Geography Position Odesa region is located in the far Southwest of Ukraine and borders on Vinnytsya, Kirovohrad, and Mykolayiv regions, as well as on the countries of Moldova and Romania. The region occupies the territory on the Northwest Black Sea coast, from the river Danube delta to the Tiligoulskiy estuary (300 kilometres of coastline), and 200-250 kilometres from the Black Sea to the north. Odesa region is largest in Ukraine: its total area is 33,300 square kilometres (an approximate size of Belgium or the Netherlands) which is about 5.5% of Ukraine's territory. The coastline position of the region on the international border is economically important. The wide outlet into the basin of the Azov and the Black Seas and into large rivers (the Danube, the Don, the Dnieper, and the Dniester) defines the advantages and transportation means. The effective sea and river waterways allow the economic relations to extend to Eastern and Central Europe (via the river Danube). Odesa sea port and other ports of the region are situated at the junction of intensive international sea and river transport connections; this defines a great distribution potential of the ports. On the left bank of the lower Danube and in the valley between the Kiliyskiy branch and the Dniester estuary, there are situated freshwater lakes Kagul, Yalpug, Katlabuh, and the salt lakes — Sassyk, Alibey, Burnas, Budatskos, Shagani; in the eastern part, there are salt estuaries Khadjibeevskiy, Kuyalnitskiy famous for their curative muds. The capital city of the region is Odesa, situated on terraced hills overlooking Odesa Bay, an inlet of the Black Sea that forms a natural harbour. The city is among the largest ones in Ukraine; it serves as the southern gateway of the state. It is an important agricultural, transportation, industrial, scientific, cultural, and resort centre, with a population of 1,050,000. The city is strategically located on one of the shortest and most convenient waterways leading from Northern and Central Europe to the Middle East and Asia through the Rhine-Danube river and canal system. This system, together with such waterways as the Dnieper, Dniester, and Volga-Don rivers combined with the three large ports of Odesa, Ilyichevsk and Yuzhny, and the Odesa railroad provides a unique opportunity for the economic processing of transit cargo traffic and passenger flows. Odesa is a leading centre of learning and culture with many secondary, higher education, and training institutions. It is also a major resort area. The economic profile of Odesa is dominated by the activities of the three major ports but, in addition, there are such industries as ship repairing, machine tool manufacturing, food processing and textile. Ilyichevsk runs the largest fishing fleet in Ukraine. Climate The northern part of the region is situated in a forest-steppe zone; the southern part is in a steppe zone. The average annual temperature varies from +8.2°C (+46.8°F) in the north to +10.8°C (+51.4°F) in the south. The vegetation season lasts 180 to 210 days. The average annual amount of precipitation varies from 340 millimetres in the south to 460 millimetres in the north. The city of Odesa has a relatively warm, dry climate, with January temperatures averaging -2°C (28.4°F) and July temperatures, 22°C (71.6°F). Annual precipitation totals 351 mm. The moderate climate and coastal lagoons nearby have given rise to beach resorts famous for therapeutic mudbaths. Odesa's reputation as a health resort dates back to the 1920's. Therapeutic ingredients in the muds along with the mild climate and beautiful beaches attracted vacationers and patients seeking a cure from various ailments: from arthritis to tuberculosis to skin disorders. Today numerous resorts, beauty spas, and sanatoriums dot a 50-mile stretch of coast from the village of Fontanka north of Odesa to Lebedivka to the south. They attract hundreds of thousands of vacationers and medical patients yearly who seek health and beauty in hydro and mud treatments. Natural Resources Distinctive features of the regional natural resources are the favourable climate, the sea, curative mud and salted water of the estuaries, sand beaches, and mineral water springs. Along with historical and cultural monuments, these resources form a great and diversified recreational and spa resort potential. Minerals discovered in the region and attracting practical interest today are used as raw materials for construction. Mining of sea sands, sandstone-shell mixture for industrial use, construction and agriculture is carried out on the Black Sea shelf. Odesa region employs intensive steppe agriculture and developed irrigation network. The natural conditions are favourable for cultivation of winter wheat, corn, barley, soy, millet, and sunflowers. Gas. Natural gas is not mined on the territory of Odesa region. It is estimated that the Black Sea holds some gas reserves. However, the quantity is expected to be relatively small and the economic viability of mining has not been proven. The whole of Odesa region is connected to the natural gas supply network but for the Southwestern area including cities like Belgorod-Dnestrovskiy. Customers there rely on liquid petroleum gas. Supply is continuous with customers paying on a regular basis. Increase of supply to residential and tertiary sector customers depends on their financial stability. Oil. There are no oil reserves in the vicinity of Odesa region. Crude oil supplied mainly from Russia is processed at the Odesa oil refinery. This dependency on Russia was strengthened in March 1999, with Luk-Syntez Oil Ltd. winning the privatisation tender for 51.9 percent of shares of stock in the joint-stock company Odesa Oil Refinery. Russian companies Lukoil and Syntez Oil are founders of company Luk-Syntez Oil, and thus have their interest in the Odesa refinery. The government of Ukraine is also considering transferring management of its 25% stake in the refinery to Luk-Syntez Oil. Another possible source of oil shipment is from the Caspian Sea, Azerbaijan. As the Baku-Supsa pipeline has started operating in 1999, there is a range of opportunities for Ukrainian oil-shipping companies to tranship oil through Odesa Terminal to Ukraine and overseas. Coal. Coal reserves are insignificant in Odesa region. There are no coal mines on its territory; all coal is imported from other regions. The supply of coal, coal products, and other kinds of solid fuel such as wood is performed by Obltoplivo, a public company owned by the Odesa Regional State Administration. Supply is based on regional limits set jointly by the Administration and Obltoplivo. Coal is mainly used for heating private households and the service sector (health care and cultural units, schools, administrative buildings etc.); industry and agriculture do not typically use coal. Total coal consumption in Odesa region is normally 1.1-1.2 Megaton annually, of which the residential sector consumes about 60-70%. The annual limit is 2 ton per household. On January 1, 1999, there were registered about 479,000 households using coal fired local heating. Thus, the total coal demand was 958,000 ton in 1998, of which, only 27,000 ton was consumed by households in the city of Odesa (13,500 households). Water Supply. There is shortage of water in Odesa region due to the natural conditions: the region has very limited underground and surface water sources. The nearest major river to Odesa is the Dniester, some 30 km from Odesa. The river is the source of water for the city and a number of communities nearby. The source of the Dniester river is on the northern slope of the Carpathian mountains, some 1,220 km from the point at which the river discharges to the Black Sea, through a liman (a brackish lake formed by a river estuary which has become impartially landlocked by a sand bar) located 37 km to the west of Odesa. The are no other major sources of surface or ground water within a reasonable distance from Odesa, although an engineering project institution in Odesa has completed studies of limited-potential ground water resources in the city of Odesa and in the Dniester river valley 15 km away from the existing water intake. There are, however, very limited water resources from small springs and artesian wells throughout the region. As to the city of Odesa, water supply is organised from two water sources: underground water pumped from artesian wells (which covers about 1% of the demand), and the rest is covered by a water supply system that is supplied with water from the Dniester river. The purification works are at the 30 km distance from Odesa. The water supply company does not pay the electricity bill for pumping; this creates difficulty in maintaining water supply. To save power, water is not supplied to the city at night. Compared to other regions, the water quality is lower; hydrogen sulphide (H 2S) is found in some regions. The most critical situation is along the border with Moldova. The responsible authority for water quality and supply is the company Odesvodokanal. Heating. The district heating supply system in Odesa region is not unified. Certain companies supply heating to limited areas. The largest heating system in the region is developed in Odesa where most inhabitants are supplied by district heating from either the Odesa Coal Heating Plant, or a big boiler plant, or one of hundreds of smaller boiler plants. There is heating supply deficit in certain city districts in Odesa due to the absence of nuclear power plants in the area. History and Culture The history of Odesa is deplete with numerous historical events which are captured in the names of the city's 1400 streets, squares, prospects, boulevards, and historical and cultural monuments. Numerous monuments of antiquity confirm the links between this territory and the Eastern Mediterranean. In the Middle Ages, these lands were, successively, a part of the Kiev Rus, Galich and Volyn Principality, the Golden Horde, the Great Lithuanian Principality, the Crimean Khanate and the Osman Empire. In the course of Russian-Turkish wars these lands were captured by Russia at the end of the 18th century. Tsar Peter the Great opened a „window‟ to the West for Russia when he built St. Petersburg in the swamps bordering on the Baltic Sea. Catherine the Great wanted a window to the South. In 1764 the Empress formed the territories newly acquired in the south-west of her empire into a province called Novorossiya. In the war of 1787-91, Don Josef de Ribas, a soldier of fortune born in Naples of Spanish and Irish stock and one of many adventures in Catherine‟s service, stormed the fortress of Yeny-Dunai at Khadzhibei. Catherine the Great apparently considered making the port of Ochakov, near the mouth of the Boh river, the effective capital of Novorossiya. But Ochakov lacked a good natural harbour. On the other hand, de Ribas and a close collaborator, a Dutch engineer named Franz de Volan, recommended Khadzhibei as the site of the region‟s principal port. Its harbour was deep and nearly ice-free. Breakwaters, on the model of those found at Naples, Livorno and Ancona, could be cheaply constructed and would render the harbour safe even for large fleets. In 1794, Catherine gave her approval for de Ribas and de Volan to build a harbour. This new settlement was given the name of Odesa. The city name came about as a result of an error. It was meant to be named after the ancient Greek city of Odessos or Ordissos, which was believed to have been founded in the vicinity. Actually, it was somewhere near the present day town of Varna in Bulgaria. But Catherine the Great liked "Adyessa" — as it is pronounced by the Russians and Ukrainians. In 1803, tsar Alexander I appointed the city chief of Odesa a young French emigrant, then 36 years old, the duc de Richelieu. 