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Current state and opportunities for development of Ukraine's economy
1. June 2014
Current state and opportunities for
development of Ukraine’s economy
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2. According to the GDP indicator per capita, economy of Ukraine
is critically behind the neighboring countries
2
Source: World Bank
21 903
Poland
15 579
Belorussia
23 549
Russia
16 518
Romania
17 651
Turkey
GDP per capita based on purchasing power parity, $/man.
1
7 298
Ukraine
3. The rates of the growth of Ukrainian economy were far behind the
indicators of the neighboring countries during the years of independence
3
5 503
7 418
5 725
21 903
7 850
23 549
4551
17651
4 711
16 518
0
5000
10000
15000
20000
25000
1991 2012
US dollar
Ukraine Poland
Russia Turkey
Romania
Comparison of GDP per capita in 1991-2012 in separate countries of the
world (based on purchasing power parity), $/man.
Source: World Bank
4. In 2013 GDP of Ukraine made just 93,5% of maximum pre-
crisis level of 2008
90
95
100
105
110
115
120
2005 2006 2007 2008 2009 2010 2011 2012 2013
GDP index (2005 year = 100)
4
- 6,5%
+ 2,1% per year
+ 5,1% per year
In case the post-crisis rates of the GDP growth (2,1% per year) maintain, it is needed at least 4
years for recovery of economy to the pre-crisis level, that distinguishes sharply Ukraine from
the neighboring countries (Russia, Poland and Turkey), which recovered already in 2010-2011.
Source: State Statistics Service of Ukraine
5. Factors which will significantly influence the economy and
budget of Ukraine in 2014
5
1. Occupation of the Crimea and unstable political situation in the East of the country
Positive influence Negative influence
• Shut-down of industrial enterprises in the eastern region
and strengthening of social tension in these oblasts
• Refugees from the Crimea and eastern oblasts
• Decrease in natural gas production (by 2 billion m3)
because of the occupation of the Crimea
• Unfavorable investment climate
2. Signing of an Association Agreement with the EU
• Increase in export to the countries of the EU, first of all
of agriculture products, foodstuffs and rolled metal
• Obtaining of external financing ($13,5 billion) from the
EU, the US government and international financial
institutionsй (IMF, World Bank and EBRD)
• Start of structural reforms of economy
• Decrease in export to the countries of the Customs
Union, first of all of foodstuffs, rolled metal, tubes and
engineering products
• Tightening in relationships with Russia, threat of
resumption of ‘natural gas’ war
• Risk of ‘cold’ winter due to the insufficient volumes of
gas in gas storages
3. International economic processes and global market conditions
• Maintaining of positive dynamics of economy
development of the countries, which are the major
trading partners of Ukraine
• Increase in expenditures of state budget for army
(including armament acquisition of Ukrainian production)
• Worsening of market conditions of iron ore, rolled metal
and mineral fertilizers
6. In more detail:
Development of economy in the major countries-partners
of Ukraine, global market conditions for the main goods
of Ukrainian export
Trade with Russia
Profound cooperation with the EU, free trade area and
financial loans
6
7. The major trading partners of Ukraine will maintain positive
dynamics in economy development in 2014
Rates of changes of GDP in 2012-2014, %
7
2,8
-0,6
7,7
2,2
3,4
0,2
2,7
1,9
-0,4
7,7
4
1,3
0
2,82,6
1,2
7,4
2,7
0,5
-5
3,4
-6
-4
-2
0
2
4
6
8
10
the USA the EU China Turkey Russia Ukraine World
%
2012 2013 2014 forecast
Source: OECD Statistics
9. Ukrainian export of goods to the Russian Federation decreased
by 24% during 2012-2013
9
12,7
15,7
8,5
13,4
19,8
17,6
15,1
0
5
10
15
20
2007 2008 2009 2010 2011 2012 2013
