A new engine for the growth of the Ukrainian economy

Author : Olexandr Honcharov

Source : 112 Ukraine

What scenario will Groisman's Cabinet choose: the first (printing hryvnias to full capacity), the second (raising the retirement age), or the third (introducing a new model to ensure economic growth)?
10:50, 16 June 2017

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Today, many experts are inclined to believe that in the coming years Ukrainian economy, having lost a lot of sales markets, would be able to grow mainly on domestic demand. Moreover, now imports and foreign economic activities do not make a sufficient contribution to economic growth (at least in recent years). And special changes to improve this situation is not expected. But in the domestic market there are quite capacious industries in terms of potential growth in demand, which can develop at a faster pace: agro-industrial complex, the housing sector, and infrastructure, and many segments of domestic consumption, as well as services in large cities.

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As you know, domestic demand is supported by consumption. And where does it go to? 100 UAH growth 53-57% are covered by inflation, 22-25% - by import. And only one hryvnia out of fifty stimulates domestic production. With the help of our own internal investors, we could together create an extremely closed cycle for Ukraine, where consumers would generate economic growth, which in turn would influence GDP growth, and with the growth of the gross product, Ukrainians would spend considerably more money. But we must also be ready to trade with everyone. Of course, our producers, when they produce goods, want others to buy from them.

Of course, our banking or financial infrastructure is very poorly developed in comparison, for example, with the leader in this area - the US. Our hryvnia cannot compete with the dollar, and finally our "craftsmen" are not capable of such huge financial pyramids that are being built in the West. Therefore, in the center of Europe, we only have expensive infrastructure projects, and we cannot build them without long investments. At the same time, a lot of new jobs would be created in Ukraine, which means that there would be more financially stable local consumers, who would buy significantly more goods and services.

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Of course, many of these services are non-tradables, they would not be exported, because these types of services are consumed only within the country. But they would develop much faster than other sectors of the Ukrainian economy. Ukraine’s government and people's deputies should understand this - when national markets reach a certain point, and a turning point in the economy takes place. To do this, we need a comprehensive analysis of the situation in the domestic market, and after concrete proposals we need to decide how would we proceed.

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The old economic model, and the previous monetary policy does not work anymore. I hope everyone understands this. That is why we must actively seek a new engine for the growth of the Ukrainian economy. However, Cabinet and the Verkhovna Rada does not have this motor. At least in the expert community this is not said. There are no calculations and concepts for accelerating our economy for the next 2-3 years or longer than trends in the world markets at 1.5-2% per year. For us it is very small. Ukraine's GDP should grow at least 4% per year, given the low base effect.

By the end of 2016, Ukraine's GDP amounted to just over $ 90 billion, while in 2013 it was $ 183 billion, and national per capita income barely reached $ 2,600. International Monetary Fund recently reported a disappointing forecast of GDP growth in Ukraine by 2% in the current year (2017). In its regional economic survey in May, analysts of the fund also forecast an increase in our GDP in 2018 by 3.2%. Further, the dynamics of domestic demand should amount to 4% in 2017 and 3.9% in 2018, while the real growth in exports in 2017 is 2% and in 2018 - 3.4%. However, a month earlier, the National Bank of Ukraine, on the contrary, lowered the forecast for GDP growth in 2017 to 1.9% and increased for 2018-2019. To 3.2 and 4% respectively.

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But so far we are lagging behind the global trends in the growth of industrial production and the overall growth of the world economy. And at the same time, the politicians, fed by our oligarchs, continue to enforce the idea of "living on loan, living beyond the means" with enviable persistence. But very soon the time will come for all of us to pay for this, since we already ate all the incomes of future periods. Therefore, it is not far off that day when this crazy project of our politicians would hit us all on the head, since the fall in the living standards of Ukrainians is especially noticeable against the background of wealthy neighbors from the European Union. And the price of foodstuff causes a special horror among pensioners.

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How pensioners might survive on 1500 hryvnias especially in the village?! Planting apples and tomatoes, as it was before, is unprofitable. Supermarkets in Kyiv are littered with Polish and Turkish fruits and vegetables, which are quite tasteless, but beautiful and cheaper than our local ones. This is the bitter truth . At the same time, for leasing a land share of 1 hectare, the buoyant businessmen can offer more than $ 100, which for a rural pensioner who lives on $ 50 a month is a rare opportunity to raise at least some money from his land.

That is how Ukrainian peasants live, each of which, on average, owns 4 hectares of agricultural land. And large entrepreneurs-holders of the banks of the land advise them to take money for land. Foreign corporations actively occupy their positions in the market of Ukraine’s land. Everyone is waiting for the beginning of legal privatization of the land. No, Ukraine should not develop as a business project of a certain group of oligarchs. Why our civil society does not understand this?

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