18 months later, in 1805, the tsar enlarged the city chief‟s authority by appointing him simultaneously a governor of three provinces of Novorossiya. In the 11 years of his administration, the duc de Richelieu acquired an extraordinary reputation for statesmanship and sense, both in Russia and abroad. The duc left Odesa on September 26, 1814, to return to France. Even after his return to France to serve as Prime Minister under the restored monarchy, he retained cordial ties with the Imperial Russian Court and with the ambassador in France, Pozzo di Borgo. The unique position of Odesa — a vital trade link between the West and the East, and the growth in importance of Russia‟s external trade through the Black Sea in the 19th century made way for the establishment of a big trade port centre and the development of Odesa into an advanced European city. A crucial event in the trade policy was the declaration of a free port regime in Odesa in August, 1819, establishing a customs border in the vicinity. It was aimed at overcoming scarcity in the domestic market, by the attraction of investment capital. It was also done because of the absence of Russia‟s trade fleet in the Black Sea. By 1820 Odesa had become an important commercial, industrial and cultural centre in the southern part of tsarist Russia and the greatest sea-port on the Black Sea. The economy of Odesa was based on private businesses. They made the city a „dissident‟ in the old feudal Russia. The free port was a guarantee of Odesa's financial security, a breakthrough into the civilised world, a dress rehearsal for the development of an open economy in the Russian Empire. Experienced and cultured governors of the Novorossiya region promoted the positive image of Odesa among overseas traders and politicians. Numerous nations and nationalities came to Odesa bringing their cultures of manufacturing, trade, and management. It resulted in the development of a new culture comprising the best features of all its constituents. During the free port period in Odesa (1819-1858) there was a huge discussion between supporters and opponents of the privileged tax regime. Free trade influenced negatively the development of manufacturing in the region. Local products could not compete in quality with goods from overseas. The Crimean War (1853-56) revealed the bankruptcy of the closed economy in feudal Russia compared to the developed capitalist economies in Great Britain and France. The war prompted the reforms of the 1860‟s. With new trade regulations, the free port regime in Odesa was out of date, and was eventually abolished. Odesa grew rapidly, especially in the latter half of the 19th century, when railroad construction in the southern Ukraine made it Russia's principal port for grain exports. Within a short period of time the city, with its beautiful harbour on the Black Sea, has become "Ukraine's southern window to Europe". By its hundredth anniversary (1894), Odesa occupied the 4th place in the Russian Empire in size and economic power — after Saint Petersburg, Moscow, and Warsaw. Odesans were noted for their wonderful spirit of freedom which allowed them to achieve great success in the field of science, education and the arts. The most important conditions for commercial prosperity in the region were the following ones: a stable political regime in the hinterland protecting the overland routes from producers to ports, and access to a network of overseas trade maintained by merchants experienced in both local and distant markets. The Russian Empire gave Novorossiya a unique opportunity to develop foreign settlements under their own administration frameworks. This independence helped preserve cultural diversity: languages, religions, and customs of various culture groups which successfully resisted assimilation. Odesa‟s cosmopolitan atmosphere can be attributed to its importance as one of the major foreign trade ports and fishing fleet bases of the region, with traffic to and from the countries of the Mediterranean basin, Africa, Middle East, and Asia. The city‟s dependence on the industrialised waterfront gives it a large blue-collar population as well as a reputation of a place where you can buy anything. A diversified manufacturing centre, Odesa produces a wide range of machinery and equipment, as well as chemicals. Shipyards and an oil refinery are important to the economy. Food processing in flour mills, stockyards, canneries, and sugar refineries is developed due to the proximity to rich Ukrainian farmlands. Odesa is a leading educational centre, the seat of Odesa State University (founded in 1865), Odesa State Polytechnic University (founded in 1918) and a number of specialised higher education institutions. The Ukraine Experimental Institute for Eye Diseases and Tissue Therapy is also situated in Odesa. Odesa is renowned for its artistic and cultural life. The city has an Opera and Ballet Theatre (claimed among the world-best architectural monuments), a philharmonic hall, numerous museums and theatres, a public library, and an astronomical observatory. Odesa is the site of the oldest cinema studio in the former Soviet Union. The city has been a centre for publishing numerous literary works. Odesa and the World Among the great cities of the world, Odesa can claim certain distinctions. One of the major cities of contemporary Europe, Odesa, officially founded in 1794, is among the youngest. No other European city can match its growth rate in the 19th century. It also developed in an area of the continent that has an ancient tradition of trade and a long, though discontinuous, history of urban settlement. Odesa is a city of contrasts. Its stately 19th century classical architecture is set on orderly planned streets that are surrounded with green space, giving the city an air of elegance. Strikingly ornate buildings of the late 19th and early 20th century are reminiscent of Right Bank Paris. It is also a seaport with boardwalks and bathing beaches, a resort city with health spas. With its balmy climate, seaside vistas and sandy beaches, and year round lively street life, Odesa has an ambience more Mediterranean than Slavic. Odesa is a member of the World Federation of Twinned Cities. Of all Ukrainian cities, it has been twinned with the greatest number of cities around the world (17): Alexandria (Egypt), Baltimore (USA), Calcutta (India), Genoa (Italy), Haifa (Israel), Liverpool (Great Britain), Marseilles (France), Oulu (Finland), Tripoli (Libya), Valencia (Spain), Vancouver (Canada), Yokohama (Japan) and others. Odesa is constantly hosting exhibits, symposia, and conferences. It is the site of consulates and trade commissions of many countries, and dozens of branches of friendship and cultural exchange societies are active in the city. Many roads lead to Odesa, for this city is hospitable, cheerful, and picturesque. Every year approximately 100,000 tourists visit Odesa, attracted by its boulevards and Potyomkinsky stairs, beautiful beaches, numerous new structures and the unusual architecture of old Odesa. Population and Human Resources Odesa region consists of 26 rural districts, with 18 cities, 33 towns, and 1,143 villages. Population of Odesa region is the 7th largest in Ukraine. On January 1, 1999, the population was 2,528,600 inhabitants, 66% of them urban dwellers. About 6% of the urban population live in cities with 50-100,000 inhabitants while most urban dwellers (60%) live in Odesa. The other 40% live in small towns (under 50,000 inhabitants). 11 towns have a population under 25,000 inhabitants. Most cities in the region have poor infrastructure; their development has been slow over the recent 15 to 20 years. Odesa region has a much more mixed population in terms of nationality, compared to other regions in Ukraine. Over 100 nationalities reside here, and non-Ukrainian inhabitants make up more than 45% of the regional population, compared to 26.4% in Ukraine as a whole. The main national groups are: Ukrainians (54.6%), Russians (27.4%), Bulgarians (6.3%), Moldovians (5.5%), Jews (2.6%), Gagausians (1.0%), Belorussians (0.8%), Poles (0.2%), Armenians (0.2%), Gypsies (0.15%), Tatars (0.14%), and Germans (0.13%). The greatest diversity in the national composition is observed in the South-Western part of the region between the Dniester and the Danube, where only 35.8% are Ukrainians. The local work force is well educated and highly skilled. Literacy is at 99%. The major part of Russian-speaking population lives in Odesa and other cities of the region. Although in many situations Ukrainian language is more politically correct, use of Russian is prevalent. Most urban dwellers speak Russian. The Ukrainian language is required when dealing with the government in Kyiv. The population density in Odesa region is 78.9 inhabitants per square km, with the highest density in satellite districts of large cities and the area south to the Dniester, while the lowest density is observed in the northern and central parts of the region. 1999 Data. The latest statistics registered 11,400 births and 21,300 deaths for January to July (inclusive), 1999. Thus, the population decrease was 9.9 thousand compared to the same period in 1998. The regional vitality rate (number of births to 100 deaths) was 53.7 compared to 57.8 in 1998. Most deaths in January-July 1999 were caused by: blood circulation diseases — 60.1% of all deaths; tumours — 14.4%; external actions (including accidents, murders, suicides etc.) — 10.9%. 0.7% of all deaths in January-July 1999 were babies‟ (under one year of age) deaths, most of them caused by: pre-natal conditions and inborn diseases — 61.6% of all babies‟ deaths; breath diseases — 10.6%. There were registered 7,300 marriages and 4,600 divorces in Odesa region in January-July 1999 (compared to 7,400 marriages and 5,100 divorces in the same period in 1998). Labour Force. Odesa Region has well-educated and skilled labour force, with a nearly 100% literacy rate. The reported unemployment level is low (1% in 1998). Plant managers continue to see employment of their work force as a key priority and foreign investors may encounter resistance in trimming a project's work force to an efficient level. A further complication in business arrangements is the Ukrainian enterprise's continuing responsibility for housing and much of the other social infrastructure sustaining their workers. This social burden can become a real issue in business negotiations. Wages remain very low by Western standards. Many Ukrainians are forced to work second and third unofficial jobs to make ends meet, thereby making up a vast portion of the shadow economy. Official unemployment hovers just over 1%, but the International Labour Organisation has placed this figure as high as 34% when including workers on unpaid/involuntary leave and unreported separations. Slow movement on privatisation and an unwillingness of larger enterprises to reduce staff has negatively affected the labour market's ability to respond to new market conditions. A significant part of the Ukrainian labour force has migrated to the shadow economy, taking up service jobs such as taxi drivers, waiters, and traders — anything to ensure economic survival. Salaries in Odesa and the region are much the same as in Ukraine as a whole and calculated by monthly income. Average monthly salaries fall between USD 27-36 varying dramatically depending on the industry sector and locale. For instance, in Odesa the average salary is USD 29-37 but western companies can pay administrative employees over USD 400-500 per month. The official minimum salary is equivalent to USD 17 and is important as the basis for calculations of pension payments. The basis for taxation is the „tax-exempt minimum salary‟ set at UAH 17 (approximately USD 3.8) at present. It is also used for calculation of various fines imposed by the authorities. The shadow economy attributes a lot to the overall picture of personal incomes in Ukraine. Most employees show a considerably smaller portion of their incomes to the tax authorities, thus avoiding high tax levies. Some estimates claim that as much as 60% of income gets unreported. The average level of salaries in Odesa region has grown by 16.7% since 1 January 1999 and was equal to UAH 170.51 per month. At the same time, the average cost of consumer basket of foods has grown by 15.7% and was equal to UAH 93.90 per month. The growth of prices is connected with the increase in transportation costs of wholesale companies caused by the growth of prices for fuel, instability of excise taxes and duties on oil products, as well as the increase of sales surcharges including the utilities costs and rental payments. Regional Strategies and Competitive Advantages The principal long-term objective of the development of a regional strategy is to create a high output, high income, low unemployment regional economy that will sustain, and environment and quality of life equivalent to that enjoyed by industrial communities in Europe. 