- Central Bank: Prime Rate to Drop in Half by 2021
- Ze Asks Anti-Corruption Agency to Look at MHP
- Nefyodov Asks Businessmen to Squeal on Corrupt Customs Officials
- Diaspora Ukrainians Who Invest in Ukraine to Ride Fast Track to A Passport
Ukraine’s central bank cut its main interest rate by half a percentage point to 17% on Thursday, citing falling inflation trend. After inflation fell to 9% in June, the central bank forecasts that inflation will hit 6.3% in December. “The National Bank of Ukraine continues its cycle of monetary-policy easing, as inflation is declining toward the target of 5%,” Governor Yakiv Smoliy told journalists Thursday in Kyiv. Referring to the overwhelming lead of President Zelenskiy’s party in Sunday’s Rada elections, he added: “The results of parliamentary elections are predictable. The risk of uncertainty is gradually moving to the background.”
With Europe’s highest interest rate, Ukraine’s central bank says its baseline scenario is for the main interest rate to fall to 16% by the end of this year, to 11% by the end of next year, and to 8% by the end of 2021. Interest rates have been in double digits since Russia attacked Ukraine in 2014.
The central bank also raised its economic growth forecast for this year to 3%, from 2.5%. The bank cites strong domestic demand, strong commodity prices and a bumper grain harvest matching last year’s 70 million tons, a record. Last week, Dragon Capital upgraded its GNP growth forecast for this year to 3.2%, from 2.5%. By comparison, the IMF on Wednesday downgraded its 2019 economic growth forecast for Russia to 1.2%.
Ukraine could receive $6 billion in loans from the IMF through 2021, Dmitry Sologub, deputy central bank governor, predicted to reporters Thursday. If a new 3-year assistance program is worked out in September, Ukraine would receive $2 billion a year, starting this fall. Also this fall, he predicted, Ukraine could return to international markets to place a $1 billion Eurobond. One month ago, the Finance Ministry placed €1 billion worth of 7-year Eurobonds at 6.75%.
Foreigners increased investments in Ukrainian government debt bonds by 3% on Tuesday to UAH 67 billion, or $2.6 billion. Although foreign investment in the hryvnia bonds has increased 10-fold since the start of this year, the even spread of maturities and the low portion of total holdings – 8.8% – means that this foreign investment is not a threat to Ukraine’s financial stability, says Sologub, the deputy central bank governor.
President Zelenskiy has asked anti-corruption authorities to investigate why MHP, Ukraine’s largest poultry producer, received nearly $100 million in subsidies in 2017-2018, then paid shareholders $80 million in dividends in 2019. “In fact, it does not need state support, having excess profit. It annually pays huge dividends to its shareholders,” Zelenskiy said Thursday at a meeting of the National Council on Anti-Corruption Policy. In 2018, MHP’s net income decreased by 44% – to $128 million. On Wednesday, the company said its Q2 poultry production rose 17% y-o-y, and it chicken meat exports rose 39%, to nearly 100,000 tons.
Preparing for a deep purge of the Customs Service, Maxim Nefyodov asks business representatives to email to him the names and titles of corrupt customs officials. “I will be grateful for this and it will help in personnel decisions. You can even give it anonymously,” he told a European Business Association meeting that at least once broke into applause. This year, the Customs Service is being created from the Fiscal Service – a bureaucratic migration that empowers Nefyodov to leave behind officials suspected of corruption. With this root and branch shakeup, he said the EU and USAID are interested in resuming program suspended 2-3 years ago due to corruption and incompetence. Two years ago, the EU suspended a €29 million project designed to modernize Ukraine’s checkpoints on its western borders with Romania, Hungary, Slovakia, and Poland.
