Week's balance: Rising inflation, Motor Sich nationalization, and higher tariffs by Nova Poshta

14:00, 13.03.2021
5 min. 1844

The State Statistics Service recorded a higher pace of inflation, the National Security and Defense Council decided to nationalize Motor Sich, and the Nova Poshta postal service increased tariffs for delivery – these are the main economic news of the outgoing week.

This week, the State Statistics Service reported on a higher pace of inflation. Last month consumer prices rose by 7.5% on year, also accelerating from 6.1% in January. Consumer prices rose 2.3% in the first two months of 2021.

In January, against the previous month, prices for food and non-alcoholic beverages increased by 2.1%. Most of all, prices rose for sunflower oil, vegetables, and sugar – in the range from 5.5% to 7.7%. Prices for meat, fruits, bread, fish, and sour cream was up by a range from 1.3% to 3.8%.

Prices for alcoholic beverages and tobacco products increased slightly. Transport prices were up 1.6%, primarily due to the rise in prices for petroleum products.

At the same time, against the backdrop of higher inflation and rising prices, including for fuel, the country's largest express delivery company, Nova Poshta, announced an increase in tariffs.

From March 20, the tariff for basic delivery services will be increased by UAH 5, and the packaging tariff – by UAH 1 - UAH 6.

At the same time, the additional fee for manual processing is canceled when sending parcels with a size of 70 centimeters on one of the sides of the shipment, provided that they are packed in accordance with the rules of "New mail". From now on, such parcels will be delivered at the base rate.

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Commenting on the inflation indicators recorded by the State Statistics Service, Prime Minister Denys Shmyhal said the rise in prices was due to objective factors, but also noted attempts at monopoly collusion and manipulation on the market. The government, he said, expects the situation to stabilize at the end of March.

"On a daily basis, the government evaluates data on prices for social goods, prices for products that are growing the most. Already now I can say that growth is due to objective factors, but we also record attempts at monopoly collusion and manipulation," he said.

According to Shmyhal, the Cabinet is engaged in a dialogue with key groups of manufacturers and retail chains: the issue of increasing supplies is being discussed, which should balance prices.

"According to our expectations, prices will stabilize in late March," the head of government assured.

Economy continues to decline

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Last week, the Ministry of Economic Development, Trade and Agriculture released the traditional "Review of Economic Activity", in which it estimated the decline in Ukraine's GDP in January at 2.6-2.8%, primarily due to tougher quarantine restrictions.

According to the ministry, in January the economic activity of the industry fell by 4 percent. The largest drop was recorded in the textile industry and mechanical engineering - 15.2 percent and 9.8 percent, respectively.

At the same time, the growth was seen in pharmaceuticals (21.4%), chemical industry (10%), and energy (3.2%).

"The latest restrictions of the January lockdown (from January 8 to January 24) caused a certain attenuation of the production activity of most economic entities, strengthening pessimistic sentiments on the part of businesses. In January 2021, the decrease in the Composite Index of Production of Goods and Services for the main types of economic activity amounted to 4%," the review says.

According to the Ministry of Economy, the main negative contribution to the dynamics of the Composite Production Index was made by industrial output, urban development, and agriculture.

In the service sector, the passenger transport sector has traditionally suffered the most from increased quarantine, while the retail segment of the market has shown growth.

The Ministry of Economy predicts that in the first quarter of 2021, the negative dynamics of GDP will prevail due to the extension of the adaptive quarantine until the end of April. Meanwhile, coordinated actions of the government and the National Bank to pursue economic reform and implement measures to support businesses and the population, as well as the start of vaccination, could minimize the slide and ensure better results in the first quarter.

Motor Sich nationalization

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An important event of the outgoing week was also the decision of the National Security and Defense Council to return the Zaporizhia-based giant Motor Sich, one of the world's largest producers of engines for airplanes and helicopters, as well as industrial gas turbines, to state ownership.

Back in 2016, Chinese investors tried to buy the company enterprise from Ukrainian private owners. However, the deal was blocked by the government over suspicions that the real purpose of the acquisition was the export of unique Ukrainian technologies to China rather than company development. Ukraine's strategic partner, the United States, has also spoken against the deal.

"According to the decision [on nationalization], the Motor Sich enterprise will be returned to the Ukrainian people, returned to the ownership of the Ukrainian state in a legal, constitutional way in the near future," NSDC Secretary Oleksiy Danilov said at a briefing following an NSDC meeting.

He stressed that the protection of investments in cases where enterprises are returned to state ownership will take place within the framework of the current legislation.

"If investments were made in the Virgin Islands, then we need to sort out these relations with the Virgin Islands. If investments were made in the territory of Ukraine, then the money officially entered our enterprises, through our banks, and we understand who it is, and this is public and open information, such investments will see 100% government protection," Danilov said.

Earlier, by the decree of President Volodymyr Zelensky, sanctions were introduced against the Chinese shareholders of Motor Sich, which provide for the blocking of assets, restriction of trading, and a complete ban on transactions with securities.

Hope remains that the Ukrainian authorities will be able to back own actions up in international arbitration and not destroy relations with one of the country's largest trading partners, China.

The National Security Council at its meeting on Thursday also extended sanctions against two Russian banks and approved the indicators for the government defense order for 2021-2023.

Fighting shadow market for fuel

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Prime Minister Denis Shmyhal said early this week that a transparent operation of the fuel market should be ensured in Ukraine. "Today, all regulatory authorities are faced with the task of conducting audits in order to identify the sites of illegal fuel turnover. The Antimonopoly Committee, in turn, should check the validity of pricing on the market. Fuel quality control is no less important, therefore it is necessary to create a state system that will resolve this issue," Shmyhal said.

And the very next day, March 11, the Security Service announced a large-scale special operation at a gas station network that the agency claims sells low-quality fuel through "shadow" schemes.

According to the SBU, the organizers deliberately evaded taxes, thereby inflicting significant damage to the budget at about UAH 240 million.

It is noted that law enforcement have documented a large-scale illegal scheme for the circulation and sale of low-quality petroleum products.

In general, on March 11, about 150 authorized searches were carried out at seven oil depots, office premises, ships, gas stations, and customs clearance offices.

Later it became known that a large-scale raid is being carried out at the facilities of the Glusco gas station network, which is believed to be affiliated with Viktor Medvedchuk, Chairman of the political council of the pro-Russian Opposition Platform – for Life party.

It is not yet clear whether the SBU raid was a one-time action aimed at putting pressure on businesses associated with Medvedchuk, or whether the country's leadership actually decided to fix things on the Ukrainian fuel market, which has for many years been drowning in low-quality fuel produced at illegal mini-refineries.

Next week promises to be no less rich in economic developments. Among other things, the Verkhovna Rada intends to consider a number of important bills, to allow for unblocking farmland sales.

As the weather improves, Ukrainian farmers will start the spring sowing campaign, which this year, thanks to good moisture reserves in the soil, gives hope for another record harvest.

Ihor Orel

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