Ukraine and the Global EconomicUkraine and the Global EconomicCrisisCrisis

bybyMykolaMykola KulinichKulinich

Ambassador of Ukraine to JapanAmbassador of Ukraine to Japan

23 October, 200923 October, 2009

2

The Structure of the LectureThe Structure of the Lecture

1. General information about economy of1. General information about economy ofUkraine.Ukraine.2.Ukraine and the global financial crisis.2.Ukraine and the global financial crisis.3. Cooperation with IMF and state anti3. Cooperation with IMF and state anti--crisis measures.crisis measures.4. Current economic situation in Ukraine.4. Current economic situation in Ukraine.5. Economic cooperation with Japan5. Economic cooperation with Japan..

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4

5

General Information aboutGeneral Information aboutEconomy of UkraineEconomy of Ukraine

6

Young and Ancient Ukraine

7

Administrative Map of the Soviet Union

IndependenceIndependenceDecember 01, 1991 90% of Ukrainians voted for

Independence

8

Economic situation inEconomic situation in the 90the 90’’ss

•• pprivatizationrivatization

•• attractiattraction ofon of foreignforeign directdirect investmentinvestmentss

•• stabilizstabilizationation ofof financialfinancial andand monetarymonetary systemsystem

•• introductionintroduction aa newnew currencycurrency -- hryvniahryvnia inin 19961996

9

% of GDP

9%

33%

58%

Industry Agriculture Services

The SThe Structuretructure of Ukraineof Ukraine’’s Economys Economy

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• Ukraine has a well-developed industrial base

• Rich farmlands

• Highly trained labor

• Good education system

• Ukraine has ferrous metal industry, producing cast iron,steel and a wide range of metalware, including pipes

• Ukraine is one of the world's largest steel producers

• Strong chemical and petrochemicalindustry producing coke, mineral fertilizers, acids, soda.

• Ukraine manufactures metallurgical equipment,diesel locomotives, tractors, automobiles.

• Ukraine possesses a massive high-tech industrial base,including electronics, arms industry, space program

• Ukraine is a major producer of grain, sugar, meat and milkproducts.

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Ukraine transports gas from the Russian Federation to the European Union throughits well-developed gas pipelines system

12

Ukraine is one of the 5 countries-leadersin space research industry

The Antonov An-124 Ruslan was thelargest aircraft ever mass produced

An-225 Mriya, the largest aircraft in production

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Transportation PotentialTransportation Potential4 of 10 European transportcorridors run through UkraineDense network of

§ 273 700 km ofhighways§ 22 510 km of railways§ 4 500 km of waterways§ 42 900 km of pipelines§ 250 000 km of airroutes

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Ukraine and the GlobalFinancial Crisis

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1) world prices for Ukrainian export goods, mainly metal andchemical products, sharply fell reducing the amount offoreign currency inflow.

2) energy prices, especially prices for gas imported fromRussia and Central Asia, significantly increased worseningour trade balance

3) foreign capital started leaving the country causing troublesin banking sector.

Triple shock under the influence of the globalfinancial crisis

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Montly real growth / decline of industrialproduction, in % (2008 - 8 months 2009)

6,1

8,9 7,9 8 8,1 7,7 7,3 6,3 5,1 2,3-0,8 -3,1

-34,1

-32,8-31,9

-31,9-31,9

-31,1-30,4

-29,6

-40-35-30-25-20-15-10-505

1015

Jan 08

Feb 08

Mar 08

Apr 08

May 08

June 08

July 08

Aug 08

Sep 08

Oct 08

Nov 08

Dec 08

Jan 09

Feb 09

Mar 09

Apr 09

May 09

Jun 09

July 09

Aug 09

month

grow

th /

decl

ine

in %

17

Monthly export and import of goods 2008

0

2000

4000

6000

8000

10000

Jan.

Feb

Mar

Apr.

May

Jun.

Jul.

Aug

Sep

Oct.

