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	"THE EFFECT OF PRIVATIZATION ON SOCIAL WELFARE IN UKRAINE: The Practical Experience of SigmaBleyzer," by The Bleyzer Foundation and SigmaBleyzer, Kyiv, Ukraine, February, 2003
	A paper presented at a conference on The Distributional Consequences of Privatization sponsored by the Center for Global Development (CGD) and the Inter-American Development Bank, Washington, D.C., February 24-25, 2003 by Michael Bleyzer, President, SigmaBleyzer and The Bleyzer Foundation and Dr. Edilberto Segura, Chief Economist, SigmaBleyzer and Chair, The Bleyzer Foundation Advisory Board.   The paper was prepared by a team of staff of The Bleyzer Foundation and SigmaBleyzer, including Michael Bleyzer, Edilberto Segura, Neal Sigda, Diana Smachtina, Victor Gekker, Alexander Kaptsov, Pavel Mishustin, Yaroslava Chapko, Rina Bleyzer, and Anna Kovtun.   EXECUTIVE SUMMARY: It is the opinion of SigmaBleyzer that privatization has had a positive overall effect on the quality of life and social welfare of the Ukrainian people. Salaries at privatized companies have increased significantly, sometimes by as much as three or four times. Wage arrears at privatized companies have been paid off faster, in greater amounts, and are currently lower (often by more than 50%) than at non-privatized companies. Tax revenues from privatized companies also exceed those from non-privatized companies. While privatization is still ongoing in Ukraine, these facts clearly indicate the positive dynamics in privatized sectors of the economy. SigmaBleyzer manages three funds (Ukrainian Growth Funds or UGF) that collectively invested over $100 million in a portfolio of more than 85 privatized companies. Of these investments, approximately ten were controlling stakes. At these companies, SigmaBleyzer was able to help turnaround struggling businesses that had been privatized. These included the Sevastopol Shipyard (SSY), Poltava Confectionery, the Makiivka Pipe Rolling Plant, the Zaporizhya Meat Processing Plant, and others. We have seen the difference that a private investor can make at every one of these companies. And while the results to date differ for various companies in the UGF portfolio, many would have gone bankrupt without privatization. The examples of Sevastopol Shipyard, Poltava Confectionery, Berdyansk Agricultural Machinery, and the Melitopol Tractor Hydro Units Plant, described in this paper, will show how a company turnaround can improve the lot of the average citizen. The improvement of these companies created jobs, improved local tax collection revenues, helped local small and medium businesses grow, and increased consumer spending. Yet these turnarounds positioned the companies for even greater future growth. These trends are expected to accelerate as the companies continue to grow. As a result, we expect to see an ever increasing gap between privatized and non-privatized companies. But even at those companies that we do not control, there is significant evidence that suggests that privatization has played an important role in improving social welfare. Our portfolio companies' evidence shows how government debts and wage arrears declined significantly, money that went directly into people's pockets. Wages also appear to have increased, which is supported by national trends. Privatization in Ukraine did not hit its peak until the 1996-1998 period, and therefore, only now is an effective analysis becoming possible at many companies. We believe that over time, the evidence will clearly show that privatization has directly improved social welfare, despite the knowledge that the privatization process could have been much more transparent. We also believe that had Ukraine elected a much faster privatization pace at an earlier stage of country independence (for example in the 1992-1994 time frame), the positive social impact would have been much more pronounced by now.   Click here to download the entire paper

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