Billion $
Year
Russia;
15,1; 24%
the CIS
countries;
7,0; 11%
the EU
countries;
16,8; 26%
other
countries;
24,5; 39%
The volumes of Ukrainian export of goods to
Russia in 2007-2013
Regional structure of Ukrainian export of
goods in 2013
The volumes of Ukrainian export of goods to Russia ($15,1billion in 2013) fall short of the
volumes of deliveries to the countries of the EU ($16,8 billion). The total volumes of
export to the countries of the Customs Union made up $19,2 billion (30,3% of export) in
2013
Source: State Statistics Service of Ukraine
10. 1 768
843
932
615
3 663
281
1 902
1 110
1 782
1 266
3 522
342
0 1 000 2 000 3 000 4 000
Chemical products
Products from ferrous
metals
Freight wagons
Other means of
transport
Other engineering
products
Transformers
million $
2012 2013
In 2013 the volumes of export of a set of important kinds of industrial
products to Russia decreased due to the internal economic functions in the RF
10
The volumes of Ukrainian export of separate kinds of industrial products to Russia in
2012-2013 million $
Source: State Statistics Service of Ukraine
Reduction of investments to
power engineering in Russia
Increase in deliveries of
locomotives
Introduction of car recycling tax in Russia
A one third decrease in demand for wagons in
Russia, development of their own production
Development of production of tubes in Russia
Stop of production of PVC and
polyethylene at LLC “Karpatnaftokhim”
11. 16,9 14,3
2012 2013
Under the influence of factors mentioned above, the volumes of export of
industrial products to Russia decreased by 15,5% ($-2,6 billion) in 2013
11
The volumes of export of
industrial products in 2012-
2013, billion $
Export commodity structure of industrial products in
2013, million $
-15,5%
Inorganic
chemistry
909
6,4%
Organic
chemistry
86
0,6%
Plastics and
polymers
445
3,1%
Paper,
cardboard and
products made
from them
905
6,3%
Consumer goods
industry
203
1,4%
Ferrous metals
2 162
15,1%
Products from
ferrous metals
843
5,9%
Reactors, tanks,
cars, equipment
2 222
15,6%
Electrical
machines and
equipment
1 101
7,7%
Railway rolling
stock
1 743
12,2%
Ground means
of transportation
192
1,3%
Flying and space
vehicles
46
0,3%
Other
3 423
24,0%
Source: State Statistics Service of Ukraine
12. Assessment of the expected losses of export to Russia in 2014: ferrous metals
12
2 162
1 081
2013 2014 (due to the signing of
the Assosiation
Agreement)
The volumes of export of ferrous
metals, million $
-50%
There is a decrease by 50%, as Russia
has its own production, and there is an
opportunity for alternative deliveries
from other countries (Turkey and
China)
Products – merchant bar, wire rod, rebar,
HRC and CRC, rails
Ukrainian producers:
1. PJSC “ARCELOR MITTAL KRYVYI RIH”
2. PJSC “AZOVSTAL”
3. PJSC “ILLICH ISW”
4. PJSC “ YENAKIEVO ISW”
5. PJSC “ZAPOROZHYE IRON-ORE ISW”
6. PJSC “DNIEPER METALLURGICAL
PLANT NAMED AFTER F.
DZERZHINSKY”
7. PJSC “DNIPROSPETSSTAL”
8. PJSC “ALCHEVSK ISW”
9. PJSC “DONETSKSTAL”
10. PJSC “DNIPROPETROVSK ISW NAMED
AFTER G. PETROVSKYI”
13. Assessment of the expected losses of export to Russia in 2014: products from
ferrous metals
13
843
278
2013 2014 (due to the signing
of the Association
Agreement)
-67%
The volumes of export of products from
ferrous metals (mainly tubes), million $
There is a decrease by 67%, as Russia
has its own tube production and there is
an opportunity for alternative deliveries
from other countries for the projects of
international pipe-lines construction (the
EU and China )
Ukrainian producers:
1. LLC “INTERPIPE NIKO TUBE”
2. PJSC “INTERPIPE
NYZHNIODNIPROVSK TUBE-
ROLLING MILL”
3. PJSC “KHARTSYZK TUBE PLANT”
4. PJSC “INTERPIPE
NOVOMOSKOVSK TUBE PLANT”
5. PJSC “DNIPROPETROVSK
COMINTERN STEEL WORKS”
6. PJSC “LUNGANSK TUBE PLANT”
7. LLC “AG STEEL”
