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Books on Ukraine
REPUBLICAN REFERENCE
Area (sq.km)
603,700
Population
47,732,079
Principal
ethnic groups
Ukrainians 72.7%
Russians 22.1%
Jews 0.9%.
Capital
Kiev
Currency
Hryvnya
President
Viktor Yushchenko
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Update No: 291 - (30/03/05)
Yushchenko in rapprochement with Russia
One may yearn to have a mistress; but one has a wife. Ukraine wants to join
Europe; but it has to deal with Russia. Russia for Ukraine is reality.
On the foreign policy front, much has been said about the new president, Viktor
Yushchenko, and his plans for developing closer ties to the West. But it is
significant that his first foreign policy trip was to Russia on January 24th,
where he met with Russian President Vladimir Putin. A key purpose was to mend
fences with his northern neighbour, which he called "Ukraine's eternal
strategic partner." Putin said after the meeting, "We are very happy
that this difficult political period in Ukraine has passed, and that a
government is in place. We expect our relations will continue to develop."
Nevertheless, Yushchenko was given a pretty frosty reception; Putin had made no
bones about wanting his rival to win, Viktor Yakunovich, a warhorse of the
previous president's, Kuchma. He had been the premier for several years.
Ukraine, home to the Russian navy's Black Sea fleet at Sevastopol and pipelines
for Russia's economically vital gas and oil exports, historically has been seen
by its much bigger neighbour as part of its sphere of influence. Katinka Barysch,
of the Centre for European reform, told CNN it was no surprise that Yushchenko
headed for Moscow on his first day in office." Any Ukrainian president no
matter who he is needs to have a good relationship with Russia," she said.
She added that Putin had "blatantly" backed Yushchenko's opponent.
"It's a sign of courage and understanding of the situation that he goes to
Moscow and tries to have at least a workable relationship," she said.
Ukraine still needs the support of its biggest neighbour. "Like it or not,
but geographically, geo-strategically, or geo-economically, the Russian and
Ukrainian economic systems are interdependent," Russian Senator Mikhail
Margelov says. "We inherited that interdependence from the time of the
Soviet Union when Ukrainian and Russian economy were integral parts of one
Soviet economy."
But Putin is now recognising realities. He is due to visit Kiev any day soon.
The Orange Revolution carries on
In his first presidential act after inauguration, Yushchenko made a bold
demarche by appointing his opposition ally, Yulia Tymoshenko, as Prime Minister.
She made the running in making speeches in the presidential electoral campaign,
bringing in the Orange Revolution, stepping into the breach when Yushchenko was
struck down by an obvious attempt on his life on September 9th. Her appointment
was confirmed in a vote in the country's parliament, the Verkhovna Rada, in
February.
In another decree, President Yushchenko liquidated the presidential
administration, notoriously corrupt under his predecessor, Leonid Kuchma,
replacing it with a secretariat that will be headed by his former campaign
manager Oleksandr Zinchenko. Rada Budget Committee Chairman Petro Poroshenko, a
Yushchenko ally and deputy campaign manager, was appointed Secretary of the
National Security and Defence Council.
Even more ominous from a Kremlin perspective, Yushchenko has made Boris Nemtsov,
a key figure in Russian politics, his special adviser. Nemtsov is a highly
intelligent man, a physicist who was a successful governor of Nizhni-Novgorod in
the early 1990s. He was briefly a mini-premier in the court of Boris Yeltsin in
the mid-1990s before falling out of favour, which is not to his discredit at
all.
The core team ushers in a new era that promises to change dramatically Ukraine's
economic, social and foreign policies. In short, a new post-Soviet political
generation is now at Ukraine's helm.
The old guard is disappearing fast, such as the former head of the presidential
administration, Yuri Kravchenko, who was ether killed or committed suicide just
before interrogation about the death of investigative journalist Gongadze in
October 2000, in which Kuchma was implicated. Yushchenko has denied that he has
given Kuchma immunity from prosecution. Further heads could roll.
New Investments Expected
This is all good news for foreign investors. "Ukraine is on a cusp of a
foreign and domestic investment boom," says PBN's Senior Vice-President
Myron Wasylyk, who served as an international advisor to the Yushchenko
campaign.
Wasylyk points to Yushchenko's promises to remove administrative barriers, break
up monopolies and deregulate business activity as initiatives long awaited by
the country's entrepreneurs and middle class as well as investors. "Small
and medium businesses in the 48-million strong consumer market are seeking
equity and capital for expansion. Large industrial enterprises and exporters are
retooling and modernizing," Wasylyk explains.
