Pressing Trends in Ukraine
Pressing Trends in Ukraine
Wednesday January 20th, 2015
Cameron Torrens – Primary Article Contributor
Martin Eidenberg – Article Editor & Team Leader following Ukraine
Keywords: Ukraine, 2008 financial crisis, investor confidence, macroeconomic recovery, Russian impact
The 2008 financial crisis hit Ukraine hard. At its height, the Ukrainian Hryvnia dropped 38% against the US dollar. As many loans and mortgages were issued in US dollars and the majority of Ukrainians used their own currency, Ukrainians began to pay far more interest on the loans than anticipated. By 2009, Ukraine’s banking system recorded losses of roughly 7 billion Hryvnias (approx. 909 million USD). Economic growth dropped 8% and foreign direct investment plunged 66%. Additionally, unemployment rates rose to roughly 9.5%,
After the 2008 financial crisis, signs that the economic situation is improving emerged. By 2010, economic growth rebounded quicker than anticipated and increased for the first time in 3 years. Nevertheless, GDP in 2008 hovered around 180 billion USD and actually decreased to 177 billion USD in 2013. However, it fluctuated minimally within this time frame. In 2014, it has bounced back and is approximately 195 billion USD. Moreover, unemployment fell to 7.5% in 2014. Yet unemployment and GDP have had little effect on the human development index (HDI). Historically, Ukraine has steadily revolved around 0.7 on a scale of 0 to 1, which is classified as high human development. Although Ukraine is 83rd in the world on the HDI scale, it has seen gradual increases to roughly 0.734, even through the financial crisis and the unrest in the country.
A lot of the problems that Ukraine faced during the financial crisis were a result of the instable fiscal policies in place by former President Viktor Yanukovych. Now, the Ukrainian government has a joint recovery program with the IMF aimed at rebalancing macroeconomic programs. However, Ukraine’s access to financing has been limited due to investor concerns over the political turmoil, poor investment climate due to the recent annexation of Crimea, and global economic instability. In addition, the World Bank has aided the new Ukrainian government to implement a stronger regulatory role for the state’s finances and the banking industry to help prevent future financial crises.
The recent democratic election of President Petro Poroshenko has brought forth new hope for many Ukrainians. Russian dependency on goods and services has decreased and Ukrainian interests have shifted towards entering the Eurozone and adopting new, EU-based measures. However, these changes have not resulted in positive outcomes for investors. At this time, political turmoil between Russia and Ukraine has severely tarnished the strength of the Ukrainian government in exercising control over much of its territory and its citizens. With the threat of further social unrest, in combination with high unemployment rates (along with many other factors), this leads to very unpredictable and unstable grounds for investment in Ukraine. With most of the production of the Ukrainian economy coming from the manufacturing sector in the eastern part of the country that is now under Russian control, Ukraine’s economic future is dependent upon a favorable resolution to the current conflict.
There are, however, also some positive signs. For instance, the World Bank believes that the Ukrainian agricultural sector is underutilized and that these resources can help Ukraine recover and develop. Despite this optimism, investors cannot depend on the Poroshenko government to protect their assets at this time. Because of this, in general, it would be an ill-advised time to invest in eastern Ukraine in particular at this time. Western Ukraine remains in the government’s control but investment here must also be seen as high risk.
