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UKRAINE


 

 

In-depth Business Intelligence

Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 49,537 41,380 37,600 55
         
GNI per capita
 US $ 970 770 720 137
Ranking is given out of 208 nations - (data from the World Bank)

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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




Update No: 289 - (01/02/05)

In his first presidential act, after inauguration on January 23rd, the new president of Ukraine, Viktor Yushchenko, nominated opposition ally, Yulia Tymoshenko, as Prime Minister. She made the running in making speeches in the presidential electoral campaign, stepping into the breach when Yushchenko was struck down by an obvious attempt on his life on September 9th. Her appointment will require a confirmation vote in the country's parliament, the Verkhovna Rada, expected some time in February. 
She is a controversial appointment. Showing her mettle as a fierce campaigner at his right hand, she was invaluable to Yushchenko and he probably had little choice in appointing her. If indeed he had succumbed to the assassination attempts, she would probably have picked up the baton and stood in his place for the presidency, and might in the wake of the popular outrage in such an event, even have made it. 
The downside is that the new government faces perhaps its biggest challenge in taking on the old apparatchik billionaires, called here oligarchs as in Russia, who now control the commanding heights of the Ukrainian economy. They are universally despised for the corrupt way that they took over state assets and services, a seamless transfer of power from the communist days. The vote for Yushchenko was in many ways a vote against them and what they represent.
She, Yulia Tymoshenko, unfortunately has been one of them. 
The Russian state Security who keep blackmailing files on all oligarchs for possible later use, already during the election whilst their candidate was being beaten, moved against her in Russia. If as Prime Minister she visits there as she must, they will now have to climb down with their arrest warrant. 
How all of this will play and whether she will last the course remains to be seen, but there can be no doubt of her powerful character, perhaps now to be harnessed for the good of the nation.
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. 
The core team ushers in a new era that will dramatically change Ukraine's economic, social and foreign policies. In short, a new post-Soviet political generation is now at Ukraine's helm. 

New Investments Expected 
"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. 

Mending relations with Russia
On the foreign policy front, much has been said about Yushchenko's 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." 
"Despite the campaign rhetoric, Ukrainian-Russian relations are too important to both countries to let long-standing rifts go unchecked," explains Wasylyk. "The Moscow meeting between both leaders puts the relationship on a new footing." 
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 Center 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, Russian and Ukrainian economic systems are interdependent," Russian Senator Mikhail Margelov says. "We inherited that interdependence from the time of the Soviet Union when the Ukrainian and Russian economies were integral parts of one Soviet economy."

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 plans 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."
The government must also deal with rekindled calls to bring back from Iraq Ukraine's remaining 1,600 troops. Ukraine has the fourth-largest contingent in the U.S.-led military operation, and it lost eight troops in an explosion of an ammunition dump on January 9th.
However, the new president may not have heard the end of his rival. Yanukovych had raised a series of legal challenges to the December vote rerun, the last of which has been rejected by Ukraine's highest court. Now he says he will take his complaints to the European Court of Human Rights. The court has no enforcement mechanism, but such a move could cast a shadow on Yushchenko's intentions to push for closer relations with the EU and NATO.
More than 40 countries were represented at the inauguration. NATO Secretary-General Jaap de Hoop Scheffer was one of many foreign dignitaries who attended.

Powell support
Powell met with Yushchenko before his inauguration. "I want to assure you that you will continue to enjoy the full support of the American government and the American people as you move forward to undertake the efforts that the Ukrainian people are expecting," Powell told Yushchenko after their talks, Reuters reported. 
He said the meeting dealt with "activation of Ukrainian efforts toward international integration. This includes the prospects for Ukraine acquiring a market-based economy." That, he said, was critical for Ukraine joining the World Trade Organization. 
Yushchenko told Powell he was happy "that I have lived to the time when the Ukrainian president is elected not in Moscow, not in Washington, but in Ukraine." 

If investors hadn't heard of Ukraine a few months ago, they have now
Orange revolutionaries may view the election of Viktor Yushchenko to the Ukrainian presidency as the best possible New Year's gift. But to supermarket chain Paterson, a month of street protests carried a high price. Disruptions in distribution and sudden price rises forced the Moscow-based retailer to postpone the opening of its first Kiev store from early December to this year.
But 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 percent, 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 percent last year, the government said this week, a four-year high up from 8.2 percent 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 percent. 
"It's been on the radar screens for a long time from a fixed-income perspective. Equities less so," said Ash. "Obviously there's 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 percent. 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 percent 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 percent exports, with local consumption held back by monthly average incomes of barely $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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AGRICULTURE

Ukraine's grain crops double in 2004

Ukrainian farmers harvested 41.72m tonnes of grain and leguminous crops (including maize) in 2004, which is double the 2003 figure, Interfax-Ukraine News Agency reported on 11 January, citing the State Statistics Committee's data.
Ukraine's grain harvest in 2003 was 20.23m tonnes, which was 47 per cent less than in 2002, the agency said.

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ENERGY

Ukraine, Turkmenistan sign gas supply contract for 2005

Turkmenistan and Ukraine recently signed an annual contract for the supply of 36bn cu m of gas at the price of US$58 per thousand cu m. The contract was signed by Turkmen President, Saparmyrat Niyazov and the head of Naftohaz Ukrayiny [oil and gas company], Yuriy Boyko, Era, Kiev reported. 
The president of Turkmenistan said that the method of payment remains the same for Ukraine: 50 per cent with hard currency and 50 per cent with goods and equipment. He also said that Turkmenistan had reduced the price of US$60 announced earlier by two dollars. However, the country intends to recoup this money next year, he stressed. 