1. During the macroeconomics transition to a market economy competitive advantage will be formed for both Odesa region and enterprises. Existing agricultural and industrial enterprises are key to wealth creation and self-sustainability in the short term. The region, itself, and enterprises that achieve competitive advantage are most likely to benefit from foreign direct investment and aid funds. The creation of competitive advantages of industries depends on the environment in which the firms compete. Industries are most likely to succeed where the “Diamond” (presented in Figure 4) is the most favourable in their particular area. They gain competitive advantage where they can rapidly accumulate specialised assets and skills. An assessment of the “Diamond” will define the key development priorities for the sector. Odesa region can influence, directly or indirectly, each of the four attributes, and successful policies will work where underlying attributes of competitive advantages are present and can be reinforced. Four main attributes shape this environment: Factor conditions: availability and quality of skilled labour; infrastructure; capital necessary for business, including motivation. Current Position 2. Odesa Region has extensive land resources with good agricultural potential and useful infrastructure for distribution and close proximity to the markets of Central Europe, Russia and the Black Sea area. The gateway to a market of more than 400 million people, including Ukraine, CIS, Europe, Middle East. Advanced transport infrastructure. Strong shipping and transportation sector. Leisure and recreational potential, particularly on the Black Sea. The main skill areas in the region are in machine building, shipping industry, agriculture, food processing, electronics, transport etc. Highly skilled people in research institutions and isolated technical knowledge in enterprises. Limited experience in joint ventures and awareness of how to best attract and use foreign partners. Priorities Enhancement programme for existing workers in vocational skills (training trainers): Identify key areas for improvement of information and development of networks: industry structure; product and labour market information; tourist and recreation services; technical standards. Restore production and export incentives by rationalising tax base and banking system. Lobby and mobilise resources for creation of a regional development fund for investment in viable projects. Demand conditions: availability of a home demand that allows the accumulation of information, assets, skills and commitment, stimulates quality and development, and provides conditions that are transferable to other places. Current Position Shift of consumer demand to basic needs. Lack of raw materials and equipment due to current breakdown of traditional trade with CIS countries. Potential demand development for the sectors: agriculture, food processing and packaging; machinery and equipment; business and financial services; transport and distribution. Priorities Give priority for: agriculture, food processing and packaging; industrial development; shipping and transport infrastructure. Improve quality and competitiveness of local products to substitute imports. Focus on national and CIS markets first, particularly neighbouring countries. Develop quality of export to expand customer base in Western countries. Related and supported industries: presence of suppliers and customers that are world leaders. Current Position Odesa region has a high synergy potential amongst key industries: agriculture, food processing and packaging machinery and equipment; business and financial services; transport and distribution. Priorities Provide support and incentives for the development of smaller and more flexible productive units resulting from the restructuring of larger enterprises and creation of new companies. To improve productivity and value added in products and services on offer. Business strategy, structure and competition: conditions governing how firms are created, organised, managed and compete or co-operate with each other, including the role of government. Current Position Focus on day-to-day survival rather than strategic restructuring and competitiveness. Lack of business planning experience and unfamiliarity with market-based solutions. Typical enterprise management in a defensive, reactive style with retention of a complex mix of commercial and non-commercial activities. Few major new product developments or diversification initiatives now under way. Priorities Offer technical assistance to enhance both strategic and tactical approaches to businesses within sectors. Adapt consistent and coherent competition policy via commercialisation, privatisation, and de-monopolisation. Provide tax and other incentives for: investment in production; employment generation; export growth; local alliances and joint ventures. Machine-Building Industry Development Programme The programme purpose is to revitalise the machine-building industry in Odesa region as a means for re-structuring of all branches of the economy. The machine-building industry, as the most prepared branch, is to fulfil the following objectives of the economy: worn-out equipment replacement in aviation, automobile, shipbuilding, agricultural machinery, defence, textile industries; manufacturing flexible industrial complexes fully equipped with modern technologies which allow enterprises to react wisely to the market demand; development of new technological processes providing resource and energy efficiency of the manufactured products, their ecological safety. To meet the objectives, the Odesa region machine-building industry needs: re-structuring of enterprises, machine park optimisation, framework for regional co-operation; expansive actions in high-potential market segments (market research, advertising campaign, participation in international exhibitions, arrangements for a constant-based exhibition on the metal-cutting machinery market; development of new models of competitive equipment, applying new automation systems of construction and technological design, implementation of new sets of supplies certified in the external market; development of the machine-building staff potential, job placement, acquiring more orders for transport, agriculture, textile industry; development of the programme investment architecture through budget funds, commercial banks, domestic and overseas investors. As a result of the programme fulfilment, it is expected to achieve: industry stabilisation and strengthening of the financial condition of the machine-building enterprises in Odesa region; effective use of the existing R&D potential to raise competitiveness of machine-building production; effective use of manufacturing capacity, with orientation at agriculture, automobile, railway transport; textile industry; municipal economy; construction industry; expansion of sales, development of the export potential; increase of deductions to the state budget. The base for the machine-building industry re-structuring will be the economic strategy of technical market regulation with distribution of investments, redistribution of capital assets proportional to actual market demands in the produce offered. Thus, the main purpose of the programme is a real estimation of such requirements, how they are met for the time being and in the future. Problems of the cost-effective functioning of enterprises based on technical re-equipment are closely connected with innovation and investment activity. The mechanism to solve these problems is provided in the programme. The most urgent priorities for the regional development of the machine-building industry are the following: market research in machine manufacturing and sales; re-structuring of the R&D sector in the region via organisation of consortia, finance-industrial groups, machine-building centres co-ordinating the regional machine-building industry's entry in the world economy; reconstruction of existing machine-building enterprises in the region, taking into account reorientation of unused capacity, development and implementation of new equipment, technological lines, supplies, fast worn-out parts for agricultural machinery, automobile and railway transport, textile industry, energy-saving devices; perfection of machinery produce to raise its quality to the world standard; implementation of energy- and cost-effective, ecologically safe technologies. Strategy of Competitive Advantages for the Machine-Building Industry Natural competitive advantages are: the geographical position of Odesa region; existing infrastructure, production facilities, basic equipment and supplies; relatively low cost of labour force and raw materials. To raise produce competitiveness, the industry needs to: use modern supplies in the framework of adopted international co-operation; use a well-known trademark (franchising) after establishment of a joint venture with a world-wide-known company; create a network of maintenance and sales services; develop (in the framework of a joint venture) new competitive types of equipment. The structural changes once started will continue; in 2000-2005 the industrial situation is to improve due to a more rational structure. In 2005-10 the structural changes will be completed and a balance between supply and demand reached. The result is a slow industrial increase. Overall 1990 industrial production will be surpassed before 2005 in the optimistic scenario but not reached in the pessimistic scenario. Regional Priorities The following priorities are set in the Regional Development Programme put forward by the Odesa Regional State Administration: completing privatisation to open opportunities for domestic and foreign investment; diversifying the regional economic base by assisting appropriate new and existing investors; improving the level of business services to the standards accepted in the world; increasing integration of the regional economy through local and international sourcing and the development of supply networks; developing businesses capable of competing in international markets improving competitiveness of existing small and medium-sized enterprises; encouraging the development of companies in the priority sectors which represent clusters of competitive advantage or otherwise demonstrate potential for growth. Privatisation Since the privatisation started in the independent Ukraine, there have been privatised 3,156 objects in Odesa region, including 847 formerly state-owned, and 2309 formerly communal. For January-June 1999, there were registered 180 privatised objects, including 36 formerly state-owned, and 144 formerly communal. The State Privatisation Fund received UAH 6.2 mln, and local budgets, UAH 3.5 mln. Privatised businesses to date make 85% of the total number enterprises on the privatisation „waiting list‟. In separate sectors of economy, the percentage of already privatised companies is still bigger: industry (99.5%), construction (98.5%), agri-food complex (97.9%), automobile transportation (94.6%). Main methods of small-scale privatisation were the following: purchase of property by a group of partners or shareholders (67.3%); purchase of leased property (13.7%). Privatisation of state-owned property was mainly implemented via placement of shares of newly formed open joint-stock companies, and auction sales of property. Since privatisation started in Ukraine, there have been organised 562 open joint-stock companies (11 of them in 1999). Over 400 companies have finished placement of stock; 41 open JSC placement depth exceeds 70%. State-owned stock of 92 companies is in the state corporate management. Social-Economic Results of Privatisation In January-June 1999, privately owned industry production added to 67.6% of total industrial output. Collectively owned companies increased production by 40%, ¾ of which related to joint-stock companies. Sales of these companies increased twice compared to 1998. It was mostly for the sales increase in such sectors as: non-ferrous metallurgy (+2.7 times), construction materials production (+2 times), machine building and processing (+1.6 times), and fuel industry (+1.4 times). Non-state-owned enterprises showed a 14.2% increase in labour productivity, mostly for the sectors like