But opening to the West is still very much on the agenda
Yushchenko on inauguration day still made no hesitation in showing he wants
to shift the balance. "Our place is in the European Union," he told a
crowd of more than 100,000 in Kiev's Independence Square, the site of huge
protests after Yushchenko was first deemed the loser in the November 21
presidential election runoff.
Looking on were members of parliament and hundreds of guests, including U.S.
Secretary of State Colin Powell and presidents of seven countries. After the
oath, some deputies repeatedly called out "Yush-chen-ko, Yush-chen-ko,"
an echo of the chanting that filled Kiev during the protest demonstrations. But
others stood still, refusing to applaud, a reflection of the deep divisions
Yushchenko will face as the country's third post-Soviet leader.
Yushchenko addressed parliament after being sworn in, praising his hard-fought
election win as a "national victory" and urging deputies to work with
him to build prosperity.
He later addressed the thousands of Ukrainians thronging in Independence Square,
the focal point for last year's protests. "The heart of Ukraine was on
Independence Square," Yushchenko told them. "Good people from all over
the world, from faraway countries, were looking at Independence Square, at
us." "This is a victory of freedom over tyranny," he said.
After his trip to Moscow, Yushchenko made several days of visits to Western
European countries, including an appearance at the European Parliament, to push
his drive for closer ties. To become a viable EU candidate, Ukraine would have
to show substantial progress in economic reform and human rights.
Yushchenko has promised to turn the country around after years of corruption,
widespread at almost every level of government, and he pledged to safeguard
freedom of speech. "We will create new jobs. Whoever wants to work will
have the opportunity to work and get an appropriate salary," he declared to
a nation where many still live in poverty and much of the economy continues to
exist in the shadows, adding nothing to government coffers. We will fight
corruption in Ukraine. Taxes will be enforced, business will be transparent, ...
we will become an honest nation."
In a promise clearly aimed at appeasing the large population of native Russian
speakers, many of whom distrust him, Yushchenko said, "Everyone can teach
his children the language of his forefathers."
More than 40 countries were represented at the inauguration. NATO
Secretary-General Jaap de Hoop Scheffer was one of many foreign dignitaries who
attended.
Other foreigners to the west, not the east, are regarding the Orange Revolution
as a Godsend. A country of nearly 50 million people, Ukraine has a four-year
track record of booming, export-driven economic growth and a fat trade surplus.
It has announced record GDP growth last year of 12 per cent, Europe's best.
But fundamentals aside, two political factors have finally put Ukraine squarely
on the map since the middle of last year. It suddenly acquired a long frontier
with the European Union when the bloc expanded in May. And now, as we have seen,
it has a new pro-Western president in Yushchenko, the hero of the hour after
surviving several assassination attempts.
President Yushchenko campaigned on a platform of transparency, fighting
corruption and opening investment opportunities to outsiders. He had a strong
record of reform when he served as Central Bank chief and prime minister several
years ago.
Bond traders on emerging markets desks abroad have known about Ukraine for some
time. Its debt, traded in London and New York, has performed well for several
years. "It had a very strong financing position, current account surplus,
rising reserves, good growth, and it had been a regular issuer in the market,
which raised the country's profile," said Timothy Ash, head of emerging
markets at Bear Stearns in London.
But more investors are now flying in to Kiev and looking at local investments
like stocks and domestic bonds. Tomas Fiala, a Czech who runs Dragon Capital,
one of Ukraine's few brokers, said calls from fund managers started flooding in
just before Yushchenko's 'Orange Revolution.' "Since September we have had
at least one European or U.S. investor around here every week. Some weeks it was
at least three investors coming for investment trips," he said.
Not only are more fund managers coming, they are coming from a different
direction -- east from over the borders of new EU members like Poland or
Hungary, rather than west from Moscow. "We're getting a lot of calls from
Central Europe and a lot of Austrian, German, French and U.K. investors,"
Fiala said.
"The election changes Ukraine's future development from tracking Russia to
trying to move into Europe and follow Poland, the Czech Republic, Hungary and
Slovakia," Fiala said.
The short-term economic picture is not all rosy. Inflation picked up sharply
because of a pre-election spending binge by the outgoing authorities, who sold
off reserves and handed out higher pensions and wages. Price growth hit 12.3 per
cent last year, the government said this week, a four-year high up from 8.2 per
cent in 2003.
