Ukrainian Economy and Business
Since 1991, the Ukrainian economy has been exposed to the difficult
processes of the transition into a market one.
Ukraine's decline in production was halted in 1999.
In the first half of 2000, GDP was up 5% compared to the same period
of 1999. Industrial production showed an increase of 10.8% versus
the first half of 1999. The highest growth rates of over 30% have
been reported for such socially oriented industries as light industry,
wood-working and the pulp-and-paper industry. Rapid growth was shown
by export-oriented industries with nonferrous metallurgy (20.9%)
and ferrous metallurgy (18.6%) leading the pack. In the first half
of 2000 indices for the machine-building and metal-working industries
have risen almost 9.1 %. Over the last three years, annual inflation
has declined to 10-20% owing to the macroeconomic stabilization,
inflation having peaked at 10,155% in 1993. The stabilization has
benefited much from a rigid budget policy While the budget deficit
was 17.7% in 1992, it was only 1.5% in 1999. For the first time
in its history Ukraine adopted a balanced budget for the year 2000.
The goods producing sectors (production industry, agriculture, and
construction) have declined in their share of total output from
73.7% in 1991 to 52.4% in 1999, while those which render services
(transport, communications. trade, etc.) have grown from 28.2% to
48.7%. This tendency is explained by two factors.
First, it is the result of the collapse of the
USSR's economy wherein Ukraine's powerful industry served primarily
the military-industrial complex. When the cooperative ties that
had reached 80% were severed, industrial production dropped at hundreds
of enterprises. The lower purchasing power of the population entailed
a cutback in production output of the food, light, and construction
industries as well as in agriculture.
Second, demand grew for communications, transport,
trade, and financial services along with a whole complex of sectors
in information, advertising, and marketing spheres. This demand
resulted from the liberalized economy and foreign economic relationships
and from the need to design new market mechanisms to ensure Ukraine's
The structural changes in Ukraine's economy are
similar to tendencies observed in the world economy. Combined with
the liberalization of economic activities and the development of
small business, these changes complete the first stage in the formation
Ukraine's market model.
Notwithstanding the adverse impact of the 1998 global economic crisis,
business activity is reviving in all spheres of the Ukrainian economy.
Since 1991, investment volume has grown. For example, in January-June
2000, investments in fixed capital increased by 21.2% versus the
same period of 1999. By August 2000, total foreign investment in
the Ukrainian economy exceeded $3.4 billion, that is, 6.8 times
higher than in 1995. The number of enterprises with foreign investment
has grown to 7,300 (in 1995 it was two times fewer).
National resources potential
Ukraine has only 0.45% of the world's dry land. Yet the bowels of
its earth contain 5% of the world's mineral resources. Over 80 types
of minerals have been explored and about 7.000 fields are in operation.
Ukraine's deposits of iron and manganese ores are the world's largest,
while there are also significant deposits of titanium, nickel, chromium,
mercury, and non-ore combustibles: sulfur, phosphates, apatites,
potassium salts, graphite, and chalk. Among fuel resources are coal,
oil, gas, but they are not sufficient to meet domestic fuel needs.
Two unique natural areas, the Crimean peninsula
and the Carpathians, offer a chance for convalescence, recreation,
and tourism. The Crimea's Black Sea resorts can accommodate up to
three million people per season. The Ukrainian Carpathian Mountains
are a marvelous site for mountain-skiing and hiking.
The biological productive potential of Ukraine's
soil is capable of providing food for 140 to 145 million people.
Ukraine is home over 48,000,,000 residents. Its
working population is 22.7 million. Approximately 19 million people
are employed in the nation's economy. Virtually everyone has a complete
or incomplete secondary education. A major part of the population
able to work has vocational or higher education. The highest level
of professionally trained workers and employees is reported for
Ukrainian foreign trade grew almost continuously in the 1990s and
the early 2000s, though considerable imports of power-generating
resources burdened much the trade balance with certain countries.
In 1995-1997, the total increase in foreign trade was 32.5%, exports
and imports growing 38% and 27% respectively. Ukraine slowed its
exports during the crisis of 1998 1999. In 2000, the goods and services
exports again rose. In January-June 2000, Ukraine's total foreign
trade balance came to almost $16 billion. Export volume over this
period reached about $8.5 billion increasing by 19.3% versus the
same period of the previous year. Imports increased by 24.7% because
prices for fuel rose. Ukraine's foreign trade balance remains positive
As part of the USSR, Ukraine's economy was based on state-owned
enterprises and collective farms in rural areas. Afterwards, the
challenge for Ukraine was to decentralize its industrial enterprises
and establish a private sector in its agriculture. In spring of
1992, Ukraine's Verkhovna Rada adopted a series of laws that laid
a legal foundation for privatization. Since then 70,100 enterprises
have been privatized in all the industries, over 80% of which were
privatized during the last three years. Among the leaders in privatization
are the construction sector with 82% of enterprises privatized and
the industrial sector with 69%, with 98% of light industry, 96%
of woodworking, and 93% of the food industry privatized.
