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Overview of Odesa Oblast Geographic Location Odesa region is located in the far Southwest of Ukraine and borders on Vinnytsya, Kirovohrad, and Mykolayiv regions, as well as on the countries of Moldova and Romania. The region occupies the territory on the Northwest Black Sea coast, from the river Danube delta to the Tiligoulskiy estuary (300 kilometres of coastline), and 200-250 kilometres from the Black Sea to the north. Odesa region is largest in Ukraine: its total area is 33,300 square kilometres (an approximate size of Belgium or the Netherlands) which is about 5.5% of Ukraine's territory. Regional Capital: Odesa, situated on terraced hills overlooking Odesa Bay, an inlet of the Black Sea that forms a natural harbour. The city is among the largest in Ukraine; it serves as the southern gateway of the state. It is an important agricultural, transportation, industrial, scientific, cultural, and resort centre, with a population of 1,050,000.

The coastline position of the Odesa region on the international border is economically important. The wide outlet into the basin of the Azov and the Black Seas and into large rivers (the Danube, the Don, the Dnieper, and the Dniester) defines the advantages and transportation means. The effective sea and river waterways allow the economic relations to extend to Eastern and Central Europe (via the river Danube). Odesa sea port and other ports of the region are situated at the junction of intensive international sea and river transport connections; this defines a great distribution potential of the ports. On the left bank of the lower Danube and in the valley between the Kiliyskiy branch and the Dniester estuary, there are situated freshwater lakes Kagul, Yalpug, Katlabuh, and the salt lakes — Sassyk, Alibey, Burnas, Budatskos, Shagani; in the eastern part, there are salt estuaries Khadjibeevskiy, Kuyalnitskiy famous for their curative muds.

Odesa city is strategically located on one of the shortest and most convenient waterways leading from Northern and Central Europe to the Middle East and Asia through the Rhine-Danube river and canal system. This system, together with such waterways as the Dnieper, Dniester, and Volga-Don rivers combined with the three large ports of Odesa, Ilyichevsk and Yuzhny, and the Odesa railroad provides a unique opportunity for the economic processing of transit cargo traffic and passenger flows.

Odesa is a leading centre of learning and culture with many secondary, higher education, and training institutions. It is also a major resort area.

The economic profile of Odesa is dominated by the activities of the three major ports but, in addition, there are such industries as ship repairing, machine tool manufacturing, food processing and textile. Ilyichevsk runs the largest fishing fleet in Ukraine.

The northern part of the region is situated in a forest-steppe zone; the southern part is in a steppe zone. The average annual temperature varies from +8.2°C (+46.8°F) in the north to +10.8°C (+51.4°F) in the south. The vegetation season lasts 180 to 210 days. The average annual amount of precipitation varies from 340 millimetres in the south to 460 millimetres in the north.

The city of Odesa has a relatively warm, dry climate, with January temperatures averaging -2°C (28.4°F) and July temperatures, 22°C (71.6°F). Annual precipitation totals 351 mm. The moderate climate and coastal lagoons nearby have given rise to beach resorts famous for therapeutic mudbaths.

Odesa's reputation as a health resort dates back to the 1920's. Therapeutic ingredients in the muds along with the mild climate and beautiful beaches attracted vacationers and patients seeking a cure from various ailments: from arthritis to tuberculosis to skin disorders.

Today numerous resorts, beauty spas, and sanatoriums dot a 50-mile stretch of coast from the village of Fontanka north of Odesa to Lebedivka to the south. They attract hundreds of thousands of vacationers and medical patients yearly who seek health and beauty in hydro and mud treatments.

Distinctive features of the regional natural resources are the favourable climate, the sea, curative mud and salted water of the estuaries, sand beaches, and mineral water springs. Along with historical and cultural monuments, these resources form a great and diversified recreational and spa resort potential.

Minerals discovered in the region and attracting practical interest today are used as raw materials for construction. Mining of sea sands, sandstone-shell mixture for industrial use, construction and agriculture is carried out on the Black Sea shelf.