Ukraine's economy is still dominated by former-Soviet heavy industries,
especially steel and chemicals. Those industries have boomed over the past few
years driven by strong demand for industrial raw materials in developing Asia.
But those markets are cyclical and possibly in for a rough patch.
For most investors the only chance of exposure to Ukraine has been debt issued
abroad. The government and private companies both had successful Eurobond
placements over the past year. Firm demand has brought yields on
dollar-denominated sovereign debt as low as around 7.3 per cent.
"It's been on the radar screens for a long time from a fixed-income
perspective. Equities less so," said Ash. "Obviously there are a lot
of issues about corporate governance. That certainly restricted interest. Going
forward, the interest will be more focused on the equity."
Those flocking to Kiev will not yet find much to buy. Ukraine's stock market was
the world's fastest-rising last year, with an index compiled by Dragon Capital
surging by 180 per cent. But volume is tiny and there are only about 30 traded
companies, and only 10 liquid enough to make the index.
Yushchenko has promised to increase privatisations open to foreigners, which
should make for a more robust market.
Domestic government debt may also still be a good buy, with double-digit yields
denominated in a hryvnia currency that has been stable for years and -- given
the large trade surplus -- could appreciate against a falling dollar.
Foreign investors have doubled their holdings in Ukraine's domestic debt in the
last six months, the Finance Ministry says. Foreigners bought 80 per cent of the
paper at an auction, the first since the rerun election. But the best long-term
opportunities may be for strategic investors in sectors like brewing, food
processing, retail or construction, aimed at the still-stunted domestic market.
Ukraine's economy is now 60 per cent exports, with local consumption held back
by monthly average incomes of barely US$100. If Ukrainians' living standards
ever start approaching those of their new EU-member neighbours, there is a lot
of room to grow.
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CREDIT RATINGS
Moody's changes outlooks on Ukraine's B1 ratings
Moody's Investors Service recently confirmed Ukraine's foreign currency bank
deposit ceiling at B2 with a stable outlook and changed its outlook to stable
from developing for other key ratings to reflect the relative political
stability that has been achieved in recent weeks, Interfax news Agency reported.
The agency said in a statement that the ratings that now carry a stable rating
outlook include the country's B1 foreign currency ceiling, the B1 foreign
currency government bonds and the B1 local currency government bonds (B1). The
foreign currency bank deposit ceiling had been under review for downgrade since
December 1st, while the other ratings mentioned carried the developing outlook
since that date. Ukraine's local currency guideline remains at A3. The rating
agency said its actions follow several months of quasi-revolutionary events that
have seen anew president and governing coalition come to power. Ukraine's
macroeconomic indicators, which had reflected an exceptionally strong
performance prior to the period surrounding the controversial 2004 presidential
election, will weaken comparatively in 2005, as it will take some time to
counter the fiscal and monetary consequences of pre-electoral commitments, said
Moody's. The new government will likely concentrate on improving the business
environment by speeding deregulation, improving the transparency, promoting a
more independent judiciary, undertaking civil service reform, privatising many
state-owned enterprises, encouraging greater economic competition, and
developing domestic capital markets, the rating agency said. Moody's noted that
the new government is unproven, while the highly fractious Ukrainian parliament
provides a challenge for coalition building and legislative activism. The
political-business elite in the eastern and southern regions of the country that
recently suffered electoral defeat will have to be integrated into the new
government's perspectives and programmes if these initiatives are to succeed in
stimulating Ukraine's economy and constructing institutions and mechanisms
conducive to improving the country's political-juridical foundations.
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ENERGY
EIB to invest in Odessa-Brody oil pipe
The European Investment Bank is ready to finance the construction of the
Odessa-Brody pipeline on Polish territory to Gdansk, EIB president, Wolfgang
Rot, told Polish reporters recently, New Europe reported.
A total of 500m Euro is needed to build the oil pipeline in Poland, and
according to the Polish media, the EIB is prepared to invest these funds.
Ukrainian press reports said that previously European experts supported the idea
of the Polish-Ukrainian oil pipeline, but they were very cautious when it came
to specific plans to finance the project. The experts said that the EIB may
finance this project on certain conditions, but no details of these conditions
were announced. The idea of this bank financing the project is due to Poland's
entry into the EU and the bank's desire to invest funds in improving Polish
infrastructure in general.
