Ready for Football?

Economic News

22 Jul 2010
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It was announced this month that Ukraine will co-host the 2012 European football championship with Central European neighbour Poland. The event could act as a boost for Ukraine's economy and industry, and a much-needed impetus for improving Ukraine's transport and tourism infrastructure.

The Union of European Football Associations (UEFA) awarded the bid to Poland and Ukraine against Italy and Croatia-Hungary. Despite current political turmoil and reports from UEFA inspectors over the poor conditions of Ukrainian roads, four Ukrainian cities have been lined up as host cities for 2012.

The ministry of transport and communications indicated that the construction of new highways was of primary concern. The Polish and Ukrainian ministries of transport and regional development are planning an extension of the highway linking Ukraine and Poland with Western Europe at a cost of $1.76bn.

Currently, fans travelling by road from Gdansk in northern Poland to Donetsk, in eastern Ukraine, would need at least 22 hours to cover the 2000 km journey on single lane roads, not counting the lengthy wait at the Polish-Ukrainian border. The highway extension is thus vital to ensure smooth travelling and management of the event.

Poland's transport ministry is focusing on the improvement of the so-called old Warsaw highway, which is currently under repair in several areas, with plans for widening into four lanes. The Western border Lutsk-Riven-Zhytomyr-Kiev highway is also key, as well as a second beltway around Kiev. Ukraine's transport ministry estimates the cost for improving the country's roads at $17bn.

Ukraine's rail network also lags far behind its neighbours in Central Europe in terms of quality, capacity, and most importantly, speed. Local press reports that Germany's railway company Deutsche Bahn posted earnings of 3bn euros with a passenger throughput of 15m during its hosting of the 2006 World Cup finals. Ukraine's size could mean similarly good news for its railway concern, UkrZaliznysta, but rail travel will have to become a practical, viable option.

Last week, Ukraine's Kryukivskyi carriage-building plant announced it would build new passenger rail cars for the Euro 2012, capable of speeds of up to 200 km per hour. But lagging investment in railways could mean it is too dangerous to use high-speed trains on Ukraine's aging tracks.

Inadequate surface transport could be good news for Ukraine's local air carriers. According to the ministry, improvements and expansions of airports in Donetsk, Kiev, Odessa, Lviv and Dniperpetrovsk are being accelerated to accommodate the games.

Match venues appear to be less challenging, though some require extensive works in the next five years. Donetsk's 50,000-seat stadium should be completed in 2008. Kiev's Olympic stadium will be renovated in time to host the final match, and discussions are underway concerning the construction of another. Dnieperpetrovsk will complete its new stadium later on this year, and Lviv is considering either an overhaul of the city's current 28,000-seat stadium, or construction a new 32,000-seat stadium.

However, hospitality infrastructure is limited. Ukraine anticipates hosting tens of thousands of fans, journalists and officials. Mykhailo Shparyk, the head of Kiev's municipal economy department told reporters that around 70 new hotels would be necessary in Kiev alone. Investment in the sector has been limited due to rocketing property prices and the uncertainty of returns in an underdeveloped tourist market. Perhaps Euro 2012 will spur the sector's break out and boost investments, which would lead to sustained growth.

"There are serious investors, who are ready to invest up to UAH37bn ($7.7 bn) in the construction of airports, roads, hotels and improving sports infrastructure," Viktor Korzh, Ukraine's sports minister, told local press.

As the government seeks funding for these new developments, some analysts predict further privatisations to help offset costs.

The decision to award the event to Ukraine is indicative of the improving image Ukraine is enjoying internationally. Though Kiev is currently locked in political crisis pitting supporters of the president and prime minister against each other, the two sides seem to be united about Euro 2012. Ukraine's parliament on Thursday unanimously passed a wide-ranging bill, called by MPs "The Euro 2012 Law", setting out an array of legal changes seen as necessary to prepare for the tournament. Among these are import tax breaks on construction materials and communications equipment, and tighter penalties for copyright infringements, particularly concerning the UEFA label.

There are lessons to be drawn from the German experience of the 2006 World Cup football championship, where the surge of money and investment led to a period of general macroeconomic growth. Ukraine will need to plan early and grow sectors such as tourism to ensure that the effects of Euro 2012 will be sustained.

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