Ethnic Ukrainians “from friendly powers” willing to help Ukraine’s economic development will be eligible for fast-track passports under a proposal made Thursday by President Zelenskiy. Two weeks ago, Canada’s influential Ukrainian diaspora gave the new president a warm welcome in Toronto. But the new passport policy was accelerated by a Russian decree on Wednesday that all Ukrainian residents of Donetsk and Luhansk in 2014 are now eligible for Russian passports. Both In a thinly veiled swipe at Russia, Zelenskiy said that people who suffer from human rights violations and constraints on freedom in their home countries would also be eligible for Ukrainian passports. Russians and Ukrainians have declining populations.
With passengers filling Ukrzaliznytsia’s new train between Kyiv and the Baltics, an Estonian bus company, Baltic Shuttle, is entering the north-south market. Traveling Tallinn – Parnu – Vilnius – Kyiv, the ‘shuttle’ is expected to take 30 hours to make the 2,450 km trip. Tickets are to around €60.
- UZ Talks to France, China, Canada, and Japan for Locomotives
- Mariupol Port Cargo Down 13%
- Moves to Promote Mariupol Port, Modernize City Transit
- Central Bank CEO Survey: Cautious Optimism
Flush with $500 million raised two weeks ago in Eurobonds, Ukrainian Railways is stepping up talks with three foreign manufacturers to buy 200 new electric locomotives by 2025. Contenders are France’s Alstom, China’s CRRC and Canada’s Bombardier, Anton Sabolevsky, director of strategic development, tells Magistral, the state company’s inhouse publication. The three companies already make locomotives sized to run on Ukraine’s Soviet-era 1520 mm track gauge.
Japan’s Toshiba is a leading candidate to supply the railroad with shunting locomotives, Sabolevsky tells Magistral. About one-third of the railroad’s 3,566 locomotives are ‘shunters’ – small diesel locomotives designed for assembling trains in rail yards. UZ also is allocating $175 million to repair and rebuild many of the railroads 1,258 shunters.
Ukrzaliznytsia is buying 10 new passenger cars to turn the new Kyiv-Mariupol night train into a daily service. The train connects the capital with the Azov in less than 15 hours, three hours faster than earlier trains. During the first half of this year, Kyiv-Mariupol train was the most unprofitable in UZ’s network, losing $3.8 million. Prime Minister Groysman at a government meeting on Wednesday defended the rail link as a key to easing Mariupol’s isolation.
In a mirror reverse of Ukraine’s 13% increase in shipping cargo, Mariupol handled 13% less cargo during the first half of the year, compared to one year ago. The fall to 2.5 million tons is largely due to Russian coast guard harassment of 150 Mariupol-bound ships, the port director says. By comparison, Mariupol port, the main port for Donetsk region, handled 14.6 million tons in 2013, the last pre-war year.
To turn around the cargo decline, the state railroad offers a 20% reduction on freight rates for metals and grain to Mariupol. The rate discounts are part of a $40 million port aid project that includes dredging, a large new grain silo, and EU loans for rebuilding road and rail links.
Mariupol is to receive this fall 64 low-floor MAZ buses, partly paid with a €12.5 million low-interest loan from the World Bank’s International Finance Corporation. Separately, on Aug. 7 bids are to be opened for an EBRD tender to supply Mariupol with 72 new trolleybuses. Since the war, Mariupol’s population surpassed the half-million mark, swollen by refugees from the nearby ‘Donetsk People’s Republic.’
Cautious optimism reigns among Ukrainian company executives surveyed in the second quarter by the National Bank of Ukraine. Inflation expectations for the next 12 months dropped to 7.7%, down from 9% in the second quarter. On their company’s financial situation, 29.5% of executives expect improvement, 6.6% expect deterioration and the rest are neutral. On sales, 40% forecast growth for the next 12 months, 10% forecast declines and 50% are neutral.
The share of companies planning to raise loans over the next 12 months increased to 41.5%, from 38.2%. On wages, 65% predict continued salary hikes, down slightly from 74% during the first quarter. The most optimistic enterprises are in construction, agriculture, processing industry and trade. One third of companies expect export growth.
