Economy of Ukraine
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Template:Economy of Ukraine table
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Overview
Ukraine has many of the components of a major European economy -- rich farmlands, a well-developed industrial base, highly trained labour, and a good education system. At present, however, the economy remains in poor condition. While Ukraine registered positive economic growth starting from 2000, this came on the heels of 8 straight years of sharp economic decline. As a result, the standard of living for most citizens has declined more than 50% since the early 1990s, leading to widespread poverty. The macro economy is stable, with the hyperinflation of earlier in the decade having been tamed. Ukraine's currency, the hryvnia, was introduced in September 1996, and has remained fairly stable. The economy started growing in 2000, and growth has continued. GDP in 2000 showed strong export-based growth of 6% - the first growth since independence - and industrial production grew 12.9%. The economy continued to expand in 2001 as real GDP rose 9% and industrial output grew by over 14%. Growth of 4.6% in 2002 was more moderate, in part a reflection of faltering growth in the developed world. In general, growth has been undergirded by strong domestic demand, low inflation, and solid consumer and investor confidence. Growth was a sturdy 9.3% in 2003 and a remarkable 12% in 2004, despite a loss of momentum in needed economic reforms.
Ukraine is rich in natural resources. It has a major ferrous metal industry, producing cast iron, steel, and steel pipe, and its chemical industry produces coke, mineral fertilizers, and sulfuric acid. Manufactured goods include metallurgical equipment, diesel locomotives, and tractors. It also is a major producer of grain and sugar and possesses a broad industrial base, including much of the former USSR's space industry. Although oil reserves are largely exhausted, it has important energy sources, such as coal and natural gas, and large mineral deposits.
Ukraine encourages foreign trade and investment. The parliament has approved a foreign investment law allowing Westerners to purchase businesses and property, to repatriate revenue and profits, and to receive compensation in the event that property is nationalized by a future government. However, complex laws and regulations, poor corporate governance, weak enforcement of contract law by courts, and corruption all continue to stymie large-scale foreign direct investment in Ukraine. While there is a functioning and fairly well-regulated stock market, the lack of protection for minority shareholder rights severely restricts portfolio investment activities. Total foreign direct investment in Ukraine is approximately $4.9 billion (4.9 G$) as of October 2002, which, at $101 per capita, is still one of the lowest figures in the region.
Most Ukrainian trade is still with countries of the former Soviet Union, principally Russia. An overcrowded world steel market threatens prospects for Ukraine's principal exports of non-agricultural goods such as ferrous metals and other steel products. Although exports of machinery and machine tools are on the rise, it is not clear if the rate of increase is large enough to make up for probable declines in steel exports. Ukraine imports 90% of its oil and most of its natural gas.
Russia ranks as Ukraine's principal supplier of oil, and Russian firms now own and/or operate the majority of Ukraine's refining capacity. Natural gas imports come from Russia--which delivers natural gas as a barter payment for Ukraine's role in transporting Russian gas to western Europe-- and Turkmenistan, from which Ukraine purchases natural gas for a combination of cash and barter. Although Ukraine's long-running dispute with Russia over about $1.4 billion in arrears on past gas sales appeared to have been solved through a complex repayment agreement involving Eurobonds to be issued by Ukraine's national oil and gas monopoly (NaftoHaz Ukrainy) to Russia's Gazprom, Russia has not yet accepted the bonds, so the issue remains open. Reform of the inefficient and opaque energy sector is a major objective of the International Monetary Fund (IMF) and World Bank programs with Ukraine.
The IMF approved a $2.2 billion Extended Fund Facility (EFF) with Ukraine in September 1998. In July 1999, the 3-year program was increased to $2.6 billion. Ukraine's failure to meet monetary targets and/or structural reform commitments caused the EFF to either be suspended or disbursements delayed on several occasions. The last EFF disbursement was made in September 2001. Ukraine met most monetary targets for the EFF disbursement due in early 2002; however, the tranche was not disbursed due to the accumulation of a large amount of VAT refund arrears to Ukrainian exporters which amounted to a hidden budget deficit. The EFF expired in September 2002, and the Ukrainian Government and IMF began discussions in October 2002 on the possibility and form of future programs.
In 1992, Ukraine became a member of the IMF and the World Bank. It is a member of the European Bank for Reconstruction and Development but not a member of the General Agreement on Tariffs and Trade/World Trade Organization (WTO). While Ukraine applied for WTO membership, its accession process was stalled for several years. In 2001, the government took steps to reinvigorate the process; however, there was less concrete progress in 2002. The WTO Working Party on Ukraine met in June 2002. The government's stated goal is to accede to the WTO by the end of 2004.
Environmental Issues
Ukraine is interested in cooperating on regional environmental issues. Conservation of natural resources is a stated high priority, although implementation suffers from a lack of financial resources. Ukraine established its first nature preserve, Askanyia-Nova, in 1921 and has a program to breed endangered species.
Ukraine has significant environmental problems, especially those resulting from the Chornobyl nuclear power plant disaster in 1986 and from industrial pollution. In accordance with its previously announced plans, Ukraine permanently closed the Chornobyl Atomic Energy Station in December of 2000. Unfortunately, in November of 2001, Ukraine withdrew an application it had made to the EBRD for funding to complete two new reactor units to compensate for the energy once produced by Chornobyl. Ukrainian concern over reform conditions attached to the loan--particularly tariff increases needed to ensure loan repayment--led the Ukrainian Government to withdraw the application on the day the EBRD Board was to have considered final approval. Work on the so-called "object shelter" to permanently entomb the reactor where the world's worst nuclear accident occurred has been slower than anticipated but continues. Design work as well as structural improvements to the "sarcophagus" erected by the Soviet Union are largely complete, and construction on the new shelter is scheduled to begin in 2004.
Ukraine also has established a Ministry of Environment and has introduced a pollution fee system that levies taxes on air and water emissions and solid waste disposal. The resulting revenues are channelled to environmental protection activities, but enforcement of this pollution fee system is lax.
Miscellaneous data
Household income or consumption by percentage share:
- lowest 10%: 3.7%
- highest 10%: 23.2% (1999)
Industrial production growth rate: 15.8% (2003 est.)
Electricity:
Electricity - production by source:
- fossil fuel: 48.6%
- hydro: 7.9%
- nuclear: 43.5%
- other: 0% (2001)
note: according to Energoatom of Ukraine nuclear power made up over 53% of total electricity production during the last year
Oil:
- production: 72,000 barrel/day (2003 est.)
- consumption: 303,000 barrel/day (2003 est.)
- exports: NA
- imports: NA
- proved reserves: 395 million barrel (9 November 2004)
Natural gas:
- production: 19.6 billion m³ (2003 est.)
- consumption: 79.86 billion m³ (2003 est.)
- exports: 5.8 billion m³ (2003 est.)
- imports: 60.4 billion m³ (2003 est.)
- proved reserves: 560.7 billion m³ (9 November 2004)
Agriculture - products: grain, sugar beets, sunflower seeds, vegetables; beef, milk
Exchange rates: hryvnia per US$1 - 5.33 (May 2004), 5.30 (October 2002), 5.59 (February 2000), 5.3811 (January 2000), 4.1304 (1999), 2.4495 (1998), 1.8617 (1997), 1.8295 (1996), 1.4731 (1995)