Ukraine’s 30 richest people now account for more than half the nation’s gross domestic product, indicating that wealth concentration has intensified noticeably since 2006, when the Kyiv Post published the nation’s first ranking of richest Ukrainians.
Back then, the 30 richest Ukrainians accounted for 44 percent of the nation’s 2005 GDP of $86 billion.
Mostly due to expansion, growth and higher valuations assigned to companies owned by many of the nation’s richest, the 30 wealthiest have seen their net worth almost double since 2006, when the Kyiv Post and Korrespondent magazine jointly compiled a list of the nation’s wealthiest individuals with valuations from Kyiv-based investment bank Dragon Capital.
Four additional billionaires have emerged in that time, bringing the total number to 13 if chocolate maker and automotive manufacturer Petro Poroshenko’s $980 million is rounded up.
Worth about $71 billion as of June, when the latest richest list was released by Korrespondent, the sharp rise is partially a “demonstration of their (richest Ukrainians) lobbying capacity and ability to stay on good terms with successive powers-that-be and, on the other, a reflection of the economic progress Ukraine has made between 2006 and 2011,” said Dragon Capital’s Viktor Luhovyk.
Like Ukraine’s economy, the richest list is dominated by heavy industry players, mainly metallurgy and chemical producers as well as machine builders. Dragon’s Luhovyk observed that the metallurgical sector accounts for a third of the country’s total exports and a fifth of total industrial output.
Many of the 15 newcomers to the 30 richest list hail from the agriculture and food sectors, aided by rising global prices for cereals and food as well as efficient management and high corporate standards at their companies.
Only two Ukrainian food and agriculture companies were listed on a stock exchange in 2006. Today there are almost 20, mostly on foreign exchanges.
“Still, heavy industry tycoons have continuously dominated our rich lists throughout the years, indirectly showing that the economic imbalances which compounded the damage done to the Ukrainian economy during the 2008-2009 global downturn have yet to be dealt with,” said Luhovyk.
This wealth is highly concentrated because many of the richest make their money exporting raw goods and materials, skipping the value chains to which intermediate or secondary small- and medium-sized business attach themselves, economists said.
Although most Ukrainians are living better than they did in 2006, consumption figures show, wealth isn’t being spread widely, said Yaroslav Zhalilo, president of the Kyiv-based Center for Crisis Studies, a think tank.
So other sectors of the economy don’t see much benefit from economic growth. And because many companies minimize tax payments and tend to hide from officials who they employ, government spending – a key wealth distribution engine – is curtailed.
There are two million Ukrainians who, according to trade union data, live on the official minimum wage of $115 a month or $3.70 a day. Kyiv think tank Razumkov Center says that, according to recent data, 23 percent of families in which all members have jobs, and 37 percent of families in which only one member is employed, live below the poverty line.
The center says that the average Ukrainian monthly wage is $337. “Ukraine has a highly developed shadow economy with hidden employment and profits,” said Zhalilo.
Earlier this year on June 8, President Viktor Yanukovych admitted that the state loses $2.5 billion in revenues annually because of corruption and another $7.4 billion in shady public procurement deals.
Ukraine is internationally recognized for having a market economy. Yet rent-seeking behavior on the part of Ukraine’s richest is prevalent, said Ildar Gazizullin, senior economist at the International Center for Policy Studies.
The economist observed that it isn’t a coincidence that the richest are either in power or close to people in power who are protected on local markets and have privileged access to state assets, such as assistance and subsidies.
Nineteen of the 30 wealthiest Ukrainians are either in government, are elected officials or have been in power, 13 of whom are currently in a public service role.
“It’s an unstable system,” said Gazizullin, referring to how assets are divided in Ukraine.
See also related story: ‘Ukraine’s richest enjoy lavish lifestyles abroad’
Kyiv Post staff writer Mark Rachkevych can be reached at [email protected].
