Efficiency in Ukrainian Banking - Finance
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Transcript Efficiency in Ukrainian Banking - Finance
Ukraine:
Current Position and
Opportunities
Valentin Zelenyuk
Kyiv Economics Institute, UPEG at EROC/EERC
17 November
8th Portoroz Business Conference
Ukraine: East and West
B EL A R U S
R U S S IA
P O LA N D
R iv n e n s ’k a
Vo ly n s ’k a
C h e rn i h i v s ’ k a
S u m s ’k a
Z y to m y rs ’ k a
K Y IV
L’ v i v s ’ k a
Te rn o p i l ’s ’ k a
K h m e l ’ n y ts ’ k a
SL O VA K IA
Iv a n o F ra n k i v s ’ k a
Zak arp ats ’ka
H UN GA RY
P o l ta v s ’ k a
K y iv s ’k a
K h a rk i v s ’ k a
L u h a n s ’k a
C h e rk a s ’ k a
V i n n y ts ’ k a
K i ro v o h ra d s ’ k a
C h e rn ive t s’k a
D n i p ro p e tro v s ’ k a
D o n e ts ’ k a
M y k o la y iv s ’k a
M O L DO VA
Z a p o ri z ’ k a
O d e s ’k a
K h e rs o n s ’ k a
R O M A N IA
Legend
R ig h t
L e ft
A R K ry m
S e v a s to p o l ’
B U L G A R IA
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R U S S IA
Key Economic Indicators
Table 1
2002 2003 2004 2005
GDP, current prices, blns US
42,4 49,4 56,5 61,1
GDP growth, % (USD valued)
12% 16% 14% 8%
Aver. nominal monthly wage
70,7 86,7 110,8 201,9
Total investment, blns US
7,0
9,6
14,2 18,4
Total Ind. Output, blns US
38,1 41,4 61,4 69,1
Budget deficit, blns US
-0,3
0,1
2,1
1,5
Gov't budget deficit (% of GDP) -0,7
0,2
3,2
1,8
Gross external debt, US mn
11564 21524 27993 NA
Foreign Reserves, mlns US
4417 6937 9525 19395
Export (mln of US)
17957 23067 32672 NA
Import (mln of US)
16977 23020 28996 NA
FDI inflows, USD in blns
0,7
1,4
1,7
7,5
Exchange rate to 1 USD
5,32 5,33 5,30 5,05
Source: IMF, UN, NBU
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Key Demographic Indicators
2002 2003 2004
Table 2
48,0 47,6 47,3
Population (mlns, available)
-1,0% -0,8% -0,7%
Population growth (annual%)
68,2 68,2 67,96
Life expectancy (years)
1.12 1.12 1.12
Fertility rate
9,5
9,6
Infant mortality rate (per 1,000) 10,3
Mortality rate under 5 years of
18
NA
NA
age (per 1,000 children)
Immunization, measles (% of
99
99
99
children aged <12 months)
Literacy rate, adult female (%
of total females, >15 years
99.2 99.2 99.2
Source: Statistical Committee of Ukraine, WDI
Ukraine Human Development Report
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2005
46,9
-0,7%
NA
1.12
NA
NA
NA
NA
Did We Have a Miracle in 2004?
Annual growth of 12.1% in 2004
Average annual growth of about 9% in 2000-2004
Was that an Economic Miracle?
No! It was just a normal recovery that, on the
background of huge economic downfall, may look
misleadingly enormous.
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Real GDP Chain Index (Cumulative)
100%
90%
Value of Chain Indexes (1990 is base)
80%
70%
60%
50%
40%
30%
20%
10%
Years
0%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Real GDP Index
Real Cap. Inv. Index
Real Wage Index
Even after strong growth since 2000, Ukraine’s
Real GDP is Still under 65% relative to 1990
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What happened to one of the richest
economy of former USSR?
1991: Collapse
– negative
aggregate
supply
shock
‘disorganization’
– cuts in demands for inputs
– inflation in 1993 was about 10,000%!!!
due
1991-1993: Almost no key economic reforms!
– This was the main reason for the economic downfall
Ukraine faced till 1999.
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to
Slow Reforms
1994-1996: First Reforms (pushed by IMF)
– Tightening of budget
– Strict monetary policy
1996: Attempt for Key Economic Reforms
– Kuchma’s ‘dream team’ (V. Yushchenko, V.
Pynzenyk, Y.Yekhanurov, etc.)
– Reforms failed going through the Parliament
1996-1998: Economic Stagnation
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Fall in Relative Productivity
80%
70%
60%
50%
40%
30%
20%
10%
0%
1992
2000
B
el
a
B rus
u
C lga
ze r
ch ia
R
e
E p.
st
o
H nia
un
g
M ary
ol
do
v
P a
ol
an
La d
Li tvia
th
ua
R nia
om
an
ia
S Rus
lo
va sia
k
R
e
U p.
kr
ai
ne
Efficiency Level, %
Efficiency Levels of Transitional Countries
Relative to Best-Practice World Frontier
Selected Transitional Countries
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Progress of Reforms
1998: Partial Reforms passed by Kuchma’s decrees
to circumvent parliament’s blocking
– rise in privatization (led by Yekhanurov)
– ‘single’&simple tax for private entrepreneurs
1999: Stop of downfall in GDP
2000-2004: Economic Boom
– Boom on world market for steel products
– Decrease of income tax in 2004 (from varying rate of
about 40% to the flat rate of 13%)
• 12.1% growth in real GDP in 2004!
