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UKRAINE


 

 

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)

Books on Ukraine




Update No: 319 - (26/07/07)

US Navy and Sea Breeze hosted by Ukraine 
If there is one thing that makes Putin see red, it is the US nosing about and brazenly strutting around in what he, and Kremlin hawks, regard as their backyard, Ukraine, the very home of the original Rus. All Russian patriots burn with indignation at the now annual event, Sea Breeze, when NATO flaunts its military and naval muscle right under the noses of the Russian Crimean Fleet.

The U.S. Navy continues to build multinational partnerships and improve maritime domain awareness - a key component of Chief of Naval Operations Adm. Mike Mullen's "1,000-ship navy" concept - in the Black Sea during the ongoing Sea Breeze exercise in Odessa, Ukraine, the very city where one of the greatest events of the Bolshevik Revolution took place eighty years ago on the Odessa steps, hallowed by Eisenstein in film. Putin's new hard line is scarcely surprising in the circumstances. It as if the Russian Atlantic Fleet made a showing in force outside Boston on the anniversary of the Boston Tea Party or flew the flag at Yorktown on the anniversary of the battle of the same name. At least that's how it appears in patriotic Russian eyes. 

Sea Breeze is now a traditional annual exercise hosted by Ukraine. The decade-old training exercise focuses on shipboard and damage control training, said Cmdr. Darryn James, a 6th Fleet spokesman.

About 1,000 of the exercise's 2,500 participants come from Ukraine, with the U.S. Navy and Marine Corps providing about 700 people, James said. The remaining representatives come from 11 other countries: Armenia, Azerbaijan, Canada, Georgia, Germany, Greece, Latvia, Macedonia, Moldova, Romania and Turkey, all NATO members. There are 12 participating ships, including the American guided-missile destroyer Donald Cook, and air assets from several nations. NATO is also actively courting Ukraine, Moldova and Georgia. The Black Sea risks becoming a NATO lake.

Protestors, mainly representing Ukraine's Communist party, were present on the harbour front in Odessa, James said, but the numbers were small, and the protests were peaceful. There is a certain resignation among local Russians, but tringed with strong indignation. Sea Breeze is all about reminding the Russians who won the Cold War, they aver, a fact that rankles still.

Vice Adm. John Stufflebeem, 6th Fleet commander and deputy commander of Naval Forces Europe, visited Odessa on June 12th, James said. Stufflebeem attended a reception with Ukrainian Vice Adm. Victor Maximov, the exercise director, and other military officials. Stufflebeem was recently nominated to become director of the Navy staff at the Pentagon.

Capt. Chip Walter, Naval Forces Europe's team leader for the Black Sea region and commodore of Combined Task Force 67, told the Navy Times that such exercises as Sea Breeze help show "America's interest" in the Black Sea. The multilateral partnerships are focused on peacekeeping and humanitarian assistance missions, Walter said, but also on bolstering maritime domain awareness, or MDA.

Yushchenko: Ukraine's Image Tarnished by Power Struggle 
Ukraine's President Viktor Yushchenko acknowledged in early July that a bitter two-month power struggle between him and the prime minister had tarnished the country's image. Yushchenko spoke of the 'loss of Ukraine's image due to the non-constitutional processes in parliament which stemmed from quarrels and conflicts," at a news conference. "Europe would like to see that Ukraine can emerge from the crisis itself while respecting democratic principles," he said. 

The crisis started on April 2nd, when Yushchenko, who is seen to be pro-Western, issued an order to dissolve parliament and hold early elections. His rival, Prime Minister Viktor Yanukovych, leading the pro-Russians, declared the order illegal and appealed to the constitutional court. 

The rivalry between Ukraine's leaders dates back to the Orange Revolution of 2004, when mass protests helped bring the pro-West Yushchenko to the presidency, overturning a flawed vote initially granted to Moscow-backed Yanukovych. 

The international community expressed serious concern during the latest power struggle, particularly after Yushchenko and Yanukovych briefly sparred for control of the country's security forces. 

After hours of tense negotiations, the president and prime minister finally struck a deal on May 27th, agreeing to hold elections pending a series of legal amendments in parliament to prepare for the polls.

