(1) Agribusiness; (2) Alternative Sources of Energy; (3) Machinery & transport equipment manufacturing 
U.S.-Ukraine Business Council (USUBC)
Washington, D.C., Friday, January 27, 2012

TO:  MEMBERS - U.S.-UKRAINE BUSINESS COUNCIL (USUBC)

RE:  OECD REPORT - UKRAINE: INCREASING COMPETITIVENESS IN KEY SECTORS COULD BOOST INVESTMENT & GROWTH
(1) Agribusiness; (2) Alternative Sources of Energy; (3) Machinery & transport equipment manufacturing
U.S.-Ukraine Business Council (USUBC), Wash, D.C., Friday, January 27, 2012

WASHINGTON, D.C. - Increasing competitiveness in key sectors could help Ukraine attract foreign investment, boost job creation and improve long-term growth prospects, says a report presented this week in Kyiv by the OECD Eurasia Competitiveness Programme and financed by the Swedish Development Cooperation Agency (SIDA).

To support Ukraine in implementing reforms that will help unleash its economic potential, the government of Ukraine asked the OECD to undertake a Sector Competitiveness Review with the financial support of the Swedish International Development Agency (SIDA).  The first phase of this review involves developing an assessment of the competitiveness and FDI attractiveness of several key sectors.

The OECD Sector Competitiveness Strategy for Ukraine (use link below to read report) outlines reform priorities for three high potential sectors: (1) agribusiness, (2) alternative energy, (3) machinery and transport manufacturing. The report contains the main conclusions of this assessment as well as an overview of the key reform recommendations for Ukrainian policy makers. It highlights the main strengths of each sector and details the main barriers by to their further development. 

Finally, the report outlines a strategy for overcoming these obstacles by targeting priority reforms for each sector: 

• AGRI-BUSINESS: improving access to finance and reducing the skills gap in agribusiness, and specifically in the grain and dairy sectors;
• ALTERNATIVE SOURCES OF ENERGY: enhancing investment policy and promotion in the biomass sector by streamlining administrative processes and providing a single-window approach for investors; and
• MACHINERY & TRANSPORT EQUIPMENT MANUFACTURING: strengthening corporate governance in the civilian aircraft manufacturing sector and separating the civilian sector from the military sector to enable partnerships with global suppliers.

"The Sector Competitiveness Review is an important step in the collaboration between Ukraine and the OECD. Today we face an ambitious and challenging task - to carry out the right reforms, which is the precondition for building a prosperous future," said Iryna Akimova, First Deputy Head of the Administration of the President of Ukraine and Representative of the President at the Cabinet of Ministers. "I’m convinced that implementation of the Project “Ukraine SCS” will support Ukraine to reach new levels of growth."

“Ukraine has a high potential for investments thanks to its rich natural resources such as high-quality agricultural land, mineral deposits and a highly qualified labour force, “ said Antonio Somma, Acting Head of the OECD Eurasia Competitiveness Programme. “The economic reforms recommended in the report, once implemented, will help unlock this potential and improve the country’s investment climate.” 

BARRIERS TO GROWTH REMAIN -- The report (use link below to read OCED report) states that several barriers to growth remain:

• HIGH ENERGY INTENSIVENESS OF THE ECONOMY: Energy-efficiency in Ukraine is one third of the aggregate for industrialized countries. Rising energy prices could make Ukraine's position in highly energy-intensive industries such as metallurgy less profitable. 
• HIGH EXPOSURE TO EXTERNAL SHOCKS: Specialisation in commoditised sectors such as steel and reliance on external demand make the country highly vulnerable to price volatility. 
• LINGERING IMPACT OF THE CRISIS: The global financial crisis and the subsequent recession had a significant impact on living standards. Disposable income contracted and GDP per capital declines by 14.7% from 2008 to 2009. Although moderate growth returned in 2010, the economy has been unable to recapture it former dynamism.
• POOR BUSINESS ENVIRONMENT: Factors such as corruption, lack of implementation of investment policy legislation, and weak contract enforcement discourage international investment.

From 2001 to 2008 Ukraine's economy grew by an annual average rate of 7.5%, among the highest in Europe. During the same period, foreign direct investment (FDI) inflows to the country expanded by 43.8% on a yearly average, reaching USD 10.9 bn in 2008, the report states (use link below to go to OCED report).  

However, the global economic crisis cut FDI by more than half, and in 2009 real GDP contracted by 15%. Since then, growth levels have remained below former rates, and many of the country's competitive advantages - vast stretches of arable land, a strategic location and a highly skilled labour force, remain untapped, according to the OECD report.

The report is the result of the first phase of the OECD Sector Competitiveness Project for Ukraine. In the second phase, from 2012-2013, the OECD Eurasia Competitiveness Programme will work with the Ukrainian government to support the implementation of these recommendations in each sector. The full report is forthcoming in February 2012

OECD: Competitiveness and Private Sector Development: UKRAINE Sector Competitiveness Strategy - KEY FINDINGS

NOTE: Use this link to goes directly to the Report online: http://www.oecd.org/dataoecd/35/58/49467343.pdf

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