The five whales

What are the eco­nomic heft and spe­cial fea­tures of Ukraine's big­gest cities?

The Ukrainian Week - - CONTENTS - Olek­sandr Kra­mar

Leav­ing out the tem­po­rar­ily oc­cu­pied ter­ri­to­ries, Ukraine has nine cities with a pop­u­la­tion of about a half-mil­lion or more. How­ever, only five of them have be­come eco­nomic and de­mo­graphic cen­ters that are dis­tinct, not just for their scale, but also for their heft at the in­ter-re­gional level and for their sig­nif­i­cant func­tions at the na­tional level. These five in­clude that cap­i­tal, Kyiv, with 2.94 mil­lion res­i­dents as of mid 2018, and four smaller re­gional cen­ters: Kharkiv with 1.47mn, Odesa with 1.01mn, Dnipro with 1.0mn, and Lviv with 0.76mn. Aside from Kyiv and Kharkiv, the other two ‘mil­lion­aire’ cities are some­what un­sta­ble, as their pop­u­la­tion has been fluc­tu­at­ing around the mil­lion mark in re­cent years: It tends to fall with nat­u­ral de­cline but peo­ple mov­ing in from other cities com­pen­sate this de­cline in an un­pre­dictable man­ner.

In terms of their role in the do­mes­tic econ­omy and other as­pects of the coun­try’s life, these cities have been con­fi­dently dis­tin­guish­ing them­selves from the coun­try’s other ma­jor cities for years now. Cities like Za­por­izhzhia with 740,000, Kryvyi Rih with 630,000, Myko­layiv with 480,000, and front­line Mar­i­upol with 460,000, have only slightly smaller pop­u­la­tions but of­ten showed greater in­dus­trial out­put com­pared to Dnipro, Odesa and Lviv, yet they never achieved the in­ter-re­gional sig­nif­i­cance of any of the top five. Worse, they have been los­ing hu­man re­sources and eco­nomic po­ten­tial at an in­creas­ing pace in re­cent years, be­cause of stag­na­tion and the de­cline of their out­dated soviet-era heavy in­dus­tries.

By con­trast, Ukraine’s top five big­gest cities have been es­tab­lish­ing them­selves as mul­ti­fac­eted eco­nomic cen­ters in their re­spec­tive parts of the coun­try, rather than as mere in­dus­trial or trans­port hubs. Af­ter a long pe­riod of de­clin­ing pop­u­la­tions, the Big Five have more re­cently be­gun to sta­bi­lize and, in some cases, re­newed growth. They are also dis­tinct from Za­por­izhzhia, Kryvyi Rih and Mar­i­upol also be­cause of their ex­ten­sive sub­urbs, more and more of which are al­ready reach­ing the 100,000 mark for pop­u­la­tion. More­over, these cities have con­sid­er­able out­ly­ing buf­fer ter­ri­to­ries that en­sure them fairly sta­ble prospects for ex­pand­ing as the process of ur­ban­iza­tion picks up pace in Ukraine. In­deed, they al­ready are close to and even sur­pass the size of many Euro­pean cap­i­tals: Prague at 1.3mn, Sofia at 1.24mn, Bel­grade at 1.17mn, Stock­holm at 940,000, Za­greb at 800,000, Riga at 640,000, Vil­nius at 550,000, and Bratislava at 430,000.

For now, even with­out count­ing ex­ur­ban ar­eas and res­i­dents who are not of­fi­cially reg­is­tered, the five largest cen­ters in Ukraine en­com­pass nearly ev­ery fifth res­i­dent of the coun­try, not in­clud­ing the oc­cu­pied ter­ri­to­ries. If the exbur­ban ar­eas are added, more than a third of the ac­tu­ally work­ing la­bor force and nearly half of the do­mes­tic econ­omy are cen­tered there.

POSTIN­DUS­TRIAL PARA­DOXES

Un­for­tu­nately, Ukraine’s statis­tic agency does not pro­vide data about the gross re­gional prod­uct of in­di­vid­ual cities other than Kyiv, which is si­mul­ta­ne­ously con­sid­ered a re­gion and a city. In or­der to get a sense of the heft of the big­gest cities as a whole and in­di­vid­u­ally in re­la­tion to the do­mes­tic econ­omy, the only way is to form an out­line based on avail­able fig­ures for in­di­vid­ual in­di­ca­tors. These in­clude vol­ume of sales for all goods and ser­vices by en­ter­prises, in­dus­trial out­put, or the num­ber of per­ma­nent em­ploy­ees.

