W H E R E O P P O R T U N I T I E S E M E R G E. But some âsoftâ indicators of âBusiness Environmentâ show a dif
Regional Differences in Doing Business In Ukraine Dr. Edilberto Segura Partner and Chief Economist, SigmaBleyzer President of the Board, The Bleyzer Foundation
June 2013 1 W
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Regions of Ukraine North Population* GDP per capita, $ Real GDP growth**
West Population* GDP per capita, $ Real GDP growth**
10.7
2200
The West and East have equal populations.
8.0
5400 04-07 08-09 10-11
But they differ significantly in GDP per capita and economic growth.
11.0 -5.8 3.0
04-07 08-09 10-11
Center
5.7 -5.1 4.7 Population* GDP per capita, $ Real GDP growth**
8.7
GDP per capita of the Eastern region is almost twice as much as in the Western region.
3900 04-07 08-09 10-11
7.7 -7.1
5.2
East South Population* 7.0 GDP per 2800 capita, $ Real GDP 04-07 08-09 10-11 growth** 5.5 -0.6 2.8
Population*
11.2
GDP per capita, $
3900
Real GDP growth**
04-07 08-09 10-11
6.2 -8.8
7.3
Also, the Eastern region grew much faster during 200407 and 2010-11 than Western one. But it also suffered more during the crisis of 2008-09.
Source: State Statistical Service of Ukraine, Wikipedia, The Bleyzer Foundation * As of end-2011, million W
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Regional Shares in Sector Value-Added 100
100
West
25 80
29
West North 60
Center
16
South East
100
13
100
15
West
38
Center
15
40
40
11
South
22
36
16
Center
19
South
Center
15 40
9
20
South
30
East
East
0
0
North
60
18
East
East
9
North
20
20
19
West
60
60
South
80
32
North
16
West
80
80
Center
Construction and Real Estate
Industry
100
North
0
0
Agriculture
31
20
39
East
0
West
15
40
South 20
19 80
8
40
16
20
60
Center
26
40
80
13
North
17 60
100
10
0
Transp'n/Com'n Finance Trade Source: State Statistical Service of Ukraine, The Bleyzer Foundation W
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All regions of Ukraine are suited for agriculture. However, the Central and Western Regions contribute the most to the sector. The Central Region has an advantage in grain production, while the West specializes more on animal breeding.
Industry is concentrated in the East and Central Regions. But the Eastern oblasts have also good agricultural potential, contributing to agriculture on par with the South and North. Northern oblasts (including Kyiv city) lead in Construction and Real Estate, and Services, particularly Trade and Finance. Having access to ports in 2 seas and a good transportation network, the Southern region is a large contributor to Transport Services.
Regional Distribution of FDIs - $54.5 billion total FDI Stock, $ billion 30
3.0
26.6
Average FDI Flow, 2011-12, $ billion 2.6
25
2.5
20
2.0
15
1.5 10.5
10
3.7
5
3.8
2.8
0.9
1.0
7.1
0.5
0
0.7 0.5
0.2
0.2
0.0
West North Center Kyiv South East
West North Center Kyiv South East
• FDI flows to Ukraine are heavily concentrated, with Kyiv city firms taking 49% of the total. • Measured by the stock of FDI, almost 80% of overall FDI was directed to firms in Kyiv city, Dnipropetrovs'k (Center), Donetsk and Kharkiv (East), Lviv, and Kyiv (North) oblasts. W
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FDI Stock by Region and GDP per Capita GDP per capita, 2011, weighted average, thousand US$
11 9
Kyiv city 49%
7
East 13%
5
Center 19%
North, 5%
3
South, 7% West, 7%
1
0
5
10 15 20 FDI stock, $ billion
25
30
Source: State Statistical Service of Ukraine, The Bleyzer Foundation
The regional distribution of FDI is correlated to GDP per capita (proxy for the size of local consumer markets), which supports the idea that foreign companies in Ukraine implement investment projects that target domestic consumers. W
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FDI Stock Breakdown by Sector and Region 100
100
Other sectors
Financial services
29
80
6 4
19
9
11
8 1
9
13
80
16
9
7
21
7
Transport'n/Comm'n
5
60
12
55
85 65
52 20
Industry
32
9
14
10
12
4 3
7 5
0
Agriculture
1
0
61
44
40
Construction/Real Estate 20
60
Trade
17
40
24
Agriculture
FDI Stock
3
Industry
Construction /Real Estate
Trade
Transp'n /Comm'n
North
Center
Kyiv city
South
West
Source: State Statistical Service of Ukraine, The Bleyzer Foundation
4 3 Finance
East
• The sector distribution of FDI reflect the economic profiles of the regions of Ukraine.
