strategic development agenda lessons from transition ... · imports exports source: observatory of...
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Wiener Institut für Internationale Wirtschaftsvergleiche
The Vienna Institute forInternational EconomicStudies
www.wiiw.ac.at
Challenges of Ukraine’ Economic Transition
Strategic Development AgendaLessons from Transition ExperiencesImplementing AA/DCFTA AgreementsPolicy lessons
Amat Adarov [email protected] Peter Havlik [email protected] Landesmann [email protected] Institute for International Economic Studies
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� Lessons learnt from other transition experiences:
� Economic catching-up
� Industrial restructuring
� Attention to external imbalances
� Specific situation of Ukraine: directions and structure of trade
� Challenges of AA/DCFTA implementation
� FDI policies
� Policy recommendations
Topics covered
3
0
10
20
30
40
50
60
70
80
90
100
1991 1995 2000 2005 2008 2010 2013 2014 2015
RS TR AL BiH KZ RU UA NMS-11
Income convergence: selected EU neighbours real per capita GDP, EU-28 average = 100
Source: wiiw estimates and forecasts.
4
Manufacturing value added, in % of GDPmore than 20% in RO and CZ (as DE, IR); Ukraine: 12%
Source: own calculations based on WIIW Database and Eurostat.
0
5
10
15
20
25
30
35
Ukraine MT LV BG EE PO SI LT HU SK RO CZ
1995 2000 2005 2011
0
5
10
15
20
25
30
EL FR DK NL UK BE ES IT SE FI PT AT DE IE
5
Manufacturing activity is increasingly concentrated in a Central European Core
Change in value added share of manufacturing
(2000-2013)declining share
constant share
rising share
Note: Manuacturing export intensity is manufacturing exorts(in EUR) / population
6
-40
-20
0
20
40
60
80
100
CEE-5 BG, RO Baltics ES, GR,PT
WBC - 6 UA
Goods exports Services, credit Goods and Services
External trade, 2003-2015, in % of GDP - Persistent low export
capacity in some groups of countries
Source: wiiw Annual Database incorporating national and Eurostat statistics.
7
-40
-30
-20
-10
0
10
20
CE
E-5
BG
, RO
Bal
tics
ES
, GR
, PT
WB
C -
6 TR
UA
Goods and Services Primary Income Secondary Income Current Account
Composition of the current account of the balance of payments, 2003-2015, in % of GDP - pre-crisis: run-away deficits in some
countries (trade balances, capital inflows); post-crisis (‘sudden stop’; income effects)
Remark: Components refer to BOP 6th edition as far as available, BOP 5th edition before. Primary income refers to Income Accounts, secondary income to current transfers.Source: wiiw Annual Database incorporating national and Eurostat statistics. .
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Source: Eurostat and wiiw own calculations.
Position of manufacturing and longer-term trade balancesShare of manufacturing in GDP in 2005 and exports/imports of goods and services, average 2002-2008 –Manufacturing particularly important for medium-income countries!
Ireland
Germany
Austria
Belgium
Denmark
Finland
FranceNetherlands
Sweden
Bulgaria
Czech Republic
Estonia
Hungary
Latvia
Lithuania
Poland
RomaniaSlovakia
Slovenia
Albania
Bosnia and Herzegovina
Croatia
Macedonia
Montenegro
Serbia
Greece
Italy
Portugal
Spain
0.0
5.0
10.0
15.0
20.0
25.0
40.0 50.0 60.0 70.0 80.0 90.0 100.0 110.0 120.0
Sha
re o
f man
ufac
turin
g in
GD
P,
2005
Exports/Imports of goods and services, 2002-2008
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Imports Exports
Source: Observatory of economic complexity, MIT
Ukraine’s trade dynamics, 2000-2014
10
Imports Exports
Source: Observatory of economic complexity, MIT
Ukraine’s trade by partner, 2014
11
Imports Exports
Source: Observatory of economic complexity, MIT
Ukraine’s trade by sector, 2014
12
DCFTA implementation highlights
• Trade-related aspects: liberalization of trade in goods and services• Deep aspects: food safety/SPS measures, technical standards, public
procurement, etc.• Comprehensive aspects: competition/monopoly regulations, access to
public procurement, intellectual property, sustainable development, etc.
