Economic overview
While Ukraine is intent on maintaining its independence from Russia, it is dependent on expensive gas imports from its eastern neighbor. The high cost of gas and oil, coupled with the sluggish global demand for steel, Ukraine’s top export, has left the economy weak. Growth in 2012 was only 0.2%, and the economy is predicted to grow no more than 1.5% this year.
Political tensions also aggravate Ukraine’s economic recovery. The country has taken steps to align itself more closely with the West, but the imprisonment of former Prime Minister Yulia Tymoshenko has strained relations. The European Union has made Tymoshenko’s release a condition of signing association and free trade agreements with Ukraine. Meanwhile, Russia, its biggest trading partner, opposes Ukraine’s expanded cooperation with the EU and has threatened sanctions on Ukrainian products.
Business travel industry insight
Ukraine spent billions to improve its transportation and tourism infrastructure for the Euro 2012 soccer championships, revamping the airports in Kiev, Lviv, Kharkiv and Donetsk and linking those cities by high-speed rail. Rural areas suffer from a lack of modernized infrastructure, but traveling to and within Ukraine is largely safe. However, street crime is common, and foreigners are often the targets.
Opportunities
- Ukraine is stepping up efforts to develop alternative and traditional energy sources. In particular, Ukraine’s large volume of shale-gas reserves (the fourth-highest in Europe) is drawing international business interest.
- The agricultural sector, currently 15% of gross domestic product, benefits from fertile and abundant land. An influx of agricultural machinery and equipment will be necessary to maximize growth.
- To encourage growth in the information technology sector, Ukraine is exempting software-producing businesses from paying some taxes on operations.
Challenges
- Overvalued currency and lower demand for the country’s exports have resulted in a current deficit of 9% of GDP in 2012 and an estimated 7% deficit this year. The country’s bond rating was downgraded in September.
- Ukraine sits at 137 (out of 185) on the World Bank’s Ease of Doing Business list. Problems cited include corruption; complex tax and customs codes; and legislation and regulatory measures that are implemented with scant notice.The country has a history of delaying or not paying value-added tax (VAT) refunds owed to companies that export from the country.
- Counterfeiting and software piracy are ongoing issues.
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