UKRAINE ECONOMY IN TOTAL COLLAPSE ! UKRAINE’S REQUIEM FOR EXPORT ~

REQUIEM FOR EXPORT

UKRAINE ECONOMY IN TOTAL COLLAPSE ! UKRAINE’S REQUIEM FOR EXPORT ~

With new reports and statistics coming out of Ukraine, things are looking very bleak . Ukraine’s Requiem For Export as the title of this analysis goes, that exports from Ukraine for the fourth consecutive year have fallen dramatically and continues to decline. As records show in 2013 a 8% drop, then in 2014 – 14% and once again another huge drop in 2015 – 30% !. How much of a loss in Dollars ? A record $ 68 billion of exports was made in 2012, whereas a 50% export loss in 2015 , a total $ 38 billion. Looking more bleak for Ukraine as the current year has been a year of “export of the bottom of the barrel ” and the volume of foreign trade still continues to decline. Currently available statistics for the first five months of 2016 shows that comparing with the first half of 2015, exports fell by another 12%. And if these rates continue, the year-end total revenue of Ukrainian exporters will hardly exceed $30 bln . It will be even lower compared to 2004 during the first Maidan where the Dollar was more valued and the volume of exports exceeded imports by $4 billion, unlike the current year in which the foreign trade deficit may reach $2 billion.

The main problem of Ukrainian exports, especially during the past year is with Russia. As we all know in the beginning of 2016 Russia withdrew from the agreement on free trade zone with Ukraine. And in the first five months of 2016, Ukrainian exports to Russia fell by a whopping 34%. It also continues to decrease in foreign trade turnover with Belarus which is at 8% and a huge loss with Kazakhstan at 46%. To add to the misery there is a problem largely created by a Russian ban on Ukrainian transit in this country.

However, with that said, and surely with some politics involved on that political plane, we see a drop in exports to China by 25% and Turkey 31% which has nothing to do with politics at all. And here lies the second critical problem of Ukrainian exports. If you look at the commodity structure of exports to these countries, it is seen that in the case of China, the lion’s share of goods it make’s up in the ore business, and more than half of exports to Turkey accounted for ferrous (steel and iron) metals. As you know, at the moment the market of metals and raw materials, respectively, the market for the steel industry are experiencing not the best of times. For example, iron ore prices have reached a ten-year minimum, and the metals market is saturated and simply overloaded. Simply put, even without politics involved It turns out Ukrainian exports to these countries continue to decline with enormous speed, comparable to the rate of decline in Russia, with which Ukraine is almost on the verge of full-scale war. Well at least that’s what the politicians of Ukraine assert and want you to believe.

It is worth noting that exports of ferrous metals as well as ore continues to be almost exclusively the prerogative of large companies, in other words, the prerogative of the oligarchs. And perhaps here lies one of the reasons that foreign trade can not even be stabilized. After all, statistics show that precisely those areas in which Ukraine relies on foreign trade on a large business scale , show the highest rate of decline today. On the other hand, exports to the EU countries, which are more focused on small and medium-sized businesses, today give cause for optimism. Thus, exports to France increased by 34%, Hungary 27%, Spain 20%, in Poland by 7% and in many respects it is a merit of small companies. But, of course, the launch of a free trade zone played the positive role in this process.

However, despite the fact that Ukraine has clearly made a bet on the European market, the approach to the organization on export in many ways, it still remains far from European. First and foremost, concerning the distribution of trade shares among large, medium and small businesses and thus, in the EU the share of small companies have an average of 30% of exports, and in Ukraine only 14.5%, which is the penultimate indicator in Europe. And it is likely that if the government is betting on these companies, that would be greatly achieved in export decline compensation. That is if it doesn’t return to it’s normal state for markets of the heavy industries of the Ukrainian industry.

But, as practice shows, small and medium business in Ukraine today is facing the greatest obstacles in the organizing of export operations. What are these obstacles? According to the Ukrainian business ombudsman Algirdas Šemeta, in most cases, business representatives say the problem lies with the return and the administration of VAT. And if we talk about the customs procedures ,according to a survey conducted in the framework of the project “Trade Policy and Practice in Ukraine”, the entrepreneurs say first of all the complexity and significant cost of processing all the necessary documents,so, for an export transaction in Ukraine, it require’s 11 documents and more than 5 days in their design, but also nearly 700 dollars in costs.

