Ukraine Market Report — Q4 2018
An incident in the Kerch Strait in November, a period of martial law in ten regions, and a new short IMF arrangement agreed in December against an election year.
Overview
An incident in the Kerch Strait in late November led to the introduction of martial law for thirty days in ten regions.
A new short IMF stand-by arrangement was agreed in December, replacing the extended programme that had been progressing slowly.
How business responded to martial law
The measure was limited in duration and geography, and its practical effect on commercial operations was smaller than the international coverage implied.
What it did produce was a set of questions that companies operating in Ukraine had to answer quickly: what does martial law mean for our contracts, our insurance cover, our ability to move goods and staff, and our force majeure position.
Most found that the answers were manageable, and that the experience of working through them was useful preparation for what came later. Companies that had reviewed their contractual and insurance positions in December 2018 were faster in February 2022 than those doing it for the first time.
That is the transferable point. A limited disruption is an opportunity to test the arrangements you would need in a larger one, at low cost.
The new programme
The shorter stand-by arrangement reflected the reality of an election year: a fourteen-month programme with fewer structural conditions is what a lender agrees to when the borrower's political capacity for reform is about to be interrupted.
Macro position
Growth for the third consecutive year. Inflation above target but falling. Currency stable. Reserves adequate.
Sectors
Agriculture — a strong year.
IT services — growing.
Metals — affected in the east by the Azov access constraint.
Construction — active.
Retail — improving with real wage growth.
What the quarter settled
That security events now carried a direct commercial dimension that companies had to plan for explicitly — and that the planning was cheap to do in advance and expensive to do under pressure.
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