Introduction
Globalization- as powerful the word may sound, so are its implications that are surely enticing for any nation in the world. In fact, most of the market participants believe that it was only through widespread wings of globalization that allowed nations to trade with each other and also brought an influx of financial resources and development. Therefore, as part of this paper, where we intend to discuss the impact of globalization on a nation, we will be introducing various facts and figures about the Ukrainian Economy that amid the geopolitical crisis and poor governance, is trying hard to benefit from the globalization, and also gain comparative advantage for holding abundant natural resources. The topic indeed owns a lot of relevance for me as it will assist me in understanding the macro-economic concepts citing real world example.
In order to present our findings, we will begin by providing a brief overview about the Ukrainian economy and how it has changed from a nation reliant on Soviet Union to an open economy now. This will be followed by the trends in Foreign Direct Investment in the nation and which industry has benefited the most amidst all the political upheavals and sovereign uncertainties. We sincerely believe that while all the information will be cited from credible sources such as World Bank, IMF and other research and discussion papers, our work will be useful and knowledgeable for all the readers. We would also like to declare that the objective of this paper is not to discuss the sovereign upheaval and ongoing crisis, rather the aim is to contextualize as how the nation interplay between domestic and global developments and benefits from its competitive advantage related to , thus assisting the nation with its long-term socio-economic development.
Ukraine- Good Bye Cold War, Welcome Globalization
- About Ukraine
Ukraine is the largest country within Europe and is situated on the eastern side of the continent. The country is known to have largest area of fertile land in the world, and is therefore cited as the global breadbasket for the world as the largest grain exporter. The nation holds abundance of natural resources and has achieved sustainable diversification with the success of heavy industry sector that includes aerospace and industrial equipment.
-Economy of Ukraine and impact of globalization post year 2000
Ukraine, which was once one of 15 republics of the Union of Soviet Socialists Republics (USSR), gained independence post the dissolution of the Soviet Union in 1991. Post its independence, it was declared as a free economy with private participants free to establish their entities. Opened borders and market reforms were introduced to transform the economy, however, since most of these changes were introduced because of geopolitical forces(which were weak and were framing impotent policies, the Ukrainian economy witnessed financial carnage for the first ten years since its independence with GDP falling consistently until the year 2000. However, as soon as the nation integrated with international norms and developed a trade policy, it soon started witnessing the benefits of globalization. At the inception of 2001, that Ukrainian economy started receiving much needed Foreign Direct Investment (FDI) and the first phase of globalization was sprawling in the country. During 2001-2008, Ukrainian economy witnessed an annual average growth rate of 7.5%, highest in Europe. During the same tenure, foreign direct investment (FDI) inflows surged by 43.8% on an average yearly basis, reaching USD 10.9bn in 2008.
However, the growth was largely driven by favorable external conditions that made Ukrainian economy extremely fragile and dependent on external support. Therefore, with the initial years of significant foreign direct investment, Ukraine reaped quick wins in the metal sector on the back of the global commodity boom. In addition, its grain export figure were also surging while cheap natural gas from Russia was improving the economic condition in the nation. At the same time, bullish international capital markets were not hesitant to fuel further capital inflows into the Ukrainian economy.
However, the advent of global financial crisis in 2008 halted the growth and within one year, the GDP contracted by almost 15% in 2009, while cross-border FDI inflow dried up significantly. Such situation unsurfaced the weakness in terms of governance and business climate to withstand period of strong economic growth, and also its extreme reliance on external support.
Post the financial crisis, the Ukrainian economy is struggling hard to regain the economic growth of early 2000’s, but the consistent civil wars and geopolitical crisis have further weakened the country’s unsustainable fiscal situation while many of the nation’s competitive advantages such as arable land, skilled labor force, high literacy and strategic location has remained untapped.
