For the future of a huge and still relatively undiscovered country, in which the state of the economy has been since a long time subject of many discussions.
On one hand, Ukraine has not recovered from the break-down of the Soviet Union. The economy is suffering as there are still old standards and procedures in place, while the market with the former brother countries has dramatically shrunk in the last two decades. The industry production went down by 25 percent and more than five million people have left their motherland since 1989.
On the other hand, Ukraine is seen as one of the big growth potentials in the world. The Western culture and mentality of the people, their quality orientation and excellent education are considered key factors for a successful integration into the market of the high developed European countries.
Since its independence the country has had only a few years (2000 – 2008) with a considerable and continuous economic growth – to a big extent externally financed. After the world economic crisis this led to a very problematic situation in the banking system.
Looking at the high rate of non-performing loans some of the foreign banks have now left the country. Others might follow, as their analysts are not forecasting a fast recovery. Looking at this development, the funding of the Ukrainian economy became more and more difficult, with high interest rates and very strict repayment conditions.
As a forward strategy the government has decided to launch a big economic stimulus program. The selected companies are big contributors to the gross domestic product and offer a good outlook for the future. They are out of the metallurgic, agricultural, aeronautics and shipbuilding sector, the pharmaceutical, and engineering and space industry.
The country plans to provide loans with small interest rates to these companies, while acquiring this money at higher costs at the international financial markets. The investments should help to speed up the economic growth, to change the competitiveness of the economy and to improve the investor attractiveness for additional loans needed to finalize the big modernization projects.
The main aspects of the program that make me feel optimistic about its successful implementation are its financial feasibility, the step-by-step realization plan and the emphasis on the cooperation between the government and the private sector.
The main aspects of the program that make me feel optimistic about its successful implementation are its financial feasibility, the step-by-step realization plan and the emphasis on the cooperation between the government and the private sector.
Also, another effect positively influences the funding: The financing appetite of Western banks in Ukraine has increased as a matter of the refinancing situation in the Eurozone. The last Ukrainian state bonds were oversubscribed and it was easy to place them.
Within the target industries, the metallurgy is one of the largest beneficiaries. And this makes a lot of sense as Ukraine is a big player in Europe with companies like Donetsksteel plant, Metinvest, ISD, “Zaporizhstal” Steel Works and ArcelorMittal KryviyRih.
Unfortunately, the steel market is subject to every bigger economic crisis in the world. Additionally, China has in the last ten years grown the steel producing capacities by more than four times. To be competitive on the local and global market many Ukrainian steel giants need to change their outdated equipment.
This will also boost the quality of life in areas close to production sites as the refurbished factories can produce in a more efficient way with less pollutions and a better quality of their products. The governmental economic development program will be the foundation for rapid economic and environmental improvements.
While this program is currently aimed at mainly local businesses it would be important to expand it also to the subsidiaries of international companies. This can improve the country’s competitiveness in the contest for new production facilities.
Ukraine has already successfully attracted some interesting companies – e. g. suppliers for the automotive industry in Western Ukraine, where thousands ofworkplaces were relocated from other countries to the Lviv and Transkarpathian regions.
Also, for regions that are currently not on the landscape of international investors the availability of governmental grants and stimulation programs can change the picture.
The whole economic development program has quite ambitious goals – to accelerate the GDP growth by 2.5 percent in 2013 and by 3-4 percent in 2014. Even though these targets are hard to reach in the difficult market environment, it’s not impossible. However, the realization of this program requires complex and coordinated actions, to ensure a strong cooperation between private businesses, financial institutions and the state.
And it requires a certain trust in the future, as it is a pure investment in the future of Ukraine.
