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  • December Deflation Drives Down Inflation to 4%
  • Reserves: $25 Billion in the Bank
  • Chinese Freight Train Rolls Across Ukraine and Deep into Poland
  • Eggs and Snails For the World

Inflation dropped to 4.1% y-o-y in December, the lowest level in six years, reports the State Statistics Service. Despite the busy holiday buying season, Ukraine actually experienced deflation in December – prices were down 0.2% compared to November. Pulling prices down were: natural gas, -29% y-o-y; and eggs -15%. Pushing prices up were sectors largely controlled by the government: train tickets +19%; fruit +19%; hot water and heating +14%; education up 13.5%; and alcohol and cigarettes +13%.

Looking ahead, a Reuters poll of economists predicted Wednesday that inflation in 2020 will be 5.2%. In recent years, Ukraine’s inflation rate was: 2013 – 0.5%; 2014 – 24.9%; 2015 – 43.3%; 2016 – 12.4%; 2017 – 13.7%; and 2018 – 9.8%. With inflation seemingly under control, the National Bank of Ukraine plans to continue to aggressively cut interest rates from today’s rate of 13.5%

The hryvnia’s dramatic strengthening in 2019 helped curb inflation by keeping down hryvnia prices for imports. According to the central bank, all major world currencies devalued against the hryvnia: the US dollar – by 14.5% the Euro – by 16.2%; the Chinese yuan – by 15.6%; the Polish zloty – by 15.3%; the British pound by 11.8%; and the Swiss franc by 12.9%.

Ukraine’s international reserves grew by 22% last year, hitting $25.3 billion – a 7-year high reports the National Bank of Ukraine. Boosting reserves were: foreign investors who bought $4.3 billion worth of local currency treasury bonds; the central bank’s net purchase of $7.9 billion, the largest amount in 14 years; and farmers who produced two bumper grain crops in a row, including a 74 million ton harvest last fall.

With reserves now large enough to cover almost four months imports, the central bank writes: “The increase in international reserves occurred in the year of dual elections and peak payments on external government debt, which is further evidence of strengthening macro-financial stability in the country.”

Concorde Capital’s Evgeniya Akhtyrko writes: “The growth of gross international reserves in December exceeded all expectations…MinFin’s schedule of primary local bond auctions for January does not assume the placement of local Eurobonds during the month. Apparently, the government expects the demand of non-resident investors for long-term UAH-denominated local bonds in January to stay high.”

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Using 400 km of Soviet-era broad gauge track, a Chinese container train rolled from Ukraine deep into Poland Wednesday, avoiding a chronic bottleneck at the gauge break at the Belarus-Poland border. Hauling 45 containers, this pioneering train traveled 6,000 km, from the Kazakhstan-China border to Sławków, without having to stop to adjust wheels for Europe’s narrow gauge track. From Sławków, containers are loaded on trains for Germany or Prague, both 400 km away.

Built 40 years ago to supply Ukrainian iron ore to the steelworks of Katowice, Poland’s only broad gauge track ends at what is now called ‘Euroterminal Sławków,’ a terminus with ambitions to become a hub for Chinese freight to the EU. Traveling 40 hours across Ukraine – from Sumy to Volyn – the new train helps to restore Ukraine’s cargo transit role. Last year, with the quiet assent of Russian Railways, China container trains started rolling across Ukraine to Slovakia and to Hungary.

“This train is a good and first important sign in organizing large-scale projects with China and Central Asia for Ukrzaliznytsia,” Yevhen Kravtsov, CEO of Ukraine’s state railroad, wrote on Facebook. Referring to Russian roadblocks, he wrote: “Since 2008, the volume of transit traffic of Ukraine has been falling. Transit from China to the EU countries has a number of artificial barriers with political coloring. This is not a business issue, but geopolitics.”

Currently, 33 container trains operate in Ukraine, nine of them international. Through November, rail container traffic was up 65% y-o-y, to 140,600 units.

UK Prime Minister Boris Johnson and President Zelenskiy agreed Thursday to speed up work on a post-Brexit UK-Ukraine free trade agreement. In a telephone conversation Zelenskiy asked for visa liberalization and Johnson invited the Ukrainian leader to make a working visit to London this year.

Ukraine has won the right to export fresh chicken eggs to Japan, reports the country’s state service on food safety and consumer protection. Ukraine is among Europe’s egg producers, increasing output by 3.5% to 15.5 billion eggs in January-November. During that period, Ukraine exported $104 million worth of eggs, up 22% y-o-y. In volume, Ukraine exported 129,000 tons of eggs, up 32% y-o-y.

Ukraine exported 248 tons of snails to the EU market from January to September, triple the rate for 2018. Over the last two years, the number of Ukrainian snail producers certified to export to the EU has tripled, to 17.