The share of com­mer­cial sales of all goods and ser­vices in 2017 for these five cities was 54% of na­tional sales, that is, UAH 4.06tn out of UAH 7.58tn. What’s more, not only Kyiv stood out against the rest, but also Dnipro, whose over­all sales were al­most twice as much as for Kharkiv and Odesa put to­gether. On the other hand, some ad­just­ment also has to be made in re­gard to what is meant by sales, in­clud­ing whole­sale, for com­pa­nies that are reg­is­tered in their re­spec­tive cities. For in­stance, 75% of the turnover in the Big Five is cov­ered by Kyiv-based com­pa­nies, whose vol­umes were dou­ble that of the near­est city.

In ad­di­tion, the Big Five rep­re­sent 31% of all per­ma­nent em­ploy­ees in Ukraine. This is sig­nif­i­cant be­cause now pay­roll de­duc­tions now form the fi­nan­cial rev­enue base for lo­cal bud­gets. Per­ma­nent work­ers at large and medium en­ter­prises are the foun­da­tion of the of­fi­cial la­bor mar­ket in Ukraine, pro­vid­ing

not only pay­roll con­tri­bu­tions to lo­cal bud­gets but also steady de­mand for goods and ser­vices, and per­sonal loans rang­ing from consumer loans to mort­gages. For this in­di­ca­tor, again, Kyiv and Dnipro stand out as per­ma­nent em­ploy­ees per 1,000 res­i­dents is con­sid­er­ably higher, not just than the na­tional av­er­age, but also com­pared to Kharkiv, Odesa and Lviv.

De­spite the enor­mous con­cen­tra­tion of per­ma­nent em­ploy­ees in large and medium en­ter­prises in the coun­try’s big­gest cities, these me­trop­o­lises are also the main cen­ters for small en­ter­prises. For in­stance, 30.7% of all small busi­nesses in Ukraine, that is, 99,000 out of 322,000 com­pa­nies are based in Kyiv or Kharkiv. Un­for­tu­nately, other re­gional sta­tis­tics agen­cies do not pro­vide data on the devel­op­ment of small busi­ness in in­di­vid­ual cities.

The big­gest cities in the coun­try are also the main por­tals for FDI in­flows, al­though their in­di­vid­ual roles in this process are ex­tremely un­even. Al­to­gether, nearly 57% of all FDI that has come to Ukraine since 1991 has gone to the Big Five. How­ever, the gap be­tween Kyiv, which has re­ceived close to half of all FDI or US $19.3bn out of US $39.9bn, and the other cities is enor­mous: the re­main­ing four put to­gether have only re­ceived US $3.3bn or about 16% of all FDI in­vested in Ukraine, less Kyiv. Among the re­main­ing four, Dnipro has the clear lead, both in terms of to­tal vol­ume, at US $1.67bn, and in per capita FDI. Lviv is a dis­tant se­cond with US $656.3mn, Odesa comes third with US $530.9mn, and Kharkiv trails slightly with US $427.6mn.

On the other hand, the Big Five rep­re­sent only 20% of do­mes­tic in­dus­trial pro­duc­tion, which pretty much matches their share of the pop­u­la­tion out­side the oc­cu­pied ter­ri­to­ries. In­dus­trial ca­pac­i­ties are typ­i­cally lo­cated in com­pletely dif­fer­ent, smaller cities, even in these same re­gions and the role played by in­dus­try in the mil­lion­aire cities grows smaller ev­ery year, even in such tra­di­tional in­dus­trial re­gions like the Dnipro val­ley.

To­day, for in­stance, Dnipro with UAH 115.2bn in in­dus­trial out­put trails far be­hind Kryvyi Rih, with UAH 159.5bn, and a slew of smaller in­dus­trial cities, such as Nikopol, Kami­ansk and Pavlohrad. In Odesa Oblast, small­ish Yuzhne pro­duces al­most half the in­dus­trial out­put of the oblast cap­i­tal, de­spite be­ing one tenth the size of Odesa. Kharkiv sold only UAH 72.8bn worth of in­dus­trial prod­ucts in 2017, which was two thirds of what Dnipro sold, and barely half of what Kryvyi Rih sold, al­though the lat­ter has less than half the pop­u­la­tion of Kharkiv. The big­gest in­dus­trial county in Kharkiv Oblast is Balak­lia County, which de­spite hav­ing a frac­tion of the pop­u­la­tion, man­ages to pro­duce two thirds of what the city does.

