2007 Year in Review

Economic News

22 Jul 2010
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"Dear fellow Ukrainians," began President Viktor Yushchenko in his New Year's address to the nation. "We have a hard year behind us. We have lived through much - highs and lows, dramas and happiness." This was perhaps an understatement, given Ukraine's mercurial journey thorough 2007.



The country enjoyed economic growth for the eighth straight year, with a figure of around 7% in 2007, fuelled by around $7bn in foreign investment in agriculture, retail and manufacturing. On the downside, inflation ran wild - soaring to 16.6% year-on-year in December - triggered by costlier energy imports from Russia and rising food costs.



One of the biggest highs for Ukraine was its victorious bid to co-host the Euro 2012 football championships. According to former Minister of Sports Viktor Korzh, "There are serious investors who are ready to invest up to 37bn hryvnias ($7.7bn) in the construction of airports, roads, hotels and improving sports infrastructure."



Ukraine's real estate boom reached a fever pitch in 2007 after property values have climbed over 600% in the past four years. Russia's Mirax Group and international developer Seven Hills entered the Kyiv market, competing to become top investors in Ukraine. Although one million square metres are currently under development in the capital, new laws enacted by the mayor's office will put brakes on runaway growth for this year.



In June, iron ore powerhouse Ferrexpo pressed ahead with a $1.6bn floatation on the London Stock Exchange. With 25% of shares sold to hungry investors, the company's initial public offering (IPO) marks the first full listing of a Ukrainian company on the exchange. Ferrexpo, which possesses the world's fourth-largest iron ore reserves, plans to double production to 16m tonnes of pellets and up to 3.5m tonnes of concentrate annually in seven years time.



Plans were set in motion to merge Russia's Gazmetal and Ukraine's Industrial Union of Donbass (IUD) in February, triggering a new round of changes in the global steel industry. IUD, which is Ukraine's second-largest company, aims to gain a competitive edge by gaining access to Gazmetal's iron ore reserves. Official results of the merger will be announced early in 2008.



Banking takeovers also dominated business headlines, with a queue of European banks clamouring for entry. In February, Swedbank purchased TAS-Kommertsbank for $985m. In November, another Swedish bank, SEB, bought Faktorial-Bank for $120m. Bank of Cyprus confirmed plans to buy $76m of AvtoZAZbank, equal to 95% of its shares, and National Bank of Greece finished its acquisition of Forum and Kreditprombank. According to the Financial Times, foreign financial institutions now represent 30% of the banking market based on net assets, having tripled since the 'orange revolution'.



Bloomberg reported on December 31 that Ukraine's stock market - the PFTS Index - outperformed every market in the world except China's CSI Index, climbing 135% in 2007. Many stocks witnessed quadruple digit growth. In September, Wiener Börse, the Vienna stock exchange, created a Ukrainian index, which lists the top 10 companies on the PFTS, raising Ukraine's international profile for European investors. Around 150 members and 700 securities are listed on the bourse, which has a total market capitalisation of $140bn.



The year 2007 also brought its share of low points. After series of fatal blasts in the Zasyadko coal mine, a deadly gas accident at residential buildings in Dnipropetrovsk and a toxic yellow phosphorus spill in Lviv, Ukraine once again was featured in the international media as an ecological danger zone.



The embattled state-run energy company Naftohaz ended the year with a dismal record. By the end of December, the gas monopoly had lost $1bn for 2007. After failing to file a year-end auditing report, as required by bondholders, Naftohaz is now is in technical default of its $500m 2009 Eurobond. The Ukrainian government has thrown Naftohaz a $2.4bn lifevest to keep the company afloat, but this amount only covers operating costs. It may be only a matter of time before the company is forced into default by its creditors.



Politically, the year 2007 was characterised as one of crisis and stalemate. Ukraine's three main political personalities discovered that the year 2007 would shape their futures for the upcoming presidential elections in 2010.



President Yushchenko made a comeback, dissolving parliament and calling for snap elections. The decision in April to organise a pre-term vote demonstrated the president's rare resolve and firmness. Local media noted that Yushchenko translated 14% of votes for the Our Ukraine-Self Defence (NU-NS) party into half of available governmental positions.



Meanwhile, the year turned out quite poorly for outgoing prime minister Viktor Yanukovych who initially contested the pre-term election and the president's orders. His party organised a host of demonstrations, though the move attracted lackluster popular support. In the end, his Party of Regions commanded an impressive popular victory, but it was not enough to form a governing coalition. Yanukovych was forced to negotiate a broad coalition with the president, an unsuccessful process.



Yulia Tymoshenko won numerous political victories by increasing her nationwide appeal and converting it into 30% of total votes for the Bloc of Yulia Tymoshenko. In the last days of the year, she hammered out an unstable coalition deal, which returned her to the position as prime minister. In the first week of January, she forced through the 2008 budget - an impressive feat given months of stalemate.



However, 2008 is certain to bring a fresh wave of energy conflicts with Russia, continued political instability and inflationary pressures. The international business community will be keen to welcome Ukraine's continued progress towards entry into the World Trade Organisation as well as new opportunities for growth and investment.

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