14. The Russian Federation remains the major export selling market of the products
of domestic engineering
In 2012 Russia (52%) and other countries of the CIS (17,6%) are the major external
selling markets of domestic engineering products. The share of the countries of the EU
makes 14,0%
Source: State Statistics Service of Ukraine
14
43,7% 42,0%
35,4% 33,2%
48,3% 53,1% 55,7% 56,2%
41,5%
53,5%
60,7%
52,0%
10,6% 11,5%
10,9% 12,7%
18,4%
16,8% 15,2% 16,0%
17,9%
13,7%
12,8%
17,6%
24,9% 24,4%
29,6%
24,4%
15,0%
14,8% 13,5% 13,8%
17,9%
14,2%
12,1%
14,0%
20,8% 22,2% 24,1%
29,7%
18,3% 15,3% 15,6% 14,0%
22,7% 18,5% 14,4% 16,4%
0%
20%
40%
60%
80%
100%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Year
Other
The EU-28
The CIS
Russia
Structure of Ukrainian export of engineering products in 2001-2012, %
15. Railway wagons, locomotives and power engineering equipment dominate in
the structure of Ukrainian export of engineering products to Russia
15
Structure of Ukrainian export of engineering products to Russia in 2013, %
Source: State Statistics Service of Ukraine
Freight wagons
17,0%
Turbojet engines
11,8%
Other railway locomotives
8,5%
Items for rolling stock
5,8%
Transformers
5,1%
Pumps for liquids
3,6%
Television receive equipment
3,1%
Engines and electric
generators
3,1%
Air or vacuum pumps
2,2%
Taps, valves, vents
1,7%
Electric accumulators
1,4%
Industrial equipment for
processing of materials by
changes in temperature
1,4%
Equipment for work with
ground
1,4%
Motion passing mechanisms
1,4%
Other engines and power
units
1,3%
Other
31,2%
16. Assessment of the expected losses of export to Russia in 2014: railway rolling
stock
16
1 743
872
2013 2014 (due to the signing of
the Association
Agreement)
Export volume of railway rolling
stock, million $
-50%
There is a decrease by 50%, in the fist
turn due to the open wagons and cisterns
(because they are produced in Russia).
Export of locomotives and special-
purpose cars will slightly decrease
Products – railway wagons and locomotives
Ukrainian producers:
1. PJSC “AZOVZAHALMASH”
2. PJSC “KRIUKIVSKY RAILWAY CAR
BUILDING WORKS”
3. PJSC “DNIPROWAGONMASH”
4. PJSC “STAKHANIVSKY RAILWAY
CAR BUILDING WORKS”
5. SLC “POPASNIANSKY RAILWAY
CAR REPAIR WORKS”
6. PJSC “LUHANSKTEPLOWOZ”
7. PJSC “DNIPROPETROVSKY
ELECTRIC LOCOMOTIVE
BUILDING WORKS”
17. Assessment of the expected losses of export to Russia in 2014: products of
aerospace engineering
17
46
23
2013 2014 (due to the signing of
the Association
Agreement)
The volumes of export of aerospace
engineering products, million $/year
-50%
There is a decrease by 50%, as a result
of implementation by Russia of import-
substituting policy in the sector
Ukrainian producers:
1. SE “ANTONOV”
2. PA “PIVDENMASH”
3. DB “IVCHENKO PROGRESS”
18. Assessment of the expected losses of export to Russia in 2014: reactors, tanks, cars
and equipment
18
2 222 2 111
2013 2014 (due to the signing of
the Association
Agreement)
The volumes of export of reactors,
tanks, cars and equipment, million $
-5%
There is a decrease not more than by
5%, due to the lack of alternative
suppliers
Products – turbines and engines for air
transport and vessels
Ukrainian producers:
1. PJSC “TURBOATOM”
2. PJSC “MOTOR-SICH”
3. SE “ZORYA-MASHPROJECT”
19. The total possible losses of export of the major kinds of engineering products
to Russia in 2014 are estimated in amount of $ 4,55 billion (-30% by 2013)
19
23
55
96
105
111
223
385
454
565
585
872
1081
0 500 1 000 1 500
aerospace engineering
electrical machines and equipment
ground means of transportation
consumer goods industry
reactors, tanks, cars and equipment
plastics and polymers
paper, cardboard and products from them
inorganic chemistry
products from ferrous metals
food industry
railway rolling stock
ferrous metals
million $
In case the external trade with the RF aggravates, there are the biggest risks of the
