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UKRAINE


 

 

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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: 290 - (25/02/05)

New premier and government
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. 
A new government of Ukraine has showed that it has broken with the past and begun to fight with corruption and the oligarchs that had relations with the former administration.

Massive endorsement of the same
Of the 450 deputies of the Ukrainian parliament, 373 backed up the candidature of Tymoshenko proposed by the President. Not one deputy opposed it. It shows strengthening of his power. 
The factions that were supporting Victor Yanukovich, Yushchenko's opponent, during elections have also voted for Tymoshenko. "The opposition is disappearing before our very eyes. All these parties were always pro-power. They do not know how to be in opposition" - the The Wall Street Journal cites Igor Gdanov as saying, a political analyst from Razumkov's Centre. 
Russia has also congratulated Tymoshenko though she is being prosecuted in Russia. "Tymoshenko that had been in jail because of corruption (the case was closed later) was Vice-Premier in 1999-2001 in Yushchenko's government. She was one of the central figures in people's protest against elections' falsification known as Orange revolution. Many members of the Cabinet she will lead took part in street protests' organization and are pro-democratic" - the journal cites, 
The most radical sign of breaking with Soviet times was the fact that civilians and not military officers will lead "force" ministries that are responsible for security and keeping order,
The Wall Street Journal reminds us that "Anatoliy Grytsenko, a head of one of the analytical organizations and a deputy chief of Yuschenko's headquarters during his election campaign, became the minister of defence. A deputy, Oleksandr Turchynov, who is close to Tymoshenko became head of SBU, the KGB successor"
The Wall Street Journal also reported that the Cabinet of Ministry has cancelled "one of the most controversial decisions of former government," the privatisation of an extremely profitable enterprise "Krivorizhstal" This "enterprise that the government plans to sell again," was sold for US$800m to a consortium headed by Victor Pinchuk, Kuchma's son-in-law and Rinat Akhmetov from Donetsk who was close to Yanukovich."

Timoshenko; is she or is she not a new deal?
Timoshenko 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 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.
The huge irony is that 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.

The end of the Kuchma administration
The one man who must be bitterly regretting he ever appointed Yushchenko prime minister is former president Kuchma.
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 fences with the Kremlin
Newly sworn-in Ukrainian President Viktor Yushchenko decided to spend his first full day in office on January 24th in Moscow in a bid to smooth ruffled relations with the Kremlin. Putin had unabashedly backed Yushchenko's opponent Viktor Yanukovych; and the Kremlin is naturally now concerned about losing sway in Ukraine under the Western-oriented new Ukrainian leader.
Ukraine is the home to the Russian navy's Black Sea fleet at Sevastopol and pipelines for Russia's economically vital gas and oil exports. It has historically been seen by its much bigger neighbour as part of its sphere of influence; indeed, Kiev was the original Rus.
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.
But Yushchenko on inauguration day on January 23rd 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 former U.S. Secretary of State Colin Powell and presidents of seven countries. 
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 thousands of Ukrainians at Kiev's main 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. 

Opening to the West
After his trip to Moscow, Yushchenko planned 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. "
Annunciating a fine credo, he said: "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 9.
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 was rejected by Ukraine's highest court on January 20th. Now he says he will take his complaints to the European Court of Human Rights. 
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 met with Yushchenko on January 23rd 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. 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." 
However, 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 Ukrainian and Russian economy were integral parts of one Soviet economy."
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, 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 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 said. 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

