Week's balance: Cabinet vows to pull labor market out of "shadows", allocates UAH 4 bln in farmer support, while energy minister announces record cuts in gas tariff
The Cabinet of Ministers launched a campaign to remove the labor market from the "shadow" and distributed UAH 4 billion in support of farmers, while Minister of Energy and Environment Oleksiy Orzhel announced a record reduction in gas tariffs – these are the key economic developments of the outgoing week.
This week will be remembered in Ukraine and, possibly, beyond for an epic manifestation of human ignorance in the case of the evacuation of 45 Ukrainians and 27 foreigners from the Chinese Wuhan, the epicenter of coronavirus outbreak. Amid manipulation and disinformation in social networks and certain media protests sparked in a small town in central Ukraine against the bringing of evacuees to a local medical center, further radicalized by a group of individuals who turned out to be residents of other regions.
At the same time, the unusually warm mid-February brought a number of major economic news which were no less important. On Friday, Prime Minister Oleksiy Honcharuk reported to the Verkhovna Rada, Ukraine's parliament, on his Cabinet's performance over the past five months.
Responding to criticism on the part of MPs over the decline in industrial output, budget deficit, and hryvnia revaluation, the prime minister assured that the Government had a clear plan and strategy for what needed to be done.
"Both the government and the president's team are very well aware of what needs to be done. The allegations that supposedly nothing's been done over the five months, are absolutely groundless," said Honcharuk.
However, he did not rule out that the government needed to better communicate its agenda to the public.
"Now we're preparing and event, coming in a few weeks, which will be called the 'Development Strategy', in order to elaborate on how we will address – in blocks – complex challenges we're facing," the PM said.
Early this week, Honcharuk via his Telegram channel reported that the Government had launched a campaign to remove the labor market from the "shadow" in order to provide Ukrainians with civilized employment conditions and at the same time boost tax revenues to local and state budgets.
At present, Honcharuk says, almost every fifth Ukrainian is employed unofficially.
"Most of them [are employed this way] in agriculture, wholesale and retail trade, construction, transport and courier services. These employees are not protected. The government launched a campaign to withdraw labor market from the shadow. After all, this is not only about taxes and budget revenues. This is, first and foremost, about creating civilized working conditions, ensuring that the employees' rights and social guarantees are respected," the prime minister said.
He emphasized that most often entrepreneurs fail to register their economic activity, hire people without formalizing labor relations, concealing part of their working time and wages, disguising labor relations as fictitious self-employment.
Pursuant to the prime minister's order, the State Labor Service has already taken the first stage of measures, which was to launch a promotion campaign, which led to the fact that in just two weeks of January, the agency received more than 100,000 reports about the conclusion of labor contracts with 200,000 employees.
In general, the employment rate in the areas where the campaign was carried out increased by almost 26% against January 2019.
In 2020, information and inspection campaigns will be conducted in agriculture, construction, as well as transport and courier services.
"We respect businesses, and no one will interfere with their work with numerous inspections. But employees must be protected. Therefore, work will be carried out, mostly explanatory one, on the benefits of formalizing [labor relations]. A hotline will also be set up, where those employed illegally will be able to complain," Honcharuk emphasized.
According to the prime minister, for 2020, the government sets the goal of creating 200,000 new legitimate jobs and reducing average job search terms from 3.6 to 2 months, and over the next five years, the goal is one million new jobs.
Record decline in gas prices
Last week, Minister of Energy and Environmental Protection Oleksiy Orzhel said that in February the price of natural gas for the households will be further reduced, which was made possible thanks to the signing of an agreement on gas transportation between Ukraine and Russia, as well as stabilization of the Ukrainian and European markets.
Moreover, the minister expects a record drop in gas prices this summer – to $80 per 1,000 cubic meters, while the average price of imported gas in January 2020 amounted to $175.3.
By the way, Prime Minister Honcharuk said that the gas price for Ukrainian consumers could have been three to four times higher than the current one had the transit deal not been signed.
"We had our previous contract with the Russians expiring on January 1 and there was a serious risk that we would lose transit, which would be a serious blow to the economy and a serious hike in the cost of energy resources for both enterprises and households," the prime minister said.
However, while today gas prices are falling on world markets, in a few years they could rebound significantly. Ukraine, on the other hand, imports about a third of gas consumed, which means that it depends heavily on international price fluctuations.
It is possible to soften the price blow to the population if Ukraine drastically boosts own production. However, due to the lasting lack of investment in this corruption-ridden industry, the government failed to fulfill its strategy of increasing gas extraction by 2020.
Naftogaz changing strategy
This week National Joint Stock Company Naftogaz of Ukraine introduced its new gas extraction strategy called Tryzub [Trident], which is based on three main directions, rather than the number of wells drilled.
The first area is gas production from deep deposits at the Shebelynske field in Kharkiv region. The second is shale gas. The state-owned company plans to drill three wells in the Sviatohorsk field in Kharkiv region. Thirdly, it's the development of a part of the Black Sea shelf within the large Delfin [Dolphin] oil and gas sector located off Odesa region's coast. Competition for the development of this site is soon to be announced.
According to the chief of Naftogaz's integrated gas business, Andriy Favorov, the change in approach to gas production in Ukraine is due the fact that the annual natural decline in the developed fields stands at about 1.5 billion cubic meters of gas.
Moreover, the company's largest fields were discovered in 1950-1970 and are already practically depleted, so the country needs new growth points, which is what the new strategy offers.
Naftogaz also plans to continue developing traditional fields and intensifying production at existing wells – provided that it is economically feasible.
Favorov stopped short of naming specific target figures for the increase in gas extraction, noting that in the second half of the year forecasts would be more accurate.
Support for farmers and positional fight for land market
Last week, the government allocated UAH 4 billion to support farmers in 2020. The funds will be used to reduce the cost of loans and to compensate for the cost of buying domestic agricultural equipment. In addition, the money will go to the development of farms, livestock, and agricultural processing, horticulture, viticulture, and hop-growing.
Thus, the Cabinet of Ministers is trying to encourage farmers to engage more in the processing of agricultural products, instead of traditionally exporting raw materials with low added value.
The Ministry for Development of Economy, Trade, and Agriculture said that the next state support program for farmers would be designed for three years (2021-2023), and its plan would be released in July.
Meanwhile, the Ukrainian parliament keeps reviewing the amendments to the land market bill. By the end of the outgoing week, the Verkhovna Rada considered them more than a quarter of 4,000 amendments and, as of February 20, only one was passed.
Mono-majority's calls to the opposition to recall most of their edits, which only drag out time, haven't seen success so far. At the current pace, the final vote on the bill can be expected no earlier than April.
The next week promises to be no less saturated with economic news. We should expect statements following the Kyiv visit by experts of Ukraine's key creditor, the International Monetary Fund, while the State Statistics Service will publish data on industrial output for January 2020.