ECONOMY
With rich farmlands, a well-developed industrial base, highly trained labor, and a good education system, Ukraine has the potential to become a major European economy. After a robust expansion beginning in 2000, Ukraine’s economy experienced a sharp slowdown in late 2008, continuing into 2009. Real GDP growth dropped from 7.7% in 2007 to 2.1% in 2008, and the economy is expected to contract significantly in 2009.
Ukraine’s economy remains burdened by excessive government regulation, corruption, and lack of law enforcement, and while the government has taken steps against corruption and small and medium enterprises have been largely privatized, much remains to be done to restructure and privatize key sectors such as energy and telecommunications and to allow the free sale of farmland.
Ukraine encourages foreign trade and investment. Foreigners have the right to purchase businesses and property, to repatriate revenue and profits, and to receive compensation in the event that property were to be nationalized by a future government. However, complex laws and regulations, poor corporate governance, weak enforcement of contract law by courts and particularly corruption have discouraged broad foreign direct investment in Ukraine. While there is a functioning stock market, the lack of protection for minority shareholder rights severely restricts portfolio investment from abroad. In 2008 the parliament adopted a new Joint Stock Company Law that, if implemented properly, should greatly strengthen corporate governance in Ukraine.
Ukraine abounds in natural resources and industrial production capacity. Although proven onshore and offshore oil and natural gas reserves are small, there is now petroleum exploration interest in the Ukrainian portion of the Black Sea. The country has important energy sources, such as coal, and large mineral deposits, and is one of the world's leading energy transit countries, providing transportation of Russian and Caspian oil and gas across its territory. Ukraine imports almost 80% of its oil and 77% of its natural gas. Russia ranks as Ukraine's principal supplier of oil and Russian firms now own and/or operate the majority of Ukraine's refining capacity. Natural gas imports currently come from Russia, Turkmenistan, Kazakhstan, and Uzbekistan, which deliver the gas to Ukraine's border through a pipeline system owned and controlled by Gazprom, Russia's state-owned gas monopoly. Ukraine owns and operates the gas pipelines on its territory that are also used to transit Russian gas to Western Europe. Ukraine's constitution forbids the sale of the gas pipeline network. The complex relationship between supplier, transporter, and consumer has led to intermittent bilateral tensions, including Russia's decision to significantly reduce gas supplies in March 2008, and almost completely cut them off for approximately three weeks in January 2009.
While countries of the former Soviet Union remain important trading partners, especially Russia and Turkmenistan for energy imports, Ukraine's trade is becoming more diversified. The EU accounts for about 30% of Ukraine's trade, while CIS countries account for about 40%. Steel constitutes nearly 40% of exports. Ukraine has a major ferrous metal industry, producing cast iron, steel, and steel pipe, and its chemical industry produces coke, mineral fertilizers, and sulfuric acid. World demand for steel and chemicals, which make up about 40% of Ukraine’s exports, dropped sharply in the second half of 2008. Manufactured goods include airplanes, turbines, metallurgical equipment, diesel locomotives, and tractors. Ukraine is also a major producer of grain, sunflower seeds, and beet sugar and has a broad industrial base, including much of the former U.S.S.R.'s space and rocket industry.
In response to the sharp economic downturn in the country in late 2008, the International Monetary Fund (IMF) approved a $16.4 billion Stand-By Arrangement (SBA) in November 2008, conditioned on reforms in the banking sector, as well as adjustments in fiscal and monetary policy. The World Bank has committed more than $5 billion to Ukraine since the country joined the Bank in 1992. Several projects are currently in the works, including a $750 million development policy loan, depending on continued commitment to the IMF program.
Ukraine is a member of the European Bank for Reconstruction and Development (EBRD) and joined the World Trade Organization (WTO) in May 2008. In 2008 Ukraine and the European Union launched negotiations on a free trade agreement. During the 12th EU-Ukraine Summit, held in Paris in September 2008, the EU presented Ukraine with an enhanced association agreement, including chapters on both political and trade relations. Some chapters, including trade, remain under negotiation.
Environmental
Issues
Ukraine is interested in cooperating on regional environmental issues. Conservation of natural resources is a stated high priority, although implementation suffers from a lack of financial resources. Ukraine established its first nature preserve, Askania-Nova, in 1921 and has a program to breed endangered species.
Ukraine has significant environmental problems, especially those resulting from the Chornobyl nuclear power plant disaster in 1986 and from industrial pollution. In accordance with its agreement with the G7 and European Commission in 1995, Ukraine permanently closed the last operating reactor at the Chornobyl site on December 15, 2000. All urgent and required stabilization measures of the "sarcophagus"--the concrete shelter hastily built around the damaged reactor by the Soviet Union in the months following the disaster--including radiation and worker safety are complete. The contract for construction of a new shelter to be built around the sarcophagus was awarded in September 2007. Current activities are focused on starting construction for the new shelter in 2009 with the ultimate goal of its commissioning in 2012. The successful commissioning of the new shelter will provide a long-term, environmentally sound solution for the destroyed reactor. It should be noted that none of the 15 operating reactors in Ukraine, which generate about half of the country's electricity, are of the Chornobyl design. The United States Government has provided significant assistance to enhance operational and nuclear safety of these reactors. Ukraine also has established a Ministry of Environment and has introduced a pollution fee system, which levies taxes on air and water emissions and solid waste disposal. The resulting revenues are channeled to environmental protection activities, but enforcement of this pollution fee system is lax. Ukraine ratified the Kyoto Protocol in April 2004.
Construction
of a shipping canal through a UN protected core biosphere reserve
in the Danube Delta, which began in May 2004, is an environmental
issue of international interest.
Purchasing power parity GDP (2007 est.): $321.3 billion.
Nominal GDP (2007 est.): $90.1 billion.
Annual growth rate (2007 govt. est.): 6.9%.
PPP per capita GDP (2007 est.): $6,900.
Nominal per capita GDP (2006 est.): $1,746.
Natural resources: Vast fertile lands, coal, ironstone, complex ore, various large mineral deposits, timber.
Agriculture: Products--Grain, sugar, sunflower seeds.
Industry: Types--Ferrous metals and products, oil and gas transport, coke, fertilizer, airplanes, turbines, metallurgical equipment, diesel locomotives, tractors.
Trade (2006): Exports of goods and services--$46.68 billion: Ferrous and nonferrous metals, mineral products, chemicals, energy transport services, machinery, transport equipment, grain, and textiles. Imports--$54.3 billion: Energy, mineral fuel and oil, machinery and parts, transportation equipment, chemicals, textiles, and paper.