non-ferrous metallurgy (almost +2 times), construction materials production (+1.7 times), fuel industry (+1.5 times), food processing (+1.3 times). Collective ownership grew rapidly in the automobile transportation sector: 91.4% of total transportation against 56.8% in January-June 1998. Cargo shipping turnover of privatised companies was 61.6 mln ton-km, or 92.7% of total. Passenger transportation figures of privatised companies reached 50.3 thousand people, or 99.1% of total. Retail trade turnover of privatised companies increased by 13.9% in 1999. Their net income was 87.3% in the total net income of this sector. Non-state-owned companies employed 325.8 thousand people, or 48.6% of total number of employees in all sectors of the regional economy. It is expected that in 2000, the share of non-state-owned companies will reach 70% in industry, 87% in total turnover of production, and 61% of total volume of services. Business Services In the development of business services, the following measures are seen to improve their level for local and international consumers: Increasing the autonomy of Odesa region with regard to provision of information, analytical and financial services to facilitate access to business opportunities and thus promote regional development; Promoting the development of international services; Establishing institutions and organisations that gather sources and use them locally. Agri-Food Production Agriculture is the second largest branch of material production according to production volume, and the first branch of economic activity regarding the occupation of labour resources. Soil fund is more than 3,3 mln ha, 77.6% of the total region territory is agricultural land of which 80.4% is arable land, 15.1% — hay-mowing and pasture land, and 4.4% — fruit and berry farms. More than 36% of the population, half of the functioning production funds are engaged in it. 42% of the gross national product and 80% of the consumer's goods are produced in the AIC. This sector forms more than 50% of the regional budget. Agricultural land is 0.98 ha per person in Odesa region, almost 25% more than the average figure for Ukraine. The arable land has increased and reached 0.78 ha per person (0.63 ha for Ukraine). The mark valuation of lands in the region is above the average country level. Odesa region‟s share in the total agricultural production of Ukraine exceeds 5%. Individual farms and collective agricultural enterprises (CAEs) are main producers of foods. The structure of agricultural production is mainly formed by cattle-breeding (48% of total agricultural output) and plant-growing (over 35%). Individual farmers and those at agricultural enterprises show a lack of familiarity with the Western concepts of quality, marketing, cash-flow planning etc. Plant-growing is dominated by wheat, sugar beet, potatoes and sunflower seed. Most relevant fruits cultivated are grapes, apples, peaches, and watermelons. In cattle-breeding, production of meat (beef and pork), milk and poultry is also substantial in the agriculture of Odesa region. Small private enterprises play an important role in processing agricultural output and producing wine, plant oil, flour, and milk products. The agricultural production in districts varies depending on the natural-geographical conditions: North forest-steppe (Ananievskiy, Baltskiy, Kodimskiy, Kotovskiy, Krasnooknyanskiy, Luybashovskiy, and Savranskiy Regions) — dairy products, cattle, pigs, grain, and sugar beet; Central steppe (Berezovskiy, Frunzovskiy, Ivanovskiy, Nikolaevskiy, Razdelnianskiy, Shiriaevskiy, and Velikomikhaylovskiy Regions) — dairy products, cattle, pigs, grain, and sunflower seed. In some districts and suburban zones (Beliaevskiy, Kominternovskiy, and Ovidiopolskiy) — vegetables and wine; South steppe (Artsizskiy, Bolgradskiy, Belgorod-Dnestrovskiy, Saratskiy, Tarutinskiy, Izmailskiy, Kiliyskiy, Tatarbunarskiy, and Reniyskiy Regions) — dairy products, cattle, pigs, sheep, poultry, grain, wine, vegetables, and in some districts, sunflower seed. The agricultural production compared with 1996 increased nearly 1.4 times reaching Hrv 1247 mln in 1998. The overall yield was 32.8 centners per hectare. Wheat yield was 37 centners per hectare which is almost two times more than in 1996. 266,000 tons of sunflower seeds were thrashed, with the yield capacity 14 centners per hectare, which is 1.4 times more than in 1996. The yield for the sugar beet increased twice. The gross yield of agricultural production of Odesa region measured against the total national production is: grain — 6% (2nd place in Ukraine); sugar beet — 2% (14th place); sunflower seeds — 9% (5th place); vegetables — 7% (3rd place); meat (including sub-products) — 6% (10th place). The table below shows the trends in the development of agricultural production in Odesa region in the recent 15 years. Collective and Private Farming There are some 6,287 farming entities in Odesa region. Of these around 500 are former collective farms ("kolkhozes") transformed into Collective Agricultural Enterprises (CAE‟s). These units account for almost 90% of grain, sun flower, grape and sugar beat production. Private Farming 5,602 farms are privately owned. At present, the outputs from these units are small and insufficient to serve the processing sector with raw material. Although legislation permits farmers to operate on a maximum 50 ha and to rent more land if they wish, the major problems are: local red tape, difficulties in obtaining good quality land and credit, and in purchasing agricultural inputs. Dacha-owners and Gardening Dacha-owners and gardeners play an important role in food production in Odesa region. Some 300,000 families living in the rural area have market gardens ranging from 0.25 to 1 ha in size. Small farmers, dacha owners and gardeners cultivate about 20% of the agricultural land but produce more than half of the regional Gross Agricultural Output. They produce large quantities of potatoes, other vegetables and fruit, milk, and meat. They are also involved in agricultural production to support the household budget. Although agricultural production is not the main business of this sector it accounts for the bulk of total potato production (99%) and almost two thirds (65%) of vegetable production. It is partly consumed at home, but many producers try to market most of their produce in big cities like Odesa, Izmail, Kotovsk etc. Until now, there are only few joint activities of gardeners. In order to market their produce, they have to present and sell it themselves on the food markets. The sales of animal produce in January-July 1999 were the following: The agri-food and drink industry is one of the most rapidly growing sectors of the regional (and Ukrainian) economy. Since 1993, many of the world's leading manufacturers of agricultural machinery and food processing equipment, foodstuff and variety of drinks have been successfully distributing their products into Ukraine. Some companies have now gone one step further and have invested in joint ventures, green-field projects, or have taken equity stakes in such ventures. Nonetheless, Ukraine still has a desperate need for foreign capital, raw materials, machinery and technology, in order to increase production and improve quality. There are therefore still enormous opportunities for Western participation and investment. However, before foreign companies make major commitments in this sector, they should evaluate the risks, whether legal, political, or financial. The food processing industry comprises sugar, oil-mill, fat, adipose, fruit and vegetable canning, hydrolysis and agar, wine-making, tea industries, also the production of food concentrates. Butcher's, dairy-canning, liqueur-vodka, confectionery, non-alcoholic beer, and tobacco industries play an essential role in the industrial complex of the central region of Odesa region and in export/import operations. The future of the food processing industry will depend both on the situation in the agricultural sector (supply of necessary raw materials) and the machine building sector (supply of necessary equipment for improvement of the production processes). As both these sectors will be given priority in development, food processing industry will automatically follow and grow faster than industry on the whole. Machine-Building Historically, the machine-building industry has been an important element of the Odesa region economy and the future technical recovery and structural changes in other industrial branches will to a great extent depend on the recovery and further development of this industry. Given the existing production potential and the availability of highly qualified work force, it is assumed that machine building will grow much faster than the industrial sector on the whole. The machine-building industry needs urgent measures to be taken to improve its status and regain the strengths and levels achieved 10-20 years ago. To perform this transition efficiently, the industry strategists are working on: building on and add to existing strengths and networks; establishing a plan of action on R&D and innovation which will identify gaps in market opportunities and areas of potential growth; proposing measures which will assist in creation of a modern and diverse economy through the increased use of R&D and innovation into commercial applications; providing a framework within which business support, infrastructure and training measures can be implemented. Mechanical engineering industry in Odesa, which produces metal-cutting machine-tools, blacksmith and pressing equipment, plays an important role not only for Odesa but also for Ukraine. JSC "Odesa Plant of Radial-Drilling Machines", one of the four metal-cutting tool plants, is the only enterprise in the country to produce diamond-boring, co-ordinate-boring, radial-drilling, and honing machines by line production. JSC “Pressmash“ is the largest plant producing blacksmith and pressing machines, and it is the most important not only among the 5 enterprises of this type in Odesa region, but for the whole branch in Ukraine. It produces heavy blacksmith and pressing equipment, moulding and plastic-processing machines, metal waste briquettes, hot and cold stamping, detail drawings, cambering pipes, and pressing machines for leather, paper, grindstones. Most of the plant's production is unique and limited to special orders. Metallurgy: "Tsentrolit" is the only enterprise in the southern Ukraine specialised in moulding black and non-ferrous metals for the mechanical engineering industry. "Stalkanat" (JSC) produces metal wire, steel low-carbon wire, nails, steel ropes, welding electrodes, etc. "Krayan" (JSC) produces pneumatically-wheeled cranes. The plant manufacturing construction-finishing machines and "Stroygidravlika" produce hydraulic drives for construction machines (cranes, graders, bulldozers, excavating machines), hydraulic pumps, pneumatic cramp iron devices, and mosaic-grinding machines. "Krasnaya Gvardiya" is the only enterprise in the country producing mine winches for the coal mining industry, reduction gears, and lifts. Production of oxygen equipment for the gas and flaming processing of metal, oxygen installation, and oxygen equipment (compressors) is handled by "Avtogenmash". "Kholodmash" and "Orion" produce cryogenic equipment and compressors for residential and industrial refrigerators. Equipment for flour-grinding, baking and dairy industry, and also the provision equipment are the main outputs of "Prodmash". "Poligrafmash" produces special light-grafting machines. “Pochvomash“ produces tractor-drawn ploughs, machines, and harrows for cultivation of gardens and vineyards. Motor building and production of equipment for motor-cars and tractors (Auto-Assembly Plant, Piston Rings Plant) are also developed in the region. "Electronmash", "Tochmash", "Kinap" produce instruments. The repair of mechanical engineering industry is covered by various enterprises: repair plants for agricultural machines and equipment (Odesa, Izmail, Bolgrad, and Kotovsk); repair of machine-tools (Borshchi); repair of household appliances, textile, and food processing industry equipment (Odesa); manufacturing of metal frames and construction industry equipment (Odesa, Belgorod-Dnestrovskiy); locksmith's equipment, metal packing and packing covers, mouldings