Odesa region employs intensive steppe agriculture and developed irrigation network. The natural conditions are favourable for cultivation of winter wheat, corn, barley, soy, millet, and sunflowers.

Natural gas is not mined on the territory of Odesa region. It is estimated that the Black Sea holds some gas reserves. However, the quantity is expected to be relatively small and the economic viability of mining has not been proven.

The whole of Odesa region is connected to the natural gas supply network but for the Southwestern area including cities like Belgorod-Dnestrovskiy. Customers there rely on liquid petroleum gas.

Supply is continuous with customers paying on a regular basis. Increase of supply to residential and tertiary sector customers depends on their financial stability.

There are no oil reserves in the vicinity of Odesa region. Crude oil supplied mainly from Russia is processed at the Odesa oil refinery. This dependency on Russia was strengthened in March 1999, with Luk-Syntez Oil Ltd. winning the privatisation tender for 51.9 percent of shares of stock in the joint-stock company Odesa Oil Refinery. Russian companies Lukoil and Syntez Oil are founders of company Luk-Syntez Oil, and thus have their interest in the Odesa refinery. The government of Ukraine is also considering transferring management of its 25% stake in the refinery to Luk-Syntez Oil.

Another possible source of oil shipment is from the Caspian Sea, Azerbaijan. As the Baku-Supsa pipeline has started operating in 1999, there is a range of opportunities for Ukrainian oil-shipping companies to tranship oil through Odesa Terminal to Ukraine and overseas.

Coal reserves are insignificant in Odesa region. There are no coal mines on its territory; all coal is imported from other regions. The supply of coal, coal products, and other kinds of solid fuel such as wood is performed by Obltoplivo, a public company owned by the Odesa Regional State Administration. Supply is based on regional limits set jointly by the Administration and Obltoplivo.

Coal is mainly used for heating private households and the service sector (health care and cultural units, schools, administrative buildings etc.); industry and agriculture do not typically use coal. Total coal consumption in Odesa region is normally 1.1-1.2 Megaton annually, of which the residential sector consumes about 60-70%. The annual limit is 2 ton per household. On January 1, 1999, there were registered about 479,000 households using coal fired local heating. Thus, the total coal demand was 958,000 ton in 1998, of which, only 27,000 ton was consumed by households in the city of Odesa (13,500 households).

There is shortage of water in Odesa region due to the natural conditions: the region has very limited underground and surface water sources. The nearest major river to Odesa is the Dniester, some 30 km from Odesa. The river is the source of water for the city and a number of communities nearby. The source of the Dniester river is on the northern slope of the Carpathian mountains, some 1,220 km from the point at which the river discharges to the Black Sea, through a liman (a brackish lake formed by a river estuary which has become impartially landlocked by a sand bar) located 37 km to the west of Odesa.

The are no other major sources of surface or ground water within a reasonable distance from Odesa, although an engineering project institution in Odesa has completed studies of limited-potential ground water resources in the city of Odesa and in the Dniester river valley 15 km away from the existing water intake. There are, however, very limited water resources from small springs and artesian wells throughout the region.

As to the city of Odesa, water supply is organised from two water sources: underground water pumped from artesian wells (which covers about 1% of the demand), and the rest is covered by a water supply system that is supplied with water from the Dniester river. The purification works are at the 30 km distance from Odesa. The water supply company does not pay the electricity bill for pumping; this creates difficulty in maintaining water supply. To save power, water is not supplied to the city at night. Compared to other regions, the water quality is lower; hydrogen sulphide (H₂S) is found in some regions. The most critical situation is along the border with Moldova. The responsible authority for water quality and supply is the company Odesvodokanal.

The history of Odesa is deplete with numerous historical events which are captured in the names of the city's 1400 streets, squares, prospects, boulevards, and historical and cultural monuments.

