ukrainicum

5.7% of Europe, 0.44% of the world

16.08.2013 | Iryna Andreyeva

Ukraine is becoming a part of the global economy with all pros and contras that come with it

Free movement of goods, capitals and people are considered the cornerstones of global economy. The last two factors will be discussed later one, while the first one became a real happiness for Ukrainians who suffered from shortages of goods from Soviet times. Impossibility to spend honestly earned money and long lines for everything are the notions that are difficult to explain to our children. Thankfully, there is a great possibility that our next generation will not understand such phrases as cars and household appliances are cheaper abroad

In 1996, import of goods and services to Ukraine reached US $17.6 bn, in 2003 US $23 bn, in 2010 US $84.7 bn. In other words, it grew nearly fivefold over 16 years and will probably continue to grow. For the government, despite that exports are growing at the same pace, increase of consumption of imported goods is a problem. That is why our government keeps trying to close the border, though quite unsuccessfully for the time being. This means that the choice will be even wider, particularly on the background of development of online technologies using which you can order any commodity at any part of the world.

In fact, even closing of borders will unlikely divide us from the global movement of commodities for good. Transnational companies that already came are not likely to abandon Ukraine with its 50-million population. Coca-Cola, Nestle, Henkel, MacDonalds and others have settled secured in our country. They bring many problems all around the world, but they also bring many possibilities and money. Foreign direct investments amounted to US $6.7 bn as of the beginning of 2004. In 2007, this amounted grew to US $21.6 bn and by 2013 the volume of investments received over 21 years of independence amounted to US $54.5 bn. Of course, this is not much. The share of transnational companies is even smaller around 40% of total volumes. However, if a more favorable investment climate is created many transnational corporations count increase their investments, which will be a good sign for other foreign companies that still fear our increased risks.

Destined to integration

Mass expansion of western banks to Ukraine in the middle of the 2000s integrated domestic banking sector into the world financial system. Financial whales of Europe that have long divided clients among themselves one after the other were developing virgin markets of Eastern Europe. As of January 1, 2005, the share of foreign capital in the domestic banking system was around 9.6%, while by the end of 2007 it increased to 35%. By that time nearly all major financial groups of the world settled in our country.

Thanks to non-residents that introduced western methods of operation in Ukraine and received cheap funding from mother structures, lending started to grow rapidly in our country. In 2005, credit portfolio of individuals amounted to UAH 35 bn. Three years later, the indicator flew to UAH 280 bn. Among undoubted advantages of the integration into the world financial system is fast improvement of image of our banking system, which would have been impossible without adoption of world standards of working with finances. Ukrainian financiers mastered factually in five years what other countries were developing for centuries. This all allowed to improve peoples trust in the banking system, which led to fast growth of deposits. The volume of deposits of individuals increased from UAH 67.5 bn in 2005 to UAH 206.74 bn in 2008. Ukrainian financiers thus contributed to de-shadowing of the economy by introducing world standards: ordinary people started pulling the money from under the pillows (i.e. uncontrolled cash turnover) and move it to the banks. Meanwhile, the domestic banking system and people already also experienced the negative consequences of integration, when the world financial crisis resulted into global financial chaos.

Nonetheless, also in this period positive moments from joining the world financial system can be found. Western banks did not leave their daughters alone. In 2009-2010 they actively increased their capitals helping survive the crisis. Investments of financial groups remained one of few sources of FDI during this period. Despite that in the last several years western bank groups started to actively withdraw from Ukraine, the share of foreign capital in our banking system remains high (it dropped from 41.9% as of January 1, 2012 only to 37.9% based on the results of January-April 2013). Experts believe that current indifference of non-residents towards financial sector of Ukraine may continue for another 3-7 years. After that the banks will start coming back. This means that having once joined the system of world finances our banks will share all ups and downs of the global system in the future.

To see the world,
to show ourselves

Freedom of movement being a distinctive feature of the global economy brought Ukraine advantages and disadvantages. One the one hand we can often hear about brain drain from out country and loss of labor force. At the moment, based on the official information, 2.7 mn Ukrainians moved abroad. Unofficial expert assessments are quite different at around 4.6 mn. So the problem does exist. On the other hand, however, quite often Ukrainians travel to other countries as migrant workers to earn some money and then return home. They bring back with them new skills and at times a new look at how our country should be and what needs to be changed for Ukraine to become better. According to the International Migration Organization, 6.5 mn migrants work outside Ukraine. Institute of Demography and Sociological Studies claims that among those who work abroad, there are 2.5-3 mn Ukrainians who have been there for several years and are not planning to come back home. The difference between these two figures indicates a potential inflow of specialists who know what a civilized country should be like and bring this knowledge to other Ukrainians.

Ukrainians who obtained their degrees abroad and returned home understand this issue even better. Data of UNESCO survey indicate that around 35,000 Ukrainian students study in learning institutions of other countries and only a third of them in Russian and CIS countries. Others study in Germany, Poland, USA, France, Czech Republic, Italy and Hungary. At that, according to Andriy Myshyn, Director of State Family and Youth Policy Institute, 90% of those who study abroad come back to Ukraine upon graduation. This figure is doubted by many experts, but still it is possible that around 60-70% return, which is a number capable of changing the world.

In fact, outlook of many Ukrainians seriously changes by simply seeing how people live in another country, without obtaining education or working experience there. There was a reason for the iron curtain in the Soviet time. Now, the number of people going abroad for vacation or for business is growing fast. According to the State Statistics Service, in 2005 Ukrainians traveled abroad 16.454 mn times, while last year this figure grew to 21.4 mn. Around 40%, however, traveled to Russia and CIS countries, but, as the saying goes, negative experience is still experience.

Overall, one could say that sometimes even against the will of its government Ukraine is becoming more open for goods, capitals and people. All this brings the country money, knowledge, and whats more important, freedom of choice.

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