Modern economic POTENTIAL OF UKRAINE

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Investment portrait of Kharkov region

Industry

Mineral resources of the region include natural gas (balance reserve – 1,370 bn cu. m), oil (balance reserve in oil pools – 8.0 mn tons), deposits of brown coal and anthracite, beds of salt, clay, and chalk, limestone, and sand. The region extracts 40% of the total natural gas in Ukraine. It secures a high level of energy park development and preserves environmental safety.

The pattern of industrial output in the region is as follows: food and processing industry (33%), machine building (26%), fuel and energy complex (22%), chemical industry (7%), production of construction materials (5%), and other kinds of industrial activities (7%).

The total number of industrial enterprises in the region amounts to 6% of Ukraine’s entire amount. The share of the region in industrial production volumes and gross domestic product in Ukraine is at the level of 5-6%.

All steam turbines, 66% of all tractors, 60% of all large electrical machines and electric engines, as well as almost half of overhead traveling cranes and bearings are produced in Kharkov region.

Military and technical enterprises, which traditionally draw the best specialists and scientists with worldwide reputations are concentrated in the region and have earned it fame.

The economy of the region has been on the rise for eight years running after a continuing economic crisis. Industrial output expanded by almost half over the last four years (2002-2005) and agricultural produce – by nearly one third. Individual revenues and their main constituent salaries have also grown. Long-term structural factors, like privatization, restructuring, investment policy, rehabilitation of state finances, conducting weighted monetary and credit policy, as well as improvement in the payment discipline of the power generating sector, which was implemented at the state level, created a favorable environment for economic growth.

The rate of economic growth accelerated in 2005. The volume of industrial production increased by 12.5% between January and December 2005.

Production of gross agricultural produce grew by 15.2%. Production of grains herewith (in weight after finishing) increased by 12.2%, potatoes – by 19.4%, vegetables – by 4.5%, fruits and berries – by 61.7%, sunflowers – by 39.0%, milk – by 0.9%, and eggs – by 8.1%.

High production rates were sustained by increasing domestic demand.

The food market was saturated by all commodity groups. Demand and supply were balanced, and a system of price monitoring was applied.

Retail trade turnover (including retail trade turnover, calculation data of network private entrepreneurs’ turnover, and market sales’ volumes) constituted UAH 12,548.4 mn in 2005. It expanded by 27.2% against 2004 in comparable prices.

Investments

The creation of an attractive investment climate in the region is the most important goal for Kharkov regional policy.

Indices of Kharkov region’s economy meet all criteria set by world standards for investment attractive states.

Foreign investments to the economy of the state have been increasing 1.6 times each year during the last few years. Most of the investments are concentrated in fast capital return companies (in food and processing industry, financial services, wholesale, and retail trade). Approximately 40% of direct foreign investments in the region are concentrated in industrial companies.

There are all prerequisites for the influx of foreign capital to the region.

The total volume of foreign investments in Kharkov region amounted to USD 525.57 mn as of January 1, 2006, including USD 468.40 mn in direct investments (89.1% of the total volume) making USD 165.9 per capita (USD 135.6 in the end of 2004) and USD 57.17 mn (10.9%) in portfolio investments.

The general accretion of direct investments over 2005 was USD 80.79 mn, 1.4 times less than the accretion over 2004. The rate of direct investment growth over the year under review was 120.8% (141.2% over 2004).

Foreign investments to enterprises in the region originated from 57 countries of the world, including direct investments from 54 countries and portfolio investments – from 22 states.

Foreign economic activities

According to information prepared by the State Customs Service of Ukraine, companies in Kharkov region exported the output to 99 countries of the world over 11 months of 2005. Imported articles originated from 106 states.

The volume of foreign trade turnover was expected to reach USD 1.986 bn by the end of 2005, including exports in the amount of USD 683.4 mn. In fact, foreign trade turnover volume constituted USD 1.831 bn after the first 11 months of 2005 (export – USD 652.8 mn). It means that planned indices were achieved or even exceeded by the end of the year.

Export shipments amounted to USD 652.8 mn, 2.3% less than over January-November 2004. Import revenues increased by 61.0% and constituted USD 1,258.4 mn.

Kharkov region ranked tenth among regions in Ukraine by export of commodities and ninth by import deliveries.

The ratio of import over export was 0.52 versus 0.85 over January-November 2004. The negative balance of foreign trade amounted to USD 605.6 mn (compared to USD 113.6 mn over the corresponding period of 2004).

The region had a negative balance with 74 states of the world. The largest negative balance was fixed in trade with the Russian Federation (USD 281.3 mn), Germany (USD 83.5 mn), Italy (USD 50.8 mn), the USA (USD 40.4 mn), and France (USD 21.6 mn).

The export of commodities to the CIS over January-November 2005 constituted USD 453.7 mn and USD 199.1 mn to other states. Import deliveries amounted to USD 630.0 mn and USD 628.4 mn respectively.

The export of commodities to the CIS increased by 21.8% and import by 1.9 times versus figures from January to November 2004. Exports to other countries decreased by 32.7%, while deliveries from other countries increased by 41.3%.

The largest export shipments were destined for the Russian Federation (45.0%), Kazakhstan (7.7%), Belarus (4.8%), Moldova (3.4%), Pakistan (3.0%), Hungary (2.8%), Azerbaijan (2.9%), India (2.7%), and Poland (2.2%). Imported goods originated from Russian Federation (45.7%), Germany (7.0%), Italy (4.6%), the USA (3.5%), Belarus (3.4%), Poland (2.9%), China (2.7%), and France (1.9%).

Boilers, machines, appliances, and mechanical devices (21.1% of the total export), as well as electrical machines and equipment (11.2%) were the main commodities exported from Kharkov region. Land vehicles (21.6% of the total import), boilers, machines, apparatuses, and mechanical devices (14.8%), as well as tobacco (11.3%) were the most imported items.

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