Numerous monuments of antiquity confirm the links between this territory and the Eastern Mediterranean. In the Middle Ages, these lands were, successively, a part of the Kiev Rus, Galich and Volyn Principality, the Golden Horde, the Great Lithuanian Principality, the Crimean Khanate and the Osman Empire. In the course of Russian-Turkish wars these lands were captured by Russia at the end of the 18th century.

Tsar Peter the Great opened a ‘window’ to the West for Russia when he built St. Petersburg in the swamps bordering on the Baltic Sea. Catherine the Great wanted a window to the South. In 1764 the Empress formed the territories newly acquired in the south-west of her empire into a province called Novorossiya.

In the war of 1787-91, Don Josef de Ribas, a soldier of fortune born in Naples of Spanish and Irish stock and one of many adventures in Catherine’s service, stormed the fortress of Yeny-Dunai at Khadzhibei. Catherine the Great apparently considered making the port of Ochakov, near the mouth of the Boh river, the effective capital of Novorossiya. But Ochakov lacked a good natural harbour. On the other hand, de Ribas and a close collaborator, a Dutch engineer named Franz de Volan, recommended Khadzhibei as the site of the region’s principal port. Its harbour was deep and nearly ice-free. Breakwaters, on the model of those found at Naples, Livorno and Ancona, could be cheaply constructed and would render the harbour safe even for large fleets.

In 1794, Catherine gave her approval for de Ribas and de Volan to build a harbour. This new settlement was given the name of Odesa. The city name came about as a result of an error. It was meant to be named after the ancient Greek city of Odessos or Ordissos, which was believed to have been founded in the vicinity. Actually, it was somewhere near the present day town of Varna in Bulgaria. But Catherine the Great liked "Adyessa" — as it is pronounced by the Russians and Ukrainians.

In 1803, tsar Alexander I appointed the city chief of Odesa a young French emigrant, then 36 years old, the duc de Richelieu. 18 months later, in 1805, the tsar enlarged the city chief’s authority by appointing him simultaneously a governor of three provinces of Novorossiya. In the 11 years of his administration, the duc de Richelieu acquired an extraordinary reputation for statesmanship and sense, both in Russia and abroad. The duc left Odesa on September 26, 1814, to return to France. Even after his return to France to serve as Prime Minister under the restored monarchy, he retained cordial ties with the Imperial Russian Court and with the ambassador in France, Pozzo di Borgo.

The unique position of Odesa — a vital trade link between the West and the East, and the growth in importance of Russia’s external trade through the Black Sea in the 19th century made way for the establishment of a big trade port centre and the development of Odesa into an advanced European city. A crucial event in the trade policy was the declaration of a free port regime in Odesa in August, 1819, establishing a customs border in the vicinity. It was aimed at overcoming scarcity in the domestic market, by the attraction of investment capital. It was also done because of the absence of Russia’s trade fleet in the Black Sea.

By 1820 Odesa had become an important commercial, industrial and cultural centre in the southern part of tsarist Russia and the greatest sea-port on the Black Sea. The economy of Odesa was based on private businesses. They made the city a ‘dissident’ in the old feudal Russia.

The free port was a guarantee of Odesa's financial security, a breakthrough into the civilised world, a dress rehearsal for the development of an open economy in the Russian Empire. Experienced and cultured governors of the Novorossiya region promoted the positive image of Odesa among overseas traders and politicians. Numerous nations and nationalities came to Odesa bringing their cultures of manufacturing, trade, and management. It resulted in the development of a new culture comprising the best features of all its constituents.

During the free port period in Odesa (1819-1858) there was a huge discussion between supporters and opponents of the privileged tax regime. Free trade influenced negatively the development of manufacturing in the region. Local products could not compete in quality with goods from overseas.

The Crimean War (1853-56) revealed the bankruptcy of the closed economy in feudal Russia compared to the developed capitalist economies in Great Britain and France. The war prompted the reforms of the 1860’s. With new trade regulations, the free port regime in Odesa was out of date, and was eventually abolished.