As Ukraine moves toward a cashless economy, the volume of cash in circulation dropped by 1.6% in the first half of the year, to UAH 394 billion, or $15.3 billion. “This trend is associated with a stable trend of the growing popularity of cashless payments,” reports the National Bank of Ukraine. Although banknotes account for 99.4% of the volume of cash in circulation, there almost five times as many coins in circulation as bills.
A meeting with Japanese business representatives gave presidential advisor Mikhail Fedorov a chance to spell out the Zelenskiy government’s digital ambitions through 2024: “Electronic services, improvement of the work of public registries, the e-residency project should make doing business in Ukraine easy and transparent. We are very interested in attracting investment and advanced innovations of Japan to develop joint projects in the field of the Internet of Things, Industry 4.0, smart cities, electronic identification, development of R & D centers and others.”
- Strong Demand for Bonds, Cuts Borrowing Costs and Strengthens Hryvnia
- Electric Car Chargers to Become Universal
- Cruise Ships Come Back
- Israel-Ukraine Ease Travel
Faced with strong foreign demand for Ukraine’s hryvnia bonds, the Finance Ministry cut yields on its four short term bonds by 20 to 26 basis points. Faced with UAH 4.62 billion in bids at its weekly auction Tuesday, the Ministry only filled orders for UAH 2 billion, or 43%. Cut-off yields ranged from 17% for three-month securities to 17.74% for 2-year securities.
For foreign currency bond sales, the government managed to push yields down 50 basis points. One-year bonds settled for 6.5%. Two-year bonds settled for 7%. In coming days, the central bank is expected to lower Ukraine’s prime interest rate 50 basis points from its current level of 17.5%.
About $40 million in real estate once owned by now-defunct banks goes for auction on ProZorro, with bids due July 29, reports the State Deposit Guarantee Fund. One eye-catching property is the former headquarters of Kyivska Rus Bank, standing at 11a Khorvya St., Podil, behind Bursa, the new boutique hotel. The Fund will also auction nonperforming unsecured loans with a face value of $557 million. The papers usually go for cents on the dollar.
Starting Jan. 1, new and rebuilt garages and parking lots must have electric chargers at 5% of parking spaces. In a further step, the government is mulling a plan to make mandatory the installation of electric chargers at all new and rebuilt gas stations, according to a Facebook post by Lev Partshaladze, deputy minister of Regional Development, Construction and Housing and Communal Services. During the first half of this year, sales of electric vehicles, overwhelmingly cars, increased by 58% y-o-y, to 3,185.
A ship from Spain, the Gigante, and a ship from Portugal, the Jose Duarte, are joining a project to dredge Mariupol. The port and its 5 km of access channels are to be dredged to a uniform depth of eight meters. In the last 10 days, the Gigante and another dredger, the Seal Sands, started to dredge. By the end of this year, 2 million cubic meters of silt is to removed from Ukraine’s main port on the Azov.
While this multinational fleet is dredging, President Zelenskiy plans to hold in Mariupol an international forum to attract foreign investment to the region. “Donbas restoration will cost over €10 billion,” he told the Ukraine Reform Conference in Toronto two weeks ago. “We will hold a related forum in Mariupol in fall. Foreign investors who wish to finance infrastructural and humanitarian projects in Donbas are invited.”
International cruise ships are returning to Ukraine, Raivis Veckagans, CEO of the Ukrainian Sea Ports Authority, tells Interfax-Ukraine. Last year, the Danube delta port of Ust-Dunaisk received 36 passenger ship calls, up 25% from 2017. Further upriver, Izmail inaugurated this spring a new European standard river terminal. To attract foreign tourists, the city now is renovating its airport. In Odesa, the first mega cruise ship in years is to dock in October. German tour operator Phoenix Reisen plans to bring its 205-meter long ship built to carry 1,278 passengers and crew.
A new Carpathian mountain hotel in the historic Ivano-Frankivsk resort town of Yaremche is to be privatized Aug. 13 with bids starting at $2.5 million. Located on a 2.7-hectare land plot, the Prykarpattia is 96% built, reports Vitaliy Trubov, acting head of the State Property Fund.
