GREECE-ΙΤΑLY
2000 - 2006 / PROJECT MISSIONS (APOSTOLES)
Action 8 Foreign Market Analysis
Chamberof
Commerce and Industry of Aitolokarnania / Chamberof
Commerce and Indystry of Thesprotia / Chamberof
Commerce and Industry of Ioannina / Chamberof
Commerce and Industry of Brindisi
FOREIGN MARKET ANALYSIS
UKRAINE
The beforehand foreign market analysis was laid down
based on data and research provided by:
The Italian Ministry of Foreign Affairs
The Italian Trade InstitutionICE
The Hellenic Ministry of Foreign Affairs
Area / 603.700 KmqPopulation / 46.590.000
Density / 77 inhab./Kmq
Official language / Ukrainian
Religion / Orthodox (60%)
Uniats(7%)
Protestants (3,6%)
Catholics (1,2%)
Capital / Kiev (2.602.000 inhabitants)
Other main cities / Kharkiv (1.470.000 inhabitants)
Dnépropetrovsk (1.065.000 inhab.)
Odessa (1.029.000 inhab.)
Donetsk (1.016.000 inhab)
Zaporosje (891.000 inhab.)
L’viv (732.000 inhab.)
KryvyyRih (717.000inhab.)
Institutional form / Republic
International Relations / Member of: The Council of Europe, EBRD, UN and OSCE, CSI
Currency / Hrivna
COMMUNITY INITIATIVEΙNTERREGIIIAGREECE-ΙΤΑLY 2000-2006
AXISIIΕENTREPRENEURSHIP- MEASURE 2 STRENGTHENING COMPETITIVENESS OF SMEs – PROJECT MISSIONS (APOSTOLES)
Foreign Market Analysis UKRAINE
CONTENTS
1. ECONOMIC SITUATION
1.1 Main Financial Indicators
1.2 Financial Course
1.3 Production sectors
2. REFERENCE COUNTRY UKRAINE
2.1 Macroeconomicframework
a) Economic growth and country risk
b) Foreign market and foreign investment opening
c) TradeperformanceregardingItalyandbilateralforeigndirectinvestmentsperformance
d) Trade performance regarding Greece and bilateral foreign direct investments performance
2. 2 Interventionfields
a) Assessment of commercial penetration of Italian products in the domestic market
b) Assessment of direct investments to and from Italy
c) Assessment of trade and industry co-operation in high-tech sectors
d) Proposals on granting public financing and security in line with SACE and SIMEST
2.3 Trade and market access policy......
3. FINANCIAL EVENTS IN UKRAINE
3.1 Exhibition Calendar 2008
4. USEFUL LINKS AND INFORMATION
4.1 In Italy
4.2 In Greece
4.3 In Ukraine
a. Italian represantion
β. Greek representation
5. USEFUL WEBSITES
6. USEFUL INFORMATION
6.1 International calling codes
6.2 Timezone
6. 3 Documentation
6.4 WorkingDays
6.5 Official holidays
1st January (New Year)
1. ECONOMIC SITUATION
1.1Main Financial Indicators
Indicators / 2004 / 2005 / 2006GDP
GDP in current prices (million UAH) / 345,1 / 424,7 / 519,4
ΑΕΠin stable prices (million dollars) / 64,9 / 82,9 / 102,9
Rate of real Growth (%) / 12,1 / 2,6 / 7,1
Inflation % / 9,0 / 13,5 / 9,1
Unemployment rate
Trade Balance (million dollars) / 33.432 / 35.024 / 38.949
Exports fob / -29.691 / -36.159 / -44.143
Imports fob / 3.741 / -1.135 / -5.194
Balance / 5,32 / 5,12 / 5,05
Exchange rate UAH/US$ (average annual price) / 30,2 / 33,3 / 39,5
External Debt (million dollars) / 9.302 / 19.110 / 21.900
1.2 Financial Course
Duringthefirstsemesterof 2007 theUkrainianeconomyhasnoteda 7,9% GDPincrease (in relation to 5,5% of the first semester 2006). Thesepositiveresultscouldberepeatedmaybewithasmalldecrease (about 6% according to the provisions of the credit assessment servicesS&P and Moody’s)also during the second semester of 2007.
