Blackbridge Cross Border’s Alexander Jarvis on Ukraine Crisis
March 20, 2014
Alexander Jarvis is the chairman of Blackbridge Cross Borders (BCB), a position that has him leading and managing the Blackbridge team as well as associates in Europe, Central Asia, East Asia, Western Asia and Sub-Saharan Africa.
Do you think the new government in Ukraine is up to dealing with the fiscal challenge before it?
Ukraine really needs to get its financial house in order, and I think around $50 billion could get the job done. But the question is: Who will invest? They can turn to the United States and the IMF, which they have already done, but look at the mess the IMF has made in institutionally-weak countries that it has previously invested in. I don’t see a positive outcome short or long term for the government, as corruption is rife amongst the politicians running Ukraine and they all have personal interests and obligations with the backers who put them into power.
How susceptible is the Russian economy to Western sanctions in your view?
Looking at the facts and figures, Europe is more exposed than Russia to collateral damage from the sanctions the United States is pushing. Many of the Kremlin’s advisors and members of Putin’s inner circle will be targeted, and Putin will certainly respond. I envision an escalation here that could lead to a new economic system being formulated globally as a result of the many miscalculations ahead of all parties imposing sanctions at will and not looking at the bigger picture. Where the United States can seriously damage Russia is in the financial markets with a downgrade or two, which, along with pressuring Middle Eastern countries, would have the effect of reducing energy prices dramatically in a way similar to the 80’s, which helped cause the collapse of the USSR. The United States would need to invest in new pipelines, new sources of energy, and Europe would need to take the strain financially as a result of Washington’s bold decision to push Russia back. My forecast is bleak, but let’s not forget that World War I started when Yugoslav nationalist Gavrilo Princip in Sarajevo assassinated the Archduke Franz Ferdinand of Austria and this resulted in 16 million deaths and 20 million wounded, due to a miscalculation by the political leaders of the time. We are venturing into the unknown! China I believe is the real geo-political chess player here and the People’s Republic of China is watching very carefully the American, British, French, Saudi, German, Indian, Russian, and Japanese next moves.
Why are you interested in investing in Ukraine?
Ukraine has a highly-educated population of 45 million, which can act as a serious economic driver. The country has opportunities in nearly every sector to expand and profit in, as they tend to be very undervalued. Right now I have no plans to invest personally until 2015 Q2; this is when I feel that the crisis we are seeing now will have either escalated (all bets are off) or stabilized and Ukraine will be even more lucrative to invest in as assets will have been further devalued. I’m actively looking for projects in the following sectors: agribusiness, financial services, and real-estate as my Chinese clients are ready to commit capital and are all taking a long term positive view on Ukraine’s economic future.
What are your views on the geo-economics of the region?
I will be brief as this is a massive topic. If you understand the agriculture and energy history of Ukraine, you will have a better understanding than the majority of people covering the ongoing Ukraine crisis. Ukraine has over 30% of the world’s black soil, and 42 million of the country’s 60 million hectares (231,660 square miles) is agricultural land where wheat, barley, rapeseed, and sunflowers grow in abundance. Ukraine’s agricultural industry represents almost 10% of the country’s gross domestic product, but its potential for growth remains vast. Ukraine desperately needs to strengthen its institutions as over 50% of its economy is in fact the shadow economy. Investment in infrastructure is needed as most motorways, roads, and train lines are in poor condition. Investment in raw materials, coal, hydroelectricity, and nuclear fuel is also need to lessen reliance on Russia for energy consumption.
The shareholders, business leaders, and CEOs that you met with from some of the largest businesses in the country – what were their views on the Ukraine crisis?
Their views where mixed depending on how far east or west they were. All of them told me they had not financially been affected by the current crisis and that 2014 Q1 has been the most profitable quarter to date. Many confusingly said they don’t know if Putin is a friend or enemy and are not sure who is backing the current administration. One even told me that it is already war. Their views were not emotional; they all had their business hats on.
Do you see opportunity for Chinese investment in Ukraine?
Many assets are undervalued across Ukraine and this offers an abundant amount of opportunities for external investment. Ukraine has vast resources that China requires for its long term economic goals. The issue I see is that Chinese state-owned enterprises are very cautious about making investments overseas, and right now they are unsure of who is in control and has ownership of land they seek to utilise. Chinese entrepreneurs and investors are cautious for other reasons, and murky past of shareholders in some companies and a lack of financial transparency don’t help in making investments viable. But the Chinese are actively investing in Somalia, Nigeria, Pakistan, Syria, Iraq, Central African Republic, South Sudan, all of which are experiencing social unrest and conflicts. Ukraine is one of the poorest countries in Europe and, like its neighbour Belarus, it offers an attractive gateway to trade to Russia and the EU members with cheap labour costs.
You visited Maidan; what were your thoughts?
It feels like walking through a war zone, with the buildings overlooking Maidan mostly burned out, independent Maidan security personnel walking around with AK-47’s, a disgusting smell in some areas as the homeless burn anything to stay warm, and in other areas the potent smell of flowers marking the spots where people were killed. There were also some members of the media filming a local politician without being hassled.
Is it safe to do business in Ukraine?
Depends on which location you are working. If you are conducting business in the eastern regions, I would advise caution – especially on the borders. On my recent trip I felt safe even walking through Maidan Nezalezhnosti, which had people with guns on show who are clearly not members of the army or police. Maybe I have a different view on risk as I’m by design a risk-taking entrepreneur.
Who do you use for due diligence and geopolitical analysis?
Our partners at Blackbridge Cross Borders: Geopoliticalmonitor Intelligence Corp, who are based in Canada and have a global reach.