Nov

Dec

month

mln

.USD

export import

18

GDP growth

91,3 90,1 85,877,1

87,8 9097 98,1 99,8

105,9 109,2 105,2 109,6 112,1102,7 107,3 107,9

102,1

0

20

40

60

80

100

120

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

years

%

19

Inflation rate in 1996 - 2008, %

39,7

10,1

20,0 19,225,8

6,1-0,6

8,212,3 10,3 11,6

16,622,3

-10,0

0,0

10,0

20,0

30,0

40,0

50,0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

years

in %

20

2,8 2,9 2,8 2,62,4

2,32,2 2,1 2,1 2,0 2,1

2,4 2,4 2,42,3 2,2

2,01,9

1,8 1,8 1,8 1,92,3

3,0 3,2 3,2 3,12,9

2,62,4

2,22,0

00,5

11,5

22,5

33,5

in %

2007

Feb-07

Apr-07

Jun-07

Aug-07

Oct-07

Dec-07

Jan-08

Mar-08

May-08

Jul-08

Sep-08

Nov-08

2009

Feb-09

Apr-09

Jun-09

Aug-09

montly

The unemployment rate in Ukraine (2007 - 8 month2009), in %

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Problems in financial and banking sectorsProblems in financial and banking sectors-Difficulties to access overseas loans for Ukrainian Banks;-Depreciation of the Ukrainian currency hryvnia from 5 UAH/USD to 9-10UAH/USD;- Reduction of foreign currency reserves of the National Bank of Ukraine(NBU) from $ 38 billion to $ 32 billion;- People started to withdraw bank deposits fearing collapse of the bankingsystem

Banks’ lack of liquidity and credit freeze

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Cooperation with IMF andAnti-crisis Measures of the

Government

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November 2008 - IMF loan equal to 16,4 billion USDNovember 2008 – First tranche of 4,5 billion USDMay 2009 – Second tranche of 2,8 billion USD

July 2009 – Third tranche of 3,3 billion USDfully covered by the JapaneseGovernment

November 2009 – Forth tranche is expected

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Main antiMain anti--crisis measures of the Ukrainian Governmentcrisis measures of the Ukrainian Governmentwithin the framework of cooperation with IMFwithin the framework of cooperation with IMF

• Implementation of flexible exchange rate regime• Reduction of inflation by 17%• Stabilization of banking system• Reduction of budget deficit• Recapitalization of banks• Limitation of minimum and average public wage• Balance of revenues and expenditures in financial plans oftwo main state enterprises – Naftogaz and Pension Fund

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AntiAnti--crisis program of the Government ofcrisis program of the Government ofUkraine "Overcoming the impact of the globalUkraine "Overcoming the impact of the globalfinancial and economic crisis and progressivefinancial and economic crisis and progressive

developmentdevelopment””..

-- filling the budget and cutting budgetary expenditures,filling the budget and cutting budgetary expenditures,-- preventing lower incomes,preventing lower incomes,

-- promoting entrepreneurship,promoting entrepreneurship,-- attracting investments,attracting investments,

-- supporting the real sector of the economy.supporting the real sector of the economy.

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Anti-crisis measures of the government (continuation)

Finance and banking- establishment of Stabilization Fund in the state budget,- increase of statutory capital of two state banks - OJSC Sberbank (a total of

13.9 bln. hryvnia) and OJSC UkrEximbank (up to 9.4 bln. hryvnia).Social policy- creation new jobs and public works.- strengthening employers' responsibility for crimes in the workplace

Private business- simplification of the procedure of cessation of business entities,- simplification of the procedure of establishment of Limited Liability

Company,- temporal restriction of state supervision (audit) of economic activity of

private companies,- implementation of new electronic system of state registration of legal persons

and natural persons, which will reduce registration procedures from 10 to 5-6

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Anti-crisis measures of the government(continuation)

Investment promotion- Establishment of special fund for state guarantees for

investment projects aimed at economic development of Ukraine;- Establishment of National Agency of Ukraine for Investments

and Development.

Export promotion- Draft law on system of export is credit and export insurance;- Establishment of Council of Exporters under the Ministry ofEconomy

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Current Economic SituationCurrent Economic Situation

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Montly real growth / decline of industrialproduction, in % (2008 - 8 months 2009)