Naftogaz Ukrainy to invest in UAE fields
Ukrainian national oil and gas company Naftogaz Ukrainy and its partner Naftogas
Middle East plan to invest US$191.8m in exploring and developing four oil and
gas fields in the United Arab Emirates, Interfax News Agency reported.
Naftogaz Ukrainy said in a statement that the companies signed the corresponding
agreement with the government of the Emirate of Fujeira in January. Two of the
blocks are onshore, and two are off the UAE coast. The onshore blocks have
resources of 190 billion cubic metres of gas and 87.4m tonnes of gas condensate;
and the offshore blocks - 1.7bn tonnes of oil. At the initial stage the company
plans to drill two wildcat and two assessment wells. Tatla spending on
exploration work will amount to US$38.6m. This work may result in the discovery
of a field with reserves of 57bn cubic metres of gas and 26.3m tonnes of
condensate. The company plans to spend US$159.2m on drilling, infrastructure and
construction work.
Naftogaz Ukrainy eyes gas pipeline to Srbska republic
Naftogaz Ukrainy plans to build and operate a trunk gas pipeline running from
Ukraine to the Republic of Srbska, part of Bosnia and Herzegovina, the company's
deputy senior executive, Alexander Kiselev, announced recently, New Europe
reported.
The company is engaged in project financing negotiations with Deutsche Bank.
"The project is at the starting line. We are hoping that a successful
completion of talks with Deutsche Bank will make this project an absolute
reality, and that we will begin implementing it when our harsh winter
departs," Kiselev said. The project envisages the transportation of from
350m to 1,200m cubic metres of gas annually, he said. If it is successfully
carried out, the project will make it possible for Naftogaz Ukrainy to secure a
role in the "gasification" of Croatia, he said.
Naftogaz Ukrainy holds talks on Iraqi gas field
Ukrainian national oil and gas company, Naftogaz Ukrainy, has entered the next
stage in negotiations with Iraq on taking part in a tender to carry out
engineering work and supply equipment and materials, and also develop the Kormor
gas field in Iraq, New Europe reports.
The company said in a statement that the preliminary cost of the project amounts
to US$150m and proposed gas production amounts to 2.7bn cubic metres per year.
The field is located 80km north of Kirkuk, in Iraqi Kurdistan.
Naftogaz Ukrainy is also considering taking part in tenders to carry out
engineering work and supply equipment and materials to the Koia refinery in
Iraq. The Ukrainian company has held talks with management from state bodies and
leading US companies to receive direct contracts and subcontracts for work to
restore Iraq, being financed by the US government, and has received support from
the US side.
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FOREIGN COOPERATION
Poland wants serious cooperation with Ukraine
European Union newcomer Poland will fully support Ukraine's aspirations for
closer cooperation with the EU and the NATO defence alliance as well as
international financial structures, Polish Prime Minister, Marek Belka, said
recently, Deutsche Presse-Agentur (dpa) reported.
In a message of congratulations to Ukraine's new Prime Minister, Julia
Timoshenko, he said. "My government is prepared for broad and serious
cooperation with Ukraine's new government." The spontaneous grassroots
support of Poles for Ukraine's Orange Revolution against fraud in the November
presidential election, which had handed victory to a Moscow-based candidate,
provided a good foundation to further improve bilateral cooperation, he said.
"I am deeply convinced that during your term in office Polish-Ukrainian
bilateral relations will continue to develop dynamically to the benefit of both
our friendly countries and societies," he said. "The presence of a
strong, democratic Ukraine linked to European and Euro-Atlantic structures will
be a key element in the international stabilisation on the continent, strengthen
the European order and also serve other countries in the region with an example
worth following."
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MINERALS & METALS
Industry reduces steel output in 2 months
Ukraine's steel industry reduced finished roll output 3 per cent year-on-year to
5.29m tonnes in January-February, the industrial policy ministry said recently,
Interfax News Agency reported.
Crude steel production also fell 3 per cent, to 6.26m tonnes and pig iron fell 1
per cent to 5.15m tonnes. Steel pipe production, though jumped 25 per cent to
297,000 tonnes.
The ministry said steel output fell because of iron ore supply disruptions to
steel mills at the end of last year and start of 2005. Output could fall this
year overall due to an anticipated jump in process for iron ore, coke and scrap
metal in the second quarter, the ministry said.
Scrap metal supplies to steel mills rose, though, by 5 per cent to 920,000
tonnes in the two months. Iron ore concentrate production also rose, by 6 per
cent to 7.76m tonnes of sinter and 10 per cent to 2.92m tonnes of pellets.
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