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| Why to enter this market? |
- A market of 45 million people
- Industrial traditions
- Low cost utilities
- Introduction of legal changes
- Natural resources
- Euro 2012 will speed up changes and create extra investment opportunities
- Gateway to Russia
- Well-developed railway transport
|
Business and economic environment
Ukraine has strong industrial and agricultural traditions which have endured since the Soviet era and, despite a poor government management record since independence, it offers interesting investment opportunities to those with a higher level of risk acceptance. The fields in which these opportunities abound are machinery assembly, the car industry, consumer electronics, ICT, agriculture and food processing, the aerospace industry, alternative energy sources, and tourism and hotel infrastructure. The country has a population of 45mn, which represents an attractive market in itself, and provides easy access to Russia, with almost 100% of the population speaking Russian as their first or second language. Future development will be driven by the Euro 2012 football tournament in Ukraine and Poland, for which the former has much more preparatory work to do than the latter. The key advantages of Ukraine are its inexpensive labour force, access to natural resources, low operational costs (most of its electrical energy is produced at atomic power stations), and a skilled workforce in some areas. As road transport has been neglected for a long time, the main mode of freight transport is rail, which is well developed. Ukraine therefore offers unequalled benefits to investors in certain cases and should always be considered, particularly if one wishes to expand further into Russia or the Black Sea basin. Ukraine is rich in natural resources such as iron ore, coal, manganese, natural gas, oil, salt, sulphur, graphite, titanium, magnesium, kaolin, nickel, mercury, timber and arable land.
The real GDP growth figure for 2010 was 4.3%, a significant improvement in comparison with the 15.1% contraction of 2009. Projections for 2011-2013 are optimistic, with growth expected to pick up to its pre-crisis levels of 7-8%. One of the reasons why the Ukrainian economy was so severely affected by the crisis is its strong reliance on exports, which shrank by 20% in 2009. Exports of goods were worth EUR 36bn in 2010, and imports EUR 38.8bn. Both imports and exports rebounded strongly in comparison with 2009, registering growth rates of 18.8% and 23% respectively. Whereas the rebound in exports fuelled the economic recovery of 2010, imports are expected to recover at a more rapid rate over the coming year, and this should be reflected in the trade balance.
Despite the current economic downturn, Ukraine still offers promising investment opportunities. Direct foreign investment came to EUR 6.58bn in 2008, 5% more than the 2007 figure. The net FDI figures for 2009 and 2010 were EUR 2.3bn and EUR 5.5bn respectively, with even more optimistic forecasts for 2011 (EUR 6.1 bn) and 2012. One of Ukraine's advantages is its still modest labour costs: the average wage was EUR 180 in 2009 (in contrast to EUR 234 in 2008). However, salaries have begun to rise again, and the IMF estimates that there will be an average increase in wages of 10% in both 2011 and 2012.
Before the economic crisis, the unemployment rate in Ukraine had been falling gradually, to 6.8% in 2006 and 6.4% in 2007 and 2008. However, the economic downturn brought another increase in unemployment (8.8% in 2009 and 8.4% in 2010). In addition, it must be emphasised that Ukraine has both high levels of unregistered unemployment and a gray economy.
Inflation remains an unsolved problem for the Ukrainian economy, with a record figure of 25.2% in 2008, an almost twofold increase in comparison with that of 2007. The inflation rate fell in 2009 and 2010 to 15.9% and 9.8%, which is still very high for a recession, and is expected to stay under control, to some degree, in 2011 and 2012, at around 10%.
Social environment
Ukraine is said to be suffering a demographic crisis because of its high death rate and low birth rate. The current Ukrainian birth rate is 9.62 births/1,000 people (2010), and the death rate is 15.74 deaths/1,000 people (2010). The main reasons for this are the high mortality rate among males of working age caused by alcohol poisoning and smoking. It is worth mentioning that in 2010 the country’s population was declining at the seventh most rapid rate in the world. The Ukrainian government has been introducing social packages in an attempt to prevent sudden social decline, and the demographic trend is already showing signs of improvement. Net population growth over the first nine months of 2007 was registered in five (of 24) of the country’s provinces, and the reduction in population was showing signs of levelling off.
Emigration, particularly to the neighbouring EU countries, is another challenge for Ukraine, as people search for better work conditions.
Infrastructure and technological environment
The Ukrainian road system is considered to be highly outdated. Because of the EURO 2012 football championship the Ukrainian government has, therefore, promised to build approximately 4,500 km of motorways. In total, there are 169,435 km of paved roads in the country.
Rail transport in Ukraine also plays the very important role of connecting all major urban areas, port facilities and industrial centres with neighbouring countries. The heaviest concentration of railway track is found in the Donbas region, which is still one of the world’s most heavily used railways. The total length of rail tracks in Ukraine is 21,658 km, and 9,250 km of these are electrified.
Ukraine also consumes more energy than most European countries and has the largest nuclear power station in Europe, which is its major source of energy. The country uses almost double the amount of energy consumed in Germany, calculated per unit of GDP.
