Ukraine Voters Lodge Protest Vote Against Status Quo

- April 4th, 2019

Ukraine, with its major iron and steel industry, is set to decide between a comedian and an incumbent in late April.

In Ukraine, Volodymyr Zelensky, a comedian, actor and presidential candidate, will again face off against sitting President Petro Poroshenko in late April, after a first round of voting that saw former frontrunner Yulia Tymoshenko fall into third place.

Speaking with the Investing News Network (INN), Daragh McDowell, principal analyst and head of Europe and Central Asia at Verisk Maplecroft, said that Zelensky effectively represents a “none of the above” option for voters who are frustrated with the status quo, introducing an “unknown” into the nation on the doorstep of Europe.

Ukraine is home to multiple large iron ore projects and operators such as ArcelorMittal (NYSE:MT), Metinvest and Black Iron (TSX:BKI,OTC Pink:BKIRF), which in February announced a deal with mining giant Glencore (LSE:GLEN,OTC Pink:GLCNF).

In the first round of the election, Zelensky didn’t just scrape into the runoffs — he received almost double the support Poroshenko did, securing 30.2 percent of the vote to Poroshenko’s 15.9 percent and Tymoshenko’s 13.4 percent.

McDowell said that Poroshenko is a “disappointment,” and Tymoshenko has a “poisonous” track record. To him, this makes Zelensky “a ‘none of the above’ candidate.”

McDowell added that the conflict with Russia means all the candidates are skewed towards Europe, so Poroshenko standing up to its larger neighbor doesn’t make him stand out, and with general distaste for the status quo in Ukraine, “Zelensky is probably going to win.”

Signposts for the resource industry

For the mining industry, operators approached by INN previously have said that the five-year conflict with Russia is generally discounted as not a major threat to investment — an assessment McDowell agrees with.

McDowell said operators in the resources industry are as safe as they can be next to the Russian army at this point. “I think the question is more to do with Ukrainian domestic politics.”

Matt Simpson, CEO of Black Iron, said that it was no surprise that Zelensky made it to the second round.

“[The] only thing that was uncertain was whether it was going to be Poroshenko or Tymoshenko. That question is now answered.”

Black Iron holds the Shymanivske iron ore project in Central Ukraine, and in February announced that it had signed a memorandum of understanding that would see major miner Glencore help fund its project.

Speaking with INN, Simpson said he believes Zelensky was a protest vote — and now, given that voters’ protests have been noted, Poroshenko is probably going to start improving in opinion polls as voters take a closer look at Zelensky.

Simpson said that he isn’t aware of Zelensky saying anything on mining policy, and that shouldn’t come as much of a surprise because he hasn’t said much about anything. Thus far, that has been his appeal.

“To date, he’s been very vague on [policy]; now it’s going to hurt him.”

He said that, even if Poroshenko may not be loved, he is likely “the best option” when it comes to stability and European integration.

The runoff would be “more a vote about who do people believe is going to be able to help the country move towards European integration quicker, which is positive for the mining sector.”

On that, Simpson said that European integration being a goal to both Ukraine and the EU is also good for the mining sector. “[It is] easier than you might think to raise debt financing for projects in Ukraine.”

He explained that a fear in European countries is that Ukraine might slide backwards to previous economic and political systems, so development banks are more willing to open their wallets for development projects like Black Iron.

Another iron and steel company in Ukraine is Metinvest, which ships directly out of Mariupol, a city on the frontline of the conflict. This is something that Poroshenko himself lightly touched on when he visited its facilities in early March.

“Five years ago, it seemed incredible that multi-million dollar investments would come to the iron and steelmaking industry of Donbas,” said Poroshenko.

“Today, Ukraine is rising in the ranks of steelmaking countries … Together, we are restoring the glory of Ukraine’s metals and mining industry.”

Metinvest is the largest private company in Ukraine.

Zelensky, the blank slate

Analysts and experts appear to agree that Zelensky is very much an unknown.

McDowell said, “The man himself is a political blank slate, and the question is which political group or operators can impose their preferences onto him and how long that will last.”

Zelensky has zero political experience, and is known for his role playing a Ukrainian school teacher who became president in the comedy “Servant of the People.”

In life imitating art, Zelensky’s political platform going into the election was a party called “Servant of the People.”

Given McDowell believes Zelensky will likely secure the presidency, he offered his take on options going forward for Ukraine if he does.

“The options are that either he brings a lot of well meaning but not technically politically competent friends, people who have the right ideas but don’t have the experience running a government, and it’s a catastrophe.

“The second is that he gets kind of captured by the usual hangers on, and the political technologists who are already within the system in Ukraine.

“And the final is, there has been some rumors about his connections with [media businessman] Igor Kolomoisky, and that you have a lot of Kolomoisky people surround him and they’re taking the shots.”

It’s not all grim, though. “The outside shot is that you get some decent, honest people who know what they’re doing, or at least [Zelensky] can find some people that do, and start organizing things that way. [We could] start to see some actual reform, but it’s a massive uphill climb on that one.”

As a final assessment, McDowell said that, despite the election and voters’ disillusionment with the status quo, it is probably what Ukraine and investors and operators there are going to get.

“The end result of the election will be largely the status quo, but it does open up a little bit of space for a reform trajectory, if they can get themselves on it.”

The second round of voting in the Ukrainian presidential election will take place on April 21.

Don’t forget to follow us @INN_Resource for real-time updates!

Securities Disclosure: I, Scott Tibballs, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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