Promoting economic diversity in Ukraine: The role of the enabling environment for the basic metal and metal processing industry Yaroslav Zhalilo Kiev, March 11, 2010
Where are the bottlenecks? The key factors of crisis in sector: Sharp worsening of terms of foreign trade Shrinking of domestic market: decline of demand from the side of main steel products users deterioration of main steel consumers’ liquidity cuts of public investment in infrastructure projects Increasing protectionism in the world Limited access to “long” finance due to liquidity crisis at world financial markets
Pre-crisis growth: lost chances? Actual, through new products 35% Actual, through products already exported in 2000 30% Hypothetical if exports had grown proportionately to world market growth for all products exported 25% 20% 15% 10% 5% 0% Hungary Italy China Turkey Estonia Latvia Poland France Germany Korea, Rep. Brazil Belarus Georgia Kazakhstan Kyrgyz Republic Moldova Ukraine Bulgaria Romania OECD countries Ireland New EU members Lithuania Slovenia Czech Republic Slovak Republic United Kingdom United States Emerging Markets Russian Federation Average Annual Export Growth in 2000-2008
Poor resources efficiency Resources Ukraine Developed countries, average Coke (kg/t of iron) 520 320 Iron ore (t/t of iron) 1,8 1,5 Natural gas(m 3 /t of iron) 79 practically not used Energy (GJ/t of rolled metal) 30 25 Standard coal (t/t of rolled 1,28 0,96 metal)
Low labor productivity 800 600 400 200 0 EU Germany Japan Spain Brasil Ukraine 355 352 362 358 179 243 1990 475 452 403 552 322 111 1995 575 603 540 723 429 136 2000 661 179 2007 Labor productivity in 1990-2007, tonnes of steel per person
Constraints to meet competitive challenges High material and energy consumption of steel production Monopolies at raw materials’ markets of Ukraine, resulting in higher prices at lower quality Growth of prices and tariffs for the services of state- owned monopolies in 2005-2008 Lack of adequate efficient anti-crisis Government policy Social burden on metallurgical companies
Worsening of value-added structure 14 12,6 11,8 12 10,7 9 10 8,3 7,4 8 6,1 5,7 4,9 6 4 2 0 2007 2008 2009 11,8 12,6 10,7 half-finished products 7,4 5,7 4,9 long rolled metal 9 8,3 6,1 flat rolled metal Structure of rolled metal export from Ukraine in 2007-2009, mln t
Metal producers managed to adapt to new crisis conditions: “freezing” of prices for some resources and tariffs hryvnia devaluation reduction of product cost decrease of natural gas consumption optimization of employment
Main directions of further development of Ukrainian metallurgy: increase of the share of higher value-added products revising the value chain and efficiency improvement of its links improvement of legal and regulatory environment development of sales network and clients servicing improvement improvement of business and managerial skills of personnel both managerial and engineering
Measures to enhance competitiveness Support of geographical widening of metal products sales counteraction to tariff and non-tariff barriers establishment for Ukrainian products economic diplomacy and trade missions’ activity
Measures to enhance competitiveness Domestic market extension development of large steel-intensive infrastructure projects (bridges construction, railroads, public utilities infrastructure modernization) competition enforcement: anti-monopolist measures at horizontal levels transparent and competitive public orders and purchases distribution counteraction to excess import
Measures to enhance competitiveness Active development of financial instruments of sectoral support tax credit for the share of the profit, directed to productive reinvestment tax preferences for energy-saving equipment import accelerated depreciation of productive assets special credit lines for renovation projects financing in Ukrainian state-owned banks
Measures to enhance competitiveness Development of systemic export promotion measures – will directly favor metallurgy as one of the most export-oriented sectors of Ukrainian economy.
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