decrease in export of ferrous metals (-1,1 billion $/year), railway rolling stock
($-0,9 billion) and products of food industry ($-585 million)
Assessment of the possible volumes of decrease in export of engineering products after
abolishment of FTA with Russia, million $/year
21. In 2014 additional incoming receivables in amount of approximately 500 million euros
are expected due to the abolishment by the EU of the majority of import duties for
Ukrainian products
Source: State Statistics Service of Ukraine
21
Ferrous metals
4 061
24,2%
Crude ore
1 759
10,5%
Grain crops
1 723
10,3%
Electrical
machines and
equipment
1 502
9,0%
Oilseeds
1 248
7,5%
Mineral fuels
1 048
6,3%
Wood and
wood products
612
3,7%
Fats and oils
501
3,0%
Food industry
waste
497
3,0%
Reactors,
tanks, cars and
equipment
419
2,5%
Consumer
goods industry
691
4,1%
Products from
ferrous metals
328
2,0%
Other
2 359
14,1%
Export commodity structure to the countries of the
EU-28 in 2013, million $ • From May,15 the EU abolished
temporally on a unilateral basis
the duty for Ukrainian products.
Thanks to such a measure,
Ukrainian exporters got
preferential conditions of access
to the European markets that
has to lead to the economy in
amount of about 500 million
euros.
• It is expected that the Ukrainian
agrarians (producers of grain
and oil crops) and the producers
of food industry (oil, poultry
products and confectionary
industry) may get the main
benefit.
22. 22
Ukraine plans to get $13,5 million of credits in 2014 from the European
Union, the US government and international financial institutions
As at June, 15, $4,05 billion received, including:
6 May – the first loan tranche ($3,2 billion) from IMF within the 2-year
Programme stand-by ($17,01 billion). A part of funds is channeled for financing of
government budget deficit and replenishment of gold and forex reserves of NBU
20 May – the first tranche of the EU aid (€100 million) within the Macroeconomic
Adjustment Programme (1,6 billion euros). The funds are directed to the financing of
structural changes in economy.
29 May – the first disbursement of the World Bank ($750 million) in the context of
implementation of structural reforms programme ($1,48 billion). The disbursement is
directed to the crediting of the governmental policy and Ukrainian economy
reformation.
23. Factors which will determine GDP dynamics of demand in
2014
Final consumption expenditures will cut due to the decrease in real income of
population and negative consumer expectations
Gross fixed capital formation will decrease due to the political instability,
strengthening of geopolitical and economic risks, as well as high cost of credits
Export of goods and services will decrease due to the cut in deliveries to the
countries of the Customs Union (-$4,6 billion), which will be compensated just
partially by the increase in export to the other markets (+$1 billion)
Import of goods and services will decrease by $7 billion due to the cut in
consumer demand and rapid devaluation of the hryvna
23
24. Factors which will determine GDP dynamics of production in
2014
Industry – decrease in mining industries (-2,5%), recycling industry (-7%) and
electro-power production (-3,5%)
Agriculture – positive dynamics will remain due to the growth in crop yields,
however, the rates of increase (+4%) will be lower compared with 2013 (+5%)
Construction – rapid fall (-20%) due to the reduction of investments in the private
and state sectors of economy
Trade – reduction (-6%) due to the decrease in consumer spending
Transport and communications – reduction (-6%) due to the decrease in cargo
base in the real sector of economy
Education and health care – reduction by 4% due to the reallocation of budget
expenditures towards defense of the country
24
