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A-Report Cover REGIONAL ECONOMIC DEVELOPMENT PROGRAM IN EASTERN UKRAINE USAID/KIEV CONTRACT NO: 121-C-00-00-00832-00 PHASE I REPORT SUMMARY AND ANALYSIS OF THE KHARKIV ECONOMY BY SECTOR Submitted by: Mendez England & Associates 5550 Friendship Blvd., Suite 230 Chevy Chase, MD 20815 (301) 652-4334 (301) 652-3733 www.mendezengland.com Subcontractors: The Urban Institute Washington, D.C. Kharkiv Management Consulting International Kharkiv, Ukraine April 2001 SUMMARY AND ANALYSIS OF THE KHARKIV ECONOMY BY SECTORS TABLE OF CONTENTS PART I PROFILE OF THE KHARKIV ECONOMY PART II CURRENT TRENDS OF THE KHARKIV ECONOMY PART III THE SEVENTEEN SECTOR PROFILES 1 Agriculture 2 Mining 3 Utilities 4 Food Processing 5 Light Industry 6 Chemical and Petrochemical Industry 7 Construction Materials Industry 8 Machinery and Metal Manufacturing 9 Construction Services 10 Transportation 11 Information Services 12 Scientific Services 13 Health Care 14 Accommodation Services 15 Food Services 16 Finance and Insurance 17 Trade ANNEXES A. STRATEGIC MANAGEMENT OF REGION ECONOMIC DEVELOPMENT B. SMALL AND MEDIUM ENTERPRISES IN KHARKIV OBLAST: ASSESSMENTS AND RECOMMENDATIONS C. LEGAL AND REGULATORY FRAMEWORK OF BUSINESS IN UKRAINE D. EMPLOYMENT AND WAGE DEVELOPMENTS IN KHARKIV AND EASTERN UKRAINE PREFACE This report is a description and analysis of the Kharkiv regional (oblast) economy. The data presented are principally based on official statistics augmented from other sources when available. The primary breakdown of the economy is industry or sector. The regional economy Sector definitions are inevitably somewhat arbitrary. In this report, sector definitions are largely based on “common Glossary, Sectors of the national economy of Ukraine (Kyiv, 1994)” because these definitions are those used in reporting official statistical data in Ukraine. A summary of the overall Oblast economy and Current Trends of the Oblast Economy are presented as the first two profiles followed by 17 sector profiles. Local Ukranian and American experts contributed to and reviewed the sector profiles. A list of primary contributors appears below: From the American side – The Urban Institute Consultants: Gretchen Mikeska Thomas Pluta Robert Ferrone George Laszkiewicz Brien Desilets Olga Kaganova Wayne Vroman Paul Hoover Thomas Downing From the Ukranian Side: Mr. Yuriy Chernetskiy, Director of “Kharkiv Management Consulting International” Ltd. Mr. Volodymyr Dvortsov, Deputy Director of “Kharkiv Management Consulting International” Ltd. Mr. Mykola Afanasiev, Vice Rector of Kharkiv State Economic University Mr. Kostyantyn Yefremenko, Senior Consultant of “Kharkiv Management Consulting International” Ltd. Mr. Sergiy Yaremenko, Senior Consultant of “Kharkiv Management Consulting International” Ltd. Also, staff of Kharkiv Regional Foundation of Business Support, headed by Mr. Grygoriy Artemenko, was involved in report preparation. The Annexes contain non-sector reports on small and medium business, the legal framework for business and an analysis of labor data in five Eastern Ukraine oblasts. Also included is a compilation of approaches to economic development strategic planning. The report is available in English and in Ukranian and in several forms and formats: CD ROM disks containing the entire report in both languages from the organizations whose addresses are given below and downloadable files on the following web sites: www.usaid.kiev.ua, www.kmci.com.ua, and www.mendezengland.com. However, paper copies of individual sector profiles and individual annexes can be obtained from: KMCI, 5 Petrovskoho St. Kharkiv, UA, (0572,28 20 11), and from Mendez England & Associates, 5550 Friendship Blvd., Suite 230, Chevy Chase, MD 20815 (301-652-4334) REGIONAL ECONOMIC DEVELOPMENT PROGRAM IN EASTERN UKRAINE KHARKIV MANAGEMENT CONSULTING INTERNATIONAL PROFILE OF THE KHARKIV OBLAST ECONOMY (Introduction to the Sector Profiles) U.S. AGENCY FOR INTERNATIONAL DEVELOPMENT (USAID) KHARKIV PARTNERSHIP Strategic Planning Project Under MENDEZ ENGLAND & ASSOCIATES USAID Contract No. 121-C-00-00-00832-00 Kharkiv - 2001 KMCI: Kharkiv Management Consulting International Profile of the Kharkiv Oblast Economy TABLE OF CONTENTS 1. Historical Stages of Kharkiv Oblast Economy Development ...................................................................................3 2. Current Problems in Kharkiv Oblast Economic Development .................................................................................4 3. Economic Results of Kharkiv Oblast in 2000............................................................................................................4 4. Industrial Structure of the Kharkiv Oblast Economy.................................................................................................5 