© GfK 2015 | What hinders investment in Ukraine?| 24 April 2015 1
WHAT HINDERS INVESTMENT IN UKRAINE?Tetiana Sytnyk, GfK Ukraine
April 24, 2015
© GfK 2015 | What hinders investment in Ukraine?| 24 April 2015 2
Source: State Statistics of Ukraine, Statistics Office of Poland
The Ukrainian economy was weak to withstand the crisis. Years 2009-2013 are lost years for the Ukrainian economy
2005 2006 2007 2008 2009 2010 2011 2012 201380
90
100
110
120
130
140
150
111
136
Read GDP index, 2005=100
Ukraine Poland
2005 2006 2007 2008 2009 2010 2011 2012 201360
80
100
120
140
160
79
155
Investment index, 2005=100
Ukraine Poland
2005 2006 2007 2008 2009 2010 2011 2012 201360
80
100
120
140
160
180
72
164
Export index, 2005=100
Ukraine Poland
2005 2006 2007 2008 2009 2010 2011 2012 201370
90
110
130
150
170
117
152
Import index, 2005=100
Ukraine Poland
© GfK 2015 | What hinders investment in Ukraine?| 24 April 2015 3
Poor economic policies have led to structural imbalances in the Ukrainian economy
GDPStagnation 0.0%
Household consumption
Growth +7.8%in comparison to 2012
Investment
Reduction -6.6%in comparison to 2012
Government balance
General government deficit
-4.8% of GDP
Combined deficit(General government and Naftogaz)
-6.7% of GDP
Current account balance
-9.2% of GDPExport: reduction -9%
Import: reduction -6%
In comparison to 2012
Source: Ukrainian State Statistics Committee, IMF
© GfK 2015 | What hinders investment in Ukraine?| 24 April 2015 4
Poor economic policies have led to structural imbalances in the Ukrainian economy
GDPDecline –6.8%
Household consumption
Decline -9.6%in comparison to 2013
Investment
Decline -23%in comparison to 2013
Government balance
General government deficit
-4.6% of GDP
Combined deficit(General government and Naftogaz)
-10.3% of GDP
Current account balance
-6.1% of GDPExport: reduction -14.5%
Import: reduction -22.1%
In comparison to 2013
Source: Ukrainian State Statistics Committee, IMF
© GfK 2015 | What hinders investment in Ukraine?| 24 April 2015 5
Dynamics of household consumption and investment in Ukraine and Poland, 2005-2014
2005 2006 2007 2008 2009 2010 2011 2012 2013 201450
70
90
110
130
150
170
190186
168
79
61
Ukraine, index 2005=100
Household consumption Investment
2005 2006 2007 2008 2009 2010 2011 2012 201350
70
90
110
130
150
170
190
128
155
Poland, index 2005=100
Household consumption Investment
© GfK 2015 | What hinders investment in Ukraine?| 24 April 2015 6
Dynamics of investment and household consumption in Ukraine
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
2016 17
13
-16
7
16
8 8
-10
4
2124
-1
-50
37
3
-7
-23Household consumption
Investment
% real change comparing to the previous year
© GfK 2015 | What hinders investment in Ukraine?| 24 April 2015 7
2009–2012: saving and investment reduced, borrowing increased
2009 2010 2011 2012 2013
60
81
116
97
63
Net capital formation, billion UAH
2009 2010 2011 2012 2013
45
82 83
12
-48
-1
-61-87 -98
Net saving, billion UAH Net borrowing/lending, billion UAH
© GfK 2015 | What hinders investment in Ukraine?| 24 April 2015 8
In 2014, spike of saving in the economy happened in the third quarter
Q1'2014 Q2'2014 Q3'2014 Q4'2014
6 4 6
15
Net capital formation, billion UAH
Q1'2014 Q2'2014 Q3'2014 Q4'2014
-27 -24
35
-16-6 -4 -5
-12
Net saving, billion UAH
Net borrowing/lending, billion UAH
© GfK 2015 | What hinders investment in Ukraine?| 24 April 2015 9
Source: State Statistics Service of Ukraine, Statistics Office of Poland
Share of households and companies (non-financial corporations) in total saving in the economy
2009 2010 2011 20120
10
20
30
40
50
60
70
80
90
100
3330
7
18
73
8184 84
Poland: share of households and companies in total saving
Households Companies
2009 2010 2011 2012 20130
10
20
30
40
50
60
70
80
90
100
54
83
61
88
96
37
20 1714 12
Ukraine: share of households and com-panies in total saving
Households Companies
© GfK 2015 | What hinders investment in Ukraine?| 24 April 2015 10
Sector of non-financial corporations
Allocation of income of companies in Ukraine and Poland, 2012 (integrated national accounts by sector of non-financial corporations)
100% 49% 35% 32%
100% 32% 10% 4%
All value added created by companies
Gross profit (left after payments to
employees and taxes on production and
imports)
Gross balance of primary income
(left after payment of property income)
Gross disposable income = gross saving
(after taxes on income and wealth)
POLAND
UKRAINE
© GfK 2015 | What hinders investment in Ukraine?| 24 April 2015 11
Sector of non-financial corporations
100% 32% 7% 3%
UKRAINE - 2012
100% 32% 10% 4%
UKRAINE - 2013
All value added created by companies
Gross profit (left after payments to
employees and taxes on production and
imports)
Gross balance of primary income
(left after payment of property income)
Gross disposable income = gross saving
(after taxes on income and wealth)
Allocation of income of companies in Ukraine, 2012-2013 (integrated national accounts by sector of non-financial corporations)
© GfK 2015 | What hinders investment in Ukraine?| 24 April 2015 12
What are implications?
• Lack of investment is the cost of populism which led to the re-distribution of resources (savings) from companies to households.
• The current challenge is to return trust of investors, and…
• …to ensure smooth financial intermediation which transfers savings of households to investment projects
• s