Odesa grew rapidly, especially in the latter half of the 19th century, when railroad construction in the southern Ukraine made it Russia's principal port for grain exports. Within a short period of time the city, with its beautiful harbour on the Black Sea, has become "Ukraine's southern window to Europe".

By its hundredth anniversary (1894), Odesa occupied the 4th place in the Russian Empire in size and economic power — after Saint Petersburg, Moscow, and Warsaw. Odesans were noted for their wonderful spirit of freedom which allowed them to achieve great success in the field of science, education and the arts.

The most important conditions for commercial prosperity in the region were the following ones: a stable political regime in the hinterland protecting the overland routes from producers to ports, and access to a network of overseas trade maintained by merchants experienced in both local and distant markets.

The Russian Empire gave Novorossiya a unique opportunity to develop foreign settlements under their own administration frameworks. This independence helped preserve cultural diversity: languages, religions, and customs of various culture groups which successfully resisted assimilation.

Odesa’s cosmopolitan atmosphere can be attributed to its importance as one of the major foreign trade ports and fishing fleet bases of the region, with traffic to and from the countries of the Mediterranean basin, Africa, Middle East, and Asia. The city’s dependence on the industrialised waterfront gives it a large blue-collar population as well as a reputation of a place where you can buy anything.

A diversified manufacturing centre, Odesa produces a wide range of machinery and equipment, as well as chemicals. Shipyards and an oil refinery are important to the economy. Food processing in flour mills, stockyards, canneries, and sugar refineries is developed due to the proximity to rich Ukrainian farmlands.

Odesa is a leading educational centre, the seat of Odesa State University (founded in 1865), Odesa State Polytechnic University (founded in 1918) and a number of specialised higher education institutions. The Ukraine Experimental Institute for Eye Diseases and Tissue Therapy is also situated in Odesa.

Odesa is renowned for its artistic and cultural life. The city has an Opera and Ballet Theatre (claimed among the world-best architectural monuments), a philharmonic hall, numerous museums and theatres, a public library, and an astronomical observatory. Odesa is the site of the oldest cinema studio in the former Soviet Union. The city has been a centre for publishing numerous literary works.

Among the great cities of the world, Odesa can claim certain distinctions. One of the major cities of contemporary Europe, Odesa, officially founded in 1794, is among the youngest. No other European city can match its growth rate in the 19th century. It also developed in an area of the continent that has an ancient tradition of trade and a long, though discontinuous, history of urban settlement.

Odesa is a city of contrasts. Its stately 19th century classical architecture is set on orderly planned streets that are surrounded with green space, giving the city an air of elegance. Strikingly ornate buildings of the late 19th and early 20th century are reminiscent of Right Bank Paris. It is also a seaport with boardwalks and bathing beaches, a resort city with health spas. With its balmy climate, seaside vistas and sandy beaches, and year round lively street life, Odesa has an ambience more Mediterranean than Slavic.

Odesa is a member of the World Federation of Twinned Cities. Of all Ukrainian cities, it has been twinned with the greatest number of cities around the world (17): Alexandria (Egypt), Baltimore (USA), Calcutta (India), Genoa (Italy), Haifa (Israel), Liverpool (Great Britain), Marseilles (France), Oulu (Finland), Tripoli (Libya), Valencia (Spain), Vancouver (Canada), Yokohama (Japan) and others.

Odesa is constantly hosting exhibits, symposia, and conferences. It is the site of consulates and trade commissions of many countries, and dozens of branches of friendship and cultural exchange societies are active in the city.

Many roads lead to Odesa, for this city is hospitable, cheerful, and picturesque. Every year approximately 100,000 tourists visit Odesa, attracted by its boulevards and Potyomkinsky stairs, beautiful beaches, numerous new structures and the unusual architecture of old Odesa.

Odesa region consists of 26 rural districts, with 18 cities, 33 towns, and 1,143 villages. Population of Odesa region is the 7th largest in Ukraine. On January 1, 1999, the population was 2,528,600 inhabitants, 66% of them urban dwellers. About 6% of the urban population live in cities with 50-100,000 inhabitants while most urban dwellers (60%) live in Odesa. The other 40% live in small towns (under 50,000 inhabitants). 11 towns have a population under 25,000 inhabitants. Most cities in the region have poor infrastructure; their development has been slow over the recent 15 to 20 years.

