Ukraine’s industrialists and politicians are betting on massive investment in traditional primary industries to spearhead economic development.
A new 540 million euro steel mill, the biggest private investment the country has seen since independence in 1991, intends to meet all national needs, and sell abroad, planning to produce 1.3 million tonnes of steel per year.
Billionaire industrialist Viktor Pinchuk is the chief at Interpipe Steel, the company whose revenue in 2010 was around one billion euros.
In Dnipropetrovsk, in the east of Ukraine, Pinchuk told us: “There is a saying that a man should plant a tree or build a house… I thought, ‘I want to build a plant’. Not a single new one has been built since independence. This plant is a symbol of industrial modernisation, the symbol of the country’s modernisation.”
One of the world’s top ten producers of pipes and the third-largest producer of train wheels, Interpipe plans to boost sales to the European Union by 20 percent.
Yet according to Ukrainian media, the government is losing out massively in badly needed tax revenues – not only from avoidance, but through policy favouring a handful of industrialists.
Economic analyst Ihor Burakovskiy said: “We should take into account that, unfortunately, the Ukrainian decision making process is based upon certain type of paternalism and favouritism, so in this particular case it is easy to outpass your competitors by the simple fact that you are getting the reimbursement of VAT, if you are exporting, but your competitors are not.”
This economic policy comes with serious collateral risks, especially since international steel prices have fallen recently by some 16%. That does not seem to worry Ukrainians on the job.
A blast furnace veteran said: “I’m not afraid of a crisis at my] iron and steel plant. The government in power now is doing everything to prevent this crisis in metallurgy.”
Steel represent almost 40% of Ukraine’s export income. Energy-intensive metal production relies on favourable coal and gas prices, and mining is another subsidised sector – like metals also mostly in eastern Ukraine. Yet in other parts of the country not everybody agrees with such an economic dependence on the regions where coal and steel are produced.
With the possibility of another financial crisis, opposition voices here have been openly sceptical of government-assisted flagship investment in ventures such as the new steel factory in the east.
On the other hand, the agriculture sector is weak and large-scale industry is commonly in decay.
On this basis, supporters of the idea say modernising steel and favouring mining makes sense.