Who keeps the industry from diving

Author

Oleksandr Tsyganok

Electricity suppliers, oil producers, and ore miners are rapidly increasing billions in sales volumes. The production of medical electrical equipment, asphalt mixtures, frozen pork in carcasses, and dozens of other industrial products is increasing significantly. And manufacturers of polyethylene and disinfectants set records in terms of growth rates.

The first part of the article:

Sources of growth

Despite the massive decline in the domestic industry, separate niches or simply advanced enterprises have remained in the sector. And even if they have not become on a par with the world's leading industrial actors, then at least demonstrate a positive dynamic of their own development.

The consolation is that the leaders in terms of growth rates among the so-called "islands" of industrial positivity are not the raw materials industry segments, but still those that generate tangible added value. In particular, the cohort of leaders now includes medical equipment and power distribution equipment. The industrial production index in each of these industrial groups at the end of 2020 exceeds 145% (according to the State Statistics Service).

The cohort of leaders is headed by "medics". The group of radiological, electromedical, and electrotherapeutic equipment increased production by 2.9 times (compared to 2019). This group received the leader’s yellow jersey largely due to the very high dynamics in the production of ultraviolet and infrared equipment. Its production increased in 2020 by 4.5 times—up to 63,000 devices. In addition, manufacturers of electrocardiographs and other electrodiagnostic equipment have almost doubled their performance.

The power distribution industry was among the leaders due to the rapid growth in the production of numerical control panels and other equipment for monitoring and distribution of electricity up to 1 kV, as well as automatic low-voltage circuit breakers. The rate of production growth for the year here reaches 34-66%. In total, almost 780,000 units of such equipment were produced.

As a result, separate fields of industrial activity have been formed, where the volume of sales in monetary terms is still growing. The largest increase in funds in 2020 (compared to 2019) was achieved by electricity suppliers, oil producers, and ore miners.

It is these three fields, having sold products in aggregate by 73.9 billion in aggregate more than in the previous year, that neutralized the bulk of the "shortfall" of funds by other industry sectors. And this saved the industry as a whole from negative dynamics in another important financial indicator.

The high rate of growth in the volume of product sales in the production of military vehicles, ready-made food, and some mineral non-metallic products was also indicative. The first two trends are due to external factors—the need to increase the country's defense capability under the threat from the east and to observe quarantine in catering establishments. Under the impact of these circumstances, the sales of military transport jumped in 2020 more than three times, of ready-made food—almost one and a half times.

The implementation of the state program "Big Construction" that is based on the construction and reconstruction of roads, formed the third, "mineral" trend. Sales volumes in the field of non-metallic mineral goods production (code 23.9) increased 1.7 times over the year and reached the level of 25.1 billion UAH.

At the same time, the output of bituminous mixtures increased in kind by 16.4% (to 0.96 million tons), and of asphalt mixtures—by 82% (to 8.75 million tons), as the State Statistics Service calculated. The production of bitumen at Ukrainian refineries increased in 2020 by 50% (up to 0.33 million tons), according to specialized publications. The record volumes of bitumen production at the Kremenchuk refinery, in turn, are also noted by the company Ukrnafta.

A detailed analysis of industrial production across the entire product range shows that there are still many small scraps of optimism in industry. And that is a little encouraging. Manufacturers of 376 commodity items tried to pull the entire industry up during 2020 (out of a total of about 1400 categories, according to the official classification). Production volumes for 28 items of them increased two or more times over the past year, for 31 commodity items—by 50-100%, and for 245 items the increase did not exceed 20%. Among the products, the output of which is increasing exponentially, the names of various machines and equipment for general use, chemical products and metals appear most often.

Two types of products—linear polyethylene and disinfectants—are now setting absolute records in terms of industrial production growth. Over the past year, the production of such polyethylene increased almost 26 times, and of disinfectants—more than 10 times. The annual production of the first, according to official statistics, reached 88,800 tons, of chemicals—4,700 tons (in terms of the active ingredient).