Odesa region has a much more mixed population in terms of nationality, compared to other regions in Ukraine. Over 100 nationalities reside here, and non-Ukrainian inhabitants make up more than 45% of the regional population, compared to 26.4% in Ukraine as a whole. The main national groups are: Ukrainians (54.6%), Russians (27.4%), Bulgarians (6.3%), Moldovians (5.5%), Jews (2.6%), Gagausians (1.0%), Belorussians (0.8%), Poles (0.2%), Armenians (0.2%), Gypsies (0.15%), Tatars (0.14%), and Germans (0.13%). The greatest diversity in the national composition is observed in the South-Western part of the region between the Dniester and the Danube, where only 35.8% are Ukrainians.

The local work force is well educated and highly skilled. Literacy is at 99%. The major part of Russian-speaking population lives in Odesa and other cities of the region. Although in many situations Ukrainian language is more politically correct, use of Russian is prevalent. Most urban dwellers speak Russian. The Ukrainian language is required when dealing with the government in Kyiv.

The population density in Odesa region is 78.9 inhabitants per square km, with the highest density in satellite districts of large cities and the area south to the Dniester, while the lowest density is observed in the northern and central parts of the region.

Most deaths in January-July 1999 were caused by:

• blood circulation diseases — 60.1% of all deaths;
• tumours — 14.4%;
• external actions (including accidents, murders, suicides etc.) — 10.9%.

0.7% of all deaths in January-July 1999 were babies’ (under one year of age) deaths, most of them caused by:

• pre-natal conditions and inborn diseases — 61.6% of all babies’ deaths;
• breath diseases — 10.6%.

There were registered 7,300 marriages and 4,600 divorces in Odesa region in January-July 1999 (compared to 7,400 marriages and 5,100 divorces in the same period in 1998).

Plant managers continue to see employment of their work force as a key priority and foreign investors may encounter resistance in trimming a project's work force to an efficient level. A further complication in business arrangements is the Ukrainian enterprise's continuing responsibility for housing and much of the other social infrastructure sustaining their workers. This social burden can become a real issue in business negotiations.

Wages remain very low by Western standards. Many Ukrainians are forced to work second and third unofficial jobs to make ends meet, thereby making up a vast portion of the shadow economy. Official unemployment hovers just over 1%, but the International Labour Organisation has placed this figure as high as 34% when including workers on unpaid/involuntary leave and unreported separations. Slow movement on privatisation and an unwillingness of larger enterprises to reduce staff has negatively affected the labour market's ability to respond to new market conditions. A significant part of the Ukrainian labour force has migrated to the shadow economy, taking up service jobs such as taxi drivers, waiters, and traders — anything to ensure economic survival.

Salaries in Odesa and the region are much the same as in Ukraine as a whole and calculated by monthly income. Average monthly salaries fall between USD 27-36 varying dramatically depending on the industry sector and locale. For instance, in Odesa the average salary is USD 29-37 but western companies can pay administrative employees over USD 400-500 per month. The official minimum salary is equivalent to USD 17 and is important as the basis for calculations of pension payments.

The basis for taxation is the ‘tax-exempt minimum salary’ set at UAH 17 (approximately USD 3.8) at present. It is also used for calculation of various fines imposed by the authorities.

The shadow economy attributes a lot to the overall picture of personal incomes in Ukraine. Most employees show a considerably smaller portion of their incomes to the tax authorities, thus avoiding high tax levies. Some estimates claim that as much as 60% of income gets unreported.

The average level of salaries in Odesa region has grown by 16.7% since 1 January 1999 and was equal to UAH 170.51 per month. At the same time, the average cost of consumer basket of foods has grown by 15.7% and was equal to UAH 93.90 per month. The growth of prices is connected with the increase in transportation costs of wholesale companies caused by the growth of prices for fuel, instability of excise taxes and duties on oil products, as well as the increase of sales surcharges including the utilities costs and rental payments.

