Situation in the world economy remains complex. The World Bank forecast 2.2% of its growth in 2013, against 2.3% of last year, but only taking into account high-growth economies, like BRICS countries, for example. In the Euro zone, however, the problems remain: its GDP dropped by 0.5% in 2012, and this year it is expected another decreased by 0.6%. It won't kill powerful and full of reserves economy of the European Union, but difficulties are evident. Economic recovery rate in the US also remains low - 2% annually in 2012-13.
In turn, due to weak economic rates of developed countries, the global trade also cannot recover completely, which holds down the recovery rate of Ukraine's economy, mostly oriented on export of its industrial production. Take for example metal, one of the principal export goods: for the first five months of 2013 the indicators of domestic iron and steel industry have suffered decline by 1.9% comparing to January-May period of 2012. In total, the national production has fallen by 5.2% for the mentioned period. "But hundreds and thousands enterprises continue fighting for market outlets. Trade protectionism in the world strengthens. There are numerous protective measures working against Ukrainian products, but our production still reserves stable position on external markets. For the first four months of the year the export rate has remained at the level of 2012 and even grown a little (0.1%), making almost $22 billion. At the same time, import has decreased by 6.7% (to $24.6 bln) thanks to optimization of gas purchase," economist and political scientist Vitali Kulik notes.
Export gain includes a wide range of goods, from production of vegetable origin (+2.3%) and ready foodstuff (+25.8%) to engineering (+4.9%). Moreover, for the first five months the production of machinery and general-purpose equipment has grown by 7.3% in annual comparison, while manufacturing of such promising production as computers and electronics has grown by 15.9% straight away. Kulik adds that there is certain progress in traditional sectors - export of ores has increased by 11.5%. Analyzing by counties, supplies to China has increased by 68.5% (up to $986 million), to Belarus by 22.2% (up to $606 million), to Italy by 21.5% (to $918 million), to Turkey by 11.1% (to $1299 million).
Executive director of International Blaser Fund Oleh Ustenko specifies: preserving export of important goods and decreasing import has enabled to reduce negative trade balance by 41% - from $4.4 billion last year to $2.6 billion this year.
Fighting for progress
Analysts believe that apart from export the economic state policy also helps to keep the country in tone. We are still at the start, but certain progress is already obvious, specialist of the National Institute for strategic studies Denis Chernikov says. "Even critics of the Cabinet admit that for 2010-2013 the state policy has been able to protect economy from external and internal risks. In particular, tariffs for energy sources and infrastructure services have finally become predictable. It does not mean that the prices have stopped rising, but at least the business can see estimated price chart and plan ahead. Moreover, such approach helps the government and industry to avoid tension and conflicts. In return, industries have taken obligation to minimize dismissals, control prices and invest into production and social sector." Indeed, domestic heavy industry does not suffer mass layoffs and shutdowns, while the situation in the EU countries is worse. Thus, starting from 2008 the "clear" number of dismissals in metallurgy industry of the EU has reached 40 thousand people, while the real scale is way bigger, considering the practice of transfer to temporary or short-term contracts. Take for example the shutdown of ILVA metallurgic plant in Italy with total staff of 25 thousand people, or halt of production of ArcelorMittal's plants in Belgium and France.
In Ukraine, however, the state and industry manage to form fair stock of orders, including the contract of Kharkiv tractor plant on supplies of tractors to Cuba, the contract of "Azovmash" concern on production of converter equipment for Bokaro steel plant (India), serial production of An-140 aircrafts in Iran, Kulik points out. "And this is only the heavy industry and only the biggest deals I am talking about. Stable work of basic industries saturates the economy with resources and maintain the demand. Moreover, thanks to economic stability prices rise slowly," Kulik says. Thus, for five months prices for food have risen only by 0.3%, and prices for certain goods have even fallen.
The construction sector also survives. Though the rate of construction works has fallen by 17% comparing to the last year, the housing construction has increased by 2.4% (to 3.4 billion hryvnias in monetary terms). The amount of constructions works for 2012 reduced by 14%, but it was built 10.75 million sq m of housing, which is a record for the last 19 years.
