North America and Global Economy
CPL2-561-781
Lecturer: Kenneth N. Matziorinis
Regional report
Canada-Russia/Ukraine
Student Name:
Kholoud Abusaleh110245956
Li Mei Zhang110052471
Facts at a glance:
Topic / Russia / CanadaOfficial name: / Russian Federation / Canada
Capital: / Moscow / Ottawa
Area
(Thousands ofkm2): / 17,075 / 9,971
Population (millions): / 144.7 (2001) / 31.1 (2001)
Population density (perkm2): / 8 (2001) / 3 (2001)
Urban population (%-2000): / 78 / 77
Gross national income (percapita): / US$1,750 (2001) / US$21,340 (2001)
Structure ofGDP(%–2001):
Agricultural
Industries
Services / 7
37
56 / 3
31
66
Ecological footprint (area units per person-1999): / 4.49 / 8.84
Human development index(HDI)ranking: / 60th of 173 countries (2000) / 3rd (2000)
Gender-related development index(GDI)ranking: / 52nd of 146 countries (2000) / 5th (2000)
Life expectancy at birth: / 69 (1960), 66 (2000) / 71 (1960), 79 (2000)
Mortality rate under 5 years old
(per 1,000): / 64 (1960), 22 (2000) / 33 (1960), 6 (2000)
Adult literacy rate (%-2000):
Total
Men
Women / 99
99
99 / 99
99
99
Population using improved drinking water sources (%-2000):
Total
Urban
Rural / 99
100
96 / 100
100
99
Background:
The defeat of the Russian Empire in World War I led to the seizure of power by the Communists and the formation of the USSR. The rule of Josef STALIN (1924-53) strengthened Russian dominance of the Soviet Union. The Soviet economy and society stagnated in the following decades until General Secretary Mikhail GORBACHEV (1985-91) introduced glasnost (openness) and perestroika (restructuring) in an attempt to modernize Communism, but his initiatives inadvertently released forces that by December 1991 splintered the USSR into 15 independent republics. Since then, Russia has struggled in its efforts to build a democratic political system and market economy to replace the strict social, political, and economic controls of the Communist period. A determined guerrilla conflict still plagues Russia in Chechnya. Russia achieved a slight recovery in 1997, but the government's stubborn budget deficits and the country's poor business climate made it vulnerable when the global financial crisis swept through in 1998. The crisis culminated in the August depreciation of the ruble, a debt default by the government, and a sharp deterioration in living standards for most of the population. The economy subsequently has rebounded, growing by an average of more than 6% annually in 1999-2001 on the back of higher oil prices and a weak ruble. This recovery, along with a renewed government effort in 2000 and 2001 to advance lagging structural reforms, have raised business and investor confidence over Russia's prospects in its second decade of transition. Yet serious problems persist. Russia remains heavily dependent on exports of commodities, particularly oil, natural gas, metals, and timber, which account for over 80% of exports, leaving the country vulnerable to swings in world prices. Russia's industrial base is increasingly dilapidated and must be replaced or modernized if the country is to achieve sustainable economic growth. Other problems include widespread corruption, lack of a strong legal system, capital flight, and brain drain.
Industries: complete range of mining and extractive industries producing coal, oil, gas, chemicals, and metals; all forms of machine building from rolling mills to high-performance aircraft and space vehicles; shipbuilding; road and rail transportation equipment; communications equipment; agricultural machinery, tractors, and construction equipment; electric power generating and transmitting equipment; medical and scientific instruments; consumer durables, textiles, foodstuffs, handicrafts.
Economic data
Sep 23rd 2002
From the Economist Intelligence Unit
Source: Country Data
GDP per head ($ at PPP) / 4,165 / 4,468 / 5,007 / 5,398
GDP (% real change pa) / -4.90 / 5.40 / 9.00 / 5.00
Government consumption (% of GDP) / 18.70 / 14.74 / 14.83 / 14.30
Budget balance (% of GDP) / -4.17 / -1.19 / 2.38 / 2.93
Consumer prices (% change pa; av) / 27.70 / 85.70 / 20.75 / 21.60
Public debt (% of GDP) / 71.96 / 88.52 / 58.90 / 49.60
Labor costs per hour (USD) / 0.63 / 0.36 / 0.44 / 0.62
Recorded unemployment (%) / 13.29 / 12.21 / 9.85 / 8.66
Current-account balance/GDP / 0.24 / 12.77 / 17.88 / 11.32
Foreign-exchange reserves (m$) / 7,801 / 8,457 / 24,264 / 32,542
Notes
Budget balance (% of GDP) / IMF definitions, which include in expenditure the real yield on three-month Treasury bills (GKOs), are used.
Recorded unemployment (%) / End-period.