etc. (Izmail, Odesa, Artsiz). The textile industry is important in the structure of industrial production within the Odesa region. Among the most significant branches is manufacturing of technical fabrics, clothes (outdoor female clothes) and umbrellas. Cotton, wool, leather, and fur industries are of less importance. Shoe-making and stocking industries mainly serve the local population. The textile industry is to play a significant role in meeting internal demand for consumer goods comparable with imported ones. Production equipment of a West European standard is needed at a number of large plants. It is vital that the Ukrainian Government decides on a clear strategy regarding taxes, duties, and credit/financial policy. Even operating in tough current conditions, some textile companies have managed to work successfully and establish close contacts with foreign businesses. Branches of the medical instruments and pharmaceutical industries are well represented in the region: pharmaceutical articles and preparations (Odesa); medical instruments and equipment (Odesa, Belgorod-Dnestrovskiy); medical articles from plastics and glass (Odesa, Belgorod-Dnestrovskiy). “Impulse" (Odesa) produces veterinary instruments and equipment. Enterprises of the chemical and woodworking industries produce fertilisers (Yuzhny, Odesa), varnish-painted articles (Odesa), residential articles made of plastics (Odesa), rubber-technical articles (Odesa), cellulose and cardboard (Izmail), furniture (Odesa, Balta, Kotovsk), and wooden construction details (Odesa). The leading construction material enterprises are “Odesa Cement”, “Buldinskoe” and “Alekseevskoe” (limestone wall blocks), “Belgorod-Dnestrovskiy” (cell concrete), “Kulindorovskiy” (expanded clay gravel), “Ilyichevskiy” (reinforced concrete construction), “Artsizskiy” (reinforced concrete articles), and others. The production is based on local raw materials. Enterprises such as “Bolshevik” producing linoleum and a group of enterprises producing roofing materials using non-local mineral resources, play an important role on the inter-regional level in Ukraine. Sea Shipping The sea shipping industry has always been important in the economy of Odesa region. The following objectives are vital to pursue to achieve better condition of the regional economy: better use of geo-political potentials of the region; decentralisation of international economic and social relations; strengthening inter-regional co-operation with partner regions of the Danube Community and European regions, and inter-city co-operation with twinned cities over the world; enlargement of cross-border co-operation with Moldova, Romania, Bulgaria, Turkey, Georgia, Russia, countries of the Mediterranean. Ports, Waterways The ports available for freight turnover are located around the region capital (in Odesa itself, Yuzhny, Ilyichevsk and Belgorod-Dnestrovskiy) and on the Danube (in Izmail, Reni, Kiliya and Ust-Dunaiskiy). The most part of their freight turnover relates to foreign trade shipping, with the ports of Odesa, Yuzhny, Izmail, and Reni specialising mainly in export freight traffic while those of Ilyichevsk and Ust-Dunaiskiy in import. Most large cabotage is handled in Odesa Sea Trade Port; the ports of Yuzhny, Kiliya, Izmail, Reni, and Ust-Dunaiskiy can only handle the small cabotage. The ports in Odesa region are connected by regular waterways to more than 600 ports all over the world. Since 1978, an international ferry line Ilyichevsk-Varna (Bulgaria) has been in operation. Odesa Sea Trade Port is a major trade and shipping institution in the region, along with Ilyichevsk and Yuzhny ports. Odesa Port is to acquire an even more lead since January 1, 2000, with the establishment of a Free Economic Zone “Porto-Franco” on its territory. For more information on this, please refer to the section Free Economic Zones in Odesa region within this chapter. Odesa Sea Trade Port has developed considerably since 1993, the year of lowest shipping turnover. The main factor was the fast growth of stevedoring companies in Odesa, the first one registered in May 1993. By 1999, the eight stevedoring companies have contributed to the 50% growth of freight turnover within 5 years (see Figure 10), construction of new storage facilities and quays, purchase and upgrade of loading machinery and equipment, development of the infrastructure and social sphere. The overall investment since 1993 has been UAH 46.3 million (USD 10 million, in current prices), the Port contributing 53.3%, and stevedoring companies, 46.7%. The recent combined net profits of the Port and stevedoring companies are shown in Figure 10. A number of projects are completed in reconstruction and modernisation of quays, cargo storage facilities, implementation of new technologies for loading fertilisers and chemicals. Other development projects for Odesa Port are in progress, as follows: 1. Construction of a terminal for transfer and storage of chemical fertilisers, with the annual capacity of 1.1 mln ton. 2. Construction of a business centre at the passenger terminal. 3. Construction of a railway line connecting the container terminal in Odesa Port with the city‟s railway infrastructure, which is to improve railway traffic operation. 4. Development of the project of a vegetable oil transfer and handling terminal. Construction of a road connecting the Port with inter-city auto-bans will be completed in 2000, which will allow long-distance trucks go straight to Odesa Sea Trade Port. Ilyichevsk Trade Sea Port is a modern international sea port on the Black Sea coast. One of the largest in Ukraine, it is situated on the coast of Sukhoy Liman (estuary), 12 miles south-west of Odesa. It was founded in 1958 as a branch, cargo handling area for the Port of Odesa. Along with the port, an adjacent town of Ilyichevsk was built; it acquired independent municipal status in 1973. Nowadays Ilyichevsk is a modern city with highly developed infrastructure and industry. The Ilyichevsk Ship-Repair Yard, one of the largest of its kind in Ukraine, is also located here. Port Ilyichevsk is a component of the European Union‟s 9 International Transport Corridor, and also a component of the Baltic Sea — Black Sea Corridor. Railway ferry crossings connect the port with Bulgaria and Georgia. The port can handle up to 20 mln ton of cargo annually, including: metals (up to 10 mln ton); potassium-chloride in bulk (up to 1.2 mln ton); grain cargoes in bulk (2.5-3 mln ton); cargo in containers (1.5 mln ton); packaged cargo and heavyweight equipment (2 mln ton); diverse cargoes via ferry terminal (5 mln ton). The port features specialised cargo facilities: railway ferry terminal; liquid cargoes terminal for handling liquid fertilisers, liquid caustic soda and vegetable oils; sheltered terminal for storage and transfer of mineral fertilisers in bulk; grain cargoes transfer terminal. th Port offers specialised facilities for handling heavy cargoes (300 ton maximum). All berths are equipped with railway tracks, some with up to 10 on-shore lines, enabling handling of up to 500 wagons per day. Yuzhny Port is the only in Ukraine to hold potential for major expansion due to the free areas of land and sea around existing port structures. The advantages of Yuzhny are: 1. its favourable geographical location in the centre of the Black Sea coast with an outlet into the Mediterranean Sea region, relatively near to the regions of origin of main cargoes, 2. good railway connections, 3. year-round navigation, 4. capacity to receive modern big tonnage vessels. Yuzhny could therefore be developed into a unique deep-water port for vessels with 150,000 tn displacement. It could increase export-import trade as well as transit cargo shipping to and from the CIS countries. These and other opportunities are further discussed in the section Free Economic Zones in Odesa region. It is essential for the future development of energy supply in Ukraine to construct a new oil refinery in the region. The existing Odesa Oil Refinery (located on the territory of Odesa Sea Trade Port, within the city of Odesa) has an annual capacity of 12-16 mln ton. It is used exclusively for the export of oil products with ships of the 30-60,000 ton capacity. The capacity of the existing oil terminal is insufficient, nevertheless it is not planned to extend its capacity. Instead, construction of a new oil terminal close to Yuzhny port has started. The new terminal is designed to import 40 mln ton of crude oil. It will be connected to the main oil pipeline that supplies Odesa Oil Refinery; new pipes will be built to extend the transport capacity to the Central Ukraine. The construction is financed by the Ukrainian Government but due to limited financing the completion date has been postponed several times. Sea and river shipping is represented by two national companies — the Black Sea Shipping Company (BLASCO) and the Ukrainian Danube Shipping Company (UDASCO). In Odesa region, BLASCO controls the ports of Odesa, Ilyichevsk, Yuzhny, and Belgorod-Dnestrovskiy while UDASCO controls the ports of Reni, Izmail, Ust-Dunaiskiy, and Kiliya. Sea ports process foreign-trade cargoes and specialise as follows: Odesa — grain, sugar, other foodstuff; pipes of various diameters; equipment; refrigerated cargoes; cargoes in containers. Ilyichevsk — iron ore, cast iron, coal; raw rubber; fertilisers; car gear, equipment, pipes of various diameters, heavy-weight cargo, containers. The port has a modern container terminal and container truck fleet. Yuzhny — liquefied ammonia, urea, coal, iron-ore concentrate, bauxite, metals, pipes; corn. The port has major opportunities for expedition of the bulk cargoes. Belgorod-Dnestrovskiy — preserved foodstuff, pipes of small diameters, metal, soda in packets, logs, lumber. River transport remains essential in the broadening and intensifying Pan-European trade. The international connections of Odesa region are further strengthened via trade on the Danube, Europe‟s second longest river (after the Volga in Russia). Springing from sources in Southern Germany, it passes Austria, Hungary, Slovakia, Croatia, Yugoslavia, Bulgaria, Romania, Moldova and Ukraine, before flowing into the Black Sea in a large delta on the Romanian and Ukrainian coast. The Danube becomes navigable for commercial vessels in Kelheim in Germany, more than 2,400 kilometres from its mouth. In Kelheim, it is joined to the Rhine-Main-Danube Canal, opened in 1992. This canal connects the Danube and Rhine basins and has thereby created a European inland waterway link of more than 3,500 km length reaching from the Black Sea to the North Sea. The Danube is divided by the Alps and the Carpathians into three sections: the Upper Danube from Kelheim to Gönyû in Hungary (623 km long); the Middle Danube from Gönyu to Turnu Severin in Romania (860 km long); the Lower Danube from Turnu Severin to Sulina at the Black Sea (931 km long). UDASCO, the primary shipping company on the Danube for Ukraine, has both sea and river fleets. UDASCO handles foreign cargo trade with the countries on the Danube, shipping of foreign transit freight cargoes by the Danube-Black Sea waterway, cabotage shipping in the Black Sea, tourist transportation on international tourist lines, and passenger transportation on local lines. The light truck fleet system is organised between the Danube, the Black Sea and ports in the Middle East, Egypt, and the Red Sea. The bottleneck preventing the full use of the Danube river transport potential is the limited access between the river and the Black Sea. Presently this access is restricted to the Sulina, Chernavoda-Constanta, and Medgidia-Navodari canals (“Proektgidrostroy” [Hydro-Construction Project Company], 1997). The Danube delta is visualised on the map in the figure below. As the Danube seaports of Galati, Reni and Izmail can only be reached by sea vessels through the Sulina canal, their harbour facilities remain only partly used. In comparison with other large European waterways (Rhine and Elbe), there are fewer restrictions on navigation on the Danube. In theory, the river is along its entire length (up to Kelheim) navigable for sea-river ships. In practice, due to seasonal variations in water levels, economical operation of coasters (which requires 2,5 metres draught during 90% of the year) is achievable up to Budapest (1650 km from the mouth). Reliable navigation