Can Ukraine regain its euphoric economic boom of the first half decade of 2000?

Kiev, skyline

Alarming unemployment levels, a highly bureaucratic and corrupt economy and administration, an incoherent national energy security policy as well as growing Pro Russian politics have all been hindering Ukraine’s recovery from the international recession. Ukraine has the highest number of per capita people (26%) who live under the poverty line and the authorities have been doing nothing to tackle this critical issue.

Ukraine’s current Pro – Russian government has been slowly but surely enlarging the gap between Europe and Ukraine, making E.U. integration a long forgotten aspiration. Political and economic analysts insist that unless Ukraine elects a pro – European government, the country can gradually turn into an autonomous region within Russia, therefore losing its independence and reuniting with Russia. Mention should be made that, historically, Ukraine used to be mostly an independent entity from Russia, its origins being firmly rooted in Central Europe, especially in Austria and Latvia. However, Ukraine’s past is a distant memory for Europeans, most of them closely associating it with Russia.  

The recent announcement by the Ukrainian Government that it is selling a 25% stake of the national Nak Naftogaz Company could not have come at a worse time for the country’s independence. Due to poor management, the Nak Naftogaz has been a loss making giant for decades, making it an unlikely target for Western companies. Not surprisingly, Russian Gazprom is the most likely bidder for the stake in the Nak Naftogaz, its main purpose being the control over its gas and oil transportation systems.

Being Europe’s largest country with a strategic geographical position with EU direct borders and having the largest natural resources reserves of all former USSR countries, position Ukraine as a strategic partner which cannot be ignore by neither Russia, nor the E.U. While Russia has gained an extended stationing of its naval forces in Ukraine by guaranteeing a low gas price, the E.U. has been making steps in its joint strategic project with Ukraine to upgrade its major gas pipes. The Ukrainian administration seems to have understood that withstanding from The CIS / Russia Customs Union (President Putin’s creation) plays a key role not only in its relationship with Russia, but also in relation with the E.U., thus maintaining its European integration access.

As it is the case with any other industry in Ukraine, luxury has been seriously affected by the international recession and especially by the radical diminishing of access to financing. Commercial banks have, since 2008, almost halted lending and many ”nouveaux riche” have found themselves unable to pay their installments and had to give up their second luxury car and postpone any new purchases of luxury goods. Mix and match, ”shame / guilt” and anti-luxury trends, which had been unseen till then, have started gathering adepts among Ukraine’s luxury market consumers. On the other hand, the regular shopping trips to Europe have been gradually cut, mostly in frequency and this has been provided an opportunity for local retailers. However, the increase in local purchases is yet to reach a significant volume.

Whether Ukraine’s luxury market will recover to previous levels is hard to imagine and yet, certain luxury sectors will definitely grow, especiall hospitality and SPA. Fairmont, Hilton and Swissotel are among the five luxury hotel projects which are currently under construction and the UEFA Championship which Ukraine will host next year is likely to boost the speed of these developments. As for SPA is one of the luxury sectors with the highest opportunity for growth, the few SPAs currently in the market being more hotel wellness centres rather than luxury SPAs.

Oliver Petcu