The industrial sectors that have noted an increase in the context of the Ukrainian economy is the iron industry, the chemicals industry and the steel industry. In general the promotion of the Ukrainian industry during the last years derives mainly by the steel industry, whose prices reached the highest levels in the country’s history, and also by the course of the private consumption, which increased due to the income rise (over 26% in comparison to the relevant period of last year).
Asfarasthelastpointisconcerned, thefirstsemesterof 2007, increase of theretailtradesalesofcommodities, reached over 30% in comparison to the relevant period of last year. Inthiscontext, especiallydynamichadbeenproven the sectors of trade, transport and constructions, and respecting the industry the paper sector and the machines one, the wood elaboration and part of the food industry.
The growth of the industrial production rose up to 11,8%. From a sectorial aspect satisfying performances have been noted in the sectors of iron industry +13,9% and machine construction +23,3%.
Theimportantraise(+6,3%)oftheagriculturalsector, wherehasbeennotedapositivecourseisnotvalid for the animal breeding. Particularly, active was also the bank and credit sector, where the presence of foreign investors overcame the 20%. This has contributed to the decisional adoption of international standards by the local banks in order to acquire an improved credit capability.
Untilnow, thecreditassessmentserviceshaveagreed to preserve unchanged the risk level of Ukraine, either in the short term or in the long term. Thisfactcontributestotheacuteness of the political instability, however it could cause a revision of the values.
Aftertherevisionofthefinancialsituationofthemarketbythe EU in the end of 2005, a lot of issues are still remain open in relation to a greater integration of Ukraine in the international financial and credit system.
TowardsthisdirectiontheGovernmentandtheParliamentwereinvitedtocompletetheimplementationoftheinternalreforms, which are necessary for the accession of Ukraine in WTO. Bynowitisforeseen that the completion of the process will be realized in the course of 2007 and the official accession will happen during the first months of 2008. Rightnow, areexaminedthepossibleimpacts, which the present political crisis should cause during the accession period.
The pressure of the raise of prices continues, fed by the social expenses raise and the energy prices course. Critical is also the impact for the population as far as the municipal services and the public utilities are concerned, as well as the increase of the consumer goods prices. According to the National Statistics Service of Ukraine, the first semester of 2007 the inflation reached 4,2% (the first semester of 2006: 2,9%). Theaveragenominalwagesincreasedto 26,2% (therealonesto 12,1%).
From a currency aspect, in 2007, the value of Hrivna was stable enough in relation to the US dollar (reference currency). Eurohasbeenahardcurrencywithrespecttothenationalone (about 5% by the beginning of the year: from 1E=6,57 Hrivnas in January to 1E= 6,90 Hrivnas in the end of June).
During the above mentioned period, has been registered an increase and restructure of the public debt with an increase of the external debt(+12,4%) and the internal debt (+1,82%). ThedebtlevelhasbeenconsideredasviablebytheInternationalMonetaryFund (IMF), although the quota of the external debt in relation with the internal debt was considered as high enough.
In July 2007 the public debt reached 9,8 billion dollars.
Theofficialunemploymentratereached 8,0%. Although, measureshavebeentakenfortherisingupofthe sinking economy, the problem remain opens and demands greater efforts.
1.3 Production sectors
Ukrainehasinheritedbyitssovietpastaneconomicstructurebasedontheheavyindustryandtechnology, bothhigherdevelopedthantheWest’s. ThemainchallengefortheindependentUkrainewasthedifferentiation of its economy in relation to the traditional industries, steel, chemicals, coal, army equipment, naval architecture, which depended on the governmental grants and they have became even more vulnerable after the collapse of the traditional export markets.
The restructure was prevented by the controversial interests either for financial or bureaucracy reasons, as far as the modification of the central planning system is concerned. The result was a stable enough diversification process and although the growth of the sectors with a small state intervention, such as the food manufacture sector, the importance of these industries for the national economy is still less great in relation to the more traditional ones.
In addition, the privatizations and the foreign investments have a slow course in relation with the other former communist countries, such as Poland and Hungary.
Thegreaterdifficulties that Ukraine is facing remain connected to the completion of the privatization and restructure process of the industrial sector, the dimension of the public deficit and the dependence of the Country on foreign energy resources.
