Kyiv losing lead

15.11.2013 | y Viktoria Poda

While by most economic indicators those of Kyiv are so far higher than in the rest of the country, the gap is gradually narrowing

As the capital of Ukraine, Kyiv has constantly shown high economic performance indicators, which is quite typical for most capitals around the world as they are traditionally the center of business and financial activity. But in recent years Kyiv is gradually losing such status. Of course, if to look at the huge number of foreign makes of vehicles and shopping centers in luxury apartment buildings one would think this. However, statistics are registered much earlier than residents of big cities realize

For starters, take big industry, which is showing a decline in almost all sectors. Moreover, Kyivs industrial sector is dropping two times faster than in the entire country. For example, according to last years results the output of industrial goods in Ukraine fell 1.8%, while in Kyiv this figure was 4.1%. This year these same figures over the period January-September were 5.2% in all of Ukraine and 9.9% in Kyiv respectively.

The picture in the construction sector is similar. Last year the volumes of completed construction works in Ukraine fell 14.4%, while in Kyiv 21.1%. Over nine months of 2013 the volume of construction works in the country fell 16.2%, while in Kyiv this figure was 22.3%.

What is particularly alarming is that the attractiveness of Kyiv for investors is in decline. Over the first half of 2013 capital investments in the city were only 83.1% against the same period last year. Such decline was observed in practically all sectors of the economy: wholesale and retail trade (investments shrank 39.4% and 24.3% respectively), the hotel industry (68.5% lower), transportation (58.3%), telecom (16.2%), education (40%), etc. On the aggregate, after Euro 2012 the construction of new objects in Kyiv practically came to a standstill.

Up until recently the nations capital showed a high pace of development of small business. Today, this sector is shrinking. Indeed, the number of small entrepreneurs in Kyiv in 2012 dropped by more than half compared to 2009 from 284,100 to 90,500. The number of employees in small businesses last year fell 9.8% (to 396,600) compared to 2008. It is not surprising that while in the first half of 2008 the level of unemployment in Kyiv among the able-bodied population (by the methodology of Ministry of Labor Protection) was 3.1%, in the first half of 2013 it almost doubled to 5.9%.

Those who managed to preserve their jobs also have reason to be alarmed. The pay arrears in Kyiv as of January 1 2012 of UAH 72.5 mn increased over a year to UAH 80.7 mn and by October 1, 2013 were UAH 84.4 mn. The city authorities are not making any promises to pay off the debt.

While the level of wages in Kyiv is higher than the average across Ukraine, the pace of its growth over recent years is notably lower. Indeed, in 2010 the aggregate growth of real wages in Ukraine was 10.2%, while in Kyiv this figure was only 5.2%. These same figures in 2011 were 8.7% and 6.3%, in 2012 14.4% and 12.5% and in January-September 2013 9.1% and 8.8% respectively.

The dynamics of overall incomes of Kyiv residents are even worse. On average in Ukraine the aggregate incomes per household in 2012 grew by 19.4% compared to 2010, while in Kyiv this figure was only 9.6%. One of the reasons for this is the decrease in business activity mentioned above. Over two years incomes from entrepreneurial activity in the overall structure of aggregate resources of households in Kyiv fell from 8% to 2.2%. The explanation clearly lies in the new tax code and all the travails that go with it. In truth, the decrease in these aggregate figures across Ukraine was only 2.1% from 6.2% to 4.1%, meaning that Kyiv has fallen from the leader in terms of business to an underdog.

The changes that transpired were followed by changes in the structures of expenses. In 2009 the share of expenses on foodstuffs and non-alcoholic beverages in the total expenses of households in Kyiv were 38.8%. By 2012 this figure had reached 44.3%. The share of expenses on rent and utilities over this same period grew from 8.3% to 11.3%. Living in the Ukrainian capital is clearly becoming more expensive faster then the incomes of Kyiv residents are rising.

Worth noting separately is the cost of healthcare in Kyiv. While the city authorities often speak positively about this indicator, a detailed look at the official statistics ruins the pretty picture they paint. For example, out-patient clinics that are opening in Kyiv are becoming inexhaustible sources of public relations. Indeed, in 2011-2012 a total of 119 such points were opened and their total number increased from 467 in 2010 to 586 in 2012. While this appears to be a huge success, it is only in appearance. Indeed, the increase in the planned number of all out-patient clinics over this period was negligible from 83,300 to 85,700 and visits per shift per 10,000 from 302 to 306. Moreover, in Kyiv six fully functional medical institutions were shut down, the number of hospital beds was reduced from 30,000 to 29,600 and by 109 to 105 per 10,000 patients. Also, the number of doctors per 10,000 patients fell from 84 to 82, and nurses from 114 to 111. While the changes seem negligible in absolute figures, the population in Kyiv grew and the city authorities did not even think there was a need to increase the number of doctors.

Finally, here is one last piece of stats. In the 2008/2009 academic year 593,300 students accredited at the levels 3 and 4 studied in higher learning institutions in Kyiv. In 2012-2013 this figure fell to 441,900, while the number of colleges increased from 68 to 72.

All of the above statistics paint a very interesting picture. From a city that drew Ukrainians that sought more prosperous life, Kyiv is becoming a city of dashed hopes. The same goes for favorable conditions for starting up and developing a private business. Taking into account the cost of accommodation in Kyiv, run-of-the-mill oblast centers are no longer considered to be economic provinces in terms of future prospects and incomes. Perhaps this was meant to be, but then it is interesting which city will occupy the place of the countrys business hub.

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