Last year, 300,000 tourists traveled from Israel to Ukraine and 170,000 tourists traveled from Ukraine to Israel, Yoel Leon, Israel’s ambassador to Ukraine, said during the ceremony which was attended by President Zelenskiy and Gennadiy Bogolyubov, Igor Kolmoisky’s business partner at Privat Group. Privat controls UIA, which flies pilgrims from Tel Aviv to Vinnytsia and to Kyiv Boryspil. Ukraine’s Interior Minister Arsen Avakov promised to have sufficient police officers on hand to control the crowds at Uman and at the airports.
- River Cargo Jumps 40%
- Corn Harvest to Match Last Year’s Record
- Rail Modernization Needed
- Oil Refinery Investment Needed
- Football League Expanding back to Pre-War Size
- Accor Building 3 New Hotels in Kyiv
River cargo along the Dnipro jumped by 40% to 4.2 million during the first half of this year, compared to the same period last year, reports the Ukrainian Sea Ports Authority. With trains struggling to move the 2018 bumper grain crop, river barges moved 1.7 million tons of grain, more than double last year’s tonnage. Construction materials, largely sand, and gravel, grew by 7.5% to 1.8 million tons. Metal products rose by 45% to 647,000 tons. With larger boats on the river, the number of cargo trips dropped by 23%, to 4,453.
Ukraine’s largest river shipper, Nibulon moved 3.5 million tons on the Dnipro and Southern Bug during the grain marketing year that ended June 30. Nibulon moves grain, metal, coal, fertilizers, construction materials, and Kherson watermelons. Joining a growing movement toward private rail wagons, Nibulon started last week to use a specially commissioned fleet of 20-grain hoppers. Each is capable of carrying 120 cubic meters of grain, 26% more than standard Ukrzaliznytsia cars.
If good weather holds up through July, farmers will match last year’s record 35.5 million corn harvest, Tetyana Adamenko, head of agriculture at Ukraine’s state weather forecasting center, tells Ukrinform. Last week, the US Department of Agriculture also raised its Ukraine corn crop forecast to 35 million tons. The USDA also raised its corn export forecast by 1 million tons to 28 million tons. In recent years, Ukraine has displaced the US as the top exporter of corn to China.
For the early crops, farmers have already harvested about half of the land planted in wheat, barley, and peas. Already 10 million tons of wheat have been harvested.
With Ukraine’s grain harvest expected to hit 100 million tons by the mid-2020s, major investment is needed to upgrade the ‘creaking’ state railroad, Worldgrain.com reports from the recent Black Sea Grain Conference in a lengthy article headlined: “Ukraine’s meteoric rise in grain“
Although 20,000-grain hoppers – half of the national fleet – are privately owned, shippers have to rely on state railroad’s Soviet-era locomotives. Three have burned since May. Sergey Feofilov, director general of UkrAgroConsult, says Ukrzaliznytsia prioritizes the nation’s ‘50 to 70’ elevators that are capable of filling a 54-car ‘block train’ – a single commodity train that goes from one station to one port. Owners of hundreds of other elevators smaller operators are at the mercy of train schedules that are often ignored.
Major investment is needed to modernize railroad freight stations at Ukraine’s big Black Sea ports, writes World grain, a US-based news site. Port stations date from the Soviet era, a time when they were oriented to handling imports.
Ukraine can cut household gas consumption in half, to 9 bcm, by winterizing Soviet-era apartment blocks, Gennadiy Zubko, Regional Development, Construction, and Housing minister, tells Novoe Vremya. To date, 650,000 homeowners have taken advantage of the government’s ‘warm loans’ program to invest in modern windows, doors, radiators and gas boilers. Last week, Zubko signed an agreement with the World Bank’s International Finance Corporation to extend the warm loans to apartment buildings managed by condominium associations.
