Ukraine Business Forecast Report Q3 2008

Publication Date	June 2008
Publisher	Business Monitor
Product Type	Report
Pages	61
ISBN Number	1745-0756
Product Code	BMI01211

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Summary

Coalition Feud Poses Risk To Policy The first half of 2008 has turned out to be particularly turbulent for Ukraine, both on the economic and the political front and the third and fourth quarters are unlikely to differ materially in this regard. Soaring inflation and widening external imbalances have put the authorities' economic aptitude to the test, but differences of opinion within both the government and the national Bank of ukraine have complicated the swift implementation of remedial measures and the attendant anchoring of expectations. Meanwhile, the rift between President Viktor Yushchenko and Prime Minister Yulia Tymoshenko shows few signs of healing, as both try to fortify their power bases ahead of the presidential election in 2010 (in which both will likely be candidates). The squabbles and failure of the governing 'Orange coalition' to find a modus vivendi, particularly over economic policy, has likely left much of the public disillusioned with the incumbents, and could play into the hands of the more Russia-friendly opposition.

The early months of 2008 saw President Yushchenko and Prime Minister Tymoshenko exchange verbal blows over key policy matters, such as the privatisation process, anti-inflation policy and the relative power distribution between the executive and parliament. In the wake of the 2004 Orange revolution, the powers of the president were neutered and this has been seen as a central stumbling block with regard to policy formation. Indeed, in May, the president clawed back some clout, including the right to review cabinet appointments and stronger control over defence and foreign policy. As we go to print, the friction between the president and the prime minister appears to be escalating and it is hard to see how the two will resolve their incompatibility. Nonetheless, the two have little choice but to compromise as there is a palpable risk that another round of early elections would be lost to the opposition.

The economy is likely to chug along fairly healthily in H208 but the effects of high inflation and deteriorating external asymmetries will in all likelihood feed through into key metrics. Tighter borrowing conditions should help rein in the frothy growth in credit and private consumption but will also impinge on investment, particularly of small-to-medium scale enterprises. The government's ambitious social spending plans and the controversial restitution of lost Soviet-era savings could serve to offset monetary tightening. Inflation, which soared over 30% y-o-y in April, should subside somewhat in the second half of the year due to the benign outlook for this year's grain harvest.

Meanwhile, the hryvnia is likely to remain in firm territory throughout the remainder of the year after the NBU's revaluation of the unit on May 22 and this should help ease external inflationary pressures. Ukraine's accession into the World Trade Organisation earlier in 2008 is a key fillip to the country's external sector over the longer haul and should buttress growth ahead.

The ongoing dissension within the ruling coalition could mean a stalling of key reforms and the muchtalked- about privatisation process. Tougher borrowing conditions and higher energy costs are other stumbling blocks to enterprises on the horizon. However, labour costs remain competitive and the proximity to key western European markets makes Ukraine an attractive destination for more labour intensive industries. Foreign direct investment inflows should remain brisk this year, after the 60% climb in 2007, to US$9.2bn. Indeed, preparations ahead of the 2012 European football cup should entail major opportunities to foreign companies, particularly in the construction, hotels and tourism sectors.