• Kyiv city received the most FDIs to financial sector, transportation, trade and real estate. • Eastern region leads in FDIs into industrial sector, while the Western region had the highest contribution to agriculture. W
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FDI Flows by Sector & Region for 2011-12, $ billion 2500
Other 2000
Finance
1500
Transp'n / Comm'n
1000
Trade
500 0
Construction /Real Estate
-500
Industry
-1000 -1500
Agriculture West
East
North
Center
South
Kyiv city
Source: State Statistical Service of Ukraine, The Bleyzer Foundation W
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Impact of Factors of Production and Infrastructure on FDIs Labor Quality
Infrastructure Quality 5.0
5.0
Technological Readiness 6.0
4.86
4.73
5.62 5.5
4.5 4.13
4.23
4.5
5.0
4.0 3.62 3.63
4.5
3.73
3.5
3.96
4.0 3.73
3.69
4.05 4.0
3.73
3.5
3.0 3.5
2.95
3.0 2.59
2.5
2.76
2.95
2.68
2.5 2.0
3.0
2.0
Source: Own calculations based on Ukrainian National Competitiveness Report 2012, Foundation for Effective Governance
• The above business environment indicators are scored from 1 (worst) to 7 (best). • In addition to the market size, FDI pattern to various regions is broadly consistent with the quality of their infrastructure, labor quality and technological development. • Because of these favorable factors, Kyiv City and the East are ranked highly in surveys of competitiveness, whereas the West is generally ranked low in competitiveness. W
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But some “soft” indicators of “Business Environment” show a different picture: Public Governance 4.0
3.86
Legal Environment and Judiciary 4.0
3.82
3.77 3.56
3.65
3.5
3.5
3.38
3.31
3.29
3.09 3.0
3.15
3.20
South
East
3.0 2.74
2.5
2.5
2.0
2.0
West
North
Center
Kyiv
South
West
East
North
Center
Kyiv
Source: Own calculations based on Ukrainian National Competitiveness Report 2012, Foundation for Effective Governance
• Although the West is in a less advantageous position in terms of infrastructure and factors of production, it has a more friendly environment for doing business in most of the “soft” indicators, such as public governance and legal environment and judiciary. • Kyiv city, however, is rated poorly on these indicators.
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Impact of Business Environment (2) Business Regulations and Access to Finance
Corruption and Crime 5.0
4.0
4.58
3.65
3.62
3.59
4.5
3.53
3.5
4.45
4.48
3.37
4.21
South
East
3.95
4.0
3.16
4.17
3.5
3.0
3.0 2.5 2.5 2.0
2.0
West
North
Center
Kyiv
South
East
West
North Center
Kyiv
Source: Own calculations based on Ukrainian National Competitiveness Report 2012, Foundation for Effective Governance
• The West has also somewhat better indicators on other indicators, such as business regulations, access to finance, and corruption and crime. • Though doing business in the Western region seems to be easier in many respects than in other regions, the region lags behind in FDI inflows. • This is due to the fact that, Ukraine, in general, attracts FDIs on the basis of its natural resources, availability of production factors, infrastructure and market size, which are more favorable in the East. W
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