25. Dynamics of changes in the GDP major constituents in
Ukraine in 2013-2014
25
Structure in
2013, %
Changes in real volumes, %
2013 2014 forecast
GDP on basis of end-use categories
Final consumption expenditures 92,8 5,6 -6,0
Gross accumulation 15,7 -20,1 -23,0
Export of goods and services 46,9 -8,8 -2,0
Import of goods and services 55,4 -5,9 -9,0
Gross domestic product 100,0 0,0 -5,0
GDP on basis of production method
Agriculture 9,1 13,8 4,0
Mining industry 5,7 0,7 -2,5
Recycling industry 12,0 -9,3 -7,0
Production and distribution of electric power, gas and water 3,3 -2,7 -3,5
Construction 2,5 -13,6 -20,0
Trade; auto, household equipment and articles of personal use service 15,7 2,0 -6,0
Transport and communications 9,3 0,6 -6,0
Education 5,4 -1,0 -3,5
Health care and social service 3,9 1,5 -4,0
Other kinds of economic activity 22,9 1,1 -3,5
Financial intermediaries’ fees -2,6 -6,2 31,4
Foodstuffs tax 13,0 -3,0 -3,0
Subsidies on products -0,1 x x
Gross domestic product 100,0 0,0 -5,0
Source: State Statistics Service of Ukraine, SE «Ukrainian Industrial External Expertize» (forecast)
26. Due to the expected decrease in GDP in 2014 (-5%), the economy of
Ukraine will make up just 88,8% of the maximum pre-crisis level of 2008
90
95
100
105
110
115
120
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
(прогноз)
GDP index (2005 year = 100)
26
- 11,2%
+ 2,1% per year
+ 5,1% per year
Economy of Ukraine hasn’t recovered to the pre-crisis level, and entered the new period of
recession, that distinguishes it negatively from economies of other countries of the world
Source: State Statistics service of Ukraine
27. In Ukraine the rates of the GDP increase are rather lower
compared to the other countries of the world
27
Source: OECD Statistics
The rates of the GDP growth in separate countries of the world in 2012-2013, %
The low rates of the GDP growth don’t allow Ukraine to approach to the level of economic
growth of the neighboring countries
2,8
-0,6
7,7
2,2
3,4
0,2
2,7
1,9
-0,4
7,7
4
1,3
0
2,82,6
1,2
7,4
2,7
0,5
-5
3,4
-6
-4
-2
0
2
4
6
8
10
TheUSA The EU China Turkey Russia Ukraine World
%
2012 2013 2014 forecast
28. Exhausted metal inventories don’t allow approaching the stable economic
growth at the level 6-7% a year, …
30
There are ~390 MT of metal inventories in infrastructure have expired their life and need some
changes. Factually, deindustrialization of Ukraine takes place.
774
752
715
637
588
556
327 322
337 333 340
390
0
100
200
300
400
500
600
700
800
900
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
-218
Metal inventories of Ukraine, including exhausted by 100%, MT
Rapid increase in metal inventories,
which expired their service life
29. 32
Food
16,4%
Consumer
goods
0,7%
Woodworking
2,7%
Coke and oil
refining
4,9%
Chemical
6,0%
Construction
materials
2,9%
Metallurgy
18,8%
Mining
12,0%
Polymers,
plastics and
rubber
1,5%
Engineering
12,6%
Other
industries
1,0%
Electric
power, gas
and water
20,5%
Sales pattern of industrial products in Ukraine in 2001-2012, %
Source: State Statistics Service of Ukraine
Food
16,6%
Woodworking
3,1%
Coke and oil-
refining
4,9%
Construction
materials
2,7%
Metallurgy
18,0%
Consumer
goods
1,4%
Mining
9,7%
Chemical
4,6%
Polymers,
plastics and
rubber
1,3%
Engineering
10,2%
Other
industries
2,6%
Electric
power, gas
and water
24,8%
2001 2012
The 2nd and the 3rd technological modes
… as well as domination of lower technological modes in industrial
production
The products of the 2nd and the 3rd technological modes (>85%) dominate in the structure of
industrial production of Ukraine. The products of the 3rd technological mode (food, woodworking,
consumer goods, chemical and oil refraining industry, metallurgy and production of construction materials,
coke and refined products) makes up more than 60% in the sales pattern.