And given that ,for one, the exporter in the small and medium business accounts for an average of about 15 cases per year, it is not difficult to calculate that only for documents without regard to the time of their preparation, in the course of the year you want to spend about 2.5 months and not more than 10 thousand dollars..and if ,for the medium business these expenses are not so critical, and the loss of time can be compensated by the creation of new jobs, but for the small business, such rules make participating in export operations simply impossible.

No less of an obstacle to potential exporters is the lack of information about the possibilities of export of organization. At least this problem is called by business representatives as one of the main points in the poll mentioned above. Indeed, if closed today, Russian markets or the markets of the CIS countries available for the study of domestic exporters, the language and cultural barriers makes the EU market much more difficult to study. If for the large companies it is not a problem to have a staff of experts, it is quite obvious that the small companies are deprived of such opportunities. As for the state, in the field of information the support to domestic companies is practically unavailable. A simple example, on the website dedicated to the state support of exports, which is configured by Ministry of Economic Development specialists, many sections have not been updated since 2013, such as the legal nuances of the various countries and on the international announcements in various countries, it seems, that they are intended to create a kind of intense activity. It is therefore not surprising that the information vacuum is a serious obstacle for the development of export opportunities for domestic businesses.

However, the current situation in which Ukraine is now it is quite specific, not every country is in such a hard confrontation with it, in which of those are it’s main market. It is a paradox, but in the near surroundings of Ukraine only DPR and LPR are somewhat in a similar position. Thus, Ukraine has lost the most important market – and at the same the Russian and the DPR and LPR largely lost the Ukrainian and European markets. And let it not sound sacrilegious, but apparently the Ukraine government the Ukrainian authorities even mentioned that we have to learn from the “terrorists” and “militants .

It is well known that a major oligarchic business in the “Republic” continues to work under Ukrainian registration, and therefore they are not listed as local exporters. Therefore, the entire export operation is carried out as a local economy, primarily small and medium-sized businesses.

As for the Ukrainian industry, the number one export leader here is the food industry: 38% of export falls on food products. Second in the industry is the black metal products – 23%, third is the mineral raw materials at 5%. And it is because of the fact of how organized in export the DPR and LPR must be on the basis of small and medium-sized businesses, they seemed to have gone significantly forward in comparison with Ukraine. The general impression is that the rules of export transactions in the “republics” established on the basis of the submission of the business problems that are now reflected in the polls of Ukrainian businessmen.

So think again.and as mentioned above, the main problem in the organization of Ukrainian export company called VAT, is its administration and return system. For DPR and LPR VAT is void and canceled, and thus has reduced the tax burden of the enterprise and simplified workflow. In addition, it indirectly reduced the level of corruption in the system, as one of the darkest schemes fixed in Ukrainian tax system – a VAT refund. The next problem, that is pointed out by the representatives of business in the above survey of «Trade Policy and Practice in Ukraine” – is the complexity and high cost of preparation of the export procedure.

As mentioned before instead of 11 documents, and in addition to consignment notes, you have to have only two in the DPR: a pass for exported goods and accredited by the tax authority. In addition, in contrast to Ukraine, whereas mentioned above, export clearance procedures will cost up to $ 700, but in the Republics, for registration of export operations do not charge any fees. And because of the smaller number of documents, the period of the operation, time span, it is likely to be considerably less than in Ukraine. We have to stress how separate the markets are. It is known that the FTA along with the EU has a number of restrictions, such as quotas, saving a number of duties, etc. The Russian market is much more open to the Republics than Europe for Ukraine. Businesses registered in the DPR and LPR are given the opportunity to export to the Russian Federation, its products at the rates and the rules provided for the member countries of the Customs Union. For example, transit restrictions that are destroying Ukrainian exports to Kazakhstan today and other Central Asian republics. Facts are that many export innovations by the , “militants”,the Republic’s today could be quite useful for Ukrainian small and medium business and to try to stabilize the falling foreign trade of Ukraine and European markets and to learn faster and smarter .