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Стаття " Overview of Ukrainian Economy "

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Для кого: Дорослі

14.04.2020

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Стаття ціленаправлена на дорослого читача. Містить у собі інформацію щодо загального розвитку економіки України, напрямків розвитку економічної діяльності України за останні п'ять років, Має посилання на деякі ресурси.
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Overview of Ukrainian Economy

In 2016, according to The International Monetary Fund, the economy of Ukraine was on the 50th place in the world in terms of GDP (Gross Domestic Product) at PPP (Purchasing Power Parity) - $ 353 billion. The economy of the country is based on a multi-sectoral industry, agriculture, and services. In 2016 and 2017, Ukraine’s economy grew by about 2% every year after several years of strong decline.

Ukraine is a potentially rich country that realizes itself and is perceived from the outside as a political and economic power similar to Poland and Turkey. Among the former republics of the USSR, Ukraine inherited one of the best sets of initial resources. Before independence, the economy of the Ukrainian SSR was playing a significant role in the economy of the USSR.

The most economically developed regions of Ukraine are Donbass (the Donetsk and Luhansk regions), the Dnieper River area (the Dnipropetrovsk and Zaporozhye regions), as well as the cities of Kyiv, Kharkiv, Odessa, Lviv.

Agriculture of Ukraine

Favorable climatic conditions and soils of Ukraine provide relatively high yields. In 2011-2012, Ukraine accounted for 2.6% of world cereal production and 9.2% of world grain trade, which allowed the country to take the 6th place among the countries that export grain.

In 2012, the grain harvest amounted to 46 million tons, in 2013 - 63 million tons. In 2014, Ukraine, excluding the Crimea, harvested 63.8 million tons of grain and legumes, which became a record since independence.

In 2015, Ukraine, excluding the Crimea, Sevastopol and parts of the Donetsk and Luhansk regions, collected 60.1 million tons of grain and legumes, sugar beet - 10.3 million tons, potatoes - 20.8 million tons, sunflower seeds - 11.2 million tons. The sown area of agricultural crops in farms of all categories for the harvest of 2015 was 26.7 million hectares, which is 540 thousand ha less than in 2014.

Fuel and Energy Complex of Ukraine

The fuel and energy complex of Ukraine only partially meets the country’s needs. Ukraine has significant reserves of hard coal (the Donetsk and Volyn basins) and brown coal (the Dnieper basin); small oil and natural gas deposits are located in the Carpathian region and in the north-east of the country.

These energy resources are used at large thermal power plants. There is a cascade of hydroelectric power stations built on the Dnieper River. More than 45% of electricity in Ukraine is provided by nuclear power plants (Zaporozhye, South-Ukrainian, Khmelnytskyi, Rivne). All Ukrainian nuclear power plants were built in Soviet times. The Chernobyl Nuclear Power Plant was finally decommissioned on December 15, 2000.

Ukraine is an exporter of electricity. Its main customers are Hungary, Poland, Slovakia, Romania, and Moldova. In recent years, Ukraine is actively developing alternative energy.

Industry of Ukraine

Ukraine belongs to the countries with developed industrial potential. The leading industries are ferrous metallurgy and machine building, although their share is changing with time. From 1990 to 2008, the share of machine building in the structure of Ukraine’s industrial production changed from 31 to 14%, ferrous metallurgy - from 11 to 27%. The production of ferrous metallurgy accounts for almost half of the exports of heavy industry.

The chemical industry operates in a single complex with metallurgy, using by-products of metallurgy and coke industry for the production of nitrogen fertilizers, varnishes, paints, and medicines. Phosphorites, potassium salts and table salt are used for the production of mineral fertilizers, sulfur - for the production of sulfuric acid. Oil and natural gas - both local and imported - are used to produce synthetic rubber and synthetic fibers.

Machine building is mainly represented by heavy, transportation, electrical engineering, production of aircraft, ships, military and space equipment, precision equipment. Ukraine exports auto components, jet engines, railway locomotives and wagons, turbines, pumps and spare parts for them, electrical equipment.

The main sub-sectors of light industry are the textile industry, the garment industry, the leather and fur industries. Enterprises of the food industry are located everywhere.

The main massifs of forests are concentrated in the Carpathians and Polesie - about 90% of all logging operations of the Ukrainian timber industry are carried out there.

Transportation of Ukraine

The total length of paved roads in Ukraine is about 115,000 km, railways - about 23,000 km; the total length of the river shipping routes - 4,500 km. Also there are several large seaports and an extensive network of pipelines used to transport natural gas, oil, oil products, and ammonia.