Economic Data :
numbers are $CAN for 2001 unless stated
Russia / Canada
GDP : (in billions, at current prices) / $ 388.8
(2000) / $1 083.11
GDP per capita: / $ 2,721 / $34,389
GDP growth rate: / 4 % / 1.5 %
Unemployment rate: / 10.4 % / 7.4 %
Inflation rate: / 22.1 % / 2.5 %
Exports:
to world: $ 152.4 billion (2000)
to Canada: $ 360 million / Imports:
from world: $ 91 billion (2000)
from Canada: $ 289 million
FDI:
Canadian in Russia: $ 277 million
Russia in Canada: n/a
The relationship between the two countries
As major Arctic states, Canada and Russia have enjoyed a special relationship for over 35 years. The Agreement on Cooperation in the Arctic and the North was signed with the then-USSR in 1989. A similar agreement was signed with the Russian Federation in 1992. Russia is now a key partner in the Northern Dimension of Canada's Foreign Policy. The common Arctic agenda includes joint initiatives on environmental monitoring, self-government, transportation, aboriginal business, electrical utilities and oil and gas. Canadian provinces, municipalities, universities and other organizations have established a dense and growing network of relations with their Russian counterparts, that facilitate and encourage person-to-person contacts in the commercial, cultural and academic spheres.
Canada-Russia relations have expanded in areas such as parliamentary exchanges, federalism and cooperation between regions. A new bilateral agreement to promote cooperation between Canadian provinces and territories and their Russian counterparts was signed during the Putin visit to Canada in December 2000.
A key forum for the bilateral political relationship is the Strategic Stability Talks. This annual event allows high-level officials to share viewpoints and concerns on global strategic stability concerns, as well as specific crises, which may be appropriate to discuss at the time. Canada and Russia meet regularly in such international forums as the United Nations, the G8, and the Organization for Security and Cooperation in Europe, the NATO-Russia Permanent Joint Council, the G-20, APEC (the Asia-Pacific Economic Cooperation forum), and the Arctic Council.
The Russian Federation and Canada have reaffirmed their intention to enhance cooperation in the field of peaceful use of nuclear energy in accordance with the Intergovernmental Agreement for Co-operation in the Peaceful Uses of Nuclear Energy (with Annexes), signed in Moscow and in force since November 20, 1989.
Both sides have noted with satisfaction current cooperation in the areas of safe, secure and irreversible disposition of Russian weapons plutonium and desalination.
Economic Cooperation
The Intergovernmental Economic Commission IEC is co-chaired by the Minister for International Trade of Canada and the Russian Deputy Prime Minister for the Economy. Working Groups continue the work of the IEC year round in the areas of Agri-food and Agriculture, Fuel and Energy, Construction and Housing, Mining, and the Arctic and the North, and are composed of senior executives of Russian and Canadian companies, industry associations, and officials of federal and provincial governments.
Trade and Investment
Canada-Russia total bilateral trade was $866 million in 2000, up from $787 million in 1999 with a surplus in Russia's favor. Canadian exports to Russia in 2000 were $200 million, up 11% from 1999 and this positive growth trend continued in 2001 with exports expected to reach $300 million. In particular oil field equipment and pork are showing substantial increases. Anecdotal evidence also suggests that services exports in infrastructure, resource extraction and processing are also on the rise. Oil and gas equipment, building products, tobacco, and pork products are Canada's top exports to Russia.
In 2000, Canadian imports from Russia reached $666 million representing an increase of 9.6% over 1999 figures of $607 million and were primarily crude oil, iron and steel, base metals, fish and seafood, and precious metals. Russian exports to Canada decreased in 2001.
Canadian direct investment in Russia is estimated at $940 million mainly in the oil and gas, mining, food and high technology sectors. About 50 Canadian companies have a permanent presence in Russia.
Total foreign investment into Russia increased by 32.8% from January to September 2002 to 12.905 billion USD, according to a State Statistics Committee report. However, direct foreign investment dropped 9.9% to 2.631 billion USD. Portfolio foreign investment decreased 23.3% to 224 million USD. All other investments increased 54.4% on the year to $10.05 billion. Most of the investments were in the retail, catering and manufacturing industries. Germany, U.S. and Cyprus were the largest investors, accounting for 17.2%, 13.8% and 13% of the total accumulated foreign investment respectively.
In 2001, Russia's foreign debt has decreased to about 120 billion USD, which amounts to less than 40 percent of its GDP. In 1999, Russia owed 160 billion USD, which was about 130 percent of its GDP.
Foreign investment in Russia is characterized by high risks and high returns. There are some emerging industries that have shown potential in manufacturing, distribution and exports. However, some of this industrial growth is threatened by the infiltration of organized crime. Nonetheless, the Russian private sector is dynamic and has the potential to fuel growth and create employment.