5. Activity of the Largest Sectors of the Kharkiv Oblast Economy in 2000 (As of January 1, 2001)..........................7 7. Market Transformation Trends in the Kharkiv Oblast Economy ............................................................................13 8. Phase 1 Methodology of the Strategic Planning Project........................................................................................14 Conclusions ..................................................................................................................................................................16 References....................................................................................................................................................................17 Address: Tel.: +38 (0572) 282011 President: Identification Code: A/C (USD) 5 Petrovskoho Str. Fax: 282015 Prof. Yuriy Olexandrovich Chernetskiy 24665922 ? 26002184830100 Kharkiv 61002 E-mail: [email protected] In “UkrSybbank” Ukraine Http://www.kmci.com.ua MFO 351641 2 KMCI: Kharkiv Management Consulting International Profile of the Kharkiv Oblast Economy 1. Historical Stages of Kharkiv Oblast Economy Development Kharkiv Oblast (Ukrainian for “province”; the Ukraine State Statistics Committee also uses the term “region”) was created as an administrative unit in 1932, when Kharkiv was the capital of Ukraine (1917-1934). The first written document mentioning the City of Kharkiv is dated 1655. In 17th and 18th centuries Kharkiv Oblast was a typical agricultural region having a low urbanization level. However, the region’s favorable geographical position assisted rapid growth of its intermediate trade role between Eastern and Central Europe, the Black Sea frontier, the Caucasus, and central Russia. Kharkiv fairs were one of the factors that contributed to the region’s importance in the broader historical, cultural and geographical region of Slobidska Ukraine. Slobidska Ukraine now consists of the present territories of Sumy, Poltava, Luhans’k, and Donets’k oblasts of Ukraine, and the Belgorod and Voronezh Provinces of Russian Federation. [1, p. 11-12] In the XVIII century Kharkiv College was the main educational center of Slobidska Ukraine. It is important to note its contribution to professional education: in 1765 additional classes were opened in engineering, artillery, geodesy, and cartography. The founding of Kharkiv University (now Kharkiv National University, named after V.N. Karazin) was an epochal event, not just for Kharkiv and Ukraine, but for the whole Russian Empire. Its grand opening occurred on January 29, 1805. In the 19th century, Kharkiv University played key role in the culture and education of the Left-Bank Ukraine. Moreover, it was the predecessor of almost all of the higher education institutions of the City of Kharkiv which, during the industrial period of society development, was the largest higher education center in Ukraine. [2, p. 17-20] During last third of the 19th century, rapid industrial development of Kharkiv City and Kharkiv Oblast began. That was the period when the Kursk-Kharkiv-Azov railway was built (1869) and a number of large enterprises were founded in the city, including the railway-carriage repair works (1869), an iron foundry (1870), a farming machine plant, a steam-locomotive plant (1897), a rope plant (1895), a confectionery (1896). In Kharkiv Oblast, enterprises included the Guta Sugar Refinery (1869), the Budy Whiteware Plant (1885), and others. Natural sciences, social sciences and humanities were in the process of development. A number of scientific associations attached to the University were also founded, including: a naturalists association (1869), a medical association, an association of physical-chemical sciences (1873), a historical-philological association (1876), a mathematics association (1879), and an association of jurisprudence (1901). Training of engineers was developed through the founding of a technological institute in 1885 (now the National Technical University “Kharkiv Polytechnic Institute”). At all times, favorable natural conditions of Kharkiv Oblast, namely invaluable black earth and also wide open space appropriate for trade, have attracted foreign businessmen. In its turn this incited much of industry, agriculture, transportation, trade and the municipal economy. At the end of the 19th century and at the beginning of the 20th, century industrial development of the region took place with the assistance of strongly growing foreign investments. In particular, foreign economic presence during this period of time played an important role in increasing the region’s economic growth and production volumes, transforming it from an agricultural economy into a region with a powerful industrial base. During this
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