Fitch upgrades Ukraine to BB-

Fitch Ratings has upgraded Ukraine's long-term foreign and local currency ratings to BB- (BB minus) from B+, the agency said in a recent statement, New Europe reported.
At the same time the agency upgraded the country ceiling to BB- (BB minus) from B+ and affirmed the short-term rating at B. The outlook on the long-term ratings is Stable.
Edward Parker, senior director in the Fitch Sovereigns Group, said the presidential inauguration of Viktor Yushchenko on January 23rd marked "the passing of the period of most acute and immediate political risk. At the same time, latest data indicates that foreign exchange reserves and household bank deposits have started to stabilise." Ukraine's sovereign ratings had previously been constrained at the B+ level by Fitch's long-standing view that there was a material risk of significant political instability associated with the presidential elections, the statement said.
"Although political risk remains significant, it is now diminishing as Ukraine emerges from its political crisis. In these circumstances, Ukraine's macroeconomic fundamentals such as moderate public and external debt ratios and strong growth prospects now merit an upgrade," Parker said.
The non-violent "orange revolution," Yushchenko's presidency, prospective constitutional reforms and the turnover in power should strengthen democratic institutions, checks and balances, governance and prospects for long-term political stability, Fitch said.
Yushchenko has yet to set out detailed economic policy goals or make key appointments, but his track record suggests he will implement prudent macroeconomic policies and structural reforms, which should improve the business climate, the agency said.
International goodwill should facilitate accession to the World Trade Organisation (WTO), better relations with the IMF and World Bank, and possibly a roadmap towards EU accession, although entry itself would remain a distant and uncertain prospect, Fitch said. Overall Yushchenko's policies should be positive for economic prosperity and Ukraine's creditworthiness, the agency said.

Naftogaz Ukrainy gains credit rating of uaAA

Independent rating agency Kredyt Rating has assigned its long-term credit rating of uaAA, which is based on the Ukrainian national rating scale, to the Naftohaz Ukrainy national joint-stock company, Ukrinform reported recently. 
The outlook on the rating is stable. According to the agency, the uaAA credit rating reflects the very high capacity of Naftogaz Ukrainy to meet its debt obligations under Ukrainian financial market conditions. In determining the credit rating, the agency took into account Naftogaz Ukrainy's full financial accountability in the 2001-2003 period and its financial and production indicators for the first half and the first 9 months of 2004, among other things. The Fitch international rating agency assigned Naftohaz Ukrainy the senior unsecured local currency and foreign currency rating of B+ with a stable outlook to Naftogaz Ukrainy's US$700m Eurobonds while the Moody's rating agency assigned it a B2 rating with a positive outlook.

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ENERGY

Naftogaz Ukrainy may start developing Libyan fields

Ukrainian national oil and gas company, Naftogaz Ukrainy, hopes to start work to develop oil and gas fields in Libya this year, after the Libyan government's approval of a production sharing agreement between Libya's National Oil Company (NOC) and Naftogaz Ukrainy, signed in October 2004, New Europe reported recently.
Igor Voronin, Naftogaz Ukrainy Deputy CEO, said that the company plans to keep to its strategy, adopted in 2004, of transforming from being a national to an international company by buying production and transportation assets. He said that the company is preparing to take part in the privatisation of Poland's POGC, which is expected this year. 
Voronin also said that the company plans to compete for assets belonging to Hungary's MOL, again, after Germany's Ruhrgas refused to acquire them under pressure form Hungarian state regulators. Speaking about Naftogaz Ukrainy plans to expand its raw material base, Voronin said that assets in Russia are the most promising. "There is a lot of doubt about the discovery of large fields in Ukraine or in the Black Sea. This is practically impossible." 
"Assets in the oil and gas business in Russia are undervalued, plus the opportunities for supplying hydrocarbons from Russia to Ukraine are good," he said. Forecast reserves at the PSA blocks in Libya amount to about 110m tonnes of oil and 30bn cubic metres of natural gas. The PSA is valid for 25 years for oil, and 30 years for gas. Maximum daily production amounts to 5m tonnes. The oil produced in Libya will be sold inside the country. Naftogaz Ukrainy investment in Libyan fields in 2005 may amount to about US$50m.

Gas transit grows 6% in 2004

According to preliminary data, natural gas transit across the territory of Ukraine in 2004 grew by 6% in comparison with 2003 to 137.1bn cubic metres, the fuel and energy ministry said recently, Interfax News Agency reported. 
Domestic gas consumption (taking into account transportation costs) last year went down by 0.8% to 75.8bn cubic metres, by final consumers in Ukraine - by 0.9% to 68.1bn cubic metres. As reported earlier, this year the Ukrainian gas transportation system operator Ukrtransgaz, an affiliate to the national JSC Naftogaz Ukrainy, is going to increase transit of natural gas to Europe to 123bn cubic metres. In 2003 Ukrtransgaz ensured transit of natural gas to Europe to the tune of 107.2bn cubic metres and natural gas transit across Ukraine grew by 6.5% in comparison with 2002 to 129.3bn cubic metres, domestic consumption (taking into account transportation costs) - by 9.6% to 76.4bn cubic metres. 
The entrance transit capacity of Ukraine makes 287.7bn cubic metres of gas, on exit - 177.1bn cubic metres, Ukrtransgaz operates 36,400km of gas pipelines, including 22,200km of main gas pipelines and 14,200km of pipe-bends, 71 compressor stations with the total capacity of 5,380 MW, 12 underground gas storage facilities with the total active capacity of 32.3bn cubic metres, 1,392 gas distribution stations.

