Ukraine Annual Review 2016: the year the new economy took shape
The first growth since 2013, a completed banking clean-up, a trade regime switched in one day, and a recovery built on sectors that barely featured in the pre-crisis economy.
The year in one paragraph
Ukraine's free trade area with the EU took effect on 1 January, eastern trade restrictions took effect the same day, electronic procurement became mandatory, the country's largest bank was nationalised in December completing the banking clean-up, and the economy grew for the first time since 2013 — on agriculture, IT services and component manufacturing rather than on steel.
The four quarters
Q1 — DCFTA in force; eastern market closes; certification is the binding constraint.
Q2 — new government; mandatory e-procurement; the recovery's new composition becomes visible.
Q3 — first EU establishment approvals for Ukrainian food producers.
Q4 — largest bank nationalised; year closes with growth.
The structural shift completed
Comparing the economy of 2016 with that of 2013 shows how much had changed in three years.
Trade direction: reoriented from east to west, decisively and in a single day.
Exchange rate: floating rather than administered.
Energy: imported from Europe rather than from a single eastern supplier, at prices that reflected cost.
Banking: roughly half the institutions removed, the largest recapitalised in state hands, related-party lending restricted.
Public procurement: open and electronic.
Growth sectors: agriculture, food, IT services and EU-facing component manufacturing, rather than metals, chemicals and construction.
None of this was planned as a programme. All of it happened between 2014 and 2016 under conditions where the alternative had been removed.
What did not change
The judicial system. Corporate governance at state enterprises. The privatisation backlog. And the demographic position, which continued deteriorating throughout.
The commercial reading
2016 is the year a company assessing Ukraine should treat as the beginning of the current market rather than a continuation of the previous one.
The institutions, the trade framework, the currency regime and the sectoral composition that define Ukraine today were all established between 2014 and 2016. Analysis based on pre-2014 experience describes a country that no longer exists — different trade partners, different currency regime, different banking sector, different growth sectors and a different industrial geography.
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