Pelagia AS, a leading Norwegian fish production company, is appealing to Ukraine’s Supreme Court, alleging that Ukraine’s Klion Group took possession of a shipload of fish from Norway – but never paid. A Norwegian arbitration panel ruled in Pelagia’s favor, a decision confirmed by the Kyiv Court of Appeal. “This is a role model case highlighting the reality Norwegian exporters and investors to Ukraine work in,” says Pelagia CEO Egil Magne Haugstad. “We hope the reformed Supreme Court will restore justice for our company – and the faith our company has in Ukraine as a safe place for doing business.”   

Registrations of used car import cars increased 3.5 times in 2019, to 408,100, reports UkrAutoProm. This flood of used imports was almost five times the number of new imports – 88,500. Although part of the wave of used imports was due to last spring’s tax amnesty, the volume of used imports registered last month was still triple new car sales. Ukraine’s car production dwindled to 441 cars in November.

  • UIA Flight Was to Hub Passengers Through Boryspil
  • Crash Comes as UIA Cuts, Discount Airlines Grow
  • Ukraine Air Travel Jumped by Almost 20% Last Year 

Boosted by UIA’s hub strategy, Boryspil accounted for 63% of the 22.6 million passengers who used Ukraine’s airports through November. This passenger flow is 19% higher than during the first 11 months of 2018. But attesting to the fierce competition from foreign low-cost carriers, Ukrainian carriers only increased their passenger numbers by 10%. About 90% of all air passengers using Ukrainian airports fly internationally.

UIA Keeps Axing Flight Program,” headlined a company press release last fall about the end of flights to Amman, Bangkok, Beijing, Krakow, Minsk, and Riga. “To bring the business back to the profit zone, Ukraine International keeps optimizing its east- and westbound route network.”

Faced with discount airline competition, UIA plans withdraw three medium-haul Boeing 737-800s by May and is considering giving up two more, reports Avianews. In addition, the airline decided last year not to take delivery of three Boeing 737 MAX 8 that was already painted in the airline’s blue and gold colors. At last count, the airline has 35 Boeings.

While UIA, Ukraine’s legacy carrier, retrenches, two discount airlines expand their fleets. 

SkyUp plans to receive four additional Boeing 737s this year. In recent weeks, it received two new Boeing 737-900 ER jets, increasing its fleet to 10. Raising its destinations from Kyiv Boryspil to 30, SkyUp plans to add this spring: Bari, Pisa, Lisbon, and Tirana

Betting on domestic traffic, Windrose plans to lease eight new ATR-72-600 aircraft through 2022. These 70-seat Franco-Italian turboprops would work well for one- and two-hour hops around Ukraine. Using its six Airbus jets, Windrose plans to add three Italian destinations this summer from Kyiv Boryspil: Andona, Brindisi, and Lamezia Terme.

Low cost carriers should increase their share of Ukraine’s market to 45% this year, and to 63% by 2024, says Infrastructure Minister Vladyslvav Krykliy. “We will do our best to make air travel as commonplace for Ukrainians as traveling by bus or rail,” Kricli said Dec. 24, at a ceremony welcoming Boryspil’s 15 millionth passenger for 2019. By 2024, the number of Ukrainians traveling by air should triple, to 32 million, he said.

To boost domestic aviation in Ukraine, a nation larger than France, Krykliy wants the Rada to abolish the value-added tax on domestic flights. It looks kind of weird that there is no VAT on international transport, but there is a domestic one,” he said.

Reviewing domestic and international growth prospects, IATA forecasts that over the next 20 years, the number of passengers flying out of Ukraine’s airports will double, to 20 million departures. The International Air Transport Association, an airline trade association, writes: “This increased demand would support approximately US $2.7 billion of GDP and almost 210,000 jobs.”

Air traffic at Lviv, the air gateway to Western Ukraine, jumped by 39% last year, to 2.2 million passengers. Indicating that planes flew fuller, the number of flights was up only 23% y-o-y in 2019. New direct flights scheduled for this year include Ryanair to Budapest and Poznan (Poland) on April 1; Wizz Air to Budapest on June 3; and Air Serbia to Belgrade in June. Ryanair aims to carry 350,000 passengers from Lviv this year. Recently, Azerbaijan low coster Buta Airways started flights to Baku and SkyUp started flights to Tel Aviv.

Registering the largest increase of Ukraine’s largest airports, Kharkiv saw a 40% jump in passengers last year, to 1.3 million. With regular direct flights to 15 EU cities, Kharkiv is to see these new flights: Ryanair to Budapest on Jan. 16 and to Warsaw-Modlin on March 29; Wizz Air to Budapest on June 1.

Odesa boosted its passenger flow by 17% to almost 1.7 million people. The airport currently has flights to 22 foreign cities. After a decade of construction, the airport terminal fully opened last year. Airline operators now hope the slow motion runway construction will be completed in 2020.

