Ukraine Market Report — Q3 2014
Industrial output collapsing in the affected regions, currency depreciation continuing, and companies making the first relocation decisions that would reshape the industrial map.
Overview
Industrial output fell sharply, concentrated in the eastern regions where conflict had disrupted production, logistics and coal supply.
The currency continued depreciating. Inflation accelerated.
The relocation decisions
The quarter's most consequential commercial development was not measured in any statistic at the time: companies began moving.
Manufacturers with facilities in affected areas relocated equipment and staff westward. Universities and research institutions relocated. IT companies, whose assets are people and laptops, moved fastest and most completely.
These decisions permanently redistributed economic activity within Ukraine. Cities in the west and centre — Lviv, Vinnytsia, Dnipro, Kyiv — absorbed capacity, workforce and institutions that had been located in the east.
For a company assessing Ukraine afterwards, this is why the industrial and human geography of the country in 2020 differed substantially from 2013, and why western regions have a deeper skills base than their pre-2014 economic history would suggest.
Macro position
Sharp output contraction. Currency depreciation. Inflation accelerating with pass-through. Reserves under continuous pressure despite programme support.
The banking sector was deteriorating rapidly as the currency move impaired foreign-currency loans and the eastern regions' assets became unrecoverable.
Sectors
Metals and coal — the sectors bearing the damage.
Agriculture — largely unaffected geographically and benefiting from the currency.
Banking — entering the crisis that would produce the 2015–2016 clean-up.
IT services — growing, relocating and hiring.
What the quarter settled
That the geographic distribution of Ukrainian economic activity had changed permanently, and that the change favoured the sectors and regions least dependent on fixed heavy assets.
An economy whose most mobile sector is also its fastest growing relocates rather than collapses. That is the central finding of 2014 and it was tested again, at greater scale, in 2022.
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