The State Statistics Service calls this polyethylene linear, with a density of less than 0.94 in primary forms and classifies it according to the Manufactured Product Rage code as 20.16.10.35. That is, we have primary low density polyethylene that has the international name LLDPE. It is a very popular material that is actively used for making stretch wraps, packaging food or medical products, making strong bags, and the like.

Experts predict an increase in demand for such polyethylene and good prospects for its producers. The rapid growth in the production of disinfectants is due to the urgent needs of society in the fight against the pandemic. The high demand for such a product, it seems, is also provided for a long time to come.

The top 10 commodity items with the most dynamic increase in production volumes in 2020 were formed by:

linear polyethylene (Manufactured Product Rage code 20.16.10.35)—an increase of 25.7 times,
disinfectants (20.20.14.90)—10.5,
carbon dioxide (20.11.12.30)—5.4,
radio transmitters (26.30.11.00)—5.0,
scales (28.29.39.40)—4.5,
ultraviolet and infrared equipment (26.60.13.00)—4.5,
industrial women's overalls (14.12.30.23)—4.2,
ladies’ handbags (12/15/12/20)—3.3,
straight-beam lamps (27.40.30.10)—3.3,
tools for drilling rocks or soils (25.73.60.18)—also 3.3 times (compared to 2019, according to the State Statistics Service, in physical terms).

The official statistics also record a significant increase in industrial production in Ukraine of such popular products as gear boxes, protective headgears, power windows, frozen pork in carcasses, asphalt mixtures, soap, heating radiators, chocolate, ammonia, and much more. The growth for the year here ranges from 226% to 53%.

Looking for destiny

The presence of positivity "islands" in the industry can be regarded as a prerequisite for the industry future growth in the event of a successful combination of many circumstances. One of the theoretically possible ones is a favorable situation in the Ukrainian economy as a whole.

It is about such an opportunity for the next period that politicians and economists have been making statements recently. In particular, Oleg Ustenko, Macroeconomic Policy Adviser to the President of Ukraine, speaks of a renewable growth trajectory of the Ukrainian economy at the level of 4-4.5% in 2021.

And the National Bank in the January inflation report operates with the economic growth figure of 4.2% in 2021 and 4% for the medium term. The Ministry of Economy, in turn, published its forecast of economic development for 2021 on February 12.

The relevant department expects a significant improvement in the situation this year compared to the previous year. According to its forecast calculations, the composite index of producing goods and services by main types of economic activity will increase from "minus" 3% in the Q1 of 2021 to plus 4% in the Q4, at the end of the year.

The Prime Minister of Ukraine Denys Shmyhal recently even decided to predict the development of the industry itself. He argues that the industry is already on a sustainable recovery trend. That in December last year there was already an increase of 4.8% (compared to December 2019).

And additional incentives from the government and positive price dynamics in foreign markets will contribute to the further industrial growth during 2021. What incentives the Prime Minister implies is anyone's guess. But the head of government does not focus on the need for meaningful reforms in the industry, without which it will not become the locomotive of the domestic economy.

The Minister of Economic Development, Trade and Agriculture Ihor Petrashko is the only senior official who focuses on the need for qualitative transformations in industry. He believes that one of the main directions of economic development for the next 10 years should be the growth of efficiency and competitiveness of the domestic industry.

It is precisely about the need for such reforms in the Ukrainian industry that is mentioned in the groundwork "Vectors of Economic Development 2030" in the future National Economic Strategy 2030. The aim of the reforms in the sector is to take the achievements of the competitiveness of Ukrainian industrial products by modernizing production facilities with the introduction of resource and energy efficient technologies, as well as intensifying innovative activities of enterprises. The authors even tried to develop a set of measures that would ensure the achievement of the desired by 2030.

According to this vision, in 10 years Ukraine should take a leading position in operational efficiency in the global industry, where the production of high-tech goods with high added value will prevail, and the domestic industry will become competitive even in the sector of high-tech products. We are looking forward to these real transformations to begin in the sector with this or another similar vision.