30. At the same time, Ukraine has significant opportunities for development,
which are traced in the following directions
30
1. Import substitution by the products of domestic production
2. Modernization of the key funds of Ukrainian economy
involving domestic enterprises
3. Efficiency of establishment of new production units in
Ukraine in view of the progress in relationships with the EU,
growth in production expenditures in China and logistic
advantages of Ukraine
4. Development of international specialization, in particular in
agricultural production and foodstuffs
5. Development of international transportation and logistics
31. Import substitution
In the country, there are receptive markets of industrial products, where
import dominates
31
Commoditization of product markets in Ukraine in 2012, million $
Source: calculations on the basis of data of State Statistics Service of Ukraine
854 1 059
431 187 409
2 879
4 498
7 054
831
2 979
0
1000
2000
3000
4000
5000
6000
7000
8000
Pharmaceutical products Polymer products (rubber and
plastic goods)
Consumer goods Tractors and grain combine
harvester
Light vehicles
Import
Domestic
production
3 733
5 558
7 485
1 019
3 389
In Ukraine large sectors of industry stagnate despite the presence of domestic demand
and traditions of production
Market
volume
32. Investment requirements of economy of Ukraine form
receptive selling markets for domestic engineering
32
5,0
3,0 2,9
1,5
1,2
0
1
2
3
4
5
6
Harbor cranes Turbines Freight wagons Mainline
locomotives
Shunting
locomotives
$ billion
The need of the domestic market for separate kinds of engineering
products, billion $
33. 36
Significant opportunities for development open in industry of Ukraine, in
particular, in view of the signing of the Free Trade Agreement with the EU
Ukraine is situated between two receptive markets (the European Union and the Customs Union).
The market of the EU remains more attractive for Ukrainian producers compared to the market of the
Customs Union countries in view of its volume ($ 5 739 billion against $ 407 billion)
Source: Eurostat, Rosstat, Belstat, Kazstat
The volumes of import of the countries of the EU-28 and Customs Union in 2012, billion $
5 739
1 860
The EU-28
US $
billion
Total import
incl. engineering
products
407
187
Customs Union
US $ billion
Total import
incl. engineering products
Source: ILO, SHCP, Morgan Stanley
34. The lower value of labor power compared to the countries of the EU is a
competitive advantage of production development in Ukraine
37
272
461
534
680
887
945 980
Monthly average wage in Ukraine compared to
the countries of Eastern Europe, USD/month
Source: Eurostat, State Statistics Service of Ukraine
Dynamics of wage of production workers in
China in 2002-2012, $/year
Source: ILO, SHCP, Morgan Stanley
35. Source: Turkish Statistical Institute(TurkStat)
4,4
5,8
8,7
13,1
15,2
18,1
23,8
25,4
18,3
19,9
23,0
21,6
61%
66%
68%
71%
69%
68%
69%
64%
62% 61% 60%
56%
20%
40%
60%
80%
0
5
10
15
20
25
30
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Billion $
Year
Export from Turkey to the EU-28, billion $
Ratio of the deliveries to the EU-28, %
Turkish experience proves the current opportunities for the increase in export of
engineering products to the receptive markets of the countries of the EU
Dynamics of export of engineering products from Turkey to the countries of the EU-28 in 2001-2012
35
36. Fertile soils and favorable climate conditions will allow Ukraine to double
production of grain crops
36
11,0
0,8
0
3
6
9
12
Black soil square population
%
Share of Ukraine in the world, %
63
120
0
30
60
90
120
2013 (fact) grain crops
production potential
MT/year
Grain crops production potential in Ukraine,
MT/year
Джерело: FAO, USDA, World Bank
High level processing of a tonne of grain at $250 supplies production in the amount of ~$ 600
and creates ~$ 300 of surplus value
Yearly export of products of processed 10 tons of grain will supply additionally $ 6-7 billion
foreign currency earnings compared to the export of the same volumes of grain
37. A rapid growth of freight traffic flows between Europe and Asia leads to the need for
development of new transport corridors, where Ukraine can become a useful link
37
The growth in volumes of sea trade in the world in 1,5 times (or from 6 to 9 BT) during 2000-2012 led to the
overloading of the main shipping routs and related infrastructure (straits, ports, channels and etc.).
Potential transit freight traffic flow “Europe-Asia” through Ukraine makes ~100 MT/year, which service will
supply additional foreign currency earnings in amount of to 4 billion $/year.
Europe
Asia
38. The main imperatives of changes in state government
38
1. Property rights and investment protection
2. Unchangeability of legislation and strategic legislative
planning which regulates economic relations
3. Effective anti-corruption fight