This is leaving the country's political life in limbo at a time of usually quiescent politics, anyway, as people depart for their holidays, which more can now afford to do, particularly the elite and the broadening middle class. 

Middle class gaining greater visibility
While a middle class has visibly emerged in Ukraine in the last several years, it currently accounts for only a small part of Ukrainian society, and is still a far cry from being a girder of the nation's economy, as in other more developed countries. But like Russia the real wealth… like political power remains with the continuing power-holders, the former CP bosses, the owners of capital, the senior managers, then and now.

A recent study shows that while the middle class in Ukraine currently accounts for less than one-tenth of the country's population of around 47 million, more than a third of Ukrainians subjectively feel themselves to belong to the middle class. 

The Kiev-based market, consumer and sociological research and consulting organization Gorshenin Institute of Management Issues (KIMIG), which conducted the survey among 2,000 respondents in the second half of April, found that 8.9 per cent of Ukrainians actually belong to the middle class.

By contrast, the middle class in most European countries on average accounts for 50-70 per cent of the population. 

Of the respondents polled by KIMIG, 33.6 per cent, or more than one-third said they saw themselves as middle class. 

The French are coming to town
France is a notoriously self-contained country, which its inhabitants feel deep down is the best in the world, the best climate and countryside, the best cuisine and couture, the best language and literature, you name it the best is French.

Not surprisingly, therefore, compared to business from other Western countries, companies from France entered the Ukrainian market comparatively late. Nevertheless, by the end of 2006, France placed eighth in the Ukrainian government's official list of source countries for foreign direct investments. Experts claim that bilateral cooperation between France and Ukraine has grown in the last several years and forecast stable growth in terms of new investments, trade turnover and the general development of French business in Ukraine.

According to the State Statistics Committee of Ukraine (SSC), France was the second largest investor in 2006. Last year, French FDI into the Ukrainian economy reached US$738.9 million - more than 16 percent of total FDI in 2006. In the first months of the current year, the SSC ranked France in the eighth position in its list of the 10 largest foreign investors. 

According to official statistics, French capital has invested more than US$826.8 million in Ukraine to date. Insiders say that number is even higher. Pierre Compagnon, economy adviser at the Embassy of the Republic of France in Ukraine, did not confirm SSC's figure, saying that the exact amount is hard to estimate because certain investments have made their way to Ukraine via third-party countries. "I will provide one example: the purchase of Kryvorizhstal by the English-Luxembourgian company Arcelor Mittal was made through Germany, which placed this country in first place in the list of investors. Certainly, many French investments have [similarly] reached their destinations and French investors are strengthening their positions on the Ukrainian market," he said.

Compagnon believes that the past year was particularly successful for both countries, as trade exceeded US$1.1 billion. Since 2000, commodity turnover between France and Ukraine has grown 2.5 times, he said. Nevertheless, France occupies fifth position among the world's top exporters, with a market share of 2.2 per cent, but is placed eighth in Ukraine. Compagnon is convinced that Ukraine could also increase exports to France significantly. "In general, we have a great deal of work to do for our economic relations to reach a level that would correspond to the economic potential of both our countries," he said.

Ukraine has become an attractive market for French enterprises due to the country's stable economy growth, Compagnon said. He believes that a substantial and stable increase of investments requires considerable efforts in modernizing legislation to increase the level of transparency. It is necessary to radically simplify investment procedures and decrease the level of corruption, which is the greatest bottleneck for business development, he said.

"As soon as these conditions are satisfied, foreign investors will start bringing much more capital and technology to Ukraine... there are no reasons for foreign investments to Ukraine to be below the level of investments to Poland, for example."

Compagnon believes that Ukraine's imperfect legislation and judicial system need to be reformed. He said that these are the primary hurdles that hamper the development of French business in Ukraine. With a multitude of governmental orders and differing court decisions, the system currently in place results in long-term delays that are designed to facilitate bribery and other forms of corruption, he said. "All of these issues do not contribute to a normal business climate," he said.

