Ukraine Market Report — Q3 2011
The conviction of a former prime minister in October froze the EU relationship at the moment the association agreement negotiations were concluding. A political event with a direct and lasting commercial cost.
Overview
Negotiations on the association agreement with the EU, including its deep and comprehensive free trade area, were substantially complete by autumn.
In October a former prime minister was convicted and imprisoned in a case that EU institutions and member states treated as politically motivated. The relationship froze, and signature of the agreement was made conditional on the political situation.
The commercial cost of a political event
This is the clearest case in the archive of a political decision imposing a direct, measurable and lasting commercial cost.
The agreement had been negotiated over four years. Its trade provisions would have opened the largest consumer market in the world to Ukrainian agricultural and food exports on a defined timetable, and would have anchored Ukrainian technical regulation to EU standards.
The delay ran from late 2011 to 2014. Every Ukrainian exporter that would have benefited waited three additional years, and the certification and standards work that the agreement required was postponed accordingly.
What makes this case instructive is that the cost fell entirely on parties who had no involvement in the events that caused it. A dairy processor in Vinnytsia lost three years of market access because of a court case in Kyiv.
Macro position
Growth continuing but slowing. The current account deficit widening. Reserves declining as the fixed exchange rate was defended.
The IMF programme remained suspended.
Sectors
Agriculture — a strong harvest; export logistics constrained as usual.
Metals — global prices softening as European and Chinese demand slowed.
Construction — final phase of tournament infrastructure.
Banking — still constrained; foreign parent banks beginning to reassess their regional exposure as the euro area crisis developed.
What the quarter settled
That Ukraine's access to its most valuable trade opportunity was contingent on domestic political conduct, and that this linkage was now explicit rather than implied.
For a company planning around eventual EU market access, the quarter established that the timetable was a political variable rather than a technical one.
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