• But, still under 65% relative to GDP in 1990!
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Orange Revolution
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Consequences of Orange Revolution
More Democratic Society
– Free and competing press
– People feel their opinion matters and that they can
change thing if they get together
People at power started recognizing opinion of
regular people—that they matter!
– The ‘white-blue’ elite realized it
– The ‘Orange’ elite realized it too
The very first year after revolution was hard!
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Hard Post-Revolutionary Period
2005: Sudden Fall in Economic Growth (2.6%)!!!
12,0
10,0
8,0
6,0
4,0
2,0
0,0
Jan Feb Mar Apr May Jun
Real GDP Growth
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Jul
Inflation (rel.to Dec.04)
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Aug Sep Oct
Manufacturing Output Growth
Reasons for Poor Performance in 2005
Recession on world market for steel
Possibly strategic reduction at steel works
Non-market attempts to control prices
Major Reason: ‘Property Rights Shakeout’
– Old Oligarchs stopped investing, but rather tried
to secure remaining property, New Oligarchs
stopped investing and rather tried to grab the
lucrative property of Old Oligarchs, Foreign
Investors took awaiting strategy
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Property Rights vs. Investments
Growth, % (in real terms)
Growth of Capital Investments: 2003, 2004, 2005
60
50
40
2003
30
2004
20
2005
10
0
1Q
2Q
3Q
4Q
Quarters of the Years
Additional Trouble: Split of the ‘Orange team’!
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Rise of Welfare of Citizens in 2005
35
30
25
20
15
10
5
0
-5
Jan
Feb Mar
Apr May
Jun
Jul
Aug Sep
Oct
Nov Dec
-10
-15
Real Wage Growth
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Inflation (rel.to Dec.04)
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Unemploy
Ukrainian Banking: Positive Example
Annual industry growth is about 50% over the
years.
Relatively High Competition
HHI is about 400
CR10 is below 60%
Becoming more transparent
Foreign presence is increasing
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last 5
Ukrainian Banking: Number of Players
250
Number
1
of banks
11
1
11
2
12
6
16
200
9
19
8
7
22
24
6
15
7
7
7
9
11
13
12
12
14
19
162
160
163
162
160
150
211
216
218
100
215
205
186
173
164
168
133
50
76
0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 July 2006
Number of registered local capital banks
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Number of banks with foreign capital
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Banks with 100% foreign capital
Banking: Share of Foreign Ownership
30,0
25,0
20,0
%
15,0
30,0
24,0
10,0
15,5
14,5
15,5
16,2
15,9
01.01.02
01.01.03
01.01.04
15,0
5,0
0,0
01.01.00
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01.01.05
01.01.06
01.07.06*
Banking: Share of Foreign Ownership
100
90
80
70
60
%
50
98
95
90
40
85
70
60
30
20
30
10
0
Estonia
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Slovak
Republic
Hungary
Czech
Republic
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Poland
Romania
Ukraine
Ukraine: Comparative Advantages
1. Relatively high level of human capital
in math, theoretical physics and chemistry
airplanes and aeronautic equipment
electronics (for military and aeronautics), etc.
2. Good geographical location:
on the crossroads b/w Asia and Europe
relatively decent transportation and
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communication infrastructure
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Ukraine: Comparative Disadvantages
1. Small reserves of oil and natural gas???
not infected by the “Dutch disease”
not infected by the “Venezuela disease”
(or “Russian disease”?)
2. Absence of a Clear Signal from the EU
public is confused on international policy
increased Russian influence
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Current Political Situation
More Stable
Could be More Stable under Broad Coalition
Exist Good Opposition
Government is More Pragmatic and United
– Very Close to Enter WTO
– Interested in Further Economic Reforms
– Likely to Enter NATO, but not before 2008
Country Economic Perspectives Seems to be:
– Very Bright!
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Further Economic Reforms Needed
% yoy growth
Real GDP Growth: 2005 and 2006
9,0
8,0
7,0
6,0
5,0
4,0
3,0
2,0
1,0
0,0
Jan Feb Mar
2005
Apr
May Jun
Jul
2006
Aug Sep Oct
Nov Dec
2006 forecast
Economic Forecast:
2006: GDP growth 7.5%, Inflation 11%
2007: GDP growth 8.2%, Inflation 8.5%
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Further Economic Reforms Needed
Need Further Reduction of Tax Burden
– Corporate Profit Tax (from 25% to 15%)
– Simplifying Procedure
– VAT (from 20% to 15%)
Need Pension Reform
– Reduction of Social Tax (from 37% to 15%)
– Needs to be privately-funded.
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What is Needed for Economic Miracle?
Need to Continue Fair Privatization
– Through Open Auctions.
• Privatization of largest steel mill in Ukraine,
“Kryvoryzhstal”, gave a good example
No re-privatization of private property
Land must be sold on open auctions
Reduction of Oligopoly Power in Real Estate
market
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What is Needed for Economic Miracle?
Clever Monetary Policy
– Switch to Inflation Targeting, etc.
Strong Banking
– Encourage merging of small banks into large
Promotion of Stock Market
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Questions are very
Welcome!!!
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