Ukraine: Gaining Momentum
The Ukraine ranks 43rd in the world in terms of size (603,700 sq km)and 25th in terms of population (46.5 m). According to the latest UN estimates, Ukraine’s population is declining due to low birth rates and emigration. Ukraine has in total six large urban centres, five of which boast more that a million inhabitants. Population density is highest in industrialised regions in the east of the country, particularly in the Donbass area. Kyiv is by far the biggest urban centre, with over 2.5 m residents.
The most noticeable positive development in 2005-06 was a substantial boost in foreign investment flows. Even taking into account the fact that more than 50% of FDI in the last two years was generated by one-off purchases of Ukraine’s giant steel-mill Kryvoryzhstal by Mittal Group and leading local bank Aval by Raiffeisen International (in the biggest private M&A deal Ukraine has ever seen), the country is now clearly on the map of many foreign investors. They are queuing up to buy banking and insurance institutions, real estate, food-processing, metallurgy, mining, telecoms and tourism assets. The genie in the bottle, foreign investors say, is about to be released. Besides Raiffeisen International, a number of Austrian insurance companies and European production companies with regional headquarters in Vienna have entered the Ukrainian market recently. Germany and Austria have been among the top-10 biggest sources of FDI for the past 15 years.
Despite a number of obvious challenges – slowing GDP growth, higher energy prices, and rising inflation – the overall economic outlook for Ukraine in 2007 is positive. Above all, there is a lot of unrealized innate potential which the country will benefit from as it enjoys an unprecedented level of FDI, introduction of new technologies and transfer of know-how. There is much hope that new government will eventually enter the WTO, thus breaking the mould of the last decade that has left Ukraine deprived of much-needed foreign investment and consigned the country to the low pace of economic development. Moreover, Ukraine has many key assets to be privatized. This could stimulate a great deal of new investment inflows – not only through privatizations themselves but also indirectly, as such deals attract attention to Ukraine’s general potential.
Thus, Ukraine is now rebounding and catching with other former-communist bloc countries. With rising of employees incomes and productivity levels increase, even though a lack of political consensus over privatization and economic policy continues to divide its political elite.