  • US Analysts: Bullish Views on Ukraine for 2020
  • Turks Ink $600 Million Deal to Buy 500 Drone Engines from Zaporizhia
  • Snapchat Snaps Up Ukraine AI Startup for $166 million

Ukraine’s underrated economy is poised for a strong 2020,” headlines an article by Swedish-American economist Anders Åslund on the Atlantic Council’s UkraineAlert site. Praising the macroeconomic stability built by Poroshenko and the free-market reforms initiated by Zelenskiy, Åslund writes: “New Prosecutor General Ruslan Ryaboshapka has launched an admirable cleansing from the top, demanding both competence and integrity from his prosecutors…Corrupt judges need to be removed also from lower-level courts.”

Turning to the new government’s ambitious GDP growth targets, Åslund, a Ukraine observer of 30 years, writes: “Prime Minister Honcharuk aims at 5% in 2020 and 7% in the ensuing years. These are sensible and realistic goals. Any doubters should remember that Ukraine averaged GDP growth of 7.5% a year from 2000-2007. The macroeconomic foundations are now in place to enable a repeat of this performance.”

The surprising news from Ukraine: Zelensky is succeeding despite Trump’s abuse,” headlines a Washington Post opinion piece by Jackson Diehl, deputy editorial page editor. “Zelensky’s government so far has been an extraordinary — and, under the circumstances, almost miraculous — success,” Diehl writes, citing high export growth, high GDP growth and low inflation. “As James Brooke of Ukraine Business News notes, the Ukrainian currency, the hryvnia, is appreciating faster than any other in the world.”

The hryvnia “most likely” will strengthen against the dollar this year, Economy Minister Timofei Mylovanov writes on Facebook. “But it all depends on the development of the economy and the situation in the world markets.” Fixed exchange rates, he notes, led to abrupt devaluations in 1998, 2008 and 2014. “The exchange is the relative price of the Ukrainian economy to the world,” he writes, adding that a central bank can smooth bumps but cannot stand against world economic forces.

Zaporizhia’s Ivchenko-Progress design bureau has won a $600 million contract to supply the Turkish armed forces with 500 cruise missile engines through the 2020s. The Ukrainian state company will supply AI-450 turboprop engines to Turkey’s new Akinji military drone, and AI-25 turbojet engines to an unmanned fighter reports Ukraine’s Defense Express news site. Last August, President Zelenskiy visited Turkey’s main unmanned aerial vehicle producer, Baykar Aerospace and Defense.

Snapchat has acquired Ukrainian startup AI Factory for $166 million, reports AIN.UA. AI Factory was founded 18 months ago by Viktor Shaburov, whose previous startup, Looksery, also was acquired by Snap Inc. for $150 million in 2015. With offices in Kyiv, Zaporizhia and San Francisco, AI Factory employs 70 people. The company developed a new feature for Snap: editing a user’s photo to turn it into a video. The feature was launched Dec. 18. Days later, Snap bought out other shareholders in AI Factory.

Grammarly was Ukraine’s IT ‘unicorn’ of 2019, attaining a $1 billion valuation, according to a global survey by Crunchbase Around the world, 142 new unicorns appeared last year. The leaders were: US – 78; China – 22; and Brazil and Germany – five apiece. Founded in Kyiv a decade ago, Grammarly uses artificial intelligence and natural language processing.

Russia could meet all of Ukraine’s gas import needs this year, selling gas at a 20-25% discount, Nick Butler, FT energy commentator, writes in the Financial Times. The lower price would come from short transit and high volumes. Naftogaz says any purchases of Russian gas will come through international energy brokers bidding in open tenders. Last year, Ukraine imported 14.2 billion cubic meters of gas.

To draw foreign film production to Ukraine, filmmakers now can get rebates of up to 30% of qualified costs for making a film in Ukraine. With this new law on rebates, Ukraine catches up with Czech Republic, Romania, Poland, where rebates have been in effect for several years, reports FilmNewEurope.com. One beneficiary could be Zelenskiy aide Andriy Yermak, owner of European Partnership Media Group. This company recently did a Slovak/Ukrainian historical TV series, Slavs / Slovenia.

  • Ukraine Minimum Wage Tops Russia’s
  • Oil Worries: Iran War Jitters Cause Price Spike, Russia Cuts Off Belarus
  • Farm Land Bill Limits Ownership to 10,000 Hectares
  • Grain Exports up 34%
  • Container Handling Jumps 18%
  • Plastic Bag Ban Starts in 2 Years

For the first time since Independence, Ukraine’s minimum wage has risen higher in dollar terms than the legal minimums of Russia and Belarus. Boosted by Ukraine’s strengthened currency, the nation’s new monthly minimum wage of 4,723 is the equivalent of $199.59. By contrast, Russia’s minimum of 12,130 rubles is worth $195.35. Belarus’ minimum of 375 Belarussian rubles is worth $177.77.

