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UKRAINE ON THE ROAD TO REFORM
by Paul J. Norton

It's time to start paying more attention to Ukraine.  Emerging finally from a
prolonged bout of post-Soviet economic and political confusion, Ukraine is now
embarking on the sort of  economic reforms that have energized other economies
in transition.  International support for Ukraine's reform program has been lined up,
including $200 million in U.S. Government assistance, as well as major
commitments from the International Monetary Fund (IMF) and the World Bank.  
U.S. companies like Apple Computer, Ford Motor Company, and Proctor and
Gamble--as well as many of their biggest foreign competitors--have already gained
important footholds in an economy that has much to offer, once the foundations of
a market economy have been laid.

Ukraine's economic potential is great.  Agribusiness and food-processing are
among the most attractive sectors in a country that once supplied much of the
Soviet Union's grain, meat, and dairy products.  Ukraine's high-tech industrial base
is drawing Western companies with interests in materials engineering, optics,
process controls, and other fields.  A highly- educated population of 52 million
provides Ukraine with a well-qualified labor force, and could become a major
consumer market as well.  

TURNING THE TIDE

When Ukraine became independent in 1991, it was believed to have an excellent
chance of rapidly converting to a democratic, market-oriented society.  Economic
reforms have been slow in coming until recently, however.  As a result, inflation at
times has approached 100 percent per month, the bureaucracy can be stifling, and
business conditions have been difficult.  Not surprisingly, many Western companies
have hesitated to do business in Ukraine.  

The tide began to turn in 1994 with the election of President Leonid Kuchma, on a
platform of market-oriented reforms.  Kuchma proposed unifying the exchange
rates, reforming the tax and banking systems, liberalizing prices, and reducing
inflation.  Kuchma also called for  eliminating subsidies, lifting export and currency
controls, attracting more foreign investment, speeding up privatization efforts, and
cutting the budget deficit.  Many components of the reform plan have already been
enacted, including unification of  exchange rates, lower taxes and tariffs,
liberalization of  foreign and domestic  trade, and creation of incentives for foreign
and Ukrainian investors.  

These measures have received the support of the IMF, the World Bank, and the
United States.  The IMF has approved a $371 million loan to help implement the
first stage of the plan, and a $1.8 billion stand-by loan, the latter following
adoption of a very austere government budget by the Ukrainian Parliament.  A
$500 million rehabilitation loan is being provided by the World Bank.  The United
States has also showed its support for this reform program by allocating an
additional $200 million in assistance during President Kuchma's visit to the United
States in November 1994.

DIVERSE OPPORTUNITIES

Ukraine's economy is diverse and highly-developed.  There are many opportunities
for U.S. companies in Ukraine.  Agriculture is widely recognized as the most
important sector of the Ukrainian economy.  Ukraine's famous black earth, some of
the richest soil in the world, covers two-thirds of the country.  Ukraine is a major
producer of grain, meat, and dairy products.  The agriculture sector has so much
untapped potential that the U.S. & Foreign Commercial Service (US&FCS) ranks
agricultural chemicals, agricultural equipment, and food processing and packaging
equipment as the three most important prospects for U.S. companies in Ukraine.
  
Foreign companies have been attracted to Ukraine because of its well developed
high-tech manufacturing base, as well.  Ukrainian science and technology, much of
which was previously connected with  the Soviet defense industry, is strongest in
applied research and development.  Ukrainian scientists excel in materials
engineering, space guidance systems, optics, welding techniques, shipbuilding, and
design of underwater manned vehicles.   

The medical technology sector also holds promise for foreign investors in Ukraine. 
Twenty percent of the pharmaceuticals manufactured  in the former Soviet Union
were produced in Ukraine, and the country has a well-developed medical
equipment industry as well.  Like other sectors of the economy, the medical
equipment sector has suffered as a result of Ukraine`s economic problems and the
Ukrainian Government is trying to address this issue through its defense conversion
program.  As a result, Kiev- and Kharkiv-based plants, with access to some of
Ukraine's finest research and scientific institutes, are now producing diagnostic,
therapeutic, and dental equipment.

PENT-UP CONSUMER DEMAND

U.S. exports of consumer goods to Ukraine are far below what could be expected
of a highly-industrialized country of 52 million people.  A reformed Ukrainian
economy, however, would greatly increase consumer purchasing power in a
country roughly the same size and population as France.  A number of  major U.S.
consumer products companies have already begun to establish footholds in the
Ukrainian market, including Mars, Tambrands, and R.J. Reynolds.  Some, such as
Johnson Wax and Coca Cola have established local manufacturing operations as
well.  

The US&FCS, part of the U.S. Department of Commerce, maintains an office in
Kiev to support U.S. companies doing business in Ukraine. The Department of
Commerce will open an American Business Center (ABC) later this year, as well, to
provide much-needed business services such as reliable international
telecommunications, meeting facilities, office services, short term office and
computer rental, and a variety of other business services.  For a comprehensive
overview of Ukraine, call the BISNIS Flashfax at (202) 482-3145 and order
document #6700.  A Ukrainian Defense Conversion Directory can be obtained from
the Department of Commerce's Office of Industrial Resource Administration, Room
3878, U.S. Department of Commerce, Washington, D.C. 20230, or (202)
482-5650.
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