-Unemployment Rate
The period of 1990’s was not very much prosperous for the Ukrainian population, and the economy witnessed high unemployment rate, with a large section of the population reportedly migrated to neighboring European nations during the time. However, with the inflow of offshore funds and economy witnessing bullish run during early 2000’s the unemployment rate fell rapidly at the minimum level of 6.35% during 2007. However, the economy was again trapped in the evils of high unemployment with the arrival of financial crisis in 2008. The table below disclose the unemployment rate in Ukraine from 1995-2010:
Leading Industry of Ukraine- Civilian Aircraft Manufacturing Industry
-About the industry
The Ukrainian civilian aircraft industry is renowned for its low cost aerodynamic engineering. In fact, Ukrainian civilian aircraft industry is one of the leading manufacturers of modern aircraft in the world. The civilian aircraft industry is engaged in the design, manufacturing, repair and overhaul of the aircrafts. Ukraine inherited significant capabilities of Soviet Union in the aerospace sector and established its own aircraft manufacturing company, Antonov. The company is globally renowned and enjoys long-standing presence it the sector because of its cost competitiveness and engineering skills and capabilities. However, despite of manufacturing advantages, Antonov still produces less aircrafts than other rivals which includes, Boeing, Airbus, Bombardier, Embrarer and ATR, because of lack of capital resources.
-Sector challenges
Rigid governance and restrictive investment policies framed by the government are preventing the further growth of the Ukrainian aircraft industry. Owing to these limitations, companies like Antonov are unable to frame business strategies based on global scale, thus limiting its integration into the global supply chain.
As a result of above two major limitations, the demand for aircraft still remains at domestic level and from other CIS countries.
-Recommendation for the reforms
Good and transparent governance of all aircraft related companies. In fact, the aircraft manufacturing industry should be fully separated from the military and defense services. By this way, the industry participants will be able to interact with global suppliers and partners. This will eventually promote warm trade relationships and will also solve financing issues.
Framing of intense marketing and promotion policy to showcase the productivity and design skills of the Ukrainian aircrafts to off-shore clients. This may also attract more foreign investment and multi-national partnerships in the industry.
Arrange for advanced training for the workforce to keep them competitive in this high value-added sector. This may include sending the workforce for overseas training or arranging in-house training for them. By imparting updated training skills, the workforce can be trained to work under low-cost structure, thus providing cost advantage also.
Competitive Advantages
Ukrainian economy owns numerous competitive advantages and the same are discussed below:
-Abundant Natural Resources
With the total of 3,11,000 kms of arable land, Ukraine holds Europe’s largest fertile land, and also place it as one of the largest exporter of grain in the world. In addition, the country is also rich with metals such as manganese and mercury. In fact, it holds world’s largest reserve of manganese and second largest reserve of mercury. The country has also abundance of reserves for iron, nickel, uranium and coal.
-Strategic Location
Ukraine has access to Black Sea through which it access dynamic markets of Middle East. Moreover, it is a key transit area of for Russia to export its natural gas to Western Europe. In addition, it is also surrounded by four other EU nations.
-Highly educated population
-Skillful labor force
Ukraine also has skillful labor force which assists its civil aircraft manufacturing industry to manufacture aircrafts at competitive rates. In fact, within short span of time, Ukrainian aircrafts has gained popularity for their wing designs.
Despite of such quality advantages, market analysts feel that a greater proportion of these resources remains untapped and fast paced reforms are required by Ukrainian Government to fully realize its potential.
Conclusion
At the end of this paper, we would like to assert that Ukraine has so many endowments and competitive advantages which can provide it with huge economic success. Fertile land, strategic locations, high literacy and skillful workforce are few of the factors that it needs to exploit to gain a respectable position in the globe and not just a golden basket or a grain exporter. Moreover, with the civil crisis ended, Ukrainian government should now focus on reshaping the economy for the next phase of globalization that can provide Ukraine with tremendous opportunities. The political forces also needs to ensure that the economic cycle is free from weak governance policies, red-tapism and absence of long-term strategies.
Some serious steps towards full adoption of globalization and integration with the international norms will ensure the success of this resource-rich nation.
References
Joint Chamber of Commerce. (2012). UKRAINE: Untapped Competitive Advantages.
Rosler, E. B. (2013). Scenarios for Ukraine. World Economic Forum.
Schwartz, E. (21015, June 21). Ukrainian Economics. Retrieved from http://www.econlife.com/ukraine-comparative-advantage-and-expanding-the-european-union/
Ukraine GDP. (2015, June 21). Retrieved from Trading Economies: http://www.tradingeconomics.com/ukraine/gdp
(2013). Ukraine Sector Competitivness Strategy. OECD.
Ukraine Unemployment rate. (2015, June 21). Retrieved from http://www.indexmundi.com/ukraine/unemployment_rate.html