The principal long-term objective of the development of a regional strategy is to create a high output, high income, low unemployment regional economy that will sustain, and environment and quality of life equivalent to that enjoyed by industrial communities in Europe.

1. During the macroeconomics transition to a market economy competitive advantage will be formed for both Odesa region and enterprises. Existing agricultural and industrial enterprises are key to wealth creation and self-sustainability in the short term. The region, itself, and enterprises that achieve competitive advantage are most likely to benefit from foreign direct investment and aid funds.

The creation of competitive advantages of industries depends on the environment in which the firms compete. Industries are most likely to succeed where the "Diamond" (presented in Figure 4) is the most favourable in their particular area. They gain competitive advantage where they can rapidly accumulate specialised assets and skills. An assessment of the "Diamond" will define the key development priorities for the sector. Odesa region can influence, directly or indirectly, each of the four attributes, and successful policies will work where underlying attributes of competitive advantages are present and can be reinforced.

Four main attributes shape this environment:

2. Factor conditions: availability and quality of skilled labour; infrastructure; capital necessary for business, including motivation.
Current Position
3. Odesa Region has extensive land resources with good agricultural potential and useful infrastructure for distribution and close proximity to the markets of Central Europe, Russia and the Black Sea area.

• The gateway to a market of more than 400 million people, including Ukraine, CIS, Europe, Middle East.
• Advanced transport infrastructure.
• Strong shipping and transportation sector.
• Leisure and recreational potential, particularly on the Black Sea.
• The main skill areas in the region are in machine building, shipping industry, agriculture, food processing, electronics, transport etc.
• Highly skilled people in research institutions and isolated technical knowledge in enterprises.
• Limited experience in joint ventures and awareness of how to best attract and use foreign partners.

Enhancement programme for existing workers in vocational skills (training trainers):

• Identify key areas for improvement of information and development of networks:
• industry structure;
• product and labour market information;
• tourist and recreation services;
• technical standards.
• Restore production and export incentives by rationalising tax base and banking system.
• Lobby and mobilise resources for creation of a regional development fund for investment in viable projects.

1. Demand conditions: availability of a home demand that allows the accumulation of information, assets, skills and commitment, stimulates quality and development, and provides conditions that are transferable to other places.

• Shift of consumer demand to basic needs.
• Lack of raw materials and equipment due to current breakdown of traditional trade with CIS countries.
• Potential demand development for the sectors:
• agriculture, food processing and packaging;
• machinery and equipment;
• business and financial services;
• transport and distribution.

• Give priority for:
• agriculture, food processing and packaging;
• industrial development;
• shipping and transport infrastructure.
• Improve quality and competitiveness of local products to substitute imports.
• Focus on national and CIS markets first, particularly neighbouring countries.
• Develop quality of export to expand customer base in Western countries.

1. Related and supported industries: presence of suppliers and customers that are world leaders.

Odesa region has a high synergy potential amongst key industries:

• agriculture, food processing and packaging
• machinery and equipment;
• business and financial services;
• transport and distribution.

• Provide support and incentives for the development of smaller and more flexible productive units resulting from the restructuring of larger enterprises and creation of new companies.
• To improve productivity and value added in products and services on offer.

1. Business strategy, structure and competition: conditions governing how firms are created, organised, managed and compete or co-operate with each other, including the role of government.

• Focus on day-to-day survival rather than strategic restructuring and competitiveness.
• Lack of business planning experience and unfamiliarity with market-based solutions.
• Typical enterprise management in a defensive, reactive style with retention of a complex mix of commercial and non-commercial activities.
• Few major new product developments or diversification initiatives now under way.

• Offer technical assistance to enhance both strategic and tactical approaches to businesses within sectors.
• Adapt consistent and coherent competition policy via commercialisation, privatisation, and de-monopolisation.
• Provide tax and other incentives for:
• investment in production;
• employment generation;
• export growth;
• local alliances and joint ventures.

