Despite numerous political cataclysms the country enjoyed impressive economic growth in 2007 for the eighth straight year, with a figure of around 7% for the past twelve months, fuelled by around USD 7 billion in foreign investment in agriculture, retail and manufacturing.
On the downside, inflation ran wild – soaring to 16.6% year-on-year in December – triggered by costlier energy imports from Russia and rising food costs. Both trends can be expected to continue in the coming year.
Time for Euro 2012 action
One of the biggest successes for Ukraine was its victorious bid to co-host the Euro 2012 football championships. According to former Minister of Sport Viktor Korzh: “There are serious investors who are ready to invest up to UAH 37 billion in the construction of airports, roads, hotels and improving sports infrastructure.”
The international community will be watching closely in 2008 to see how serious Ukraine is about using the opportunities presented by Euro 2012 to improve the infrastructure of the country. Little concrete progress was made in 2007 thanks to political chaos and electioneering, but neither factor will suffice to explain any continued inactivity in 2008.
Ukraine’s real estate boom reached a fever pitch in 2007, marking the pinnacle of a process which saw property values climb by over 600% in the past four years. Russia’s Mirax Group and international developer Seven Hills entered the Kyiv market, competing to become top investors in Ukraine. Although one million square metres are currently under development in the capital, new laws enacted by the mayor’s office will put the brakes on runaway growth in the coming year.
A new wave of IPOs
In June, iron ore powerhouse Ferrexpo pressed ahead with a USD 1.6 billion floatation on the London Stock Exchange. With 25% of shares sold to hungry investors, the company’s initial public offering (IPO) marks the first full listing of a Ukrainian company on the exchange. Ferrexpo, which possesses the world’s fourth-largest iron ore reserves, plans to double production to 16 million tonnes of pellets and up to 3.5 million tonnes of concentrate annually within seven years.
Plans were also set in motion to merge Russia’s Gazmetal and Ukraine’s Industrial Union of Donbass (IUD) in February, triggering a new round of changes in the global steel industry. IUD, which is Ukraine’s second-largest company, aims to gain a competitive edge by gaining access to Gazmetal’s iron ore reserves. Official results of the merger are expected to be announced early in 2008.
Banking takeovers also dominated business headlines, with a queue of European banks clamouring for entry into the lucrative and relatively untapped Ukrainian market. In February, Swedbank purchased TAS-Kommerzbank for USD 985 million. In November, another Swedish bank, SEB, bought Faktorial-Bank for USD 120 million. Bank of Cyprus confirmed plans to buy USD 76 million of AvtoZAZbank, a stake which will be equal to 95% of its shares, while the National Bank of Greece finished its acquisition of Bank Forum and Kreditprombank. According to the Financial Times, foreign financial institutions now represent 30% of the banking market based on net assets, having tripled since the Orange Revolution. This trend is expected to continue into 2008. While most of the juiciest acquisitions have already been snapped up by international banks, more mid-level Ukrainian banks remain an attractive option given the access they can provide to the lucrative Ukrainian market.
World-beating stock market
Bloomberg reported on December 31 that Ukraine’s stock market – the PFTS Index – outperformed every market in the world except China’s CSI Index during 2007, climbing 135% in the year. Many stocks witnessed quadruple digit growth. In September, Wiener Börse, the Vienna stock exchange, created a special Ukrainian index to cater for growing interest in the market, which lists the top 10 companies on the PFTS, raising Ukraine’s international profile for European investors. Around 150 members and 700 securities are listed on the bourse, which has a total market capitalisation of USD 140 billion.
The year 2007 also brought its share of low points. After series of fatal blasts in the Zasyadko coal mine, a deadly gas accident at residential buildings in Dnipropetrovsk and a toxic yellow phosphorus spill in Lviv, Ukraine once again was featured in the international media as an ecological danger zone and country whose citizens are constantly at risk from the effects of its crumbling Soviet-era infrastructure. As a result 2008 looks set to see the government seek to address the deadly shortcomings of infrastructure neglect, particularly in the energy and public utilities sectors.
The embattled state-run energy company Naftogaz ended the year with a dismal record. By the end of December, the gas monopoly had lost USD 1 billion for 2007. After failing to file a year-end audit report as required by its bondholders, Naftogaz is now is in technical default of its USD 500 million 2009 Eurobond. The Ukrainian government has thrown Naftogaz a USD 2.4 billion lifeline to keep the company afloat, but this amount only covers operating costs so it may be only a matter of time before the company is forced into default by its increasingly impatient creditors.
Democracy the hard way
Politically, the year 2007 was one of crisis and stalemate. Ukraine’s three main political personalities discovered that current events would shape their futures for the upcoming presidential elections in 2009.
President Yushchenko made something of a comeback, dissolving parliament and calling for snap elections after months of inactivity and tumbling popularity ratings. The decision in April to organise a pre-term vote was a rare demonstration of the President’s resolve and firmness. Although in the consequent elections he scored a poor third place, local media noted that Yushchenko nonetheless managed to translate his 14% of votes for the Our Ukraine-People’s Self Defence Bloc into half of the available governmental positions in the new Orange coalition.
Meanwhile, the year turned out extremely badly for outgoing prime minister Viktor Yanukovych, who began 2007 as arguably the most powerful man in the country and who initially contested the decision to call a pre-term election, vocally threatening to defy the president’s orders. His party organised a host of stage-managed demonstrations in downtown Kyiv in a bid to create the impression of mass popular support, and engaged in the rhetoric of defiance as the spring crisis threatened to spill over into open violence. In the end, his Party of Regions was forced to back down and fight an unwanted, and from their point of view, dangerous election campaign. Regions managed to hold onto their position as the country’s single most popular party in the September vote, but with voters deserting their Socialist allies over that party’s perceived betrayal of the Orange Revolution, it was not enough to form a governing coalition. Yanukovych was forced to negotiate for a broad coalition with the president, which ultimately proved an unsuccessful proposition.
Tymoshenko emerges victorious
Yulia Tymoshenko was the undoubted political winner of 2007, increasing her nationwide appeal and converting it into over 30% of total votes in the September elections. The outspoken opposition leader was instrumental in pressuring Yushchenko into calling early elections, and her triumph at the polls demonstrated the extent to which Tymoshenko now represents the Orange electorate. She also scored big gains in the east and south of the country, becoming the first Ukrainian politician since the Orange Revolution capable of bridging the regional electoral divide that has split Ukraine politically in recent years.
In the last days of the year, Tymoshenko hammered out a coalition deal to bring the two Orange blocs into government, a deal which returned her to her former position as prime minister. In the first week of January, she forced through the 2008 budget – an impressive feat given months of stalemate. However, 2008 is certain to bring a fresh wave of energy conflicts with Russia, continued political instability and inflationary pressures. The international business community will be keen to welcome Ukraine’s continued progress towards entry into the World Trade Organisation as well as new opportunities for growth and investment. They will also be watching closely for any signs of a return to Tymoshenko’s perceived populism, something that many international experts commented negatively on during her first term in office in 2005.
