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Construction growth in Ukraine: reasons and opportunities

Author : Oleksandr Okhrimenko

21:16, 7 August 2017
Construction growth in Ukraine: reasons and opportunities

Author : Oleksandr Okhrimenko

For the first half of 2017, the index of construction in Ukraine increased by 24.6% compared to the previous year. Is it a record? In fact, yes, although this record was not noticed.

21:16, 7 August 2017

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Guess why such a great growth of construction is observed these days in Ukraine? I’m sure, you almost guessed right. In many respects it is the merit of ordinary Ukrainians. They were tired of these horrors and talks about the crisis and just started investing money in buying apartments and building houses. In the first half of 2017, housing construction grew by 16.5% compared to last year. But most of all we were surprised by the growth in the construction of roads, ports and other transport infrastructure (+ 28.7%). Now the local authorities got the opportunity to build roads due to gasoline excises, and they started building. Plus, and most importantly, our large agrarian monsters began actively investing money in ports and other objects of logistics infrastructure. Ukraine is being built, whatever the pessimists say. In many respects it is the construction that ensures the growth of Ukraine's GDP this year. So according to the results of the first half of this year, GDP can grow by 2.5% with such growth in construction. Do not forget that every hryvnia invested in construction gives GDP growth of four hryvnias. And also if mortgage lending were launched, then we would really rush forward, and then GDP growth would be 5% without problems. We always want to dream.

The growth of the minimum wage stimulated the general growth of wages in Ukraine. For June 2017, the average salary in Ukraine was 7360 UAH, which is 37% more than last year. But, what is noteworthy, the Ukrainians did not begin to buy dollars. Although their incomes grew, they began to buy more goods. As a result, retail sales in Ukraine for the first half of 2017 grew by 7.3% compared to last year. Why did this happen? Mostly because the population does not need US dollars. The purchase of dollars in previous years was triggered not by the growth of incomes of Ukrainians, but by panic, when the hryvnia exchange rate was constantly feverish and Ukrainians simply panicked seeing the devaluation and bought up dollars, thereby provoking the higher hryvnia rate. Now it's the other way around: Ukrainians change their cash currency to hryvnia. For the first half of this year, Ukrainians changed cash dollars to hryvnia by $ 1.7 billion more than bought up US currency. And everyone buys and buys goods. As a result, if you look closely, you see dollar inflation. This is when prices in terms of dollars grow faster than prices in hryvnia. This is the paradox.

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But it happened in Ukraine before, for example in 1996-1997 or 2006-2008. And now again the dollar began to lose in value, which means that Ukrainians will continue to buy and buy goods. Now inflation is more important for Ukrainians than the dollar rate. For the first half of 2017, retail prices rose by almost 14%. But the increase in wages was higher, and as a result, the real salary of Ukrainians for the first half of the year increased by more than 18%. So the growth of retail sales and home purchases is not an optical illusion and not a fake, it is really a real growth of the economy. As soon as the purchasing power of Ukrainians has grown, they have become the driver that our economy has been lacking all these years. But once again it showed that the growth of the economy can and should be provided by increasing the incomes of the population. Now the main thing is to maintain this growth rate, and then really there will be GDP growth, growth of the economy, and growth of good mood of Ukrainians.

In Ukraine, there is still no way to achieve industrial growth. In the first half of 2017, the industry actually worked as it did last year. We see a small drop of about 0.8% compared to last year. It would seem that with the growth of construction, retail trade (and also exports this year has grown), industry should also show its increase. Indeed, the food industry, light industry show growth, but metallurgy is falling, and it’s a significant drop. In scientific terms, this is called structural adjustment, when the structure of industry changes and so the economy of Ukraine does. Metallurgy and industries associated with it are losing ground and decreasing their role in the economy, but the importance of agriculture and the food industry is growing. So the question of where to invest money in Ukraine, has one answer - to agriculture and food production. In these industries we see the fastest growing of salaries, there are new jobs. And, most likely, in the near future these industries will feed us and provide income and wages.

We can say that our economy successfully operated in the first half of this year. There can be better result, but overall everything was successful. The second half of 2017 includes a number of risks. First, the grain harvest this year because of the weather will be lower than in the past. Some experts say that figures will decrease by 15-20%. Secondly, there will be no significant growth in exports, as it was at the beginning of the year. World prices for metal and grain are not encouraging, and, most likely, there will be no good surprises. Third, the business can still raise the salary a little, but the main wave of salary growth has already left. You cannot always raise your salary without increasing your productivity. And the fourth risk is political. Ukraine has already moved away from the political turmoil of 2013-2014 and obviously does not want new ones. For the growth of wages, business needs stability and calm productive work. Political battles and scandals only harm our business. Or is there another opinion?

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