Page 6 - UKRRptJun21

very low and uneven comparative base of the previous year.
Ukraine’s industrial output exploded in April, increasing by 13.0% y/y from a 2.1% y/y growth in March largely thanks to the low base effect from the pandemic, the State Statistics Service reported on May 24. All the results this year will be distorted by the crisis low base effects from 2020 making it harder to understand what is going on. However, the momentum from the bounce back can be used to spur new growth.
Seasonally adjusted output advanced a much more modest 2.7% m/m in April and in the first four months of this year industrial output inched up 1.5% y/y (vs. 7.0% y/y decline in 4M20).
Having said that, Ukraine does seem to have passed a nadir as multinationals – especially in the retail sector -- are increasingly setting up shop on the expectation of long-term growth. Incomes have been rising and this sort of investment, usually a harbinger for sustain growth, is very encouraging.
Likewise, the real estate sector is starting to grow with the number of residential developments increasing. There is also a growing wave of investment into commercial real estate and warehousing, which is also usually a harbinger of sustained growth. Moreover, construction is one of the three big drivers of economic growth so the uptick in activity in real estate development can create a self fulfilling prophecy of more growth.
FDI remains in the doldrums, apart from in the renewable energy sector, and that has been stymied by the government’s failure to honour its commitments to pay renewable utilities the tariffs it owes from the generous green tariff deal. The government owes these companies some $1bn and is unable to finance it, which has soured the investment climate. Several of the producers have started arbitration proceedings. The government for its part is talking about issuing green bonds to cover the debt.
The government hopes to increase foreign investment from $420mn last year, to $3bn this year, to $15bn by 2025, according to the National Economic Strategy 2030. Other goals for 2030 are: double the economy; triple exports to $150bn; nearly triple labour productivity; cut in half the state share in the banking system; cut the debt-to-GDP ratio to 30-40%; and increase the share of small and medium-sized businesses of exports to 40%.
Ukraine remains in limbo between an aggressive Russia and a tepid EU. Ukrainian president Volodymyr Zelenskiy has been touring the region trying to drum up support and has managed to land several very big billion-dollar investment deals with France, Qatar and Turkey, among others, that will spur growth, however, politically Kyiv has been hoping for strong support from Washington to counter Moscow’s meddling.
But the Biden administration has thrown Ukraine under the bus by refusing to impose sanctions on the Nord Stream 2 gas pipeline on May 17 as a concession to Berlin that wants the pipeline. That means it is almost certain that the pipeline will be completed this summer and as soon as the end of this year Ukraine can be cut out of the Russian gas transit business to Europe.
Ukraine has a transit deal with Russia signed in 2019 that guarantees delivery for another two years that is currently earning Ukraine some $2bn a year
6 UKRAINE Country Report XXXX 2018 www.intellinews.com