Reply #9: A View from Kiev. [View All]

[MattSh]

A couple of months ago, I wrote a few things about how things look here from Kiev, and hoped to post on a semi-regular basis. Since then, just like in the states, everybody seemed to take an overdose of happy pills, and bad news virtually disappeared. But a few dark clouds are beginning to sneak back into the picture. Whether this is a few passing clouds, or a class 5 hurricane with an accompanying tsunami, well, who knows right now?

I have been known to say that one of the reasons I find Ukraine fascinating is that I can see the future of the USA here. Not that I want the future of the USA to look like this. But I see nobody in a position of power doing much of anything to stop it; indeed, I see little indication that anyone in DC is even aware that there is a problem.

Demographic trends: Marriages still down

The London-based Economist magazine took a look at demographic trends in Ukraine and found: “The 40 percent drop in the number of marriages between 1990 and 2004 underlines the link between the decline in living standards in the post-independence period and the decisions to marry later and to have smaller families. Although the number of marriages has subsequently picked up, in 2007 it was still down by 14 percent compared with the 1990 level. The death rate increased from 12 per 1,000 inhabitants in 1990 to just under 15 per 1,000 in 2001. This reflects the deterioration of the healthcare system since independence, as well as lifestyle factors, such as rising alcohol abuse. This has had an especially strong impact on male life expectancy since independence.”

Economist predicts slow growth ahead in Ukraine

Also, the Economist magazine's May 27 economic forecast for Ukraine wasn’t particularly upbeat. Under a “best-case scenario,” the London-based magazine forecast average growth in gross domestic product of only 2.4 percent annually until 2030. The prediction is based on “optimistic assumptions on labor productivity and the growth in capital stock, and presuppose that sound policies will bring further economic liberalization, disinflation and only limited fiscal deficits. The risk is that policymaking will be worse than expected, given the continued strength of vested interests, resulting in even more modest growth rates.”

The Economist also wrote: “Not only has the population declined by around five million , but the population structure is increasingly dominated by older age groups. This reflects falling birth rates and the large-scale permanent or semi-permanent emigration of younger Ukrainians. The older population, despite increasing in numbers, commands relatively little purchasing power … Owing to the collapse in export markets, east Ukraine is now likely to bear the brunt of the economic downturn, while the agricultural sector is one of the few sectors that is still recording positive growth.”

Egypt takes notice of fewer Ukrainian visitors

Partly because of a sharp drop in Ukrainian vacationers this year, Egypt’s tourism industry is suffering. Citing Egypt’s tourism minister, Zoheir Garrana, Reuters news agency on May 26 reported that arrivals from Ukraine decreased by more than 57 percent in the first four months of the year, compared to the same period a year ago.

Arrivals from Poland and Russia also declined by about 23 percent during the same period, the news agency reported.
Overall, the report says that Egyptian revenues from tourism fell 13.2 percent year-on-year, to $3.6 billion, in the four-month period, with arrivals overall down by 10.3 percent.

Ukraine remains tough place to do business

Although many areas of the business environment have enjoyed significant liberalisation in the past few years, Ukraine will remain a difficult place to conduct business, writes the Economist in a May 27 report. Companies are exposed to pervasive corruption, and an unwieldy and unreformed bureaucracy. The enforcement of property rights is still weak, the tax system remains complex and contradictory, and corporate governance is poor. State involvement in running the economy is excessive, and the liberalisation of key sectors--in particular, energy and utilities--has been delayed. (Hmmm, some of that sounds like the USA these days).

Oh, what else?

Well, it seems that beginning June 1st, some housing and utility fees will double or triple. It will be interesting to see how people react to this. Two years ago, when some fees were raised, many people just stopped paying their bills. Within a few weeks, all rate increases were rolled back, and those who skipped a month only had to pay the lower rate. Those rate increases occurred during winter, so turning off services was out of the question. These rate increases are much larger, and occurring in summer, so maybe this time they hope to wait it out and make the increases stick. This time too, those in new projects and determined to be better off will pay the higher increases. This must be IMF demands being put in place, because no one in the government here would vote higher rates on the rich or moderately well-to-do unless their backs were against the wall.

So, will this be a long hot summer upcoming, or will the world continue to sleepwalk toward a fate no one wants to contemplate? Only time will tell, I guess...