Railway transport is of great importance for the economy of Ukraine. It accounts for about 80% of freight turnover (excluding pipelines) and almost 40% of passenger turnover. In 2016, the turnover of all ports amounted to 131.7 million tons. The largest ports are Yuzhne, Odessa, Chornomorsk, Mykolaiv, Kherson, Mariupol. The Dnieper and Danube rivers are important ways of transporting international cargo.

There are international airports in Kyiv, Kharkiv, Dnipro, Zaporozhye, Lviv, and Odessa. Boryspil International Airport located near Kyiv is the largest airport in the country.

Tourism, Trade and Living Standards of Ukraine

Ukraine has a rich tourism potential: the Carpathian Mountains, historical monuments of old Ukrainian cities, rural (green) tourism, and nature reserves. There are several UNESCO World Heritage Sites in the country: St. Sophia Cathedral and Kyiv-Pechersk Lavra in Kyiv, the historic center of Lviv, virgin beech forests of the Carpathians, the residence of the Bukovinian metropolitans in Chernivtsi.

The main partners in Ukraine’s foreign trade are Russia, Turkey, China, Egypt, the EU countries, Belarus, Kazakhstan. The main partners of Ukraine in the EU are Poland, Italy, Germany, Spain, the Netherlands, and Hungary. Ukraine occupies the 8th place in the export of agricultural products to the European Union.

In 2015, the main export goods were the products of agriculture (31.1%), metallurgy (24.8%), machine building (12.1%), raw minerals (8.1%), food products (6.5%), chemical products (5.6%), timber and wood products (2.9%).

In 2016, about 16 million Ukrainians were officially employed. In 2017, the average monthly salary was at the level of about $ 300 per month. In the spring of 2013, Ukraine ranked fourth in the world in terms of the number of certified IT specialists after the United States, India, and Russia.

To date among international economic organizations in possibility of the economy growing the World Bank specialists envisages that the one percentage height of GDP of Ukraine are expected in Ukraine during future 2 years (2017-2019 years). However, it should be reminded, that before the World Bank predicted a height in size of 3,5%, but later considered necessary to moderate optimism of the expectations.

It is important to mention an authoritative public accountant company "Ernst & Young" that gives the positive prognosis of height of GDP of Ukraine in size of 1,1% during the year of 2016. Although, similarly as well as the World bank, before it predicted  more optimistic results - 2,4%. Eventually, the analysts of influential rating agency of "Standard & Poor's" plan in 2017-2019  bring down the sovereign rating of country, if a miracle will not happen.

Two key creditors of Ukraine – the World Bank and the European Bank for reconstruction and development also during the year has revised its forecast for Ukraine's GDP to the downside. Hence, the Bank replaced the original 5% drop 7.5%, and then stood at 9%. In turn, the World Bank remains of the opinion that the volume of the Ukrainian economy this year will decrease by the year of 2018 by 7.5%, while in January appeared the figure of 2.3%. However, the likelihood that this forecast will be revised again in the near future is quite high.

Disappointing sums up all these assumptions for us and one of the largest international rating agencies Fitch, which also predicts the fall of Ukraine's GDP this year to 5%. Thus, the Agency's analysts estimated and devaluation of the hryvnia, which by the end of the year may reach 9%.

Longer forecasts on Ukraine international experts do not give. The reasons are all the same: the war in the East, the lack of real reforms, the threat of default. As it turns out is actually and what will happen to the Ukrainian economy in the coming years, time will tell.

The economic course of state policy is carried out in the following spheres:

the tax and budgetary sphere, their interconnection and interdependence, planning, forecasting, and programming of the development of the state and regions;

the investment sphere in improving the investment climate in the state and promoting attraction of capital investments from abroad;

effective allocation of productive forces at the national and regional levels;

development of some components of the national economic complex of Ukraine (construction, transport, agro-industrial, etc.);

development of infrastructure of the economy’s sectors

The state economic policy is implemented by such economic regulators:

1) tax policy (local taxes’ assessment, rates, privileges, and objects of taxation);

2) price policy (ensuring free pricing in market conditions and its regulation for state-defined groups of goods);

3) establishment of quotas and licensing (implementation of restrictive measures to regulate the economic activities of entities);

4) allocation of subsidies and subventions and implementation of intergovernmental transfers to balance the financial provision of the regions;

5) implementation of state procurement to standardize production activities of certain groups of economic entities and provide consumers with necessary goods.

Innovations as an important factor in improving the economic development of Ukraine and the target of the economic system of the state should be highlighted.

