You're reading: Ukrainian companies surge in latest regional rankings

Strength shows power of nation's industrial and energy giants.

Ukraine’s largest industrial and energy companies did so well in 2010 that the nation shot up in the rankings of the Top 500 in Central and Eastern Europe.

According to the annual publication by Deloitte, an international auditing and consulting firm, Ukraine became a regional leader in revenue growth.

Out of the 10 largest companies of Central and Eastern Europe, three are from Ukraine, according to Deloitte. Meanwhile, six Ukrainian companies are found on the list of 20 most dynamically developing businesses.

This shows that, overall, big business is recovering from the crisis even more dynamically than in neighboring countries, albeit largely thanks to rising prices in the volatile commodity markets.

Yet, experts say that without a clear development and energy-diversification strategy, the current favorable economic outlook may soon turn sour.

In 2010 and early 2011, almost 80 percent of the biggest Eastern and Central European enterprises increased their financial revenues. Top Ukrainian businesses did exceptionally well.

“As of the end of first quarter, Ukraine became the No. 3 country in the region in terms of its businesses’ revenue growth,” said Volodymyr Vakht, Deloitte’s managing partner in Ukraine.

Overall, 43 Ukrainian companies that made it into the top 500 list grew revenue by 23 percent on average. Only Slovakian and Slovenian businesses demonstrated higher growth.

The structure of Ukrainian businesses that made it into the Top 500 differed little from that of their European counterparts. Analysts noted the only difference is that revenues grew much faster in Ukraine.

For example, while the regional energy sector grew by 13 percent overall, Ukraine’s companies showed far more impressive 40 percent growth. The comparison is even more striking when it comes to the industrial sector.

While, on average, growth in this sector in Central and Eastern Europe was 23 percent, in Ukraine blue chips did almost three times better despite their high energy consumption and outdated equipment.

Three of the top 10 regional companies – state oil and gas company Naftogaz; Energorynok, a state-owned electricity wholesaler and Metinvest, the steel industry holding controlled by billionaire Rinat Akhmetov – are from Ukraine.

Comparing Deloitte’s current ranking with the ones from the crisis years of 2008 and 2009 shows that Ukraine is much more sensitive to external shocks.

During the financial crisis Ukraine’s business revenue fell by more than one third, while the rest of the region got off lighter with a 20 percent drop.

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At the same time, Ukraine was also among the first to recover. In the crucial post-crisis first quarter of 2010, revenues of Ukrainian companies grew by more than 20 percent – the second best regional result.

This underscores the main problem of Ukraine’s economy – it’s very high vulnerability to global economic swings and shocks.

“These sharp fluctuations demonstrate the lack of stabilization mechanisms: diversification of markets, alternative financing sources, exchange market regulation,” said Vakht.

For example, Naftogaz became a top Ukrainian company in terms of revenue, thanks only to the increase in Russian natural gas prices which is imported.

If you look deeper at Naftogaz, you can see that it sustained losses and remains a deeply troubled company which requires heavy state subsidies to stay financially afloat.

Another Ukrainian leader, Energorynok, also became one of the top companies due to increasing electricity prices and rising exports of Ukraine’s megawatts abroad. At the same time, the country’s power generators are in dire need of modernization.

According to Yuriy Korolchuk, an expert at Kyiv-based Institute for Energy Studies, obsolete equipment in Ukraine’s thermal power generators often means that they work only to a third of their capacity and remain uncompetitive.

Industrial enterprises have a different problem. They are filling up to their capacity, said economic expert Viktor Lisitsky. “Unused extra capacity enables you to quickly grow during the boom times, but can be a real problem during the recession,” Lisitsky said.

Ukraine’s export-oriented industry, for example, was hit hard during the 2008 and 2009 global crisis as demand for steel and other commodities fell sharply. Even though the sector looks set to recover, outdated equipment and increasing gas prices continue weighing in heavily upon them.

“The No. 1 task is to lower the dependency on imported energy,” said Roman Topoliuk, an analyst at Kyiv-based Phoenix Capital. Otherwise, the pressure from high prices on energy and commodities will keep increasing.

Another crucial task for Ukrainian industry is to diversify its export markets. Improvement in this area is essential in light of stagnant global economic growth and fears of a repeat downturn this or next year. Experts also warn that regional competition will become fiercer in coming years.

Ukraine has huge potential in other areas, however. Unlike many of its neighbors, the nation boasts a potentially vast reserve of economic growth in agriculture.

At the moment, one of the biggest Ukrainian players in grain, Nibulon, has annual revenue of 1.1 billion euros but is only the 152nd largest company in the region.

Nibulon and other Ukrainian agribusiness companies are expected to skyrocket up the Top 500 rankings in the near future, capitalizing on rising global demand for food.

“Ukraine’s position [in agriculture] is very strong,” said Kostyantyn Fastovets, an analyst at the Kyiv offices of Renaissance Capital.

Kyiv Post staff writer Maria Shamota can be reached at [email protected].