Ukraine Government approved program of emerge from crisis offered by MAYGER LLC

Ukraine Government approved program of emerge from crisis offered by MAYGER LLC

 In September 2011 Ukraine Government approved program of emerge from crisis offered by MAYGER LLC.

The global financial and economic crisis has tested emerging markets, including Ukraine. But it has also opened up the opportunity for such countries to make serious structural transformations in their economic models by making their systems more balanced and removing policies that have made this crisis particularly painful.

When it comes to the field of manufacturing, the global crisis has forced the business community to desperately search for ways to reduce production costs. Cutting expenses for labor, transportation of raw materials and manufactured products is accepted to be one of the most affordable tools under tough circumstances. In practice, this opens up opportunities for Ukraine to attract more manufacturing investments. Many businesses are currently seeking to relocate their production operations to areas with relatively lower labor, production costs and resources. Redeploying or outsourcing to Ukraine could be a great option for them if the right economic model is chosen by our country’s leadership.

Adopting a so-called import substitution policy will make it possible to attract such investments and promote, using market mechanisms, domestically produced Ukrainian products over imports. It will boost the country’s social, political and economic performance in the long term while helping Ukraine climb out of the economic crisis in the short term.

What does import substitution entail? It is a trade and economic policy based on the premise that a country should attempt to reduce its foreign dependency by supporting domestic production of industrialized products. It creates biases and incentives to produce and export finished goods, and lowers the growth of potential raw material exports in the long run. It thus creates more jobs, and the country produces more finished goods.

Had an import substitution policy been adopted in prior years, it would have significantly softened the blow of this economic crisis. Unfortunately, this never happened.

By contrast, Ukraine joined the World Trade Organization in 2008. This triggered a 41 percent surge in domestic commodity prices in one year, while the import of services increased by 33.5 percent. According to the State Statistics Committee, the trade imbalance of Ukraine reached $13.5 billion by the end of 2008, or 8.4 percent of the expected gross domestic product for that year. It exceeded the trade balance deficit of 2007 by 70.9 percent.

Such macroeconomics, coupled with the sudden collapse of global commodity prices and demand, caused the country’s exports, currency, output and living standards to tumble sharply. This revealed the deep vulnerability of Ukraine’s unbalanced economy, and the need for a systemic change.

The implementation of an import substitution program could be the way for Ukraine to reverse such trends and better cope with the crisis. Introducing such a system needs to be done with care, for example, so as not to interfere with Ukraine’s efforts to integrate closer with the European Union. Adjustments should be cautiously made, so as not to interfere with Ukraine’s membership in the World Trade Organizations or efforts to seal a free trade agreement with the European Union.

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