February 3, 2012 Ukraine Enhances Efforts to Diversify Its Energy Sector February 2, 2012 Experience Winter Wonderland in Kyiv


	- Economic History Note - Economic Overview - National Economic Indicators - Industry - Agriculture - Services - Consumer Market



	Featured Stories Ukraine Enhances Efforts to Diversify Its Energy Sector Experience Winter Wonderland in Kyiv Ukraine Bears a Potential to Produce 70 Billion Cubic Meters of Gas Annually



	Featured Photos Winter Wonderland in Kyiv Mamaieva Sloboda Ukrainian Christmas



	Featured Videos A Charitable Marathon in Lviv Lviv Arena Chrysanthemums in Kyiv

Economic History Note

Ukraine’s economy has historically been determined by such factors as its advantageous geographic location at the crossroads between Europe and Asia, an abundance of the most fertile topsoil called chornozem, a rich base of natural resources and a productive labor force. Metals and minerals like coal, iron ore, gas, stone, sand and salt are abundant in Ukraine. Ukraine has 40% of the world’s manganese ore, as well as the biggest deposits of ozocerite and sulfur in the world. The country also boasts the largest deposits of graphite in continental Europe.

When Ukraine proclaimed independence in August 1991, it had one of the highest indicators for gross national income and also per capita industrial and agricultural production in the former USSR. Ukraine once represented about 5% of global industrial output: 10% of its cast iron production, 9% of steel, and 8% of mined coal.

By the 1980s, however, the soviet-style economy began to show considerable unbalance, with an over-emphasis on heavy industries and machine building. More than 80% of industrial manufacturing did not have a closed production cycle, and output of consumer goods was extremely low.

From 1991-1994, Ukraine’s economy went into collapse. This transition period led to GDP plunging 40.4% as hyperinflation in 1993 reached a record-high 10,256%.

By 1994, the government began to define a strategy for economic reform and mechanisms to overcome the economy’s deep crisis. This stage led to lower inflation, macroeconomic stabilization and a halt in industrial decline. Direct foreign investments increased by 5.8 times in 1995–1998. A phase of economic stabilization and growth started in the first half of 1997, but was interrupted with the start of the Russian financial crisis in 1998. Growth slowly resumed in late 1999 with almost every economic indicator showing positive results. After an initial decade of decline, Ukraine’s GDP grew 33.1% over 2000–2003 and continued to grow 3-12% for five consecutive years.

2004-2009 - The Optimism of the Orange Revolution:

Structural problems and the global economic downturn

After the Orange Revolution in 2004, Ukraine entered a 3-year period of economic growth. The election of President Yushchenko was positively assessed by the international investors, who brought over US $31 billion in foreign direct investment into Ukrainian economy. 2005-2008 were the years of rapid economic growth in banking, construction, telecoms, retail, processing and other sectors.

Economic growth and the availability of mortgage lending spurred a boom in the construction industry and real estate development that led to an unprecedented rise property prices across Ukraine. In 2008, the average price per sq m of residential space in Kyiv rose higher than US $3,800. Office estate also became among the most expensive in the world with average monthly rent for Class A premises over US $120 per sq m.

Despite many hopes, the democratic leaders of the Orange Revolution did not manage to agree on main goals or a strategy of economic development for the country. 2005-2009 became years of political uncertainty, which grew considerably as the global crisis reached Ukraine in Q3 of 2008. In 2008, Ukraine’s economic growth abruptly slowed to 2.1% y-o-y, pointing to a sharp contraction in Q4. By the end of 2008, the country’s currency had lost nearly 60% of its value to the US dollar. Depreciation and the deep economic downturn undermined the stability of the banking sector. Fortunately, monetary and government officials began to actively address the weaknesses in the country’s banking system.

In 2007 and 2008, output of domestic machine-building products increased. But because of the crisis, sales volumes of engineering products for January-July 2009 in current prices amounted to only UAH 36.1 billion, or 51.5% less than in the same period of 2008. Nevertheless, profitability of engineering enterprises in January-June 2009 was 5.2%, which is better than the industrial average of 1.7%. During the pre-crisis years, exports of key engineering products steadily rose: by 52.7% in 2007 and 28.5% in 2008; over January-July 2009, however it plunged 45.4%. Having contracted 15.1% in 2009, GDP is estimated to have bounced back only 4.2% in 2010 and is forecast to grow between 4.0% and 4.6% in 2011.

Ukraine’s economy remains burdened by excessive regulation, corruption, and lack of law enforcement, and while the government has taken steps against corruption and SMEs have been largely privatized, much remains to be done to restructure and privatize key sectors such as energy and to create a market system for agricultural land. President Yanukovych chairs the Committee on Economic Reform, and in 2010 an economic reform plan was drawn up for 2010-2014. In December 2010, a comprehensive new Tax Code was passed by the Verkhovna Rada and signed into law, provoking major street protests in Kyiv.

In July 2010, following extended negotiations, the International Monetary Fund (IMF) approved a second loan package to Ukraine, after an earlier package negotiated in 2008 went off-track. The new 29-month $15.2 billion Stand-By Arrangement (SBA) is primarily conditional on adjusting fiscal and monetary policy, increasing the residential natural gas price, and instituting pension reform. The disbursement of this SBA was postponed in March 2011 until the Ukrainian Government meets its commitments on enacting reforms. The World Bank has committed more than $5 billion to Ukraine since the country joined the Bank in 1992.