EBRD activities in Ukraine - FiFo Ost

Major sectors of the economy
Poland
Belarus
Moldova
Romania
Ukraine
Russian
Federation
Most sectors of the economy recorded growth in 2000. In the service sector, mobile telecommunication was the star performer
with about 300 per cent growth. Since the financial crisis of 1998 manufacturing has benefited from the hryvnia depreciation
and especially light industry and food processing have successfully substituted expensive import products. The troubled energy
sector is finally undergoing restructuring and privatisation. Agriculture is likely to benefit from the land reform that is in the
process of being implemented.
Agriculture
Agribusiness has traditionally been an important sector and
has a major role to play in Ukraine's economic development
and transition. The country was once known for its agricultural
traditions and for the extremely fertile black earth, chernozem,
unique to this part of Europe, which earned Ukraine renown
as the “bread basket” of the Soviet Union. At the onset
of independence in 1991, agriculture still accounted for
almost 25 per cent of GDP, against about 11 per cent today.
Land reform
One of the main problems for agriculture has been the very slow pace
at which land privatisation has proceeded. Privatisation is now proceeding,
although not smoothly. A presidential decree of December 1999
allowed former collective farm workers to leave with their share of land
and property. From January to May 2000, about 6.4 million Ukrainians
each received on average 4.1 hectares of land and created new agricultural
structures. Their investments exceeded even the state loans.
One of the remaining problems is the slow registration of legal
ownership rights.The delay in registration has created an
untransparent situation in land ownership. As at early November 2000
an estimated 10 to 20 per cent of land title holders had sold their title
deeds at bargain prices despite the absence of a law regulating such
transactions. The president asked parliament
to limit the maximum size of private land plots to 100 hectares until
2010 in order to prevent speculation on the land market. On 3
November the Verkhovna Rada placed a moratorium on all deals
involving the purchase and sale of title deeds. The debts of the
collectives to the budget (over UAH 6 billion or 3.6 per cent of GDP)
have been written off. An issue still to be addressed is the creation
of a mortgage land bank for long-term loan programmes. The main
condition for the further development of agrarian and land reform,
however, is the immediate adoption of the new edition of the Land
Code, transforming land into a commodity, which is an essential
condition for reform. In July 2000 the Verkhovna Rada approved the
Land Code at first reading. If the Code is adopted it would allow
farmers to trade land and use it as collateral, which should lead
to an increase in finance for agriculture.
Apart from some sub-sectors, however, agribusiness does
not meet its full potential, although realising the sector's full
potential is one of the government's key objectives. Agriculture
is an important sector in terms of employment.
Many crops, especially grain, recorded a low harvest in 2000.
Exceptions were sunflower seed, with a record harvest of
3.5 million tonnes (an increase of 23.8 per cent of gross yield),
and corn, with 3.7 million tonnes. The average yield per hectare
increased, compared with 1999. Export of sunflower seed,
however, decreased sharply due to a 23 per cent export duty.
The crop is important for the food industry, as Ukraine is a
major exporter of sunflower oil (see Food processing below).
On average, Ukrainian agricultural production grew by 2 per
cent: crop farming increased 7 per cent, but output in livestock
farming fell 5.4 per cent.
In November 2000 the government adopted the “Grain
of Ukraine 2001-2004” programme, which provides for the
doubling of grain harvests. The grain harvest for 2001 is
expected to be over 35 million tonnes. Production in 2004
should be 40 million tonnes, which is realistic as in the past
25 years the grain harvest 12 times exceeded this amount.
Increasing production should be achieved through resourcesaving
technologies, improved crop structure, better seed
quality and plant protection measures. Ukraine will need
approximately US$ 1.5 billion annually to fully implement
the programme.
Food processing
In view of the role of agriculture within the economy, food
processing is one of Ukraine's most important industries, but
like most other sectors it is short of investment. It is estimated
that the agri-industrial sector (from primary processing of
agricultural commodities, through food processing and
packaging to agri-equipment manufacture) could potentially
absorb € 5-10 billion of immediate investment. In practice,
however, actual investment opportunities have been
constrained by slow progress on fundamental sector reform
and the generally difficult business environment. However,
Ukraine Investment Profile 13