Political environment
Ukraine is a democracy under a semi-presidential system, with separate legislative, executive and judicial branches. The President of Ukraine (elected by popular vote) nominates the Prime Minister. Laws, acts of Parliament, Cabinet decrees, Presidential edicts and acts of the Crimean parliament (the Autonomous Republic of Crimea) can be nullified by the Constitutional Court of Ukraine if they are found to violate the country’s Constitution. Other normative acts are subject to judicial review. The Supreme Court of Ukraine is the foremost general judicial body.
Ukraine was an important agricultural and industrial region of the Soviet Union. It now depends on Russia for most of its energy supplies, and natural gas in particular. The current government has pledged to reduce the number of government agencies, streamline the regulatory process, create a legal environment to encourage entrepreneurs and carry out a comprehensive overhaul of the tax system. Progress in the more politically sensitive areas of structural reform and land privatisation is still slow. External institutions, and the IMF in particular, have encouraged Ukraine to speed up the reforms and have threatened to withdraw financial support. The fact that Ukraine can be characterised in terms of political uncertainty contributes to increases in the cost of financing, because of the risk aversion of private investors.
In 2010 Ukraine held its most recent presidential elections, which resulted in the victory of the pro-Russia candidate Victor Yanukovych. This could hamper the development of the country’s relationship with the European Union. The next round of elections will take place in 2015.
The country will not become a member of the EU in the foreseeable future, the local currency is unstable, social problems persist, and high taxes keep an important part of the economy in the shadows.
General data
Area: 603,700 sq km
Population: 45.14m
Capital city: Kiev (Kyiv)
Languages: Ukrainian, Russian, Romanian, Polish, Hungarian
Ethnic groups: Ukrainian 77.8%, Russian 17.3%, Belarusian 0.6%, Moldovan 0.5%, Crimean Tatar 0.5%, Bulgarian 0.4%, Hungarian 0.3%, Romanian 0.3%, Polish 0.3%, Jewish 0.2%, others 1.8% (2001)
National boundaries: Belarus 891 km, Russia 1,576 km, Romania 538 km, Moldova 940 km, Hungary 103 km, Slovakia 90 km, Poland 428 km
Major economic indicators
| |
2007 |
2008 |
2009 |
2010 |
2011f |
| GDP (EUR bn) |
103.1 |
123.4 |
93 |
93.0 |
98.2 |
| Population (m) |
46.6 |
46.4 |
46.1 |
45.3 |
45.14 |
| GDP per capita (EUR) |
2210 |
2661 |
2017 |
2052 |
2177 |
| GDP (constant prices y-o-y %) |
7.6 |
2.1 |
-15.1 |
4.3 |
4.5 |
| Exports, real, y-o-y (%) |
2.8 |
6.7 |
-19.2 |
23 |
|
| Imports, real, y-o-y (%) |
20.2 |
17.5 |
-17.2 |
18.8 |
|
| CPI (average, y-o-y %) |
12.8 |
25.2 |
15.9 |
9.8 |
10 |
| Central bank reference rate |
8 |
12 |
10.25 |
|
|
| Monthly wage, nominal (EUR) |
195 |
234 |
180 |
198 |
217.8 |
| Unemployment rate (%) |
6.4 |
6.4 |
8.8 |
8.4 |
|
| Net FDI (EUR bn) |
6.7 |
6.8 |
2.3 |
5.5 |
6.1 |
| FDI % GDP |
6.5 |
5.5 |
2.4 |
5.8 |
6.2 |
| FX reserves (EUR bn) |
21.8 |
19.3 |
11.2 |
8.6 |
|
| Exchange rate to USD AVG |
5.05 |
5.24 |
8.17 |
7.9 |
7.98 |
| Exchange rate to EUR AVG |
6.92 |
7.7 |
10.6 |
10.31 |
11.34 |
Last update: Q1 2011
Useful data
Currency: Hryvnia (UAH)
Exchange rate (23.03.2011): UAH 1 = 0.088 EUR
Time zone: GMT +2
Area code: +380
If you would like to find out more on the Ukrainian market opportunities please do not hesitate to contact us directly:
tel. (48 12) 292 22 50
fax (48 12) 292 22 99
e-mail: info@pmrconsulting.com
PMR Business Solutions in Ukraine
Market reports Ukraine
To purchase or find detailed information on PMR Publications reports covering the general economy, construction, retail, pharmaceutical, and ICT sectors in Ukraine.
If you are looking for greater detail trust our research and consulting divisions to carry out projects tailored to your business needs.
Consulting in Ukraine
PMR Consulting offers a wide range of consulting services in Central and Eastern Europe for foreign companies interested in the region. The typical projects include: competitive intelligence, sourcing, strategic advisory, consulting at foreign direct investments and mergers & acquisitions.
Market research in Ukraine
PMR Research offers a full array of qualitative and quantitative research methodologies, providing services such as customer satisfaction studies, brand awareness and brand image research, distribution and competition studies, segmentation and sector analyses.
Case studies for Ukraine
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