Ukraineisdividedintwoparts: theonewhereRussianlanguageisspokenandwhichisindustrialized (southandeastregions) and the one where the Ukrainian language is spoken and which has developed mostly the agriculture sector (central and west regions).AmongtheregionswhicharemorefinanciallywealthyareincludedDnepropetrovskand Zaporizhzhya in the eastern part,where the steel industries and the chemical products industries of the soviet era found immediately markets to export their products.
KievhasbeenalsofavouredbytheeasternfinancialactivityoftheGovernment, which focuses mainly in the capital. TheaveragewageinKievoverthelastfiveyearshas topped the average national wage in about the two thirds.
TheareasofcoalproductionofDonbass (regionof Donetsk and Luhansk)are those which have been more harmed by the financial collapse of the country, because the mines was forced to close down as a consequence of the grants’ block and by the small performance of the imports. However, this powerful industrial base of the region has not been unexploited yet from the begging of the independence and has balanced the crisis of the coal industry. ThelevelofthewagesintheareaofDonetsk, for example, is analogous to the one in Kiev.TheindependentSouthRepublicofCrimeaisrichinrenewableresources and has registered an economic recovery, thanks to the flow of the increasing touristsnumber (mainly Russians) in the last few years.
2. REFERENCE COUNTRY UKRAINE
2.1 Macroeconomicframework
a) Economic growth and country risk
During 2006 theUkrainianeconomyhasregistereda 7,1& GDPincrease (in relation to the 2,4% in 2005 and the 12% in 2004).Thesepositiveresultscouldberepeatedmaybewithasmalldecrease (about 6% according to the provisions of the credit assessment services S&P and Moody’s) also during the second semester of 2007.
The industrial sectors that have noted an increase in the context of the Ukrainian economy is the iron industry, the chemicals industry and the steel industry. In general the promotion of the Ukrainian industry during the last years derives mainly by the steel industry, whose prices reached the highest levels in the country’s history, and also by the course of the private consumption, which increased due to the income rise (over 26% in comparison to the relevant period of last year). Asfarasthislastpointisconcerned, in 2006, theincreaseofthesalesofnewvehiclesreachedover 40% inrelationtolastyear.
Inthiscontext, especiallydynamichadbeenproven the sectors of trade, transport and constructions, and respecting the industry the paper sector and the machines one, the wood elaboration and part of the food industry.
The growth of the industrial production rose up to 11,8%. From a sectorial aspect satisfying performances have been noted in the sectors of iron industry +13,9% and machine construction +23,3%.
The important raise (+6,3%) of the agricultural sector, where has been noted a positive course is not valid for the animal breeding. Particularly, active was also the bank and credit sector, where the presence of foreign investors overcame the 20%. This has contributed to the decisional adoption of international standards by the local banks in order to acquire an improved credit capability.
Aswidelyknown, thepriceofthenaturalgashasregisteredanimportantincreasefromthebeginningof 2006. BasedonthePactbetweenUkraineandRussiaon 4 January2006, thepriceof34 billionsm3ofnaturalgasimportedfromRussiaraisedto 50 dollarsfrom 95 dollarsper1000 m3. In 2007 wasconcludedaPactforthesupplyof 55 billionsm3 ofRussiannaturalgasfor 130 dollarsper1000 m3. Accordingtostatisticdata, untilnow, theriseofthenaturalgaspricewillnotcausecriticaladvances in prices within the commodities and services market. This happened due to the implementation of administrative measures in order to be avoided the advances in the financial system. Inanycase, duringtimehasbeenregisteredarelevantraiserespectingthecostofpublic utilities.
Asfarasthelocalindustryisconcerned, thehighestproductioncostscouldcauseadvancesontheproductionsystem, whichisnotinbalancewiththesectorsofsteelandchemicalscovering 24% and 10% relevantlyofthenationalindustrialproductionandalmost 60% ofthecountry’sexportsandwhichareseriously exposed to the prices instability in the international market.
