The Ukrainian economy grew by roughly 12.1 percent in 2004, but preliminary data indicate a slowdown in growth to 2.4 percent in 2005. Following an eight-year post-Soviet recession, 2005 marked the countrys sixth consecutive year of economic growth. Economic expansion has been fueled primarily by growing industrial and agricultural output— exported both eastwards to Russia and westwards to Europe. Ukraines geographic position, linking East and West, while also holding critical warm water ports on the Black Sea, has made the country a trade link of growing importance between the former Soviet Union and Europe.
With the recent additions of some of Ukraines neighboring countries into the EU, the countrys economic role has grown. Following a similar designation by the EU in December 2005, the United States granted Ukraine “market status” in February 2006. The is the first symbolic step toward greater integration with the EU, and market economy status will help Ukraine defend itself from accusations of illegal dumping products cheaply in the EU market that have led to costly punitive damages.
Reorienting trade towards Europe and Asia has resulted in an improved macroeconomic environment and an increased level of public trust in market institutions. Privatized companies have greatly contributed to the broad-based improvements in manufacturing, retail trade, agriculture, and construction. Following the so-called Orange Revolution in November 2004, then-Prime Minister Yulia Tymoshenko pledged to review around 3,000 privatization deals that had occurred during the previous presidents term. The review added to investor uncertainty and dampened the high rates of economic growth seen during 2004. With lower agricultural and manufacturing revenues, investors had less incentive to invest in upgrading their production capacity. President Yushchenko has continued to review the Soviet era privatizations and has approved the resale of the Kryvorizhstal steel complex, one of the largest privatization deals in the Former Soviet Union, for $4.8 billion to a Netherlands-based Mittal Steel Co.
During 2005, lower commodity prices and political uncertainty hindered the investment climate in Ukraine. Economic growth stabilized during the final months of 2005, but domestic political tensions linger and may become more amplified as the country moves closer to parliamentary elections in late March 2006. The Ukrainian Parliament, or Rada, gave the current cabinet, led by Prime Minister Yuri Yekhanurov, a vote of no confidence on January 10, 2005. The cabinet is remaining in place in a caretaker status until after the March 26 elections.
According to the Oil and Gas Journal, Ukraine has 395 million barrels of proven oil reserves, the majority of these are located in the eastern Dnieper-Donetsk basin. Although Ukraine has made efforts at exploration, particularly in its sector of the Sea of Azov, oil production has remained relatively flat since independence (see Fig. 1). Consumption, on the other hand, has fallen dramatically, from 813,000 barrels per day (bbl/d) in 1992 to around 415,000 bbl/d in 2004 (see Fig. 1). Despite this decline in consumption, Ukraine remains highly dependent on imported oil, most of which comes from Russia and lesser amounts from Kazakhstan. In 2004, net crude oil imports totaled roughly 340,000 bbl/d, representing roughly 80 percent of consumption.