Ukraine: something to cheer about

‘Ukraine is not dead yet!’ These opening lines of the beleaguered country’s national anthem were sung defiantly by yellow-and-blue-clad hordes of fans, thronging the recently rebuilt Olympic Stadium in the centre of Kiev before the national team’s 2-1 victory against Sweden on Monday night.

President Viktor Yanukovych, who celebrated the goals at the stadium, and the tight-knit clan of East Ukrainian politicians from the Donbass coal-basin who normally surround him, will be breathing a collective sigh of relief.

Spurned by Western politicians boycotting group-stage matches over the controversial jailing of opposition leader Yulia Tymoshenko and internationally tarnished by allegations of racism and racketeering which dominated the tournament’s build up, Ukraine, for now, has a lot to smile about.

Two perfectly-timed headers by the iconic 35-year old Dynamo Kiev striker Andriy Shevchenko could not have been better choreographed to lift the country’s mood from depression to near delirium. Moreover, since the tournament started, stories of violence between supporters, racist incidents and match tickets changing hands at inflated prices have so far been confined to co-host Poland across Ukraine’s western border with the EU.

Depending on whose calculations you believe, the tournament has cost anything between $5bn and $15bn for Ukraine to stage, with the state budget accounting for the lion’s share of infrastructure expenditure. Opposition politicians claim funds for school textbooks were raided to build stadiums, something vehemently denied by Borys Kolesnikov, deputy prime minister and a key Yanukovych ally, who had almost sole responsibility for preparing Ukraine for Euro 2012.

Despite there being abouit 10,000 empty seats in the futuristic, flying saucer-shaped Donbass Arena in the Eastern city of Donetsk for the France v England game, an extra 90,000 visitors have already been reported in the first days of the tournament, compared to seasonal norms. Fund manager East Capital expects 400,000 additional visitors to Ukraine this month, with an extra spend of up to €300m and a parallel consumption surge from enthusiastic locals. The Ukrainian government expects foreign visitors to spend closer to €800m.

Research house Troika Dilaog predicts a modest impact of 0.2 per cent of GDP to the Ukrainian economy in 2012, with a best case of scenario of 3 per cent growth, provided eurozone problems do not worsen.

Troika’s Kiev-based economist Iryna Piontkivska says infrastructure spending could lead to a lasting boost in tourism, if the tournament passes successfully. This knock-on effect is key to government strategy, with a successful Euro 2012 opening the door to potentially hosting the 2022 Winter Olympics in the picturesque Carpathian mountains. There is even tacit admission from government sources that the bidding process for fast-track tenders for Euro 2012 was hugely flawed, with private rather than public money now at the centre of the 2022 bid.

“Lucrative building contracts have been awarded to a handful of companies without proper public tenders,” comments Aivaras Abromavicius, partner at East Capital in Kiev. Smaller, Donetsk-based companies, generally believed to be linked to the ruling elite, appear to have benefited most, in typical emerging market fashion, so there has been little feed-through to the stockmarket, which lacks publicly traded construction companies.

In fact Ukrainian stocks, representing an economy dominated by steel, mining aand agriculture, are down 37 per cent in US dollar terms this year, making the country the world’s second worst performer after Cyprus, blamed on poor liquidity and high risks related to corporate governance and politics.

But there are brighter spots, with Troika pointing to Ukrainian-domiciled, Warsaw-listed Industrial Milk up 23 per cent and London-listed Ukrainian egg producer Avangard surging 76 per cent year to date.

Some more forward-thinking companies, such as the Shakhtar Donetsk football club, owned by Rinat Akhmetov, Ukraine’s richest businessman and a political power-broker, believe it is important for the Euro 2012 experience not to be wasted. While “dumbfounded” that England chose to be based in Krakow in Poland, rather than Donetsk’s state-of-the-art training camp, minutes away from where they are playing two matches, Shakhtar’s business boss Joe Palmer hopes to build on Euro 2012 to host international rugby and potentially football’s Europa league final of 2014.

“You want to see some sort of injection into the economy here, into tourism and sport,” says Palmer. “If they need to get something done in Ukraine, it will always happen, even if management needs to throw people at a project.”