The privatization of large enterprises and monopolistic
enterprises is the most vital challenge today. What Ukraine has
to do is to ensure transparent privatization processes and develop
adequate legislation. Now competitive cash-based privatization prevails
and has become a significant source to replenish the nation's budget.
In spring of 2000, Verkhovna Rada adopted a new privatization programme
for the period 2000-2003.
Ukraine is amond the top ten nations in space rocket manufacturing,
aircraft manufacturing, and shipbuilding. The capacities of ferrous
and non-dozens of countries with metal and metalwork. In national
economy, most enterprises are involved in the production of heavy
machines, chemicals, and petrochemical products. Industrial production
makes up more than 33.2% of GNP and employs about 30% of the population.
Small medium enterprises
In 1987, the revolutionary law On Cooperation legalized entrepreneurial
activity by citizens. Twelve years later, the Ukrainian small business
boast 197, 000 small and cooperative enterprises, 5, 000 joint ventures
with foreign capital, and 36,00 farms. They generate 10% of the
total GDP and provide jobs for 14% of the employment-age population.
These businesses are initiated on the personal volition of citizens
and by privatizing small state-owned enterprises. It is most widespread
in the trade, service, and construction sectors.
The development of small business can be further
fostered by the improvement of legislation along with the liberation
of fiscal and credit policies. Indeed, there have been positive
changes in recent years. A state-supported initiative has been introduced
to help small business development. A new tax bill is intended to
improve the situation by abolishing a number of taxes and decreasing
Ukraine has a favorable combination of climatic conditions, land
and labor resources, well-developed transport infrastructure, and
close foreign markets. This accounts for the high potential of its
agricultural production. The agricultural sector produces 12.8%
of GDP, employing a fifth of the working population. Ukraine's arable
and farming areas comprise 42 million square kilometers, the largest
in Europe after Russia.
Planted crops account for 54.5% of total agricultural
output. Among the dominant crops are wheat, corn, sugar beets, sunflowers,
legumes, tobacco, vegetables, and fruits. Ukraine ranks fifth in
grain crops in the world.
Livestock farming includes cattle, pigs, sheep,
horses, etc. Great progress has been made in poultry farming, fisheries,
In agriculture, restructuring began with the first
years of independence. Following President Leonid Kuchma's 1999
reelection, the drastic reforms came to the village: the land owned
by collective farms is being divided among the peasants, who can
not freely manage their lots; conditions are being provided for
farmers to expand their farms, and agricultural enterprises are
being arranged on a voluntary basis in a fashion chosen by the peasants
themselves. 13,300 new agricultural units have been formed, including
farms (46%), cooperatives (25%), private and leased businesses (21%).
The infrastructure of the agricultural market is introduced most
resolutely and consistently on the basis of the wholesale and exchange
trade of agricultural produce. An alternatively owned network of
processing and procurement businesses is being established. Ukraine
is currently determined to reestablish its age-old reputation as
the breadbasket of Europe.
As indicated by the transit factor, Ukraine ranks among the leaders
in Europe. The European Transportation Conference in Crete (1994)
identified ten trans-European corridors of which four cross Ukraine.
Development of the Transcaucasian transport/communications project
(TRACECA Project) to span Europe, the Caucasus, and Central Asia
Ukraine has the most powerful I and developed pipeline,
railroad, and automotive transport networks.
Of these, railroad is the indisputable leader,
claiming 50% to 70% of long-distance carriage. Its tracks rank fourth
in length worldwide (after the USA, Russia, and Canada). Truck carriage
comes second. The most important highways are under reconstruction.
Ukraine's gas pipelines exceed 35,000 kilometers
and they are capable of pumping 290 billion cu. meters of gas annually.
There are about 4,000 km of major oil-pipelines transporting 90%
of Russia's oil to Europe. Construction of the Odesa-Brody oil pipeline
is about to be completed in combination with an oil terminal in
the port of Pivdenny.
The Black Sea and the Azov Sea play an important
role in coastal and international traffic. The most important ports
in Ukraine are Odesa, Tllichivsk, Mykolayiv, Kherson, Feodosiya,
and Izmail. Aviation operations are expanding and many airports
are under reconstruction.