Ukraine Market Report — Q3 2005
A government dismissed, a coalition dissolved, and — in the middle of it — the clearest signal of the decade that a competitive privatisation was possible.
Overview
The governing coalition fractured and the prime minister was dismissed in September, less than eight months after taking office. The reform administration that had arrived with overwhelming support had spent it in three quarters.
Simultaneously, preparation advanced for a re-run of the steel privatisation that had defined the previous year — this time as a genuinely open international auction.
Macro position
Industrial output was flat to negative year on year. The external surplus continued narrowing. Inflation remained elevated in food.
The currency held at its revalued level without difficulty, because the fall in imports of investment goods offset the fall in export earnings — a balance improving for the wrong reason.
The two signals
The quarter sent contradictory messages, and the contradiction is the point.
The government's collapse said that the reform coalition could not hold together, that policy direction would remain contested, and that the administrative capacity to implement anything was thinner than the mandate suggested.
The privatisation preparation said something quite different: that a Ukrainian government could run a large, transparent, internationally competitive sale process, and that the previous year's outcome was not an inevitable feature of the system.
Both were true. Ukraine in this period could produce genuinely good institutional outcomes and genuinely bad political ones in the same quarter, and a company that read only one of the two signals reached the wrong conclusion.
Sectors
Metals — weak. The sector spent the year giving back the previous year's exceptional margins.
Agriculture — harvest completed adequately; export volumes constrained by port and rail as always.
Banking — foreign acquisition activity at its highest level to date.
Retail and consumer — the year's most resilient segment, growing through political disruption without visible effect.
What the quarter settled
That political instability and institutional improvement are separate variables in this market. Governments changed frequently while procurement, banking supervision and privatisation procedure improved or deteriorated on their own trajectories.
For a company, the practical implication was to track the institution relevant to its business rather than the government, because the two move independently.
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