A city in transition… sort of.

September 27, 2010
Kiev, Ukraine

The last time I was here in Ukraine, I left after just one day, in disgust.

This doesn’t happen too often for me– I’m hardened and patient enough with any country’s problems to stick it out for a while. But my last encounter a few years ago went something like this:

* Chaos at the airport. Upon arrival, it took well over 3-hours to clear immigration and get my passport stamped. I would estimate close to 1,000 passengers crammed into the small arrivals hall, each withering from the suffocating heat and mind-numbing inefficiency of immigration officials.

* there were twice as many people behind me when I took this...

* Bait-and-switch. I booked a flat (as is normal here) and asked for their driver to pick me up from the airport. Halfway towards the city, the manager called to inform me that my flat was no longer available, and that the only other was three times the price. If that was not acceptable, she would have the driver leave me on the side of the road.

* Taxi rides. I think just about every taxi I hopped into literally drove around in circles, assuming that, as a foreigner, I was too dumb to notice.

* The coup-de-grace was when an employee at an airline ticket office refused to sell me a ticket unless I paid a completely ridiculous bribe.

I could go on, but I don’t want to dwell on the negative. Bear in mind, that was not my first time to Ukraine. I used to own a business here, and I’m very seasoned in Eastern Europe… so corruption and bureaucracy does not ruffle me in the least.

But after many trips to Ukraine over the years and experiencing the post-Soviet transformation first hand (including the Orange Revolution), my ultimate conclusion after my last trip a few years ago was this: the transition in Ukraine is so slow, it’s barely noticeable.

Conversely, other Eastern bloc countries like Estonia and Slovakia made rapid strides towards efficiency, development, and sustainable growth. Ukraine was clearly the laggard in the group.

As it had been a few years since my last visit, I’ve been teasing the idea of visiting Ukraine once more to re-check my conclusion. After receiving several requests from local student groups to come lecture about multiple flags and entrepreneurship, I now had a good reason to do so.

And so… I arrived once again to Boryspol International Airport in Kiev this weekend, and I was pleasantly surprised at my first impression– the immigration queue had been efficiently redesigned, and the old Byzantine landing forms were no longer required.

The city itself hasn’t changed much; there is a flurry of new construction thanks to Ukraine being chosen to co-host next year’s UEFA European football championship next year along with Poland.

Apparently the Ukrainians are far, far behind schedule, and the whole of Europe is concerned that they won’t be ready in time. “Not to worry,” reply the Ukrainians, “the stadiums will be operational for kick off.”

The thing is, football stadiums are the least of the problems. Ukraine has a massive shortage of clean, mid-range hotels… something like an Ibis or Holiday Inn Express.

The vast majority of hotels in Ukraine are woefully substandard. The precious few that are modern, clean, and well organized are marquee brands like the Intercontinental and Hyatt, or the local Premier Palace hotel.

Guests pay a high price for this class of hotel; the Hyatt here in Kiev is more expensive than in New York City or Hong Kong, and this issue is actually emblematic of the wider economy.

For just about everything in Ukraine– schools, restaurants, hotels, gyms, groceries, retail shops, salons, etc., there are two classes… quite simply, “good” and “bad”. The vast majority are ‘bad’ and quite cheap. The few ‘good’ masquerade as luxury, and they are seriously, seriously pricey.

This is due to the immense gap between rich and poor here, and the relative lack of middle class. The well off in Ukraine are very rich and price insensitive. Below that, there is a narrow middle class, and the rest of the population that wallows in poor quality products and services.

As an example, on the streets you’ll see a lot of European super cars and luxury Japanese models, or 1970s Soviet sedans that are falling apart… but little in between.

Other former Soviet states succeeded by freeing up their markets, privatizing state-owned businesses, eliminating bureaucracy, and loosening regulation. These measures created very large middle classes across the region, and made the contributing entrepreneurs very wealthy.

In oligarchy countries like Ukraine, a small handful of people became enormously wealthy after the end of Communism, often by theft, bribery, and coercion. Everyone else was trapped by the bureaucracy that remained.

This is largely a cultural issue, which means that it will be phased out over subsequent generations. I actually have high hopes for the newest batch of youths in Ukraine. They study English and free market economics, and they are some of the most impressively brilliant young minds I’ve ever met.

More to follow, I’m off to the lecture.

About the Author

Simon Black is an international investor, entrepreneur, and founder of Sovereign Man. His free daily e-letter Notes from the Field is about using the experiences from his life and travels to help you achieve more freedom, make more money, keep more of it, and protect it all from bankrupt governments.