Compagnon believes that, although the current political situation in Ukraine is complex and may harm investment confidence, the country continues to be economically attractive to foreign investors "I recently returned from Paris where I have participated in a seminar about Ukraine. This seminar gathered over 130 people. Similar events in France as well as meetings of the Trade and Industry Chamber organized by the [French] embassy's Economy Mission are extremely useful, particularly today, when all these political difficulties in Ukraine are widely commented upon by the media. This raises the concerns of French companies about the [investment] attractiveness. The French Embassy in Ukraine together with the Ukrainian Embassy in France must make the efforts to explain that the Ukrainian economy and politics develop separately and the country remains attractive for business despite administrative difficulties," he said.

According to Compagnon, about 140 French companies have branches or representative offices in Ukraine. This number has grown considerably in the last few years, he said, and this growth has turned into a trend. "For example, the entry of Auchan, one of Europe's retail business leaders, will surely send a signal to other companies," he said. In March of this year, France's Auchan Group announced plans to open 10 hypermarkets throughout Ukraine within the next two years. 

Compagnon said that 25 per cent of French companies currently operating in Ukraine work in the services sector. Investments in agricultural, food processing, industrial equipment and consumer goods each stand at approximately 15 per cent, he said.

Both France and Ukraine have economies in which the agrarian and industrial sectors play important roles, Compagnon said. France has established a presence in Ukraine's agriculture sector. One example he gave was French dairy giant Lactalis. In 2004, that company purchased the Ukraine-based operations of American Food Master International, including the Bilosvit dairy in Cherkasy Region that produces the President brand of milk and dairy products. 

International food company Groupe Danone entered the Ukrainian market in 2006 by acquiring the Rodych Dairy Plant based in the southern Ukrainian city of Kherson. In May 2002, France's Malteurop acquired the Chernihiv-based Desna Malt House for 2 million euros. In April of this year, France's Bel Group purchased the Shostka City Milk Plant in Sumy Region.

According to the SSC, food production is the second largest area of interest for French investors in Ukraine. The primary area of investment for French business remains the financial sector: France's BNP Paribas recently acquired a controlling stake in one of Ukraine's largest banks, Ukrsibbank, for US$500 million. In the past year, French bank Credit Agricole purchased a 98 per cent stake in the Kiev-based Index-bank for US$260 million.

Karl Hepp de Sevelinges, head of the Kyiv office of France-based legal firm Gide Loyrette Nouel (GLN), believes that the official amount of investments calculated by the SSC is greatly underestimated. He explained that countries like Cyprus, listed as a leading foreign investor in Ukraine, are used by investors (including French investors) to reduce taxes when transferring money to Ukraine. Sevelinges estimates that there are around 500 French companies currently operating in the country and forecasts the expansion of the French business presence in Ukraine. "There was an investment conference in Paris in June and it was an occasion to see new investors and investment plans... there are many companies that are interested in this country," he said.

GLN established its office in Ukraine in 2006. GLN Kiev provides advisory services to investors wishing to set up business in Ukraine and to those companies that are already established on the market. According to Sevelinges, who specializes in international investments, around 60 per cent of GLN's clients in Ukraine are French companies. Like many foreign investors, French companies began actively entering Ukraine after the Orange Revolution, which had a positive impact on the country's investment climate, Sevelinges said. "French companies came quite late to Ukraine. They're always a little bit late compared to other investors, like the Germans, for example… But once they do come, they often come together. And this began happening in 2005-2006," he said.

Sevelinges said the current political crisis has had little impact on the economic situation in the country. He said that many of his company's clients share his opinion that, despite political instability, Ukraine remains an attractive investment market. "No French [investment] project has been abandoned," he said, "This country needs investments. And this is key for everybody."

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CONSTRUCITON

Ukraine to create new ammunition disposal sites


Ukraine is planning to create new ammunition disposal sites with an annual scrapping capacity of 200,000 tonnes, the press service of the industrial policy ministry announced on July 5th. 
Ukraine intends to scrap 2.47 million tonnes of ammunition by 2018, while the existing disposal sites can utilize just 127,100 tonnes per year, it said. The ministry acknowledged that the existing disposal sites operate at just over 20 per cent of their actual capacity. Ukraine lacks technologies for the scrapping of highly dangerous ammunition such as bombs stuffed with amatol, hexogen and mixed explosives, it said. The Ukrainian Defence Ministry's ammunition storage facilities are overloaded by about one-fifth of the permitted storage capacity and storage conditions leave much to be desired, it said.

