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Pag׀ 186 ISSN: 2247-6172ISSN-L: 2247-6172Review of Applied Socio- Economic Research(Issue 2/ 2011)URL: http://www.reaser.eue-mail: editors@reaser.euThe largest FDI inflows to Ukraine as of January 1, 2011 were from Cyprus, with 22.2% of cumulative FDI,Germany with 15.8%, the Netherlands with 10.5%, Russia with 7.6%, Austria with 5.9%, France with 5,3% and theUnited Kingdom with 5.1%. Direct investment from Ukraine was USD 6.8 billion as of January 1, 2011. The largestportion of investments from Ukraine went to Cyprus. Both inflows and outflows of investment between Ukraineand Cyprus represent the capital transactions and movements done by the major Ukrainian industrialists aiming atoptimizing taxation as well as allocating money for developing the international structures of their ownbusinesses. Over more than a decade, Cyprus offshore economy has been playing an important role as a shelterfor the evading Ukrainian money. The lion’s share of FDI to Ukraine was invested in the financial services andindustry sector: USD 15 billion or 33.7% of total FDI and USD 14 billion or 31.4% of total FDI respectively. The realestate business and wholesale and retail trade absorbed 10.7% and 10.6% of total investment. [5]Having suffered one of the sharpest economic downturns in the emerging markets (hereinafter EM) universe in2009, Ukraine’s economy turned on a fast recovery path in 2010. Its real GDP rose an estimated 4.8% year-overyearin 11 month 2010 on improved foreign demand, as the export-oriented metallurgical, machinery andchemical sectors pushed full-year industrial output up 11.0% year-over-year. Domestically oriented industrieswere also growing, led by improving consumer confidence, increasing real wages and a gradual thaw in lending.This was in particular manifested by last year’s 7.8% year-over-year rise in retail turnover [6].4. Macroeconomic environment in UkraineAccording to the Dragon Capital research [1] note presenting the outlook for the Ukrainian economy in 2011,export markets will remain a key driver for the Ukrainian economy going forward but domestic demand will playan increasingly important role, spurred by a steady recovery in bank lending. Ukrainian banks enjoyed thestrongest customer deposit inflows in the region last year, more than offsetting the 2008-09 deposit run andincreasing the stock of deposits to an all time high of UAH 414bn by end-2010 (+26% y-o-y vs. average 10.3% forthe peer group recorded in November). Corporate lending started to pick up in the second quarter 2010 andgained momentum in 2H10, offsetting the continued household deleveraging.Ukraine’s external position in 2010 proved much stronger than many expected a year ago. Though the currentaccount (C/A) deficit widened somewhat to an estimated 2.0% of GDP (from 1.5% in 2009), inflows of borrowedcapital — spurred by the postelection political stabilization, reassessment of Ukrainian risks and renewal ofcooperation with the IMF — pushed the financial account to a surplus estimated at 5.6% of GDP from a deficit of10.2% in 2009. [5]Dragon Capital experts expect capital inflows to moderate in 2011 but remain sufficient to cover the C/A gap.The government will continue borrowing actively abroad to cover the budget deficit, while deleveraging in thebanking sector is set to end with lending gathering pace. Corporate sector external leverage is expected to keepincreasing moderately in 2011 thanks to recovering private investment demand as well as widespread relatedparty lending. With an end of the third quarter of 2010 gross external debt to GDP ratio of 84%, Ukraine’s externalleverage remains moderate by both regional and European standards, being in line with the regional peer averageof 89% and enabling the country’s public and private sector borrowers to tap global financial markets relativelyeasily (again, this depends on investors’ appetite for EM risk remaining strong and the IMF program for Ukrainecontinuing). Dragon Capital experts estimate this year’s net inflows of borrowed capital at 2.8% of GDP (in linewith 2010) and expect FDI inflows at 3.4% of GDP (vs. 3.6% in 2010), fully covering the C/A gap. [1]
5. Macroeconomic risks in UkrainePag׀ 187 ISSN: 2247-6172ISSN-L: 2247-6172Review of Applied Socio- Economic Research(Issue 2/ 2011)URL: http://www.reaser.eue-mail: editors@reaser.euBut, nevertheless, there are still a number of problems to be solved on the Ukrainian market in order toincrease the amount of investments to Ukraine, as well as to simplify doing business in the country. Consideringthe MIGA-VCC Political Risk Survey in the BRICs 2009, political risks remain to be the most important factor for theforeign investors (Fig. 2) and will become even more important in middle-term period.In this survey, representatives from business in different countries had to answer a question “In your opinion,which of the following factors will pose the greatest constraint on investment by your country in emergingmarkets this year and over the next three years?”. The results of it show that investors from emerging marketsview political risk as a significant constraint on investment plans, together with macroeconomic instability andlimited market opportunities.P olitical ris ksMacroeconomic ins tabilityL imited market opportunitiesC orruptionAcces s to qualified s taff2010-20132009Infras tructure capacityAcces s to financingIncreas ed governmant intervention0 20 40 60Fig. 2: The main foreign investment constraints for investors, percent of respondents. Source: MIGA-VCC Political Risk Surveyin the BRICs 2009 [4]. Note: Percentages add up to more than 100 percent due to multiple selectionsFurther I would like to stop on the key macroeconomic risks for foreign investors to Ukrainian economy. Thecritical external factors for Ukraine’s economy include global commodities prices, primarily steel and oil, andglobal appetite for EMs debt. Dragon Capital experts assume the annual average oil price (Urals) at $110/bbl in2011 and 2012, implying an imported gas price of $400/bcm in the fourth quarter of 2011 and through 2012. Theystick to rather conservative steel price assumptions, expecting annual average export prices to rise by a modest3% year-over-year in 2012 (to $705/tonne for a blend of key steel products sold abroad), slowing from 25% thisyear, but think demand will remain rather favorable enabling domestic steel mills to moderately expand output.[1]It is also assumed that the appetite for EM risk among global debt investors will not worsen drastically comparedwith the H1 of 2011, with hikes in risk aversion in response to the escalating EU debt crisis being revealed astemporary.Though the approval of the IMF-required pension reform in the first reading increases chances for the nextdisbursement, prospects for further lending under the current program look gloomy as domestic economicpolicies will inevitably grow more populist ahead of the elections.
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Creating direct and indirect jobs t
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[12] HEDDAR 1988 « Rôle socio-éc
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Percent of GDPLoans to corporations
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6. Employment and skillsPag׀ 75 IS
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