6,1

8,9 7,9 8 8,1 7,7 7,3 6,3 5,1 2,3-0,8 -3,1

-34,1

-32,8-31,9

-31,9-31,9

-31,1-30,4

-29,6

-40-35-30-25-20-15-10-505

1015

Jan 08

Feb 08

Mar 08

Apr 08

May 08

June 08

July 08

Aug 08

Sep 08

Oct 08

Nov 08

Dec 08

Jan 09

Feb 09

Mar 09

Apr 09

May 09

Jun 09

July 09

Aug 09

month

grow

th /

decl

ine

in %

30

Export 2009

Monthly volume of foreign trade in 2009

2 438,22 693,5

3 174,9 3 091,02 912,1 3 023,0

3 211,7 3 205,9

2 041,1

3 800,6 3 936,53 591,3

3 206,0 3 198,1

3 899,6 3 835,2

-1 107,1

-293,9 -175,1-500,3

-761,6-687,9 -629,3

397,1

-2 000,0

-1 000,0

0,0

1 000,0

2 000,0

3 000,0

4 000,0

Jan

09

Feb

09

Mar

09

Apr

09

May

09

June

09

July

09

Aug

09

monthly

mln

. USD

export import balance

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FDI inflow

Net annual inflow of FDI, billion USD

0,68 0,92 1,322,25

7,84

4,73

7,93

6,18

2,36

0,001,002,003,004,005,006,007,008,009,00

2001 2002 2003 2004 2005 2006 2007 2008 6months2009Years

Bill

ion

USD

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Foreign Direct Investment Climate in UkraineForeign Direct Investment Climate in Ukraine

The foreign investments due to the world economic crisis by the end of Juneincrease by 6,6% in FDI to Ukraine.

The total volume of FDI was about 38 billion USD or 823,9 USD per capita.

Net growth of FDI for the first half of this year amounted to 2,36 bln. USD.

Major investors were Cyprus, Germany, Netherlands, Austria,United Kingdom, Russian Federation, France, United States etc.

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Prospective areas for foreign direct investments

Agriculture- Around 25% of the world black soil.- Ukraine grows wheat, maize, buckwheat and other corn, red and green vegetables,all kinds of fruit, melons and berries.- 2008 – biggest grain crop in the history, 53 mln.t.- Export potential - 20-25 mln. t annualy.

Infrastructure-Construction of highways, stadiums, airports, hotels, railway reconstruction,technical refit of local TV and radio companies, reconstruction of studentdormitories, creation of modern public transportation systems, as well asdevelopment of essential infrastructure in the cities of Kyiv, Lviv, Dnipropetrovsk,Donetsk, Odesa, Kharkiv, Symferopol, and at their neighbor areas.

Implementation of energy-saving technologies- Reduction of import of traditional energy sources.- Introduction of energy saving technologies in metallurgy, chemical industry,housing and communal services.

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Economic Cooperation WithEconomic Cooperation WithJapanJapan

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Cooperation within the frameworkCooperation within the frameworkOf Kyoto protocolOf Kyoto protocol

Green Investment SchemeIn March, 2009 - Agreement on the purchase of AAU underthe green investment scheme between Japan and Ukraine for thetotal amount of 300 million euros. Ukraine became the first

country with which Japan signed such agreement.

Joint Implementation Scheme- Recycling and utilization of methane gas in Zasyadko Coal Mine(together with Marubeni corporation)

- Production of electricity using blast furnace, converter and cokeoven gas at the Alchevsk Metallurgical Plant (together withSumitomo and Mitsubishi Heavy Industries)-

-

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Official Development Assistance program (ODA)(Reconstruction of the biggest Ukrainian airport “Boryspil”)

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• During the 2005-2008 total trade turnover between Ukraine and Japanincreased by 6 times;

• In 2008 bilateral trade turnover increased twice and reached the biggest figurein the history of our relations - 2.9 billion USD.

• In 2008 Japanese import, which mostly consisted of cars and autoparts,amounted to 2,8 billion dollars, reflecting the growing interestof Japanese companies in our country.

• Ukrainian main export goods to Japan are aluminum, ferroalloys, driedmilk and grain

Bilateral tradeBilateral trade

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24 companies with the Japanese capital are operating in Ukraine24 companies with the Japanese capital are operating in Ukraine

All biggest Japanese companies such as:• Mitsubishi,• Marubeni,• Mitsui,• Itochu,• Sojitz,• Sumitomo,• Mitsubishi Heavy Industrieshave representative offices in Ukraine.

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UkraineUkraine--Japan cooperation in agricultural areaJapan cooperation in agricultural area

This year Ukraine supplied corn and wheat to the Japanese market.

In the previous years Ukraine was one of the major suppliers of milk powder.

Ukraine is a breadbasket of Europe and one of the biggest exporters of grainin the world.

Japanese business is very interested in construction of grainelevators and terminals for grain storage.

There are also a lot of joint business opportunities in food processing industries,such as production of frozen bread, fruit and vegetables.

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Thank you for your attention!Thank you for your attention!

Q&AQ&A