Technical Cooperation
Russia accounts for Canadian International Development Agency's (CIDA) sixth largest country program, with over $150 million committed to more than 200 projects. The bilateral budget of approximately $24 million for the fiscal year 2000/2001 is fully committed with over 50 active projects and a number of projects still in planning. Projects for humanitarian relief and social development alone account for $35million.
Ukraine
Background:
Richly endowed in natural resources, Ukraine has been fought over and subjugated for centuries; its 20th-century struggle for liberty is not yet complete. A short-lived independence from Russia (1917-1920) was followed by brutal Soviet rule that engineered two artificial famines (1921-22 and 1932-33) in which over 8 million died, and World War II, in which German and Soviet armies were responsible for some 7 million more deaths. Although independence was attained in 1991 with the dissolution of the USSR, true freedom remains elusive as many of the former Soviet elite remains entrenched, stalling efforts at economic reform, privatization, and civil liberties.
Facts at a glance
/This table provides some facts about Ukraine related to international development and compares them with similar facts about Canada.
Topic / Ukraine / Canada
Official name: / Ukraine / Canada
Capital: / Kiev / Ottawa
Area
(Thousands ofkm2): / 604 / 9,971
Population (millions): / 49.1 (2001) / 31.1 (2001)
Population density (perkm2): / 81 (2001) / 3 (2001)
Urban population (%-2000): / 68 / 77
Gross national income (percapita): / US$720 (2001) / US$21,340 (2001)
Structure ofGDP(%–2001):
Agricultural
Industries
Services / 15
40
45 / 3
31
66
Ecological footprint (area units per person-1999): / 3.37 / 8.84
Human development index(HDI)ranking: / 80th of 173 countries (2000) / 3rd (2000)
Gender-related development index(GDI)ranking: / 66th of 146 countries (2000) / 5th (2000)
Life expectancy at birth: / 71 (1960), 68 (2000) / 71 (1960), 79 (2000)
Mortality rate under 5 years old
(per 1,000): / 53 (1960), 21 (2000) / 33 (1960), 6 (2000)
Adult literacy rate (%-2000):
Total
Men
Women / 99
99
99 / 99
99
99
Population using improved drinking water sources (%-2000):
Total
Urban
Rural / 98
100
94 / 100
100
99
Economy overview:
After Russia, the Ukrainian republic was far and away the most important economic component of the former Soviet Union, producing about four times the output of the next-ranking republic. Its fertile black soil generated more than one-fourth of Soviet agricultural output, and its farms provided substantial quantities of meat, milk, grain, and vegetables to other republics. Likewise, its diversified heavy industry supplied the unique equipment (for example, large diameter pipes) and raw materials to industrial and mining sites (vertical drilling apparatus) in other regions of the former USSR. Ukraine depends on imports of energy, especially natural gas, to meet some 85% of its annual energy requirements. Shortly after independence in late 1991, the Ukrainian Government liberalized most prices and erected a legal framework for privatization, but widespread resistance to reform within the government and the legislature soon stalled reform efforts and led to some backtracking. Output by 1999 had fallen to less than 40% the 1991 level. Loose monetary policies pushed inflation to hyperinflationary levels in late 1993. Ukraine's dependence on Russia for energy supplies and the lack of significant structural reform has made the Ukrainian economy vulnerable to external shocks. Now in his second term, President KUCHMA has pledged to reduce the number of government agencies, streamline the regulatory process, create a legal environment to encourage entrepreneurs, and enact a comprehensive tax overhaul. Reforms in the more politically sensitive areas of structural reform and land privatization are still lagging. Outside institutions - particularly the IMF - have encouraged Ukraine to quicken the pace and scope of reforms and have threatened to withdraw financial support. 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 was under girded by strong domestic demand and growing consumer and investor confidence.
Ukraine has experienced some positive economic changes within the last few years and the national economy continues to show signs of life despite a lack of foreign investment. In 2001 Ukraine's GDP posted positive of growth of 9% that year, one of the highest rates in a world plagued by recession. In dollar terms, in 2001 GDP reached about US$39 billion or about US$790 per capita, compared to US$640 per capita in 2000. The high GDP growth was reflected in a 19% real increase in average wages for the year. Growth of production resulted in a general decrease in the unemployment rate from 4.2% in 2000 to 3.7% in 2001.
Forecasts predict a decline in economic growth to 4.5% in 2002, due to the worsened situation of trade partners. In 2003, thanks to improved government policy at home, GDP will likely increase to 5.5%. The government is preparing a detailed action plan to carry out further economic reforms in the near future to improve Ukraine's business environment and attract investment. Economic growth in Ukraine will also depend on the evolution of external economic conditions, particularly in Russia, its main partner.
