up by police.

It was hardly surprising that "SCM Group is for a strong and independent Ukraine" being "a reliable partner firstly of the European Union and Russia."

Yet, the political content was rather explicit: "SCM Group is built on the fundamental European values. The rule of law, respect for the rights to private property, freedom of speech, personal liberty and freedom of peaceful assembly are among our top priorities. We are totally against any violence."

This read like a clear reprimand to the president for his failure to sign the association agreement and his use of force.

Too Vulnerable

Mr. Firtash is big in the gas trade and chemical industry, but his group's relationship with the president looks increasingly shaky.

In December 2012, his people in the government were marginalized. On November 30 this year, his key man, Serhiy Lyovochkyn, who is Yanukovych's chief of staff, reportedly submitted his resignation in protest at police violence against protesters—mainly students—on Kiev's Independence Square.

Yet, since Mr. Yanukovych refused to accept his resignation, Mr. Lyovochkyn stays on in his post for the time being.

Highlighting the complicated relationship they now have with the president and the opposition, virtually all the television channels owned by the oligarchs have covered the protests quite objectively—more so than during the Orange Revolution.

That includes Mr. Akhmetov's channel Ukraina and Mr. Firtash's channel Inter. Only state television has ignored the protests.

Thus, the influence of the big businessmen on the president must not be exaggerated.

Moreover, they are all in favor of the European Association Agreement, partly because they want to export to Europe, but most of all because they desire legal protection against raids by the Yanukovych "family."

Even those who have exported successfully to Russia are tired of the multiple sudden interruptions in this trade because of haphazard Russian trade sanctions.

They tend to give financial support also to the opposition—just in case—but they are too vulnerable to want to stand up against Mr. Yanukovych in public.


RELATED LINKS

Book: How Ukraine Became a Market Economy and Democracy March 2009

Policy Brief 14-24: An Economic Strategy to Save Ukraine November 2014

Testimony: Ukraine: How It Can Combat Corruption November 19, 2014

Peterson Perspective: Ukraine's Turmoil Without End? December 3, 2013

Policy Brief 13-22: Ukraine's Choice: European Association Agreement or Eurasian Union? September 2013

Policy Brief 11-9: Lessons from the East European Financial Crisis, 2008-10 June 2011

Book: How Latvia Came through the Financial Crisis May 2011

Book: The Last Shall Be the First: The East European Financial Crisis October 2010

Paper: Proposals for Ukraine: 2010—Time For Reforms February 2010

Book: The Russia Balance Sheet April 2009

Book: How Capitalism Was Built: The Transformation of Central and Eastern Europe, Russia, and Central Asia August 2007