• Approximation to (takeover of) the EU acquis communautaire• Temporary autonomous concession of preferential access to the EU market• Barriers to trade: binding low TRQs (agri-food produce), technical and SPS
regulations, etc.• Transitory arrangements for certain products (e.g. special regime for worn
clothing and passenger vehicles; surcharge export duties for Ukraine)
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Ukraine’s trade regime change in 2016
• UA-EU DCFTA: autonomous preferences for UA exports by the EU (since 04/2014) � full implementation starting 01/2016
• UA-CISFTA: suspended by Russia upon DCFTA implementation• Ukraine joined the sanctions against Russia• Mutual embargo by Russia and Ukraine (food products), special transit regime, etc.• Marginal impact likely limited in light of the trade collapse due to recession
Other major background factors
• Military conflict and political infighting• Deep recession and macroeconomic instability• Sharp depreciation of hryvna and pass-through to inflation• Feeble external conditions:
• Still weak demand in Europe, recession in Russia• Soft global commodity prices
• Non-tariff barriers to trade: TRQs, technical and SPS regulations
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Share of the EU and Russia in total trade of Ukraine, 2003-2015
Source: Calculations based on wiiw database.
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
2003 2005 2007 2009 2011 2013 2015
Russia EU-28
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
2003 2005 2007 2009 2011 2013 2015
Russia EU-28
Exports (down by 29% in 2013-15) Imports (down by 44% in 2013-15)
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Ukraine‘s main trading partners2015, in % of total
Source. wiiw Annual Database, national statistics.
RU, 12.7
TR, 7.3
CN, 6.3
EG, 5.5
PL, 5.2IT, 5.2
IN, 3.7DE, 3.4
RoW, 50.6
UA exports (31.7 bn EUR)-29% less than in 2013
RU, 20.0
DE, 10.4
CN, 10.1
BY, 6.5PL, 6.2
HU, 4.1US, 3.9
IT, 2.5
RoW, 36.3
UA imports (34.6 bn EUR)-43% less than in 2013
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0
5
10
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25
30
05
101520253035
I II III IV V VI
VII
VIII IX X XI
XII
XIII
XIV XV
XV
I
XV
II
XV
III XX
Structure of Ukraine‘s exports, 2015, in %
to EU-28 (34% of total exports)
to Russia (12.7% of total exports)
Source: Own calculations based on UKRSTAT.
Base metals Machinery
TransportequipmentTransportequipment
Base metalsGrain
Mineral products
Chemicals
Machinery
Paper
TextilesTextiles
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IRON AND STEEL;14319CEREALS; 6371
ORES, SLAG AND ASH; 3918
NUCLEAR REACTORS; 3835ANIMAL OR VEGETABLE FATS AND OILS
; 3507
ELECTRICAL MACHINERY AND EQUIPMENT;
3139
MINERAL FUELS; 2865
ARTICLES OF IRON OR STEEL;2590
RAILWAY OR TRAMWAY LOCOMOTIVES, 2463
OIL SEEDS AND OLEAGINOUS FRUITS; INDUSTRIAL OR MEDICINAL PLANTS;
STRAW AND FODDER; 2048
INORGANIC CHEMICALS 1744
FERTILISERS; 1171
WOOD; 1144
PAPER AND PAPERBOARD;1080
RESIDUES AND WASTE FROM THE FOOD INDUSTRIES;923
-5
0
5
10
15
20
25
30
35
40
45
50
55
60
65
70
75
-5 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75
Share of the EU in total industry exports from
Ukraine, %
Share of Russia in total industry exports of Ukrain e, %
Top 15 biggest export industries of Ukraine, 2013bubble size = export value in USD million
Source: own calculations based on UN Comtrade data
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Regional composition of exports, 2012(pies proportional to the value of exports in USD mn)
RussiaBelarus
PL
SK
HURO
MD
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Major outliers:
Meat: +14000% (EUR 65 mn)Glass: +130% (EUR 60 mn)Copper: +140% (EUR 54 mn)Dairy: +60% (EUR 48 mn)
2532
16501034
957
768
653
623
519
496
302
243
215
-80
-60
-40
-20
0
20
40
60
0 5 10 15 20 25
Iron & steel
CerealsEl. Mach.
Ores
Wood
Oil
seeds
Fats
wiiw calculations based on Eurostat Comext database.
