Ukraine's post-euro blues
By Graham Phillips
There is no doubt Euro 2012 was successful on a sporting level. However, nearly six months later, Ukraine is saddled with heavy debts, hotel rooms it can't fill, and a rapidly devaluing currency, as the country's economy teeters on the brink of recession. GDP is going down, unemployment is rising, salaries are stagnating and fears on the future are mounting. So, did Ukraine shoot itself in the foot with Euro 2012?
The Economic Background
Ukraine's economy hit the buffers after the collapse of the Soviet Union, with GDP falling year-on-year as the newly independent Ukraine endured hyperinflation and a collapse in economic output while struggling to find its feet. In 1999, the Ukrainian economy fell to its lowest point, with GDP around half what it had been the year before independence.
Then, the turn of the century saw the start of an infectious economic boom, with fellow CIS states posting figures attesting to huge economic growth. Estonia and Latvia enjoyed year-on-year growth in excess of 10% pre-2008, as the former Soviet states came to the fore in a modern Europe. While Ukraine never quite enjoyed these numbers, the Ukrainian economy enjoyed a sustained growth period from 2000 up until 2008, posting an impressive 7.9% growth in 2007, and ranking 45th in the world GDP table, with $188 billion.
However, 2008's global credit crisis knocked Ukraine for six. In Kiev, work on scores of ambitious apartment buildings and business centres literally stopped overnight. Meanwhile, a freefalling Ukraine hryvnia went from 5 to the dollar, to 8, with the government intervening to peg it at that rate. 3% unemployment in 2008 collapsed to near 9.4% in 2009. Inflation topped 26% as panicked investors withdrew from a country which seemed on the cusp of economic meltdown. Economic growth dropped to 2.1% in 2008, plunging to -14.8% in 2009.
In no small part due to IMF intervention, with the aid bailouts to the tune of $11 billion in 2009 and over $15 billion in 2010, Ukraine dragged itself back from the brink, to 4.2% economic growth in 2010. By that time, Ukraine was starting to look forward to hosting the Euro 2012 football tournament, as hopes started to crest on an event many believed would see huge capital flowing into the country.
Ukraine and Euro 2012
In 2008, with preparation work hit by the economic crisis, it had seemed Ukraine was set to have Euro 2012 taken from it, with UEFA President Michel Platini warning of "critical slippages" in preparation, and Scotland twice asking to take over as host. Euro 2012 was effectively rescued for Ukraine in 2009, with Yanukovych committing to UEFA President Michel Platini that his country could carry out all the necessary work.
To this end, $6.6 billion was pumped from the state coffers into the preparation project. Private investment saw the total figure stand at $13.4 billion, as Ukraine scrambled to build hotels, upgraded roads and city centres, and completed work on stadiums (in Kiev, just days before the event kicked off).
Most of Ukraine got caught up in what many thought would be a gold rush, with billions flowing into the country from wealthy European football fans. Certain hotels in host cities Donetsk, Kharkiv, Kiev and Lviv increased their prices by 1000%, with reports of some establishments going so far as an 8000% rise in tariff. Despite a campaign to end 'price gouging', reports of the rates hit back in Europe, and started to affect potential visitor numbers.
In the end, Euro 2012 passed off fairly successfully, with a reported 1 million overseas visitors coming to Ukraine in the month of June, generating a state-reported $1.5 billion. Some were sceptical about this figure, estimating $800 million and fewer visitors, with the spectacle of empty seats, even at the final, stalking the tournament. In any case, there are few who believe the numbers would not have been greater had it not been for the pre-tournament greed which seemed to afflict the nation's preparations. England, for example, traditionally one of the best-supported football teams at tournaments, returned over half of their allocation of 7,800 tickets to UEFA, taking their lowest number of supporters ever to a European Championship. France were followed by fewer than 1,000 fans at the event, sources claimed.
Any goodwill Ukraine had hoped to generate to boost future visitor numbers was undermined by what many, in Ukraine for the first time, viewed as profiteering both from accommodation and restaurants, where a 'foreigner double-price menu' passed from urban myth into fact. The Tymoshenko picture further complicated the picture, with many foreign leaders boycotting the event, and a spotlight being cast on the imprisonment of the former Prime Minister on what many believe to be politically motivated charges.
2012 was always going to be a challenging year for Ukraine. In June, Ukraine was due to repay a $2 billion loan to Russia's VTB Capital, and $500m in outstanding eurobonds. In the event, Ukraine issued a $1 billion eurobond to partially refinance the VTB $2 billion, putting off payment of the outstanding $1 billion to June 2014, and accepting increased interest payable on the deal.
Follies and Foreign Investment