SWAP­PING STEREO­TYPES

De­spite the stereo­type, the leader in in­dus­trial out­put among the Big Five is the cap­i­tal at UAH 172.8bn, which is half again as much as Dnipro, 2.4 times Kharkiv, 4.4 times Lviv, and nearly 7 times what Odesa pro­duces. This sim­ply tes­ti­fies to the fact that even on a per capita ba­sis, with the ex­cep­tion of Dnipro, Ukraine’s cap­i­tal re­mains un­equaled in terms of in­dus­trial devel­op­ment among the coun­try’s big­gest cities. More­over, Kyiv’s in­dus­try has its own spe­cific pro­file: its base is the food in­dus­try to­day, with 46.6% of all in­dus­trial out­put in the city and 17.9% of all food pro­cessed in Ukraine; then power gen­er­a­tion and trans­mis­sion, heat­ing and gas sup­ply, which add up to 20.1% of all in­dus­trial out­put in the cap­i­tal and 8.4% of the do­mes­tic sec­tor; and phar­ma­ceu­ti­cals, which con­sti­tute 8.5% of in­dus­trial out­put in Kyiv but 50.9% of all phar­ma­ceu­ti­cals be­ing made in the coun­try.

Mod­ern-day Lviv, break­ing stereo­types as well, is more in­dus­trial than Kharkiv or Odesa. Its out­put was worth UAH 39.2bn in 2017, beat­ing Kharkiv, which is al­most twice as big, on a per capita ba­sis. Lviv also out-pro­duced Odesa by a third, even in ab­so­lute terms, de­spite the fact that it has one third less pop­u­la­tion. More re­cently, Lviv has been ac­tively at­tract­ing for- eign in­vest­ment to its man­u­fac­tur­ing sec­tor and its sur­round­ings are see­ing new fac­to­ries be­ing set up by ma­jor in­ter­na­tional com­pa­nies, ex­plain­ing how its to­tal FDI now sig­nif­i­cantly sur­passes that of Odesa and Kharkiv. And this de­spite the fact that Lviv’s pop­u­la­tion is sig­nif­i­cantly smaller. More­over, its in­dus­trial com­po­nent is likely to grow even more over time, while the conur­ba­tions of south­ern and eastern Ukraine see their in­dus­trial po­ten­tial go into de­cline through a lack of ini­tia­tive to re­ori­ent them­selves to­wards co­op­er­a­tive links with west­ern com­pa­nies.

Com­pared to Odesa, Lviv also has a very dy­namic tourist in­dus­try whose heft is also grow­ing. The num­ber of tourists vis­it­ing the city is close to 3mn to­day and they leave US $600-700mn be­hind ev­ery year, which brings over UAH 100mn to the mu­nic­i­pal bud­get in the form of a head tax on tourists. At the same time, like both Odesa and Kharkiv, Lviv is one of Ukraine’s key gate­ways in terms of its con­nec­tion with the out­side world. More­over, it’s the gate­way to the Euro­pean Union, with whom more than 40% of Ukraine’s for­eign trade takes place.

Nev­er­the­less, Kharkiv and Odesa con­tinue to pay the big­ger role as trade and trans­port hubs in re­la­tion to the rest of the world. Where the lat­ter spe­cial­izes in ship­ping by sea and has one of the coun­try’s big­gest whole­sale mar­kets, the Sev­enth Kilo­me­ter, Kharkiv plays a sim­i­lar role in sur­face trans­port of freight. Sta­tis­tics show that even greater vol­umes of goods are trans­ported through Kharkiv than through Odesa and the city has its own mega whole­sale mar­ket, the Barabashovo.

And yet, nei­ther Kyiv nor Dnipro suf­fer in any way from be­ing in the cen­ter of the coun­try. On the con­trary, this makes them the best lo­ca­tions for in­vest­ments to be placed, it re­duces their vul­ner­a­bil­ity to shifts in trade or trans­port and tran­sit flows, and it al­lows them to fo­cus more on serv­ing Ukraine’s in­ter­nal mar­kets. Kyiv, as the cap­i­tal, and Dnipro, as the cen­ter of the most pow­er­ful eco­nomic and in­dus­trial hub in the na­tion, will likely con­tinue to strengthen their po­si­tion in the do­mes­tic econ­omy— even if the in­dus­trial com­po­nent of their economies grad­u­ally shrinks.

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