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FOREIGN COOPERATION

Ukraine, Syria discuss raising level of transport ties

Volodymyr Koval, the Ukrainian ambassador to Syria, has met with Syrian Transport Minister, Makram Ubayd, UNIAN News Agency reported. 
UNIAN learnt from the press service of the Ukrainian Foreign Ministry that during their meeting they discussed stepping up cooperation between the two countries in the field of transport, in particular, the possible participation of Ukrainian companies in tenders for the building of railways, modernization of rolling stock and railway transport equipment.
Ubayd gave a high assessment of the retraining of Syrian civil aviation experts in Ukraine and expressed interest in setting up training courses in higher education establishments in Ukraine for experts who work in other fields of transport. 
Koval and Ubayd also noted the need to create a Ukrainian-Syrian working group for cooperation in the transport sector.

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FOREIGN RELATIONS

Kuchma, Saakashvili discuss Ukrainian-Georgian relations

Ukrainian President, Leonid Kuchma, and Georgia's President, Mikhail Saakashvili, discussed Ukrainian-Georgian relations during Saakashvili's unofficial visit to Ukraine on December 31st, Kuchma's spokeswoman, Olena Hromnytska, said, Ukrinform reported.
At the start of the meeting, Saakashvili thanked Kuchma for his contribution to the meeting, and for his contribution to the development of Ukraine-Georgian relations. "Ukrainian-Georgian relations reached an absolutely new level during your presidency. Actually, they are simply brotherly relations, and your personal credit is partly visible here," Saakashvili said.
He thanked Kuchma for this on behalf of himself and the Georgian people. He said that the friendship between the two countries is now a decisive factor in Georgian foreign policy. Saakashvili also noted that Ukraine is a strategic ally of and an example for Georgia. On his part, Kuchma said that Georgia has always occupied a special place in his heart and the heart of Ukraine. Kuchma noted the high level of mutual assistance and mutual trust between Ukraine and Georgia, stressing that the two countries have always been by each other's side and always offered a hand of assistance to each other, particularly in those moments when the Georgian side needed it. Kuchma and Saakashvili discussed the political situations in Ukraine and Georgia. The also discussed development of political dialogue as well as the trade and exonomic cooperation between the two countries.

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INDUSTRIAL OUTPUT

Ukraine's industrial output up 12.5 per cent in 2004

Ukraine's industrial output grew in December 2004 by 4.3 per cent over December 2003. Its total annual growth was 12.5 per cent, State Statistics Committee said recently, Interfax-Ukraine News Agency reported. 
In December, industrial output decreased by 4.3 per cent compared with November 2004.
In November, industrial output grew by 11.3 per cent over the same period in the previous year, in October by 7.7 per cent, in the first 11 months by 13.4 per cent and in 10 months by 13.6 per cent. 

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PRIVATISATION

Ukraine posts high privatisation revenue

Revenue from privatisation in Ukraine amounted to 9,582.4m hryvnya, or around US$1.8bn, as of 31 December 2004, as opposed to the planned 5.3bn hryvnya, or around US$1bn, the Interfax-Ukraine news agency has reported, quoting the State Property Fund. 
Most of the revenue was collected from the privatisation of the Kryvorizhstal steelworks, the Pavlohradvuhillya coal mining company, the Dniprovskyy metallurgical plant and other plants and companies that used to belong to the Ukrrudprom [Ukrainian Ore Industry] company. 
According to the 2005 state budget law, some 4.9bn hryvnyas are planned to be received from privatisation in 2005, the agency said.

Ukraine's mobile phone user base doubles in 2004

As of 31 December 2004, Ukraine had 13.8m mobile phone users, which is more than 29 per cent of the population. According to data provided by mobile operators, their user base grew 110 per cent in 2004 and 13.5 per cent (1.6m users) in December alone, Interfax-Ukraine News Agency reported. 
The leading operator in Ukraine in terms of the number of subscribers is Russia's Mobile TeleSystems [MTS], which had 7.4m users as of 31 December, 18 per cent more than in November. The company's user base grew 120 per cent in 2004.
MTS user statistics include the Ukrainian Mobile Communications (UMC), which it owns, and the Jeans virtual operator which uses the UMC network and has about 2.88m subscribers. UMC is the oldest mobile operator in Ukraine, covering most of the country's territory using the GSM-900/1800 standard and the outdated NMT standard.
Kyivstar GSM had 6.25m subscribers as of 1 January, up 9 per cent in December and 106 per cent since the beginning of 2004. Kyivstar's GSM-900/1800 network covers most of Ukraine's territory. It is majority owned by the Norwegian telecom company Telenor (56.51 per cent) and the Ukrainian company Storm (43.49 per cent). Storm is majority owned by Russia's Alfa Group.
Donetsk-based Digital Cellular Communications works in eight regions using the D/AMPS standard under the brand name DCC. The company did not release any information about its subscriber base. Experts say the DCC user base is stable around 85,000. According to the Turkish mobile operator Turkcell, DCC is owned by the Dutch-registered Ukrainian-Turkish joint venture Eurasia, which is owned by Turkcell (51 per cent) and the Donetsk-based System Capital Management holding. DCC is currently testing its GSM-1800 network and plans to offer services using this standard in 2005.
Golden Telecom offers mobile phone services in Kiev and Odessa using the GSM-1800 standard. It had about 60,000 subscribers as of December. The company is part of the Russian telecom holding Golden Telecom. Ukrainian Radio Systems is using the GSM-900 standard under the WellCom and Mobi brand names. As of December, it had about 50,000 subscribers. 

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