During 2019, the hryvnia appreciated 14% against the dollar. At the same time, Ukraine’s wage increased by 10% in real terms last year as employers sought to compete with Polish salaries. According to the IMF, Russia’s 2018 per capita income of $29,267 was three times Ukraine’s $9,283, as measured for purchasing power parity.

Distorting Ukraine’s per capita income, about one-third of Ukraine’s GDP is off the books. Distorting Russia’s per capita income is the highly uneven income distribution due to a resource-rich economy.  According to the Gini Index measure of household income inequality, Russia has a Third World ranking of 41.2. Ukraine has a Scandinavian level of 25.5.

The near-final draft of the farmland market bill is to be considered by the Rada on Jan. 14 for the second reading.  After a series of committee meetings over the holidays, the current consensus version does not allow foreigners to own farmland. Ukrainian citizens and companies are limited to ownership of 10,000 hectares.

During the first half of the grain marketing year, Ukraine increased its grain exports 34% y-o-y, to 31.1 million tons, reports the Economy, Trade, and Agriculture Ministry. Export leaders for the July-December period were: wheat: 15 million tons, corn 12 million tons, rye 5 million tons, and barley 3.7 million tons. Ukraine harvested a record 75.2 million tons of grain this year, up 7% over last year.

Ukraine’s dry autumn may dent the nation’s winter wheat crop, analysts tell Bloomberg. Without sufficient moisture, seeds do not grow into plants robust enough to get through the winter. Winter wheat, harvested in the spring, makes up 90% of Ukraine’s wheat harvest. Farmers planted 6.4 million hectares of wheat this fall, about the same area as last year.

2019 was Ukraine’s warmest year since weather record-keeping started in 1881. Over the year, the average temperature was above normal and on 30 days high-temperature records were broken. Rainfall was 25% below normal, affecting reservoirs across the country, reports 112 Ukraine TV, citing the Central Geophysical Observatory.

Ukraine’s Black Sea ports handled 1 million containers last year, 18% more than in 2018, and the highest level in a decade. Ukraine’s growth rate “is several times higher than the average world indicators in the container transportation market,” reports the Ukrainian Sea Ports Authority. The four private container terminals in Ukraine are investing to expand capacity this year. In order of volumes, the busiest are CTO and Brooklyn-Kyiv in Odesa; TIS-KT in Pivdennyi (Yuzhne); and Chornomorsk.

Import and exports by container are evenly balanced. As Ukraine moves toward exporting more processed food, containerization is expected to grow.

Ukrzaliznytsia now runs 22 regular container trains, 30% more than last year. Through November, the railroad’s ‘Southern Railways’ – Kharkiv and Poltava – carried 380,000 tons of container cargo, triple the amount of the first 11 months of 2018. The Dnipro Railways now runs seven regular container trains, almost double the 2018 level.

TIS container terminal at Pivdennyi has started to offer container transit service, competing with Romania’s Constanta port, Andriy Stavnitser, co-owner, and CEO of TIS, tells the Center for Transportation Strategies. Recently, Maersk Line has started to offer feeder service between Pivdennyi, Ukraine’s largest port, and Poti, Georgia’s largest port.  The Turkish flag ship Lucien GA, with a capacity of 1,100 TEU containers, plies the route weekly.  Stavnitser says: “This feeder service will help boost trade between Ukraine and the countries of the Caucasus and Central Asia – Georgia, Azerbaijan, Armenia, Kazakhstan, Tajikistan.”

TIS sends from Pivdennyi about 15 container trains every week to five destinations: Chernihiv, Dnipro, Kharkiv, Kyiv, and Ternopil. The shipping company started its first container train with Ukrzaliznytsia in 2017, between Pivdennyi and Dnipro.

Eight projects totaling €68 million are underway to improve road crossings between Poland and Ukraine, Andrii Deshchytsia, Ukraine’s Ambassador to Ukraine, tells Ukrinform. At the busiest crossing, Krakovets Korczowa, 75 km west of Lviv, infrastructure is to be built to separate trucks from cars and buses. About 40 km south on the border, a new crossing is to be created between Nyzhankovychi and Malhowice, Poland. This would do away with a 50 km road detour now used by residents of the two neighboring communities.

Joining the fastmoving global campaign against plastic bags, the Rada approved a near-total ban on plastic bags from stores and restaurants, starting two years from now – Jan. 1, 2022. Exceptions will be biodegradable plastic bags and ultra-light bags used for transporting fresh fish and meat.

The original English version is from our partner UBN – Ukraine Business News. For more information and news archive, go to: www.ubn.news.