Ukraine needs to stop the smuggling of gasoline and diesel and attract investment into “two to three efficient refineries” Edward C. Chow, a Chevron veteran, writes for the U.S.-Ukraine Foundation. “In percentage terms, Ukraine today relies more on imported oil than on imported gas,” Chow writes as Ukraine’s first imported load of American oil flows by pipeline from Odesa to the nation’s lone working refinery, in Kremenchuk. “Most imported crude oil and refined products continue to flow from Russia.”
Because of smuggling, “there has been no investment in Ukrainian refineries in the last 15 years for much-needed modernization,” he writes from Washington. “The remaining idle refineries mainly serve as terminals for smuggled products…the answer here, as in gas and electricity, is to modernize the way business is done in oil so that Ukraine can integrate into the larger European market.”
Due to a delay in receiving new jets, Wizz Air will cut 24 flights a week from Kyiv to slightly more than half of its 30 EU destinations. From Aug. 3 to 20, frequencies will be reduced to 17 EU cities, nine of them in Germany. For its Ukraine routes this year, Wizz Air has allotted 2.6 million seats. Wizz is considering re-opening its Wizz Air Ukraine unit, closed in 2015.
In a sign of economic confidence, Ukraine’s football league is expanding back to 16 teams, the number it had until 2014. Ukrainian Premier League had 16 teams in 2013-14 but lost two based in Crimea after the Russia annexation. Ukraine’s Football Federation says the coming 2019-20 season will be the last with 12 teams. The league will expand to 14 for 2020-21 and 16 for 2020-22.
At a site near the US Embassy, AccorHotels will open next year a 261-room ‘combo hotel’ – a 156-room Ibis and a 105-room Adagio aparthotel. The new hotel will be at 55 Peremohy, across the avenue from Beresteiska red line metro station and a 15-minute walk through Nyvky Park from the embassy. In 2021, Accor plans to open a 58-unit Swissotel Living aparthotel at Liuteranska 14, a short walk from Kreschatyk, Andriy Davydenko, general manager of AccorHotels Ukraine, tells the UBN. Accor already operates two 3-star hotels in Kyiv: Ibis Kiev City Center and Ibis Kyiv Railway Station.
- Naftogaz Places $1 billion in Eurobonds at Rates Near Sovereign
- Ze Promises Odesa Port Shakeup
- Ukraine Port Cargo Up 13% in H1 2019
- Big Mac Index: Hryvnia Undervalued by 61%
- Ze Promises $115 million Runway, Terminal for Kolomoisky’s Dnipro Airport
Riding the wave of foreign investor demand for Ukraine bonds, Naftogaz placed two tranches of Eurobonds for the equivalent of $1 billion, at rates just above the sovereign. Naftogaz placed €600 million of Eurobonds for five years at 7.125% and $335 million for 7.375% for three years. Bids exceeded supply by a factor of 2.5. Bookrunners were Citibank and Deutsche Bank. Much of the money is to be spent on buying natural gas this summer to fill storage tanks in advance of negotiations this September with Gazprom to renew the Russian gas transit contract that expires Jan. 1.
Some bond money is to go for filling Ukraine’s natural gas storage reservoirs in advance of gas transit talks with Russia in September. Last Monday, Naftogaz said the company has stored 14.5 billion cubic meters, almost three-quarters of the way toward its goal of 20 bcm. Last fall, Ukraine stored only 16.9 bcm.
By comparison, one month ago Ukraine placed €1 billion worth of seven-year Eurobonds at 6.75%. Earlier this month, Ukrzaliznytsia placed $500 million worth of five year Eurobonds at 8.25%. Reflecting the dramatically improved borrowing environment, Naftogaz tried last November to borrow up to $1 billion at rates up to 10.9%. On Friday, Naftogaz placed the bonds below its initial benchmark yield of dollar Eurobonds at about 7.75% of euro Eurobonds at about 7.5%.
