Ukraine Market Report — Q2 2016
A new government in April, electronic procurement becoming mandatory, and a recovery underway that was structurally different from the one that preceded the crisis.
Overview
A new government took office in April. Electronic procurement became mandatory for central government purchasing during the quarter, extending to all public buyers later in the year.
The economy was recovering modestly, and the composition of that recovery differed materially from the pre-2014 pattern.
The shape of the recovery
The 2010–2011 recovery had been carried by metals exports and a construction programme. Neither was available now.
What was growing instead: agriculture and food, IT services, and — beginning in this period — a set of manufacturing operations serving EU supply chains, particularly automotive components and electrical harnesses in the western regions.
That last category is worth noting because it was new. Western Ukraine's combination of proximity to EU assembly plants, lower labour costs than Poland or Slovakia, and a workforce partly reinforced by relocation from the east made it a viable location for supplier operations for the first time.
An economy recovering on agriculture, services exports and component manufacturing is a structurally different economy from one recovering on steel. It is less cyclical, less exposed to single commodity prices, and more dependent on regulatory alignment with the EU.
Procurement
Mandatory use of the open electronic system removed discretion from the tendering process for a very large volume of public spending.
Its commercial significance for a foreign supplier is specific: it made public procurement in Ukraine legible. Bids, participants, prices and awards became visible, which means a supplier can assess whether a market is competitive before committing to bid, and can see what winning prices actually are.
Macro position
Modest growth. Inflation falling. Currency stable. Reserves rebuilding.
Sectors
Agriculture — strong.
IT services — growing steadily.
Automotive components — a new growth sector in the west.
Metals — operating at reduced capacity.
Banking — consolidating, with the largest problem still unresolved.
What the quarter settled
That the post-crisis economy would be built on different sectors than the pre-crisis one, and that the western regions would take a larger share of it than their pre-2014 economic weight would suggest.
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