Ukraine Market Report — Q2 2018
A bridge opened across the Kerch Strait in May, and the physical constraint it imposed on vessels reaching the Azov ports became a commercial fact for the exporters that used them.
Overview
A road and rail bridge across the Kerch Strait opened in May. Its clearance imposed a physical limit on the size of vessels able to reach the Ukrainian ports on the Sea of Azov.
Legislation establishing a specialised anti-corruption court was adopted in June.
The Azov ports
Mariupol and Berdyansk served the metallurgical and grain exporters of the surrounding regions. The constraint that emerged was twofold: a physical limit on vessel dimensions, and inspection procedures that lengthened transit times for ships entering and leaving.
The commercial consequence was a rise in the effective cost per tonne of shipping through those ports, which pushed cargo toward the Black Sea ports and toward rail.
For the industrial enterprises of the region this was a competitiveness loss that no operational improvement could offset — their nearest port had become more expensive to use for reasons entirely outside their control.
The general point for any exporter: your logistics cost is set partly by infrastructure you do not own, in places you do not control, and a change there is indistinguishable in your accounts from a change in your own efficiency.
The anti-corruption court
The legislation created a specialised court to hear cases brought by the anti-corruption investigative and prosecutorial bodies established after 2014.
Its significance was that the missing element in the anti-corruption architecture had been the court stage: investigations were being produced and cases were not concluding. Whether the new court would change that was the open question, and it began operating the following year.
Macro position
Growth continuing. Inflation above target. Currency stable. Labour shortage widespread.
Sectors
Metals — the Azov constraint affecting the eastern producers.
Agriculture — strong, with Black Sea port capacity expanding.
IT services — growing.
Construction — active, labour-constrained.
What the quarter settled
That access to sea ports had become a variable rather than a given for part of Ukrainian industry, and that the exposure was concentrated in exactly the regions that had already absorbed the largest losses since 2014.
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