Citing corruption and poor performance at Odesa port, President Zelenskiy promised Saturday a major shake-up of port administration. He said smuggling costs the treasury $1 million a day and private control of the main port entrance blocks growth. As a result of corruption, Danish shipping giant Maersk stopped docking in Odesa last year. Two months ago, P & O Maritime Ukraine’s entry into the port was blocked for weeks, held up by what the unit of DP World Group called “sabotage by port authorities.” Over the last three years, Odesa’s cargo has dropped by 15%, falling behind that of nearby Chornomorsk and Pivdennii (Yuzhne). Compared to 2015, the port’s net profit dropped 21-fold to $700,000 – but salaries paid to port directors increased 14-fold, to $7.5 million.
Zelenskiy suspended environmental tests on the quality of water used in ship ballast. He was responding to complaints by the European Business Association that state environmental inspectors were demanding bribes from ship captains on a weekly basis. When port officials said water quality will suffer, Zelenskiy replied that if port waters were swimmable, he would worry about it. By September, he said, his team will elaborate a corruption-proof system for testing ballast water. He asked Odesa Mayor Gennadiy Trukhanov “to urgently resolve the issue of allocating land” for free entry to the port, UNIAN reports.
During the first half of this year, Ukraine’s ports handled 13.2% more cargo than during the same period last year. Of the 72 million tons, exports grew by 20%, to 55 million tons. Imports were flat at nearly 11 million tons. Transshipment dropped by 15% to just under 5 million tons. Highlights were: grain up 35%, to 24.5 million tons; ore up 27%, to 16.5 million tons; vegetable oil up 12.4%, to 3.2 million tons; and containers up 18.4%, to almost half a million TEU.
The top four ports were: Pivdennii – 23.4 million tons, up 20.3%; Mykolaiv – 15.3 million tons, up 19.5%; Chornomorsk – 12.3 million tons, up 21.1%; and Odessa – 12.1 million tons, up 12.3%.
Ukraine’s off the books ‘shadow’ economy was 30% of the nation’s GDP last year, two percentage points below the 2017 level, asserts the Ministry of Economic Development and Trade. Growing cashless electronic transactions helped push the estimated shadow economy to its lowest level in a decade, the ministry reports. This year, Ukraine’s official GDP is to hit $150 billion.
The hryvnia is undervalued by 61%, according to the latest ‘Big Mac Index’ maintained by The Economist magazine. Based on the hamburger price, the real purchasing power rate of the currency should be about 10 hryvnia to dollar, not the current 26 hryvnia to the dollar.
Sigma Bleyzer economist Edi Segura writes: “This is just one indicator that the hryvnia could retain its FX stability for a while. A Big Mac is not representative of all the goods in the country. Also, the exchange rate could be affected by events such as difficulties in servicing Ukraine’s large foreign debt or an invasion by Russia.”
President Zelenskiy submitted to the Rada a bill that would expand Ukraine’s ‘lustration’ of Yanukovych government to ban all officials who served during the five-year Poroshenko government from serving in government for 10 years. The ban would include the top leadership of the National Bank of Ukraine, the Antimonopoly Committee of Ukraine, the State Property Fund, and the National Commission for Securities and the Stock Market. Within hours, ambassadors of the G7 nations – Britain, Canada, France, Germany, Italy, Japan, and the US – tweeted a joint protest: “Electoral change and political rotation are the norm in democracies. Indiscriminate bans on all participants in executive and legislative governance are not.”
Zelenskiy promises to build a $115 million new runway and terminal for Dnipro, the nation’s laggard airport. A tender for the airport project is to be posted this week, according to the President’s website. “We will help you. We will allocate funds because we understand what the airport is for a ‘millionaire’ city,” he said on a visit Friday to Dnipro, referring to the city’s population. The airport is controlled by Igor Kolomoisky, a media backer of the president and owner of UIA. Despite anemic passenger numbers – 149,000 for the first half of 2019 – Dnipro airport officials have refused to allow flights by Turkish Airlines and SkyUp, Ukraine’s discount airline.
The original English version is from our partner UBN – Ukraine Business News. For more information and news archive, go to: www.ubn.news.