Ontheotherhand, itisexpectedthattheneedtobeimplementedmeasuresofenergysave, whicharenecessarybecauseofthehighproductioncost, mighthaveapositiveimpacttotheaccelerationoftherestructureoftheinternalproductivestructure and so to render the financial system more competitive. Infact, theindustrialsectorandespeciallythesteelsector, inmanycasesisstillconnectedwithobsoletetechnologiesofhighenergyconsumption. Theincreaseoftheenergycostcreatestheimperativeneedofmodernization. Duetotheabsenceofinvestmentsfortherenewaloftheproductionequipment (despitetheobjectiveadvantagessuchastheavailabilityofkokcoal, ferrousmaterialsandcheapworkforce), theleastproductiveenterprisesaredestinedtoexitthemarket, andalsodueto the increasing activity of China in the steel production. Accordingtovariousanalystsitisreasonabletoexpectraisestothenaturalgasinthefuturebetween 40 and 50%, whichcouldreachthepriceoftheUkrainiangasabout 180 dollarsper1000 m3.
Untilnow, thecreditassessmentserviceshaveagreed to preserve unchanged the risk level of Ukraine, either in the short term or in the long term. Thisfactcontributestotheacuteness of the political instability; however it could cause a revision of the values.
Credit Assessment Services / level / Rating DataMoody’s / Ba3 / January 2007
Standard & Poor's / Foreign currency: “BB-“
National currency: “BB”
Short term: “B” / January 2007
The important rise of the family available income (over 28,1% in relation to 2005) and the consequential consumption increase (32,4% in 2006) facts that although they encouraged growth, create in the middle term some concerns, respecting the possibility that this process could harm the earnings quota, which are destined for imperative investments, mainly as far as the infrastructures are concerned, which until now are deficient enough.
Duringthesameperiodtheconsumptiongrowthsupportedtheintenseriseofthecreditdemand (increased in 40% last year, according to the IMF). Thecreditsareusuallydefinedindollars (because of the lower interests in relation to the national currency, hrivna) and this has caused the phenomenon of the economy “dollarization”. Thiscouldcreatepossiblerisksfromthedebtors’ and credit banks’ side in case of a possible devaluation of hrivna in relation to dollar.
Depreciation pressures of hrivna could happen if the high level of consumption should blunt the deficit in the current transactions with the consequential pressures to the exchange rate.
Aftertherevisionofthefinancialsituationofthemarketbythe EU in the end of 2005, a lot of issues are still remain open in relation to a greater integration of Ukraine in the international financial and credit system.
TowardsthisdirectiontheGovernmentandtheParliamentwereinvitedtocompletetheimplementationoftheinternalreforms, which are necessary for the accession of Ukraine in WTO. Bynowitisforeseen that the completion of the process will be realized in the course of 2007 and the official accession will happen during the first months of 2008. Rightnow, areexaminedthepossibleimpacts, which the present political crisis should cause during the accession period.
TheintegrationoftheEuropeanstructuresisapriorityoftheUkrainiangovernment, whichisoccupiedwiththe compliance of the internal regulative and institutional framework to the standards of the EU member states. Respectingthegovernmentalplanning, themainchallenges fortheUkrainian growth in the future years are: the preservation of the economic growth, the enforcement of the institutions, the corruption eradication, the improvement of the public services and infrastructures, the increase of the environmental protection level and as well as the human rights protection level.
The pressure of the raise of prices continues, fed by the social expenses raise and the energy prices course. Critical is also the impact for the population as far as the municipal services and the public utilities are concerned, as well as the increase of the consumer goods prices. According to the National Statistics Service of Ukraine, the first semester of 2007 the inflation reached 4,2% (the first semester of 2006: 2,9%). Theaveragenominalwagesincreasedto 26,2% (therealonesto 12,1%).
Itisalsonecessarytomentionthattherateoftherealinflation, especiallyinthebigcitiessuchasKiev, couldbemorehighthantheonethatisregisteredcurrentlyintheindexes, however, forthecalculationofthelastmentioned, itisusedanadditionalcommoditiestotalwhichisconsistedoffoodproducts (64%), andforthatreasonthe rateisnotrepresentative for the alternate consumption of the population (for example it could happen a depreciation of the increase in the sectors of real property, electronics or energy). Thepredictionsfor 2007 arereferringtoa 10% rateprovidingthattheadministrativemeasureswillcontinuetobeimplementedfortheavoidanceofthe impacts respecting the living cost by the high energy prices.