The situation with transport sector is not easy - average reduction of cargo traffic has made 6.5%. however, economist remind about the adopted law "On sea port of Ukraine", which is called to put order in sea transportation, to keep present investors and attract new ones. Thus, according to the law, wharf terminals and navigational equipments stay in state property, while other infrastructure may be leased for up 50 years, which may be interesting for private investors, expert on logistics Vyacheslav Konovalov says. "In fact, the very adoption of the law is very important for investors, as it finally puts order in legal functioning of ports. We can expect 20-25 billion hryvnias of investments." Against such background the sea cargo transit via Ukraine has increased by 24%, and freight traffic - by 5-6% since the year beginning, Konovlov adds. "Though the mastering of transit potential goes slowly, the market and demand speaks in our favor." There are three international transport corridors (#3,5 and 9) passing through Ukraine's territory.
Program of some use
In this context, the Program of activist policy for 2013-2014 also should be mentioned. "The Program focuses on hi-tech sectors of heavy industry (aviation, space, shipbuilding) and IT-sphere. Traditional sectors, like fuel and energy complex, agriculture, housing and utility, transport, are also not forgotten. The major part of investments is expected from private sector under public private partnership," Kulik specifies. The Program also provides for optimization of taxes. Thus, the number of national taxes has been cut from 29 to 28; income tax has been reduced from 21% to 19% (16% in 2014); VAT will be reduced to 17% next year, the list of licensable activities has been shortened from 78 to 56 names and mass tax concessions have been introduced.
The overall estimate of the Program is 382 billion hryvnias. This time the selection criteria for projects will be very strict: social significance of a project, its ability to reduce expenses of state and local budgets and, of course, its self repayment, director of the Finance Ministry department on debt and fiscal policy Galyna Pakhachuk says. The Cabinet intends to attack means of both state and private banks. "Banks-partners should get a share of income for participation in a project. We want the banking system to take control over a part of work - crediting under state guarantees and evaluation of projects. Interest rate should not exceed the discount rate of NBU plus 2% ,which will make about 10%," Pakhachuk points out.
The budget will allocate 50 billion hryvnias for state guarantees. Both new and already launched projects can participation in the selection. As of end of June there were more than 2000 various projects registered for tender, and 70 were approved. Aircraft plant "Antonov" is the leader on raised funds for the moment and will get 3.2 billion hryvnias for development of "An" airliners. The majority of approved projects includes engineering companies to our great joy, Ustenko informs.
What to expect
We also want to mention the memorandum on mutual understanding with enterprises of mining and metals complex, signed by the Cabinet in June. The state has confirmed its obligations before the enterprises of the industry on VAT refund, reimbursement of overpaid taxes and freezing of tariffs for energy and railroad freight activity till June 1, 2014. In return, the state expects the enterprises not to reduce staff and production and to keep prices at the level not higher than world prices. According to minister for industrial policy Mykhailo Korolenko, the world economy changes and it is important to preserve the mining and metals industry for the country. "Last year losses of domestic metallurgists reached 4.9 billion hryvnias, and may grow this year. However, the industry must keep pace with the changes, renew capacities and reduce price costs. The state has not made big concessions to the industry because it has no intentions to pull the industry out of the crisis by the ears. The industry must do it itself, and the state can only help with it," the minister believe. Moreover, the industry should receive 10 out 50 billion provided by the program, which is supposed to help it modernize even with complicated market situation.
Well known subject specialist Volodymyr Pikovski says the document is long-awaited and reminds that similar memorandum was also concluded with the industry in 2008-09. The industry promised not to fire workers and reduce prices for production in exchange for tax exemption and support of domestic demand. "The memorandum set moratorium on price rise for energy and railroad freight activity for the mining and metals complex, which saved the industry from collapse. However, he first ever similar project was a tax experiment in 1999-2001, when enterprises of the mining and metals complex got income tax exemption and remission of penalties and fines for tax debts. For two years of experiment the steel production in the country grew by 33%. WE do have positive experience of similar programs and we should use it even under such complicated conditions as we have now," the experts believes.
Denis Chernikov from the National Institute for strategic studies sums up that smart state support enables to use systemic competitive advantages of the country to maximum. "In the EU there is a whole system to distribute state resources for improvement of business competitive abilities. Ukraine also should make state support effective and modern. When Ukrainian suppliers go to foreign markets, they often come across various forms of public support and suffer competitive disadvantages. Effective support of business, which stimulates development of technologies, creation of jobs and entering new markets is an attribute of any modern and developed state," the economist assures.