further upstream is only possible for ships with a draught of no more than 1,5 metres. There are no significant width restrictions. The locks on the Lower and Middle Danube have a width of 34 metres. On the Upper Danube the locks are 24 metres wide, up to Regensburg where the width is reduced to 12 metres. The Sulina branch constitutes the main access way from the Black Sea to the Danube. It is the shortest and straightest of the three branches. The entrance channel is dredged up to depth of 7,3 metres, allowing sea-going bulk ships to reach the sea ports on the maritime section of the Danube (up to Braila). The Sulina branch is also the official entrance to the Danube, recognised by the Danube Commission. Maintaining the channel depth requires substantial and ever increasing permanent dredging. The cost is recovered from the vessels using the channel. Consequently, the toll for a passage is high and its level has risen steadily over time. Kiliya branch. In the upstream end of the Kiliya branch, navigation conditions are equally good as those on the maritime Danube and the Sulina branch. The port of Izmaïl is accessible to seagoing ships with a draught of up to 7 metres. Downstream from the port, however, the river depth decreases to about 5 metres. This means that larger ships going to Izmaïl can not enter from the Black Sea on the Kilya branch, but must use the Sulina branch. In particular, they first sail upstream on the Sulina branch to its junction with the Kilya branch, and then sail downstream on the Kiliya branch to reach Izmaïl. At its end, the Kiliya branch forms a delta near the Ukrainian port of Ust-Dunaysk. At the city of Vilkovo, it divides into two branches: Ochakovsky, accounting for one third of the river flow at that point, and Staro-Stambulsky, with two thirds of the river flow. Both branches subdivide in turn into smaller sub-channels. The Prorva channel, one of the channels leading to the Ochakovsky, is equipped with navigational aids and is used for shipping. Even when the Prorva Channel is closed, ships are able to enter the Kiliya branch from the Black Sea through the Connecting Channel. This channel links the Prorva Channel (at 3 km from its mouth) to the harbour of Ust-Dunaysk in the Zhebriyansky bay. Until 1993, it was used by the barges of “Interlighter”, a joint venture owned by Slovakian, Bulgarian, Romanian and Russian inland shipping operators. “Interlighter” offered liner services to India and Vietnam with ocean-going barge carriers. The barges were used to reach inland destinations along the Danube. They navigated through the Kiliya branch and the Connecting Channel to the harbour of Ust-Dunaysk, where they were loaded in the holds of barge carriers for ocean transport to overseas destinations. In 1993, the operations of “Interlighter” were ceased due to competition with standard container lines. The Connecting Channel is navigable for ships with a draught of 2,5 metres. From the harbour of Ust-Dunaysk the Black Sea is reached using the approach channel to the port of Ust-Dunaysk, which is well maintained by the port authority. The Kiliya branch is reached through the section of the Prorva channel upstream from the 3 km point (where it joins the Connecting Channel). In this section, problems with sedimentation in the navigation channel are much less severe than in the final three kilometres to the mouth. Consequently, even in the absence of maintenance dredging, the channel remains navigable. However, in the longer run navigation conditions will gradually deteriorate even on the Connecting Channel and the upstream part of the Prorva Channel, up to the point that the Kiliya branch becomes inaccessible to any commercial vessel of significant size. Free Economic Zones in Odesa Region The free trade zone “Porto-Franco” is established on the territory of Odesa Sea Trade Port starting from January 1, 2000, for a period of 25 years, following the Presidential Decree #760/99 issued on June 28, 1999. The zone is planned to attract investment in the development of Odesa Sea Trade Port, to create favourable conditions for the expansion of regional and national foreign economic relations, to increase the volume and range of cargo cabotage, transit shipping, storage, forwarding and other services. The feasibility studies performed by a joint team of experts from Ukrainian research institutes and the European Bank for Reconstruction and Development showed that the best place for the establishment of the free trade zone is at the Quarantine quay (32.5 hectares). It is a relatively detached territory of the port that requires minimum investment. Odesa Sea Trade Port has invested USD 15 mln in reconstruction, modernisation and start-up construction at the Quarantine quay. There is a container terminal, and a storage space for transfer of metal, and chemical fertilisers. The berthing line has been reconstructed, totalling 800 m in length. According to the Decree on the “Porto-Franco” free trade zone, companies formed on its territory are provided three years of tax-free operations and another three years of favourable taxes, 50% of general tax rates. The basic requirement for registering in the “Porto-Franco” zone is the minimum investment equivalent to USD 1 mln, in cash or in kind. Within the boundaries of this Free Economic Zone, the following policies will also be in force: When imported into the zone‟s territory from Ukrainian territory, all goods (except excise goods) for use inside the zone shall not be subject to custom duties. When imported to the Ukrainian territory from the zone, goods produced or sufficiently processed within the zone shall be subject to the same VAT and excise taxes as goods used inside Ukraine. For goods imported to the zone for transit purposes, taxes shall be levied in accordance with the standard Ukrainian tax legislation. The projects of the two other free economic zones in Odesa region — “Adjalyk” (Yuzhny) and “Reni” (Reni) — is to start after adoption by the Verkhovna Rada of Ukraine. The projects were developed by the specialists of the Municipalities of the towns Yuzhny and Reni, of the Institute for Market Relations, Odesa State University, Black Sea Project Institute and other organisations. The concepts of the free trade zones are based on the systemic development and implementation of R&D, manufacturing and external trade. Tourism Odesa region boasts its favourable geographical position, convenient bays, high recreation potential. These factors create all the necessary conditions for the intensive development of tourism infrastructure and upgrading the level of service to meet the world requirements. In September 1995 the Law of Ukraine "On Tourism" was passed. At the same time Odesa Regional State Administration introduced the Tourism Department into its structure. Those first steps marked the starting point of forming a state policy of the tourism industry in Ukraine. The primary goal of this policy the development of domestic and foreign tourism, fitness, and health recreation. Tourist, fitness and recreation resources of the region are considered by the Regional Administration as an integral part of Odesa social and economic complex. The Regional Tourism Development Program adopted for 2000-2005 stipulates the growth of tourism industry in the region, which could provide for the demand of the domestic and international tourism and be attractive to investors. An essential objective is the development of the hospitality industry infrastructure, introduction of new services. According to the Tourism and Health Recreation Committee of Odesa Regional State Administration, about 700,000 people were the customers of tourist companies, resort and health recreation facilities in 1998. 176 licensed tourist companies, 13 tourist hotels, 2 campings and 11 tourist motels are servicing sightseeing and business tourists in the region. The total lodging capacity of all those institutions is about 10,000 tourists. The region has about 271 km of coastline of which 175 km are beaches. Most resorts are situated along the Black Sea coast. Overall, Odesa has over 600 fitness and health recreation facilities able to accommodate about 100,000 customers in the peak season (late April to early October). Growth of business activity and development of foreign economic relations in the recent five years have boosted the demand for high-quality services in Ukraine. First of all, it showed in the increased number of restaurants, bars and night clubs with Western quality services. At the same time, the demand for high-quality hotel services grows rapidly too, but is not satisfied so quickly. This is caused by the following reasons: on the one hand, the construction of a hotel requires considerable investment: on the other hand, Ukraine has no traditions of such quality services. As a result, it leads to an increasing number of hotels with the Western level of prices and low-quality services. Odesa is among most perspective sites for the development of hotel business. Firstly, it is the biggest Ukrainian business and trade centre on the Sea; secondly, it is the second best resort in Ukraine after Bolshaya Yalta, Crimea. Development of foreign economic relations and Ukraine's orientation on Western economies have led to growing numbers of foreign businessmen and tourists arriving in Odesa. At the same time, the number of well-to-do people in Ukraine also shows rapid increase. These people want to have the highest quality services and are ready to pay for them. Odesa has a large number of hotels with low-quality services and a few hotels with high-quality services, but any of them cannot satisfy all clients‟ needs. Most hotels do not have their own development concept. They do not develop their marketing strategies because of low competition in this market and lack of highly educated managers in this sphere. Business Tourism Business class hospitality market shows unsatisfied demand for compact business-class hotels in the seaside area of Odesa. Most resort and hotel complexes have been created on the basis of the Soviet ones, so called "rest houses", boarding houses, and tourist campings. They were aimed at the mass consumer and do not comply with the modern requirements of business-class complexes. Fitness and Health Recreation The fitness, recreation, and entertainment hospitality market in Odesa reveals the following: unsatisfied demand for comfortable hotel rooms meeting high international requirements; limited and narrow scale of services offered; absence of the multifunctional sports, hotel and recreation-oriented complexes. The seasonal factor does not actually influence the industry branch. Thus, it is possible to rationally use the material basis and personnel labour while keeping its amount stable, as well as to improve financial and economic activity of a recreation facility. The keys to success for a new venture in this field are as follows: improvement of the service quality; rational financial management to control the cash flow and ensure targeted levels of profitability; controlling costs at all times without exception; providing managerial control system to ensure equally efficient management of operations over different segments (business planning, service quality, finance). Environmental Tourism This field of tourism is only starting at this point. There are a number of regional programmes put forward by the regional and national administrations, although they have shown little progress due to a lack of state budget funds. The following priorities are set in the development of environmental tourism and attraction of investment: increase the environmental quality in key zones within Odesa region by achieving a marked improvement in their visual and amenity value; develop a balanced and mutually supporting network of attractions, services and events; support measures and developments designed to extend tourism season in the area; protect environment by supporting afforestation (especially in the north of Odesa region); protect the regional “green belt” and environmental endowment through the reuse of existing derelict or contaminated sites, thereby contributing to sustainable development. Most projects in Odesa region are planned in the areas recognised as internationally significant environmental sites. The projects listed below indicate the existing environmental