EU imports from Ukraine, 2015 (total 12260 EUR mn)growth 2013-2015 (Y: -8.1%) and shares in total (X)
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Wrap up summary on recent foreign trade developments
� Ukraine 2015
• exports to EU down by 8% since 2013, highly concentrated (top 10: 80%)
• imports from EU down by 40% since 2013
• trade deficit with the EU (EUR 1.5 bn in 2015 after EUR 10 bn in 2013)
Memo (other DCFTA countries performed better in export s)
� Georgia 2015
� exports to EU up by 9% since 2013, highly concentrated (top 5: 80%)
� imports from EU down by 8% since 2013
� trade deficit with the EU (EUR 1.1 bn in 2015 after 1.4 bn in 2013)
� Moldova 2015
� exports to EU up by 27% since 2013, highly concentrated (top 10: 80%)
� imports from EU down by 9% since 2013
� trade deficit with the EU (EUR 0.9 bn in 2015 after 1.3 bn in 2013)
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Regional specialisation,by value added of economic activities in 2012
Mining, Industry,
Agriculture,Wood-based
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FDI inflow in % of GDP
Source: wiiw FDI Database.
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
Belarus Poland Romania Ukraine CESEE
2007 2008 2009 2010 2011 2012 2013 2014
2015: EUR 2.7 bn(3.5% of GDP)
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Cyprus37.6%
Germany13.3%
Netherlands12.8%
Russia6.4%
Austria6.5%
United Kingdom5.2%
Virgin Islands, British4.5%
France3.1%
Switzerland3.6%
Italy2.2%
Poland2.3% USA
1.8%
Sources: wiiw FDI Database.
Inward FDI stock by main investors, EUR 44.3 billion, end-2014 (revised, including debt instruments)
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Cyprus35.4%
Germany13.1%Netherlands
13.8%
Russia8.1%
Austria6.5%
United Kingdom4.8%
Virgin Islands, British4.2%
France3.1%
Switzerland3.8%
Italy2.4%
Poland2.2%
USA1.8%
Sources: wiiw FDI Database.
Inward FDI stock by main investors, EUR 46.9 billion, end-2015
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Policy recommendations from earlier wiiw study “How to Stabilise the Economy of Ukraine”; available at: http://wiiw.ac.at/publications.html
� Conflict resolution necessary to allow less military and more social
and infrastructure spending
� Exchange rate regime should move towards more stability; requires
more Forex reserves
� Energy tariff hikes will not suffice without energy-saving investments
� Social support programs to maintain support for reform measures
� Institutional, legal reforms, ‘de-oligarchisation’ required for FDI and a
sustainable economic development
� Ideally: ‘Marshall Plan’ for Ukraine with more funds and strict
conditionality on implementing institutional, legal, political reforms.
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Policy recommendations (II)
� Consider careful phasing-in of implementation of DCFTA between
Ukraine and EU
� Attention to adjustment costs; limited resources to deal with
macroeconomic stabilisation and industrial restructuring at the
same time
� Keep in mind longer-run market access to Russia and other CIS
� Trilateral talks (EU-Ukraine-Russia) on TBT and SPS
� Attempt to keep Ukraine also in CISFTA
� Long-run vision of Ukraine as a bridge between EU and EAEU;
will contribute to FDI attractiveness
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Policy recommendations (III)
� FDI policy :
• Institutional, legal reforms vital for investment climate
• Active FDI promotion agency
• Improve local authority administration (focus on some first)
• Set up industrial / business parks
• Individual package of incentives for large investors
• Support interaction of foreign investors with local authorities and
domestic businesses
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Policy recommendations (IV)
� ‘Industrial heartland’ is currently in the East
� Most affected by the military conflict and in the past oriented largely towards Russia
� Requires massive investments, also public: infrastructure; market reorientation and industrial modernisation/diversification
� Western provinces
� Less affected by the war but also less developed and poorer; however scope for diversification (agro-food, wood-based, light industry, 2nd tier cities: tradable services)
� Can benefit from cross-border cooperation with NMS (PL, SK, HU)
� De-concentrate market structures : effective competition authority, facilitate entry of new companies; liaise with FDI policy measures
� Technical assistance from EU; labour market policies essential
Wiener Institut für Internationale Wirtschaftsvergleiche
The Vienna Institute forInternational EconomicStudies
www.wiiw.ac.at
Thank you for your attention!
wiiw is currently working on a new in-depth comparative analysis of AA/DCFTA costs and benefits implementation
More details in the 2015 wiiw study“How to Stabilise the Economy of Ukraine” by Adarov, Astrov, Havlik, Hunya, Landesmann, Podkaminerfreely available at:http://wiiw.ac.at/publications.html