From a currency aspect, in 2007, the value of Hrivna was stable enough in relation to the US dollar (reference currency). Euro has been a hard currency with respect to the national one (about 5% by the beginning of the year: from 1E=6,57 Hrivnas in January to 1E= 6,90 Hrivnas in the end of June).
Underdiscussionissetthepossiblecessationofthecontrolsrespectingtheexchangerate with the dollar, due to the resultant free fluctuation of the national currency in the international markets. Such a measure is proposed by the IMF, according to which, maintaining the exchange rate with the dollar, there will exist the theoretical risk of a large variation between currency and real variables.
Theresultsofthefiscalpolicyarejudgedassatisfying: thenewgovernmentmanagedtoreducethedeficit’slevelinahigherdegreethanscheduled (1,3% oftheGDP). Thishappenedduetothecontroloftheexpensesandtothegoodlevelofthepublicexpenses. However, itshouldbenotedthatthereductionoftheexpensesisnotconsideredcompletelypositiveaswecanunderstandfromthelackingabilityofthePublicsector to realize investments that are necessary mainly in the constructions sector. Particularlyseriousisalsotheabsenceofnecessary investments in infrastructures, which were supposed to be granted by the national energy giant NAK Naftogaz, which according to the opinion of some people, in the future could promise the capability of the national natural gas supply system to transfer natural gas towards Europe.
ThepositivefiscalresultsareowedtothelackingdepositoftheVATtothefinancialentrepreneurs, ameasurethatparticularlyharmstheentrepreneurs, amongthema lot Italians, who operate under a temporary import status. Remarkableisalsotheincreaseofthepublicexpenses (increased aver 25% during the last year). Thegovernmental estimations for 2007 are referring to a deficit not higher than 2,5% of the GDP, which must be covered mainly with incomes from the privatizations and decrease of the debt.
Greatimportanceisalsogivenbytheobservatoriesfortheaccelerationoftheprivatizations (managedbasedonthelegalframeworkfortheFundofStateProperty), whichafterthepromisingstartwiththesellingofKrivoristal in 2005 (biggest steel industry in the country which was sold to Mittal group for about five billion dollars) have been remained stagnant.
During the same periodhas been registered a contradiction and restructure of the public debt with an increase of the external debt (+12,6%) and a decrease of the internal debt (-13,4%). ThedebtlevelhasbeenconsideredasviablebytheInternationalMonetaryFund (IMF), although the quota of the external debt in relation with the internal debt was considered as high enough.
In July 2007 the public debt reached 9,8 billion dollars.
Theofficialunemploymentratereached 8,0%. Although, measureshavebeentakenfortherisingupofthe sinking economy, the problem remain opens and demands greater efforts.
b) Foreign market and foreign investment opening
Thedataof 2006 confirmaremarkableaccelerationoftheimportsΤ (+24,6%) and on the other hand a slight increase of the exports in relation to 2005 (+12,1%).For the first time in 2006 Ukraine registers a deficit in the current transactions.
The deficit reaches about 1,5% of the GDP and for 2007 is expected an increase to 4,6%. According to the National Statistic Service of Ukraine, the negative trade balance for 2006 has registered a deficit of 6,67 dollars. Itisalsonecessarytounderlinethatthat this tendency was caused by the trade policy which was decided exclusively by the Ukrainian Authorities, in particular as far as the quotas in the cereals exports are concerned, and this tendency has deeply hit the national production.
However,thisfactisnotconsideredasalarming, not only because in a country with high growth rates, it is considered as normal the increase of the imports, but also because this increase is a result of the positive course of the foreign direct investments, which in 2006 registered an important increase(4.295,9 million dollars) reaching the amount of 21.186,0 million dollars.
Despite all these the deficit of the current transactions could be proven as problematic for the future, taking into consideration the dependence of the Ukrainian exports on the course of the steel market, which might not be maintained in the present levels, not only because of a possible price reduction, but also because of the accession of other countries, which increase quickly their national production and first of all China.
Themaininvestorsare (inthebeginningof 2007): Germany 5.620,7 million dollars, Cyprus3.011,7, Austria 1.600,8, United Kingdom 1.557,2, Netherlands 1.493,0,USA 1.418,0 million dollars.
