Ukraine's economy growing steadily, Eastern Economist publisher concludes (05/25/03)

Ukraine's economy growing steadily, Eastern Economist publisher concludes

by Maria Kulczycky and Andrew Finko

CHICAGO - Against the background of world economic malaise and slowdowns in the United States and across Europe and Asia, the news on the economic front in Ukraine is surprisingly upbeat. Although Ukraine's economy bottomed out in the late '90s it has been growing "remarkably" in the last few years, according to data compiled by the publisher of the Eastern Economist, an internationally circulated business and economic weekly published in Ukraine.

Lydia Wolanskyj, the daughter of a World War II refugee, grew up and studied in Canada, started a small company in the United States and forged her publishing career in Kyiv. She spoke to an audience of Chicago Business and Professional Group members and guests on April 5.

Ms. Wolanskyj reported that Ukraine posted the first positive economic growth since independence in 2000, an impressive 9%. That positive growth, she added, was confirmed during 2001 and 2002 and indicators point toward continued growth in the future. However, she cautioned that continued economic growth will depend on improved access to foreign export markets, which Ukraine has achieved to some degree.

Ms. Wolanskyj noted particular successes in three areas:

Food production has been the major growth area since the 1998 crisis. Ms. Wolanskyj pointed to companies such as Chumak, Veres and Torchyn as successful firms involved in making condiments and a variety of processed vegetables and jams. Confectioners such as Kraft Jacobs Suchard, AVK, Roshen and Nestle have turned chocolates, a Soviet passion, into a world-class hit. Even chickens have their big local brands: Nasha Ryaba and Havrylivski Kurchata.
Charities and non-government organizations (NGOs) have become quite active in the country and sponsor many charity events such as balls, races (including sailing races) and picnics to raise funds for social causes. NGOs are also playing an active role in health care, government and democracy-building.
Green tourism is just taking off, but has great potential as a lucrative business for Ukraine. In the last few years, the tourism industry in Yaremche in the Carpathian Mountains is showing improvement, with bed and breakfasts providing economical lodging for tourists seeking family-oriented, inexpensive country vacations.

Several recent developments confirm Ms. Wolanskyj's optimism about Ukraine's future economic growth, including:

NATO's plan to sign an agreement to purchase Ukrainian heavy transportation carriers before the end of this year.
Iran's plan to jointly manufacture aircraft with Ukraine, in addition to the AN-140 aircraft it has already purchased.
The Swiss Federal Banking Commission's lifting of its sanctions against Ukraine.
The World Bank's anticipated $5 million loan for an e-Ukraine program similar to programs implemented in other countries that have been key to reducing corruption. By setting up an electronic system for circulation and computerization of state documents, the system also improves efficiency, still a major problem in Ukraine.
The U.N. Development program released its E-Readiness assessment, which indicates that although Ukraine's information and communications technology sectors are behind those of Western developed nations, they are improving rapidly.

Unfortunately, negative signs can still cloud Ukraine's economic future. For example, Standard & Poor's recently issued a B rating for Ukraine's long- and short-term debt. However, with economic growth and stability, Ukraine's ratings should improve over time.

Referring to a recent paper by Carnegie Fellow Anders Aslund, Ms. Wolanskyj discussed another pivotal issue, Ukraine's accession to the World Trade Organization. While progress is being made on the path toward integration into the European Union, the ability to fend off the dumping and protectionist policies adopted by other countries hinges on Ukraine's being a member of the WTO-and soon.

"The WTO may be limited in its activities, resources and staff, but it is the only world trade court. Those countries that don't belong are effectively left outside the rule of international trade law," Ms. Wolanskyj noted.

Unfortunately, the WTO operates slowly and requires consensus decisions by its members. For example, Ukraine's application for membership has been pending since November 1993. Although currently no country outwardly opposes Ukraine's entry into WTO, their apparent neutrality could change rapidly, particularly with Russia, which has many unresolved issues with Ukraine, Wolanskyj explained.

"Russia could make its many bilateral issues with Ukraine conditions for Ukraine's entry," Ms. Wolanskyj said. "Joining WTO would protect Ukraine against its biggest trade challenge: dumping."

In addition, Ukraine needs to be more aggressive in asserting and protecting its own interests. It can learn from steps Russia took to protect its interests, she observed. Faced with bottlenecked grain shipments, Russians decided to double the export capacity in their own ports and are building new grain terminals in Novorossiisk, Tuapse and Tahanrih. They have also introduced restrictions on European beef, pork, and poultry, and are now even considering restrictions on EU dairy products. Russia's tactics have proven successful in forcing the European Union into bilateral negotiations.

Learning from Russia's example, Ukraine needs to affirmatively act to protect its economic positions, such as in the area of chemicals used for fertilizer, Ms. Wolanskyj suggested.

She concluded that Ukraine's economic future is bright, provided the country's political leaders take the economic reins and move the economy to the next level:membership in the WTO. That step should pave the way for entry to the EU and NATO - and virtually guarantee unimpeded access to world markets.

Ms. Wolanskyj has published the Eastern Economist for more than nine years. It is an English-language weekly that analyzes and comments on the economies of Ukraine and its Eastern European neighbors. Operating entirely on subscriptions and advertising revenue, it issues market reports, stock trading data, industry surveys, financial news, leadership profiles and news on privatization and reform efforts.

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The Chicago B&P Group is an organization reactivated after a hiatus of several years. Last year, it sponsored three programs - two lectures by important speakers and a social event. The program for 2003 was launched with this presentation, and will include a presentation May 10 by Ambassador William Courtney on "The Former Soviet Union and International Security."

For membership information, please write to CBPG Membership, P.O. Box 2249, Chicago, IL 60690, or e-mail questions to [email protected]. Annual membership dues are $35.

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