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ENERGY

Ukraine to fit NPP with Russian reactors

Ukraine plans to fit the future third and fourth generating units of the nuclear power plant in the city of Khmelnytsky with modernized Russian VVER reactors, state nuclear power company Enerhoatom said on July 5th, Interfax News Agency reported.
"We plan that the final construction should involve the use of VVER reactors with the corporate participation of the Russian Federation and other countries and the possible acquisition of licences for those generating units for building units of this kind on other sites," Interfax News Agency quoted Enerhoatom First Vice-President for Economic Policy and Corporate Development, Nykyta Konstantinov, as telling reporters in Kiev.
However, the fourth generating unit of the Southern Ukrainian Nuclear Power Plant will be equipped with a PWR reactor, Konstantinov said.
PWR reactors are manufactured and used in Europe, the United States, and South Korea. "Naturally, they will be modernised reactors with heightened security standards," Konstantinov said.
When the VVER and PWR reactors have been installed at the two plants, Ukraine will decide which type to use for future units, he added.

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FOREIGN INVESTMENT

EBRD could invest in Ukrainian telecom, pharmaceuticals

The European Bank for Reconstruction and Development (EBRD) is considering the possibility of investing some 30 million Euro in the capital of one telecommunications company and one pharmaceutical company in Ukraine, Kamen Zakhariyev, the EBRD director for Ukraine, told Interfax News Agnecy.
"We are currently looking at the telecommunications industry, where there is one possibility [for investment] this year. In addition, we are looking at retail in the sphere of pharmacies. In total, the bank could spend about 30 million Euro" on these projects, he said. The EBRD is also continuing talks on joining the capital of several medium-sized Ukrainian banks, although it has yet to reach final mutual understanding with the owners of these banks, he said. The EBRD is the largest investor in Ukraine. At the end of January 2007, the bank had provided more than 2.87 billion Euro in financing to more than 130 projects in the country.

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FOREIGN TRADE

Trade turnover with China could hit US$10bn by 2012

Trade turnover between Ukraine and China could reach US$12 billion by 2012, Chinese Ambassador to Ukraine, Zhou Li, said in an interview with the 2000 weekly on July 6th.
"The Chinese authorities have never treated Ukraine as a minor state. We attach significant importance to cooperation between our countries. It has been developing at a fast pace. Ukrainian-Chinese trade turnover grew from hundreds of millions of US dollars to US$4.16 billion in 2006, and it is growing by no less than 20 per cent per year," Zhou Li said. China "is the fourth largest exporter for Ukraine. The main entries on the list of exported goods are engineering products, equipment, spare parts, textile, including final products and resources, and electronics," he said. Ukraine ranks third among CIS member states, as far as volumes of trade with China are concerned, Zhou said.

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MINERALS & METALS

Metinvest says yet to decide on Stelco buy

Ukraine's Metinvest steel group said it has yet to decide whether to acquire Canadian steel producer Stelco. The Globe and Mail quoted industry sources and analysts as saying that Metinvest was thinking of buying Stelco. "We're looking at all possible investment opportunities, if they arise, including Canada's Stelco. However no decisions to be involved in buying or investing in the company have yet been reached," Metinvest's press office said.

Ferrexpo`s capitalisation soars 37% on LSE

Ferrexpo plc, which controls Poltavsky GOK, Ukraine's biggest producer of iron ore pellets, had a market capitalization of US$2.32 billion on the first day of trading following the company's initial public offering on the London Stock Exchange (LSE), New Europe reported.
The shares closed the first official day of trading on the LSE on June 20th at GBP1.9203 a share, valuing the company at GBP1.164 billion. Ferrexpo placed the shares at 140 pence per share, which put the company's market cap at GBP848 million (US$1.671 billion), recently. Thus, the company's value soared 37.2 per cent in a just under a week. The company sold 152.098 million common shares in the IPO and raised GBP213 million. The sponsor and global coordinator of the IPO is JP Morgan Cazenove Limited (London) along with the London branch of Deutsche Bank AG. JP Morgan Cazenove Limited is also the group's financial advisor.

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