Economic Data:numbers are $CAN for 2001 unless stated
Ukraine / Canada
GDP:(in billions, at current prices) / $58.2 / $1 083.11
GDP per capita: / $1,192.68 / $34,389
GDP growth rate: / 9.1 % / 1.5 %
Unemployment rate: / 4.5 % / 7.4 %
Inflation rate: / 12 % / 2.5 %
Exports:
to world: $ 16 234 million
to Canada: $ 63.4 million / Imports:
from world: $ 15 237 million
from Canada: $ 18.45 million
FDI:
Canadian in Ukraine: $ 80 million
Ukraine in Canada: n/a
Sources: Statistiques Canada, IMF, OECD
Economic data
Sep 23rd 2002
From the Economist Intelligence Unit
Source: Country Data
GDP per head ($ at PPP) / 2,144 / 2,186 / 2,387 / 2,680
GDP (% real change pa) / -1.94 / -0.25 / 5.85 / 9.05
Government consumption (% of GDP) / 21.54 / 18.96 / 18.40 / 17.90
Budget balance (% of GDP) / -2.22 / -1.53 / 0.57 / -0.63
Consumer prices (% change pa; av) / 10.58 / 22.68 / 28.20 / 11.96
Public debt (% of GDP) / 36.88 / 46.86 / 44.90 / 38.30
Labor costs per hour (USD) / 0.47 / 0.33 / 0.32 / 0.44
Recorded unemployment (%) / 3.00 / 4.10 / 4.30 / 3.90
Current-account balance/GDP / -3.09 / 5.39 / 4.74 / 3.73
Foreign-exchange reserves (m$) / 761 / 1,046 / 1,352 / 2,955
Canada-Ukraine Relationship
Canada and Ukraine enjoy close relations, based on a historic foundation of over one hundred years of Ukrainian migration to Canada. On December 2, 1991, Canada became the first western country to recognize Ukraine's independence, immediately following the Ukrainian referendum. Diplomatic relations between Canada and Ukraine were formally established on January 27, 1992. Since then, Canada and Ukraine have signed a variety of agreements and memoranda of understanding covering such areas as trade and commerce, technical cooperation, defense and mutual legal assistance.
In March 1994, the governments of Canada and Ukraine issued a declaration on the "Special Partnership" between Canada and Ukraine, which recognizes Canada's support for the development of an independent and prosperous Ukraine. An update of this declaration was issued in December 2001.
A Canada-Ukraine Intergovernmental Economic Commission (IEC) was established by a 1994 agreement on economic cooperation. This Commission met for the first time in Kiev in 1996. Its most recent meeting was in Ottawa in October 2001. The IEC exists to build Canada-Ukraine business relationships and seek ways to overcome obstacles to bilateral trade and investment. The IEC relies heavily on the involvement of the Canadian business community through working groups on agriculture, construction and energy.
The Canadian International Development Agency (CIDA) has a large technical cooperation program in Ukraine, focused in areas of governance structures, building institutional capacity, strengthening of civil society and enhancing nuclear safety.
Canada supports the NATO-Ukraine Distinctive Partnership through the provision of language and peacekeeper training for Ukrainian military personnel and support for NATO-Ukraine civil emergency planning.
Canada's goal of supporting democratic development and the transition to a market-based economy in Ukraine has seen more than $280million in bilateral assistance committed to this end. Of this, $196million was for technical cooperation, $14million for humanitarian assistance, and $70million for commercial credits. In addition, Canada has engaged $28.7million in multilateral assistance and $19.2million in regional initiatives to countries in Central and Eastern Europe, including Ukraine.
The Trade Flow
In 2001 Ukraine's merchandise trade balance was positive, with a surplus of US$490 million (compared to a surplus of US$616 million in 2000). For 2002, the government anticipates that the trade surplus will be further reduced to US$40 million. However, better export revenues from services are expected to maintain the current account surplus at about US$800million for 2002.
In 2001, exports of goods increased by 11.6% to US$16.3 billion, while imports expanded by 13% to US$15.8 billion. Ukraine's main export markets were Russia (22.6% of total exports), Turkey (6.2%) and Italy (5.1%). Ukraine's main import suppliers were Russia (36.9% of total imports), Turkmenistan (10.5%) and Germany (8.7%). The largest share of export products was represented by ferrous metals (30.6% of total exports), mineral products (10.8%) and chemical industry products (9.1%). The main imported goods were natural gas (20.8% of total imports), oil (13.35%) and machinery and equipment (10.5%).
Two-way trade is small, dominated by Ukrainian steel exports that are the subject of an anti-dumping investigation. Investigations of various Ukrainian steel products have seen mixed decisions, some resulting in heavy punitive duties. The trade balance has historically been in Ukraine's favor. Canadian exports to Ukraine are trending down: 93rd on the list of Canadian export markets. According to Statistics Canada, exports to Ukraine fell from CAN$25.159 million in 2000 to CAN$18.644 million in 2001; imports from Ukraine were also down: CAN$122.594 million in 2000 and CAN$63.434 million in 2001.