development projects in the region (most of them supported by a special Decree of the Cabinet of Ministers of Ukraine #935 dated 23 November 1995): Expansion of the “Dunaiskie Plavni” (“Danube Flats”) biosphere national park. Co-operation with the World Bank is in progress; it is important to develop it. Establishment of the “Nizhnednestrovsky” (“Lower Dniester”) national park. Research is carried out by the Odesa Regional State Administration. Establishment of the “Tuzovskie Limany” (“Tuzovsky Estuaries”) landscape national park. Research is ordered. Establishment of the “Tiligoulsky Liman” (“Tiligoul Estuary”) national park. Research is carried out. Establishment of the “Savransky Les” (“Savran Forest”) national park — the Southern relict site of Savran forests in Ukraine on the border of steppe and forest-steppe. The park is of major significance for preservation of bio-diversity in the Black Sea Region, and for climatic regulation, soil protection, anti-erosion measures. Scientific-research work has been carried out. A national reserve territory is established. Solution of the ecological problems of Lake Sassyk. Carrying out protection measures over small rivers and reservoirs in the region. Geologically, the Northwest Black Sea region is formed due to a large number of small rivers. Their hydro-chemical condition is critical nowadays and the world community gives much attention to the problem. Foreign Economic Activity in Odessa Region Trade The analysis of the foreign economic activity in Odessa region in the recent years shows that the regional companies increased the trade volume despite the difficult financial situation and continuation of the industry recession. In 1995, over 1300 regional businesses carried out the foreign trade operations (trading goods, raw materials, services) with partners from 145 countries. In 1997, their number increased to 1,900. Thus, in 1997 in comparison with 1995 the amount of foreign trade turnover increased by almost USD 200 mln, or 14%. The region's share in the total volume of Ukrainian commodity export reached 3.5%, and 3.3% in import volume (against 2.7% export and 3% import in 1996). 1998 saw a decrease in volume of foreign economic activity in Odessa region due to the factors in the commodities markets. The situation is described in detail in the Commodities section below. Due to the general crisis of payments in the country, the lack of working capital for purchase of raw materials and spare parts, the increase of the share of older fixed assets, there is an ongoing decrease of production at regional enterprises of the export potential (machine-building and food processing industries). In total, the regional foreign trade turnover in 1998 was USD 1,439.3 mln (export — USD 890.4 mln, import — USD 548.9 mln). The positive external trade balance (USD 341.5 mln) increased by USD 32.7 mln. The results of the first quarter of 1999 show that, in fact, there are no substantial changes in the structure of the regional foreign trade turnover (commodity, geographical, services), despite its volume increased by 30.4% (from USD 240.8 mln to USD 313.9 mln) compared to the same period of 1998. Total export volume was USD 211.4 mln (USD 175.5 in the first quarter of 1998), import volume — USD 102.5 mln (USD 65.3 mln). Commodity export volume was USD 114.4 mln in the first quarter of 1999 compared to USD 61.7 mln for the same period of 1998; commodity import volume being USD 95 mln compared to USD 55.3 mln. In January through June 1999, the foreign trade turnover of Odessa region was USD 714.4 mln, which is by 0.3%, or by 2.3 mln, more than in the same period of 1998. The total export volume was USD 475.2 mln (compared to USD 416.1 mln in January-June 1998), import — USD 239.2 mln (USD 296 mln). The positive balance of the region's foreign trade domain (for commodities and services) was USD 235.9 mln, which exceeds the level of the previous year by USD 22.8 mln. The number of companies, registered in Odessa region, trading with foreign partners in commodities, raw materials, and services increased from 1493 in 1998 to 1858 in January-June 1999. 81% of companies engaged in foreign economic activity were registered in Odessa, and 19% — in Odessa region. In January-June 1999, the enterprises with foreign investment produced commodities for UAH 124.9 mln, provided services for UAH 212.5 mln, realised commodities in the domestic market for UAH 492.3 mln. Commodities Total volume of commodity foreign trade in 1997 was USD 1,066.7 mln (against USD 896.4 mln in 1996), the volume of exported goods being USD 498.2 mln (against USD 465.5 mln in 1996), the volume of imported goods USD 568.5 mln (against USD 430.9 mln in 1996). In 1998 the regional foreign trade turnover declined considerably due to a decrease in the volume of commodity export and import. Only few items exported in the machine-building and textile industry remained at the desirable level. For the past 10 years, 45-50% of regional commodity export has been the export of carbamide and ammonia produced at Odessa Priportoviy Plant. A sudden fall of world prices for these products in 1997 resulted in the decrease of export volume to USD 175 mln, or by 17% compared to USD 204.4 mln in 1996. The share of these main regional export items dropped from 23.2% to 16.5% (carbamide), from 20.7% to 18.5% (ammonia). Also, the volume of carbamide production decreased by 7.7% At the same time, ammonia production increased by 7.6% compared to 1996. The world prices continued to decrease and the average world prices fell from USD 210-220 to USD 60-65 per metric ton (carbamide), from USD 200-210 to USD 95-100 (ammonia). At the same time, there was a small increase of cost and domestic prices for ammonia and carbamide, which caused a decrease in production and loss of traditional markets. This mostly concerns carbamide production which decreased by almost a quarter. Thus, the 1998 export volume of carbamide fell to USD 39.3 mln compared to USD 82 mln in 1997. The main importers of carbamide in 1998 were Turkey and India; the importers of ammonia were Spain, Italy and Turkey, Norway, Argentina, USA, Tunisia and Syria. Despite the increase of production in the region, the food products‟ and food raw materials‟ export volumes decreased from USD 89.3 mln in 1997 to USD 69.3 mln in 1998. This was caused by the decrease of production at regional food processing enterprises which used imported raw materials from India, Russia, and Vietnam. Nevertheless, some of these enterprises (JSC “Odessa”, JSC “Odespischekombinat”) were among the main exporters of the regional food products. Unfavourable and extremely unstable tax legislation did not allow to increase export of alcohol and wines. The export of alcohol drinks (mainly to Russia, Belarus, other CIS countries, Baltic states, Poland, Germany, Austria, and Great Britain) decreased 2.1 times (from USD 5.1 mln in 1997 to USD 2.4 mln in 1998, for the most part due to the financial crisis in Russia in August 1998. The reason was that Russian companies were main consumers of the produce of regional enterprises. The total commodity export volume in 1998 was 14.6% less (USD 434.7 mln compared to USD 498.2 mln in 1997). Commodity import decreased as well — for USD 63.2 mln or 12.5%, that forms USD 505.3 mln in 1998. It should be noted that crude oil and oil products were mostly shipped to Russia while 98% of fuel and oil products were exported according to barter contracts. Agricultural and Food Processing industries production export decreased by 32.1% compared to 1997. The substantial recession was caused by problems in the food processing industry whose export decreased 1.5 times (especially sugar and pastries — 2.5 times, and cattle breeding — 4.8 times). In the chemical industry, the export of ammonia and carbamide decreased by 32% compared to 1997. During 1998 there was observed the trend to decrease import of the following commodities: machinery and equipment — by 14.7% (to reach USD 104.2 mln); ferrous and non ferrous metals and wares — by 41% (to reach USD 31.2 mln); chemical products — by 29.9% (to reach USD 54.6 mln). At the same time the import volumes increased in crude oil and oil products — by 12.3% (to reach USD 167.9 mln, or 33.2% of the total regional commodity import); agricultural and food processing industry by 27.8% (to reach USD 60.3 mln). In 1998, changes in the geographical structure of commodity export and import proceeded. Compared to 1997, commodity exports to the CIS countries decreased by 34.8%, imports increased by 14,6%. The export decrease was due to a sharp decline in trade with Moldova (export decrease by 61.9%, import — by 60.3%), Belarus (25.6% and 11.2% accordingly), Kazakhstan 92.8% and 72.6%), Russia (export decrease by 16.8%). Imports of commodities from Russia increased by 50.7%. The Baltic and CIS countries had a 21.1% (compared to 28.6% in 1997) share in the regional commodity export — USD 93 mln. The exports to other countries were USD 341.7 mln (78.6% in 1998 compared 71.4% in 1997). The share of the CIS countries in total import is 52.5% (against 40.5% in 1997) — USD 263.8 mln. The major trade partners of the region in the world were: Russia (export — 11.4% of total commodity exports, import — 44% of total commodity imports); Belarus (export — 3.8%, import — 3%); India (6.1%, 0.7%); Turkey (10.5%, 2.8%); Germany (3%, 6.8%); Italy (9.3%, 4.1%); Ireland (15%, 0.2%); Cyprus (8.8%, 0.8%). Export operations were carried out by 478 enterprises with foreign partners from 97 countries. Commodities were imported by 982 enterprises and companies from 107 countries of the world. 77% of enterprises carrying out the foreign trade activity were registered in the city of Odessa and 23% — in the region. Exported commodities totalled USD 272.6 mln (compared to USD 181.7 mln in 1998); imported commodities totalled USD 221.8 mln (compared to USD 274.7 mln). The positive trade balance of commodities of Odessa region in January-June 1999 was USD 50.8 mln. The share of Odessa region in the overall Ukrainian export of commodities in January-June 1999 was 5.1% (compared to 2.9% in 1998), while the region's share in the overall Ukrainian import of commodities was 4% (compared to 3.9% in 1998). 502 enterprises of the region performed commodity export operations with foreign partners in 97 countries, and 1034 companies imported commodities on contracts with companies from 107 countries. Taking into account the increase in production in all branches of economy, in 1999 there was observed an increase in export of foods and raw materials for their production (from USD 19 mln to 33.7 mln, or by 77%). There was a Considerable growth in exports volumes of corn (from USD 3.8 mln to 16.2 mln), sunflower seeds (from USD 6.1 mln to 7.3 mln), fruit and vegetable products (from USD 1.3 mln to 1.7 mln), meat and fish products (from USD 0.1 to 0.8 mln). However, there decreased exports of such commodities as sugar (from USD 2.9 mln to 1.7 mln), confectionery products (from USD 0.7 to 0.1 mln). The decrease in production and export of alcoholic drinks and wines continued. In January-June 1999, their export (mainly to Russia, Belarus, other CIS countries, Baltic countries, Poland, Germany, Austria, and Great Britain) decreased twice (from USD 1.8 mln to 0.9 mln). The general commodity export structure in the first six months of 1999 was the following: Oil and oil-processing products — 41% of the total export volume; Chemical and related products— 17.4%; Ferrous and non-ferrous metals and products — 14%; Food processing — 12.3%; Mechanical and electric devices and equipment — 12.2%. decrease in imports of engines and equipment — by 35.2 % (USD 34.4 mln); ferrous and non-ferrous metals and products — by 43.6% (USD 10.1 mln); chemical products — by 43.4% (USD 17.1 mln). increase in imports of oil and oil-processing products — by 28.6% (USD 117.4 mln); agricultural production and food processing — by 59.4% (USD 14.9 mln). The following tendencies in importing commodities were observed in January-July 1999: There continued changes in the geographic structure of export and import of commodities. Compared to the first six months of 1998, in January-June 1999, exports to the CIS countries decreased by 23.6%, while imports increased by 1%. The decrease of trade turnover with these countries mostly accounts for the