In general, analysts agree that in 2013 the economy of Ukraine will be stable despite uneasy global situation, and well-thought-out state policy will assist to the progress. The World bank forecasts speed up in growth of world GDP up to 3% in 2014 and up to 3.3% in 2015. It can also become a factor for faster recovery of domestic economy, its development and improvement of basic indicators.
Andriy Boyarunets
In turn, due to weak economic rates of developed countries, the global trade also cannot recover completely, which holds down the recovery rate of Ukraine's economy, mostly oriented on export of its industrial production. Take for example metal, one of the principal export goods: for the first five months of 2013 the indicators of domestic iron and steel industry have suffered decline by 1.9% comparing to January-May period of 2012. In total, the national production has fallen by 5.2% for the mentioned period. "But hundreds and thousands enterprises continue fighting for market outlets. Trade protectionism in the world strengthens. There are numerous protective measures working against Ukrainian products, but our production still reserves stable position on external markets. For the first four months of the year the export rate has remained at the level of 2012 and even grown a little (0.1%), making almost $22 billion. At the same time, import has decreased by 6.7% (to $24.6 bln) thanks to optimization of gas purchase," economist and political scientist Vitali Kulik notes.
Export gain includes a wide range of goods, from production of vegetable origin (+2.3%) and ready foodstuff (+25.8%) to engineering (+4.9%). Moreover, for the first five months the production of machinery and general-purpose equipment has grown by 7.3% in annual comparison, while manufacturing of such promising production as computers and electronics has grown by 15.9% straight away. Kulik adds that there is certain progress in traditional sectors - export of ores has increased by 11.5%. Analyzing by counties, supplies to China has increased by 68.5% (up to $986 million), to Belarus by 22.2% (up to $606 million), to Italy by 21.5% (to $918 million), to Turkey by 11.1% (to $1299 million).
Executive director of International Blaser Fund Oleh Ustenko specifies: preserving export of important goods and decreasing import has enabled to reduce negative trade balance by 41% - from $4.4 billion last year to $2.6 billion this year.
Fighting for progress
Analysts believe that apart from export the economic state policy also helps to keep the country in tone. We are still at the start, but certain progress is already obvious, specialist of the National Institute for strategic studies Denis Chernikov says. "Even critics of the Cabinet admit that for 2010-2013 the state policy has been able to protect economy from external and internal risks. In particular, tariffs for energy sources and infrastructure services have finally become predictable. It does not mean that the prices have stopped rising, but at least the business can see estimated price chart and plan ahead. Moreover, such approach helps the government and industry to avoid tension and conflicts. In return, industries have taken obligation to minimize dismissals, control prices and invest into production and social sector." Indeed, domestic heavy industry does not suffer mass layoffs and shutdowns, while the situation in the EU countries is worse. Thus, starting from 2008 the "clear" number of dismissals in metallurgy industry of the EU has reached 40 thousand people, while the real scale is way bigger, considering the practice of transfer to temporary or short-term contracts. Take for example the shutdown of ILVA metallurgic plant in Italy with total staff of 25 thousand people, or halt of production of ArcelorMittal's plants in Belgium and France.
In Ukraine, however, the state and industry manage to form fair stock of orders, including the contract of Kharkiv tractor plant on supplies of tractors to Cuba, the contract of "Azovmash" concern on production of converter equipment for Bokaro steel plant (India), serial production of An-140 aircrafts in Iran, Kulik points out. "And this is only the heavy industry and only the biggest deals I am talking about. Stable work of basic industries saturates the economy with resources and maintain the demand. Moreover, thanks to economic stability prices rise slowly," Kulik says. Thus, for five months prices for food have risen only by 0.3%, and prices for certain goods have even fallen.
The construction sector also survives. Though the rate of construction works has fallen by 17% comparing to the last year, the housing construction has increased by 2.4% (to 3.4 billion hryvnias in monetary terms). The amount of constructions works for 2012 reduced by 14%, but it was built 10.75 million sq m of housing, which is a record for the last 19 years.
The situation with transport sector is not easy - average reduction of cargo traffic has made 6.5%. however, economist remind about the adopted law "On sea port of Ukraine", which is called to put order in sea transportation, to keep present investors and attract new ones. Thus, according to the law, wharf terminals and navigational equipments stay in state property, while other infrastructure may be leased for up 50 years, which may be interesting for private investors, expert on logistics Vyacheslav Konovalov says. "In fact, the very adoption of the law is very important for investors, as it finally puts order in legal functioning of ports. We can expect 20-25 billion hryvnias of investments." Against such background the sea cargo transit via Ukraine has increased by 24%, and freight traffic - by 5-6% since the year beginning, Konovlov adds. "Though the mastering of transit potential goes slowly, the market and demand speaks in our favor." There are three international transport corridors (#3,5 and 9) passing through Ukraine's territory.