Chernomornaftohaz may sign first Ukrainian PSA

Ukrainian state owned oil and gas company, Chernomornaftohaz, may sign the first production sharing agreement in Ukraine by the end of 2005, Ukrainian Deputy Economic Minister, Volodomyr Ihnashenko, told journalists recently, Interfax News Agency reported.
He said the first PSA might be an agreement between Chernomornaftohaz and the US company, Hunt Overseas, to develop fields in the Black Sea, involving an investment worth US$1.5bn.
The minister said a second possible PSA project might be a joint project between Chernomornaftohaz and the Austrian company OMV, also to produce hydrocarbons offshore. Ihnashenko said that Ukraine has recently seen an increase in foreign direct investment, but the absolute total of this investment is still small.
"The dynamic is good, but the absolute indicators are low. We expect a fantastic surge in 2005," he said.
Naftogaz Ukrainy manages 100 per cent in Chernomornaftohaz, the only company developing the Ukrainian sector of the Black Sea and the Sea of Azov. The company operates over 1,200km of distribution stations, 10 offshore rigs, the Hlebovskoye undergrounds storage facility with a capacity of 1bn cubic metres, and 17 gas fields with total explored reserves of about 60bn cubic metres, and one oilfield. The company has a fleet of 22 ships.

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FOOD & DRINK

McDonald's to invest US$4m in Ukraine

McDonald's Ukraine plans to invest about US$4m in developing its chain of fast-food restaurants in Ukraine in 2005, a source in the company said recently, Interfax News Agency reported.
In particular, this year the company plans to open 3 new restaurants in Kiev, increasing the total number of McDonald's restaurants in Ukraine to 55. McDonald's Ukraine also plans to expand and modernise existing restaurants and start work at construction sites, to build restaurants in 2006. There are currently 52 restaurants in 16 cities in Ukraine. Total investment in developing this chain amounted to US$83m by the start of 2005.

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FOREIGN ECONOMIC COOPERATION

Rada ratifies financial cooperation deal with Germany

The Verkhovna Rada, Ukraine's parliament, has ratified an intergovernmental agreement between Ukraine and Germany on financial cooperation, it was reported recently. A total of 269 MPs backed the agreement, New Europe reported.
Under the agreement, the German government, in compliance with commitments undertaken in 2002 and 2003, will provide the Ukrainian government and other beneficiaries, jointly chosen by the two governments, with the possibility to receive from credit establishments 11m as loans to be used for the following projects: aid to farm enterprises and private enterprises in the rural areas of Ukraine; development of the crediting system in the rural areas of Ukraine; and the promotion of efficient consumption of energy by small-scale and medium-scale enterprises of Ukraine.
In addition, Ukraine will be able to receive 3m in grants to help implement the projects. Credit establishments giving loans for such projects will not have to pay tax on such operations in Ukraine.

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TELECOMMUNICATIONS

New mobile operator set up in Ukraine

A new mobile communications operator has been launched in Ukraine under the trademark Life, ICTV television reported. 
It said the operator was set up by the Astelit company, but gave no details of the firm's ownership.
Earlier media reports linked Astelit to the Turkish mobile operator Turkcell and Ukraine's Donetsk-based mobile communications provider DCC. 
ICTV said Astelit provided services in the Ukrainian cities of Kiev, Donetsk, Dnipropetrovsk, Lviv, Odessa, Kharkiv and Simferopol. ICTV also said Ukrainian Pryvatbank and the Ukrainian Radio Systems company have launched a mobile communications service under the Privat:mobile trademark. Earlier, the Ukrainian Radio Systems operated under the WellCOM trademark.

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