Content

Executive Summary
- Coalition Feud Poses Risk to Policy
Chapter 1: Political Outlook
- SWOT Analysis
- Bmi Political Risk Ratings
- Domestic Politics
- in Line with Our View, Coalition Infighting Has Escalated in Recent Months and We Highlight The Negative Fallout
- That This Is Likely to Have on Policy Formation and Reform Momentum Going Forward
List of Tables
- Table: Ukraine Political Overview
- Regional Politics
- Nato Membership for Albania & Croatia to Boost Reform
- We View Nato's Decision to Admit Croatia and Albania, and Its Promise of Future Membership to Georgia and
- Ukraine as Marked by A Desire to Avoid Antagonising Russia
Chapter 2: Economic Outlook
- SWOT Analysis
- Bmi Economic Risk Ratings
- Economic Activity
- Slowdown in The Offing
- We Expect Economic Growth to Decelerate This Year Due to Dimmer External Conditions and Soaring Inflation
List of Tables
- Table: Ukraine - Economic Activity
- Exchange Rate Policy
- Hryvnia Revalued, but Nby Discord Evident
- We Expect The Hryvnia to Remain Strong This Year, Due to The Change in The Nbu's Policy Stance and Continued
- Robust Investment Inflows, Which Are Likely to Cover The Widening Current Account Shortfall
List of Tables
- Table: Ukraine - Exchange Rate Policy
- Monetary Policy
- Inflation to Remain A Major Problem
- The Nbu Is Likely to Keep Liquidity Conditions Tight Ahead as Inflationary Pressures Remain Stoked
List of Tables
- Table: Ukraine - Monetary Policy
Chapter 3: Special Report
- Business Outlook for Global Frontier Markets
- Growing Fast on The New Frontier
- The 41 States That Bmi Examines in A New Report on Our Online Service May Make up Only A Small Slice of The
- World Economy, but They Possess Characteristics That Will See Them Gain Importance in The Eyes of Investors and
- Global Businesses over The Coming Years
List of Tables
- Table: Frontier Markets - Key Data and Projections for Top 10 Countries
- Frontier Investment
- Potential and Pitfalls
- The Spectacular Macroeconomic Performance of Frontier Markets in Recent Years Has Been Matched by Mildly
- Successful Efforts to Deepen Capital Markets
List of Tables
- Table: Gdp per Capita, US$ (in Order of % Increase)
- Table: Diversity through Frontier Markets - Correlation Coefficients January 2004-April 2008
- Table: Frontier Market Indices
- Regional Overview
- Laos
- Neighbouring Economies The Key to Growth
- Laos's Gdp Growth Has Been Boosted in Recent Years as Neighbours China, Thailand and Vietnam Compete for
- Its Natural Resources
- Yemen
- Huge Potential, but Don't Bank on Gcc Membership
- Markets Do Not Come Much More Frontier than Yemen, and, as Would Be Expected, There Is Huge Potential for
- Development, with The Prospect of Eventual Gcc Membership Likely to Act A Key Investment Pull
List of Tables
- Table: Yemen Economic Activity
- Democratic Republic of The Congo
- Mining Industry to Drive Growth
- The Democratic Republic of The Congo's Mining Industry Will Be A Key Driver of Growth and Is Likely to Attract
- Significant Levels of Fdi, with Our Real Gdp Forecasts Standing at 8.3% and 7.9% in 2008 and 2009, Respectively
List of Tables
- Table: Democratic Republic of The Congo - Economic Activity
- Cuba
- Investment Prospects after Fidel
- The Accession of A New Leadership Structure in Cuba Has Sparked Excitement That The 45-Year-Old Trade Embargo
- with The US May Be Lifted and Cuba May Move toward Market Liberalisation
List of Tables
- Table: Cuba Macroeconomic Data and Forecasts
- Mongolia
- Minerals to Drive Economic Boom
- Mongolia Is in The Midst of A Massive Resource-LED Economic Boom That Should Lift Gdp Growth into The Double
- Digits and Underpin Robust Increases in Exports and Inflows of Foreign Investment Capital over The Long Term
List of Tables
- Table: Mongolia - Economic Activity
Chapter 4: Business Environment
- SWOT Analysis
- Bmi Business Environment Risk Ratings
- Business Environment Outlook
List of Tables
- Table: Bmi Business and Operational Risk Ratings
- Institutions
List of Tables
- Table: Bmi Legal Framework Ratings
- Infrastructure
- Market Orientation
List of Tables
- Table: Emerging Europe, Annual Fdi Inflows
- Table: Bmi Trade Ratings
- Table: Top Export Destinations, US$Mn
- Operational Risk
Chapter 5: Key Sectors
- Infrastructure
List of Tables
- Table: Ukraine - Construction and Industry Data
- Defence
List of Tables
- Table: Ukraine Defence Sector Historical Data & Forecasts