Program of some use
In this context, the Program of activist policy for 2013-2014 also should be mentioned. "The Program focuses on hi-tech sectors of heavy industry (aviation, space, shipbuilding) and IT-sphere. Traditional sectors, like fuel and energy complex, agriculture, housing and utility, transport, are also not forgotten. The major part of investments is expected from private sector under public private partnership," Kulik specifies. The Program also provides for optimization of taxes. Thus, the number of national taxes has been cut from 29 to 28; income tax has been reduced from 21% to 19% (16% in 2014); VAT will be reduced to 17% next year, the list of licensable activities has been shortened from 78 to 56 names and mass tax concessions have been introduced.
The overall estimate of the Program is 382 billion hryvnias. This time the selection criteria for projects will be very strict: social significance of a project, its ability to reduce expenses of state and local budgets and, of course, its self repayment, director of the Finance Ministry department on debt and fiscal policy Galyna Pakhachuk says. The Cabinet intends to attack means of both state and private banks. "Banks-partners should get a share of income for participation in a project. We want the banking system to take control over a part of work - crediting under state guarantees and evaluation of projects. Interest rate should not exceed the discount rate of NBU plus 2% ,which will make about 10%," Pakhachuk points out.
The budget will allocate 50 billion hryvnias for state guarantees. Both new and already launched projects can participation in the selection. As of end of June there were more than 2000 various projects registered for tender, and 70 were approved. Aircraft plant "Antonov" is the leader on raised funds for the moment and will get 3.2 billion hryvnias for development of "An" airliners. The majority of approved projects includes engineering companies to our great joy, Ustenko informs.
What to expect
We also want to mention the memorandum on mutual understanding with enterprises of mining and metals complex, signed by the Cabinet in June. The state has confirmed its obligations before the enterprises of the industry on VAT refund, reimbursement of overpaid taxes and freezing of tariffs for energy and railroad freight activity till June 1, 2014. In return, the state expects the enterprises not to reduce staff and production and to keep prices at the level not higher than world prices. According to minister for industrial policy Mykhailo Korolenko, the world economy changes and it is important to preserve the mining and metals industry for the country. "Last year losses of domestic metallurgists reached 4.9 billion hryvnias, and may grow this year. However, the industry must keep pace with the changes, renew capacities and reduce price costs. The state has not made big concessions to the industry because it has no intentions to pull the industry out of the crisis by the ears. The industry must do it itself, and the state can only help with it," the minister believe. Moreover, the industry should receive 10 out 50 billion provided by the program, which is supposed to help it modernize even with complicated market situation.
Well known subject specialist Volodymyr Pikovski says the document is long-awaited and reminds that similar memorandum was also concluded with the industry in 2008-09. The industry promised not to fire workers and reduce prices for production in exchange for tax exemption and support of domestic demand. "The memorandum set moratorium on price rise for energy and railroad freight activity for the mining and metals complex, which saved the industry from collapse. However, he first ever similar project was a tax experiment in 1999-2001, when enterprises of the mining and metals complex got income tax exemption and remission of penalties and fines for tax debts. For two years of experiment the steel production in the country grew by 33%. WE do have positive experience of similar programs and we should use it even under such complicated conditions as we have now," the experts believes.
Denis Chernikov from the National Institute for strategic studies sums up that smart state support enables to use systemic competitive advantages of the country to maximum. "In the EU there is a whole system to distribute state resources for improvement of business competitive abilities. Ukraine also should make state support effective and modern. When Ukrainian suppliers go to foreign markets, they often come across various forms of public support and suffer competitive disadvantages. Effective support of business, which stimulates development of technologies, creation of jobs and entering new markets is an attribute of any modern and developed state," the economist assures.
In general, analysts agree that in 2013 the economy of Ukraine will be stable despite uneasy global situation, and well-thought-out state policy will assist to the progress. The World bank forecasts speed up in growth of world GDP up to 3% in 2014 and up to 3.3% in 2015. It can also become a factor for faster recovery of domestic economy, its development and improvement of basic indicators.
Andriy Boyarunets
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