However, theinvestmentsclimatecontinuestobeplaguedbythelackofstructuralreforms: roughlytheonlyreformsrealizedinthelasttwoyearsisthereformofthefiscalsystemandthe implementation of the necessary measures for the accession in WTO, which have not been completed yet as far as the retail trade regulation is concerned.
Ukrainian external trade 2000 - 2006
Ukrainian exports (million USA dollars)
Years / 2002 / 2003 / 2004 / 2005 / 2006Total / 17.597,1 / 23.080,2 / 32.672,3 / 34.286,7 / 38.367,7
di cui:
Russia / 3.189,1 / 4.311,4 / 5.888,7 / 7.495,8 / 8.650,7
Italy / 829,5 / 1.268,5 / 1.620,4 / 1.893,9 / 2.503,4
Turkey / 1.235,4 / 901,9 / 1.869,2 / 2.035,0 / 2.390,0
Poland / 506,0 / 763,2 / 979,9 / 1.010,9 / 1.344,5
Germany / 755,4 / 1.423,8 / 1.891,0 / 1.286,2 / 1.283,8
Byelorussia / 891,7 / 1.222,7
USA / 519,3 / 718,6 / 1.506,9 / 956,5 / 1.201,7
Hungary / 525,2 / 849,9 / 807,6 / 690,7 / 946,1
India / 269,1 / 486,0 / 659,8 / 679,1 / 850,1
Kazakhstan / 828,0
Ukrainian External Trade 2000 - 2006
Ukrainian imports (million USA dollars)
Years / 2002 / 2003 / 2004 / 2005 / 2006Total / 16.976,8 / 23.020,8 / 28.996,0 / 36.141,1 / 45.034,5
di cui:
Russia / 6.317,1 / 8.645,7 / 11.811,8 / 12.843,4 / 13.787,2
Germany / 1.658,2 / 2.273,5 / 2.731,8 / 3.384,3 / 4.267,6
Turkmenistan / 1.885,7 / 1.746,2 / 1.953,7 / 2.678,1 / 3.492,0
China / 229,3 / 530,2 / 733,3 / 1.810,4 / 2.310,2
Poland / 537,2 / 802,3 / 968,7 / 1.406,7 / 2.109,1
Italy / 462,1 / 645,1 / 806,0 / 1.030,3 / 1.465,1
Byelorussia / 262,8 / 343,6 / 538,2 / 939,9 / 1.255,2
France / 348,6 / 519,0 / 653,0 / 799,0 / 989,8
Kazakhstan / 186,4 / 965,7
S. Korea / 649,6 / 935,4
The trade balance for 2006 is negative: - 6.666,8 millionUS$.
Direct Investments in Ukraine
Per volume from 01.01.2007
(million USA dollars)
Investments / %Total / 21.186,0 / 100
from which:
Germany / 5.620,7 / 26,5
Cyprus / 3.011,7 / 14,2
Austria / 1.600,8 / 7,6
UK / 1.557,2 / 7,4
Netherlands / 1.493,0 / 7
USA / 1.418,0 / 6,7
Russia / 980,8 / 4,6
France / 826,8 / 3,9
British Virgin Islands / 808,3 / 3,8
Switzerland / 504,9 / 2,4
Poland / 366,0 / 1,7
Hungary / 364,5 / 1,7
Other countries / 2.633,3 / 12,5
Source:Comitato statale della statistica dell'Ucraina
Italy does not belong to the first ten investors. From01.01.2007 directItalianinvestmentsreached132,8 million dollars(0,6% of the total investments in Ukraine). TheForeignDirectInvestments address mainly to the following sectors:
Financial sector: 11,42%
Wholesale Trade and intermediate goods trade: 10,69%
Real estate services and legal assistance: 8,37%
Iron industry and metals processing: 6,6%
Food industry and agricultural products manufacture: 6,02%
c) TradeperformanceregardingItalyandbilateralforeigndirectinvestmentsperformance
Therelations between Italy and Ukraine from 1995 until today are being characterized by a constant growth in the transactions (the only exception was in 1999). AccordingtotheNationalUkrainianStatisticService’sdatain 2006 thetransactionincreasedto 3.968,5 million dollars with a +35,2% increase in relation to last year.
TheUkrainianexportstoItalyreached2.503,4 milliondollars (+32,1% in relation to last year),while the imports from Italy reached 1465,1 million dollars (+ 42,2%).