Policy Briefing Series [PB/13/2015] Ukraine s exports in the first half of 2015 Veronika Movchan, Vitaliy Kravchuk, Mykola Ryzhenkov, Ricardo Giucci German Advisory Group in cooperation with the IER Kyiv Berlin/Kyiv, October 2015
Structure 1. Overview of export trends General trends Structure by goods and services Regional structure 2. Factors behind export trends 3. Factors pushing exports up 4. Factors pushing exports down 5. Conclusions 2
1. General trends in exports in H1 2015 40 35 30 25 20 15 10 5 0 Exports of goods and services, biannual data, USD bn USD bn 7.7 26.7 7.1 23.9 H1 2014 H2 2014 H1 2015 Exports of services Exports of goods 6.0 17.2 Exports in USD Exports of goods and services dropped by 32.5% yoy in the first half of 2015 Goods: -35.5% yoy Services: -22.1% yoy Drop accelerated as compared to previous period Exports in real terms Exports dropped by 24.1% yoy in the first half of 2015 Source: Ukrstat 3
Structure of exports of goods and services in H1 2015 USD bn Share, % % change Contribution, % Agricultural products 6.5 28-16 11 Mineral products 1.4 6-55 16 Chemicals 1.3 6-37 7 Ferrous and nonferrous metals 4.9 21-42 31 Machinery and 1.5 6-51 14 equipment Other goods 1.6 7-31 6 Total goods 17.2 74-35 85 Transport 2.5 11-24 7 Travels 0.5 2-41 3 Other business services 0.9 4-30 3 Telecommunications, computer, and information services Manufacturing services on physical inputs owned by others 1.0 4 10-1 0.6 2-23 1 Other services 0.5 2-15 1 Total services 6.0 26-22 15 4 Reduction in goods exports explains 85% of total drop, including: Metals: 31% Mineral products: 16% Machinery & equipment: 14% Reduction in service exports explains 15% of total drop, including: Transport: 7% Telecommunication, computer and information services continue to grow
Regional structure of exports in H1 2015 USD bn Share, % % change Contribution, % EU-28 6.7 29-36 33 CIS 5.8 25-49 50 incl. Russia 3.6 15-56 40 Asia 6.9 30-17 12 Africa 2.0 9-23 5 Other 1.9 8 4-1 Total 23.2 100-32 100 Source: Ukrstat Uneven regional development in H1 2015: Exports to EU: -36% Exports to RU: -56% Consequence: Change in regional structure of exports: Share of EU remained stable at around 30% of total exports Share of Russia reduced by 8 p.p. to 15% of total exports Share of Asia increased by 6 p.p. to 30% of total exports 5
2. Factors behind export trends Factors stimulating exports Devaluation Improved access to the EU market Good harvest Factors reducing exports Decreased global commodity prices Deteriorated trade relations with Russia Decreased domestic output: -- broken production chains / damaged infrastructure -- increased price for inputs -- limited access to financial resources FX controls 6
Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 3. Devaluation boosted export prices in UAH 140 120 100 80 60 40 20 0 Export vs. domestic prices % yoy in UAH Due to devaluation in 2014-2015, export prices expressed in UAH have grown faster than domestic prices Thus: Stimulus for exports Export deflator Deflator of gross final consumption Source: Ukrstat 7
EU ATPs have positive impact on exports neutral 34% Source: IER survey Impact of ATPs: Business assessment rather positive 24% don't know 1% positive 41% Autonomous trade preferences (ATPs) are applied from Apr 2014 to Dec 2015 ATPs envisage: Duty free access for 95% of industrial products and 84% of agricultural products Tariff rate quotas for the rest of agricultural products Exporters optimistically evaluate ATPs impact: 8 65% of respondents as positive or rather positive No negative responses
Drop in global commodity prices reduces value of exports 0-5 -10-15 -20-25 % yoy Source: IMF, FAO, Ukrstat Global price indices Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 IMF nonfuel commodity prices index FAO cereals price index Export prices, Ukraine Global prices for key Ukrainian export products dropped significantly in 2015: Nonfuel commodity index: -16.5% in June 2015 Cereals price index: -16.8% in June 2015 Half-year loss in revenues from lower commodity prices: minimum USD 2.9 bn or about a quarter of total reduction in exports (based on 2015 volumes) 9
Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Exports to Russia deteriorated faster due to trade barriers 0-10 -20-30 -40-50 -60-70 Exports of goods and services to Russia and ROW % yoy Source: NBU Exports of goods and services to RU Exports of goods and services to ROW Exports to Russia drop faster than to rest of the world (ROW): Exports to RU: -56% in H1 2015 Exports to ROW: -26% in H1 2015 Reasons: Increase in TBT/SPS related Russian bans on Ukrainian products Lost access to Russian public procurement market Ukraine s ban to export military and double-purpose goods to Russia Delays related to customs procedures 10
Jan-2014 Mar-2014 May-2014 Jul-2014 Sep-2014 Nov-2014 Jan-2015 Mar-2015 May-2015 Jul-2015 Industrial production dropped diminishing export capacity 0-5 -10-15 -20-25 % yoy Source: Ukrstat Note: without Crimea Industrial output Industrial output dropped by 20% yoy in H1 2015 Reasons: 11 Broken production chains / damaged infrastructure due to military conflict Lost exports of Donbas region: about USD 4.7 bn Increased price of inputs (inflation, devaluation, import surcharge) Limited access to financial resources (50+ banks under temporary administration / insolvent in 2014-2015, high interest rates)
FX controls affects exporters negatively Period NBU Decree Mandatory sale of export receipts, share of receipts Mandatory return of export receipts to Ukraine, days to return Before Nov-2012 no 180 days Nov-2012 till Aug-2014 #475 (2012) #479 (2012) #164 (2013) #457 (2013) 50% 90 days Aug-2014 till Sep-2014 #515 (2014) 100% 90 days Since Sep-2014 #591 (2014) #160 (2015) 75% 90 days 12
Conclusions Reduction in total exports accelerated in Ukraine in H1 2015, despite devaluation and preferential access to the EU market There are both external and internal reasons for negative trends External reasons, which are largely beyond control: Military conflict in the east of the country Increased trade barriers on exports to Russia Reduced global commodity prices Internal reasons that Ukraine could alter in short- to medium-term: Decreased domestic production FX controls Therefore, macroeconomic stabilisation and successful reforms remain among key factors for exports recovery 13
Contact Dr Ricardo Giucci giucci@berlin-economics.com Veronika Movchan movchan@ier.kiev.ua Mykola Ryzhenkov ryzhenkov@ier.kiev.ua Vitaliy Kravchuk kravchuk@ier.kiev.ua German Advisory Group c/o BE Berlin Economics GmbH Schillerstr. 59, D-10627 Berlin Tel: +49 30 / 20 61 34 64 0 Fax: +49 30 / 20 61 34 64 9 E-mail: info@beratergruppe-ukraine.de www.beratergruppe-ukraine.de Twitter: @BerlinEconomics 14