Without innovation activation by both the state and economic entities, it is impossible to achieve domestic economic growth as a source for the welfare of the

population. However, currently, the country is in dire need of innovative development, because up to now no proper conditions have been created to finance the development of science and the implementation of its achievements in production. According to Article 34 of the Law of Ukraine “On Science and Scientific-Technical Activity,” the state provides scientific and scientific-

technical activities (except for defence expenditures) with the budgetary financing of at least 1.7% of Ukraine’s GDP, but in fact, it is only 0.4% of GDP (Pavliuk, 2012).

Moreover, to ensure sustainable economic growth and to enter the trajectory of innovation development, Ukraine should additionally consider three main factors of further economic growth of any country in the world :

- depletion of essential resources, including fossil fuels and mineral resources;

- expansion of the negative impact on the environment because of both the extraction and use of resources, which leads to increased costs and complicates the

efforts to counteract the negative effects;

- financial recession due to the inability (in the context of economic contraction) of the existing money, banking, and investment systems to serve the huge government

and non-government debts accumulated over the past two decades.

Under current conditions of economic transition to newer technological patterns, competition in the market is complicated intensively and manifested through more complex forms. The interdependence inherent in the modern structure of “monopoly – market power – oligarchy” in the Ukrainian economy should transform into a new one, “competition – innovation – competitiveness – stability,” which will allow determining specific fundamental changes in

market-competitive relations .

The series of economic crises moving one to the other forced market participants and the state to develop measures not only to ensure economic development but also to prevent a decline. It should be recognized that while the innovative tools of financial and economic growth in a stable economy are of universal (international) nature, in the context of the crisis, “recipes” of effective innovation activities are mainly individual in nature due to objective external factors and subjective internal conditions, including private features and problems Therefore, the most important task of economic development of our country for the next years should be a decisive complex structural transformation of the economy

to increase the proportion of high-tech, innovation sector. Ensuring sustainable and long-term economic development requires initially forming the sector of innovative technologies, and only then integrating economically. Moreover, such integration should be with equal economies, and not with those whose level of development is much higher. In addition, the goals of economic development of Ukraine at the present stage require a mandatory state intervention to ensure

domination of the industrial, science-intensive, and not the raw material and food sector .

Under current conditions, the goals and objectives of Ukraine’s economic development are transformed significantly, while the main problem (the task of

creating an economy of catching-up modernization) not only remains but even more complicates previously unresolved socio-economic issues. Comparing the average GDP growth rates of Ukraine and the neighbouring countries (Poland, Romania, Turkey)

for 2011–2014, this indicator is two-time lower in our country. To catch up with neighbours by 2030, Ukraine, according to expert estimates, should demonstrate GDP

growth rates, on average, at 7% per year throughout the period. Under the current socio-economic conditions, this is unlikely . During the years of independence, the economy has been changing its structure spontaneously in favour of the raw materials industries, primary production of intermediates, and processing of materials. These industries had absorbed most of the investment, for example, metallurgy or agriculture (including grain) had a high level of liquidity in foreign markets. So gradually for Ukraine, its “resource curse” has formed . Therefore, the basis of the economic strategy of Ukraine for “European Choice” is the effective realization of deep economic, social, and political reforms, consolidation of democracy and principles of civil society .

Consequently, to achieve high social standards, the Ukrainian economy needs some changes. The economic policy of Ukraine should be aimed at economic growth,

an increase of incomes and quality of life in general by transforming the system of labour remuneration, diversification of the economy based on an attractive

investment climate, and optimization of the tax system.

When achieved, these objectives will strengthen the national budget, provide conditions for the modernization of production, enable Ukraine to become part of regional and global added value chains, encourage investment into Ukrainian economy and creation of new jobs. All these elements combined will introduce new opportunities for the Ukrainian people and will have a positive effect on the quality of life of each and every Ukrainian.

Resourses

  1. Gretchenko A.A. (2014). Development of methodology and improvement of mechanisms for the formation of the national innovation system (Dissertation of Doctor of Economy in specialty 08.00.05. Economy and Management of National Property (Innovation Management)). Moscow, 351 p. (in Russian)

  2. Zvieriakov M I. (2015). About the change of the model of economic development. Ekonomika Ukrainy [Economy of Ukraine], 6(643), 41-49. (in Ukrainian)

  3. World Economic Outlook Reports 2015 [Electronic resource]. – Mode of access : http://www.imf.org/external/index.htm.

  4. Kraus, N. M. (2015), Innovative Economy: concept and definition of the institutional base. Naukovyi visnyk Mukachivskoho derzhavnoho universytetu, no. 2(4), pp. 37–42.

  5. Hrosul, V. A. (2010), The problems of innovation activity in Ukraine. Bulletin of the International Nobel Economic Forum, no. 1(3), pp. 76–82.

  6. Voronin Y. (2015), “Landmarks exit from the economic crisis”,  Jekonomist, vol. № 5, pp. 44-48

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