decrease of trade with Moldova (exports decreased by 12.1%, and imports by 68.7%), with Belarus (by 66% and 37.7%, accordingly), with Russia (exports decreased by 4.5%). The CIS and Baltic countries took the 14,3% share, or USD 39.1 mln in the total regional export of commodities (compared to 28.2% in January-June 1998). On the other hand, the share of imports from these countries increased to 65.6% (USD 145.5 mln) from 40.5% of the total volume of imported commodities. Other countries accounted for 85.7% (USD 233.5 mln) of total exports in January-June 1999, compared to 71.8% in 1998. The biggest partner countries in the regional foreign trade of commodities were: Russia (export — 9.4% of total, import — 60.9% of total); Ireland (export — 40.5%, import — 0.3%); Turkey (export — 9.2%, import — 2.6%); Italy (export — 4.4%, import — 2.3%); Spain (export — 5.7%, import — 0.3%), Germany (export — 2%, import — 4.6%). Barter Contracts Export and import trade by barter contracts continued to decrease. The share of exported commodities was 2.3% of total export (compared to 4.4% in 1997), the share of imported commodities being 2.2% of total import (compared to 3.7% in 1997). At the same time, most barter contracts were concluded with companies from the CIS and Baltic states: 92% of all barter exports and 97.3% of all barter imports. The biggest barter export contracts were concluded with Belarus — 41.6% of total regional barter export volume, Russia — 36.6%, and Moldova — 7.9%. These were the shipments of the following commodities: see Figure 18. Commodities on the barter basis were imported mainly from Russian Federation — 62.2% of total barter import volume, Belarus — 23.8%, Moldova — 9%. The major products imported on the barter basis are crude oil and oil products (29.7%), plastic and plastic articles (14.3%), vehicles (14.3%), ferrous metals (8.8%), electrical machinery and equipment (7%). In 1998 the export of raw materials on the barter basis decreased 7 times against 1997 and it was USD 2.9 mln, or 0.7% of total commodity export volume. Import, vice versa, increased almost two times — USD 85.8 mln or 17% of total commodity import volume. European countries have the biggest share of raw materials export on the barter basis among other than CIS countries of the world (Slovakia — 55.2%, Italy — 20.7%, and Turkey — 6.9%). Moldova had the biggest share among the CIS countries — 6.9%. The structure of exported raw materials‟ on the barter basis by commodity was: copper and wares — 53%, leather — 28.8%, plastic and plastic articles — 4.8%. Main countries-importers of the raw materials on the barter basis were: Russia — 87.9% of total imported raw materials on the barter basis, Germany — 6%, Moldova — 2.3%, Turkey — 1.5%. Crude oil and oil products had the 87.7% share in total import of the raw materials on the barter basis, textile raw materials — 4.5%, ferrous metals and wares — 3.2%. Import of final commodities produced from exported raw materials on the barter basis in 1998 was USD 4 mln (0.8% of the total regional commodity imports), which is 7 times less than in 1997. Export of final commodities produced from imported raw materials on the barter basis decreased in 1998 by 2.4 times compared to 1997 and was USD 106 mln (24.4% of total regional commodity imports). The share of foreign trade on the barter contracts in January-July 1999 made 3.8% of total exports, and 2.7% total imports. The export of raw materials on the give-and-take basis decreased in comparison with the same period of 1998 by 18.8% and was equal to USD 1.9 mln, or 0.7% of total exports of commodities. However, the import of raw materials on the give-and-take basis increased 2.5 times and was USD 86 mln, or 38.8% of total imports of commodities. The import of finished produce made from exported raw materials on the give-and-take contracts was USD 2.3 mln, or 1% of total imports of commodities. The export of finished produce made from imported raw materials on the give-and-take contracts increased in January-June 1999 more than 5 times compared to the same period in 1998 and was equal to USD 97.1 mln, or 35.6% of total imports of commodities. Services In 1998 foreign trade on the service market was carried out by 405 enterprises with partners from 154 countries (147 countries in 1997). The foreign trade of services was USD 499.3 mln in 1998 (34.7% of the total regional foreign trade turnover). It decreased by 9.5% compared to 1997. Exports of services decreased by 2.1% and made USD 455.7 mln (51.2% of total regional export); imports decreased by 49.5% and made USD 43.6 mln (7.9% of total regional import). This caused the growth of foreign trade of services to USD 412.1 mln and a positive balance of USD 32.9 mln. The turnover of services with CIS and Baltic states decreased by 32.7% (export — by 23.2%, import — by 74.5%). The August 1998 financial crisis caused the decrease in export of services to Russia by 26.4%, while the import decreased by 52.9%. The share of export of services to the CIS and Baltic states was 12.3% in 1998 (compared to 15.7% in 1997, the figure for import was USD 56.1 mln in 1998. The shares of trade of services with other countries were 87.7% (1998) compared to 84.3% (1997), the turnover being USD 399.6 mln. The biggest share of export of services belonged to Russia — 9.2% of total, Turkey — 6.9%, Switzerland — 6.7%, Greece — 6.1%, Austria — 5.4%, Cyprus — 5%. Among the services offered to foreign partners the biggest share belonged to transportation — USD 406 mln (89.1% of total) remaining at the 1997 level. Within the transportation services, the sea transport had the share of 65.5%, river— 16%, railway — 5.4%, and automobile — 4.1%. 4.1% of export and 21.9% of import in 1998 belonged to construction services; 3.5% and 9.9% accordingly — by services for the processing industry. The regional ports increased their cargo processing activities to reach the volume of USD 240 mln (10% more than in 1997). The development of regional enterprises' foreign economic activities in 1998 show the following trends. The main indices went down considerably (for the first time since 1995). The main reason was the critical condition in the region. Generally, in recent years the regional foreign trade (mostly exports) increased due to certain enterprises (Odessa Oil Processing Plant, Priportoviy Plant, ports of the region), and mainly in the extensive way. A number of regional enterprises (private and joint-stock companies) used their close location to main transportation ways and became intermediaries between other Ukrainian regions and foreign companies (it especially concerns the export of ferrous metals and wares). In January-June 1999, foreign trade transactions on the services market were performed by 354 companies in Odessa region with partners from 154 countries (compared to 359 companies trading services with partners from 143 countries in the same period of 1998). The volume of services in January-June 1999 was USD 220 mln (30.8% of the total foreign trade turnover of Odessa region) and, compared to the same period in 1998, decreased by 14.6%. The export of services decreased by 14.2%, and import decreased by 18.2%, which made, accordingly, USD 202.6 mln (42.6% of total regional exports), and USD 17.4 mln (7.3% total regional imports). The positive balance of external trade of services decreased by USD 29.8 mln and was equal to USD 185.2 mln. The trade of services with the CIS and Baltic countries decreased in export by 26.4% and in import — by 26.2%. The trade of services with Russia decreased in export by 33.5% and in import — by 46.4%. The share of export of services to the CIS and Baltic countries was 11.2%, or USD 22.7 mln, compared to 13.1% in January-June 1998, while the share of exports to other countries of the world grew from 86.9% to 88.8%, or USD 179.9 mln. The geographical structure of export of services was as follows: Russia — 7.6% of the total services exports; Ireland — 7.5%; Cyprus — 6.3%; Turkey — 5.8%; Switzerland — 5.5%; USA — 5.3%; Greece — 4.9%. The transportation services took the biggest share in the total export — 90.8%, or USD 183.9 mln. Within transportation services, there prevailed services of the marine transport — 79.6%, river — 6.5%, railway — 2.7%, truck — 1.8%. There continued the increase in processing of cargoes by sea and river ports of the region. In January-June 1999, they processed 29.7 mln tons of cargoes, which exceeds the previous year‟s indices by 17.5%. Almost 74% of all cargoes processed this year in Ukrainian ports related to the ports in Odessa region. In January-June 1999, the share of Odessa region in the total export of services of Ukraine was 11.4% (compared to 12.6% in January-June 1998), and in import of services — 4.9% (compared to 3.9% in 1998). The main reason for the decrease in trade was the poor performance of the Ukrainian Danube Shipping Company (UDASCO) and the ports on Danube due to the NATO military operation against Yugoslavia in 1999. The main partners of UDASCO in Austria, Hungary, and Germany (providing for 80% of the trade turnover) ceased to make shipments along the Danube. Currently, UDASCO is able to ship cargoes only as far as Hungary and Slovakia, with the quota of 2 mln tons. The straight losses of UDASCO since the beginning of the NATO military operation are estimated at USD 16 mln, while the losses of the Danube ports are over USD 5.2 mln. The turnover of the Reni trade port decreased by 44.6% in January-June 1999 compared the same period of 1998, while the Izmail trade port turnover decreased by 33.4 %. Investment A number of reasons support the continued demand for foreign investment in the economy of Odessa region and Ukraine as a whole: Low investment activity of local producers and entrepreneurs (due to the on-going economic crisis) — Ukrainian investment is almost unavailable. Critical need of technical and technological renovation, as well as modernisation of the infrastructure through import of modern technologies, machinery and equipment. Growing demand for modern management and marketing strategies in all sectors of economy for the more efficient use of assets. At present, foreign companies from 90 countries have founded joint ventures in the region with total investment of USD 185.9 mln (as of May 1, 1999). The main investors in the regional economy are entrepreneurs from the USA, Cyprus, Germany, Great Britain, Greece, and Switzerland. 602 regional enterprises have received foreign investment for increasing output and put new goods on the market. The most effective companies have been: JV "Odesskie Drozhzhi" (Odessa Yeast Factory), investment of USD 3 mln from Turkey; JSC "Gambrinus" (brewery), investment of USD 1 mln from Great Britain and Germany; JV "Chernomor" (brewery) — investment of USD 4 mln from Germany. Major foreign investment were made in the sectors of trade, construction, transportation, machine building metalworking, and food processing industry. Almost 70% of the enterprises with foreign investment operate in trade and services: these sectors allow faster and bigger turnover of capital. As to the relationship of companies with foreign investment to export-import activity, there is a well-distinguished development of this sector since 1990. Back then, only 3% of regional commodity export and 4% of commodity import related to those companies. In 1998 these figures reached 22% and 28% respectively. Still bigger are the results of companies with foreign investment in foreign trade and services: 41% of regional export of services, and 37% of import. By 1 September 1999, there was invested USD 178. 7 mln in organisation of companies with foreign investments in Odessa region. There were 90 countries of origin of foreign investment, the most active being: the USA — USD 40.2 mln invested in 82 companies (22.5% of total foreign investment in the regional economy), Switzerland — USD 22.2 mln in 21 companies (12.4%), Greece — USD 20.1 mln in 13 companies (11.2%), Great Britain — USD 16.3 mln in 39 companies (9.1%), Cyprus — USD 15.1 mln in 33 companies (8.4%), Germany — USD 11.2 mln in 62 companies (6.3%). In January-June 1999, companies with foreign investment manufactured goods for UAH 124.9 mln, provided services for UAH 212.5 mln, sold goods in the Ukrainian market for UAH 492.3 mln.
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