The programme purpose is to revitalise the machine-building industry in Odesa region as a means for re-structuring of all branches of the economy.

• worn-out equipment replacement in aviation, automobile, shipbuilding, agricultural machinery, defence, textile industries;
• manufacturing flexible industrial complexes fully equipped with modern technologies which allow enterprises to react wisely to the market demand;
• development of new technological processes providing resource and energy efficiency of the manufactured products, their ecological safety.

• re-structuring of enterprises, machine park optimisation, framework for regional co-operation;
• expansive actions in high-potential market segments (market research, advertising campaign, participation in international exhibitions, arrangements for a constant-based exhibition on the metal-cutting machinery market;
• development of new models of competitive equipment, applying new automation systems of construction and technological design, implementation of new sets of supplies certified in the external market;
• development of the machine-building staff potential, job placement, acquiring more orders for transport, agriculture, textile industry;
• development of the programme investment architecture through budget funds, commercial banks, domestic and overseas investors.

• industry stabilisation and strengthening of the financial condition of the machine-building enterprises in Odesa region;
• effective use of the existing R&D potential to raise competitiveness of machine-building production;
• effective use of manufacturing capacity, with orientation at agriculture, automobile, railway transport; textile industry; municipal economy; construction industry;
• expansion of sales, development of the export potential;
• increase of deductions to the state budget.

The base for the machine-building industry re-structuring will be the economic strategy of technical market regulation with distribution of investments, redistribution of capital assets proportional to actual market demands in the produce offered. Thus, the main purpose of the programme is a real estimation of such requirements, how they are met for the time being and in the future.

Problems of the cost-effective functioning of enterprises based on technical re-equipment are closely connected with innovation and investment activity. The mechanism to solve these problems is provided in the programme.

• market research in machine manufacturing and sales;
• re-structuring of the R&D sector in the region via organisation of consortia, finance-industrial groups, machine-building centres co-ordinating the regional machine-building industry's entry in the world economy;
• reconstruction of existing machine-building enterprises in the region, taking into account reorientation of unused capacity, development and implementation of new equipment, technological lines, supplies, fast worn-out parts for agricultural machinery, automobile and railway transport, textile industry, energy-saving devices; perfection of machinery produce to raise its quality to the world standard; implementation of energy- and cost-effective, ecologically safe technologies.

Natural competitive advantages are: the geographical position of Odesa region; existing infrastructure, production facilities, basic equipment and supplies; relatively low cost of labour force and raw materials.

To raise produce competitiveness, the industry needs to:

• use modern supplies in the framework of adopted international co-operation;
• use a well-known trademark (franchising) after establishment of a joint venture with a world-wide-known company;
• create a network of maintenance and sales services;
• develop (in the framework of a joint venture) new competitive types of equipment.

The structural changes once started will continue; in 2000-2005 the industrial situation is to improve due to a more rational structure. In 2005-10 the structural changes will be completed and a balance between supply and demand reached. The result is a slow industrial increase. Overall 1990 industrial production will be surpassed before 2005 in the optimistic scenario but not reached in the pessimistic scenario.

The following priorities are set in the Regional Development Programme put forward by the Odesa Regional State Administration:

• completing privatisation to open opportunities for domestic and foreign investment;
• diversifying the regional economic base by assisting appropriate new and existing investors;
• improving the level of business services to the standards accepted in the world;
• increasing integration of the regional economy through local and international sourcing and the development of supply networks;
• developing businesses capable of competing in international markets
• improving competitiveness of existing small and medium-sized enterprises;
• encouraging the development of companies in the priority sectors which represent clusters of competitive advantage or otherwise demonstrate potential for growth.

Since the privatisation started in the independent Ukraine, there have been privatised 3,156 objects in Odesa region, including 847 formerly state-owned, and 2309 formerly communal. For January-June 1999, there were registered 180 privatised objects, including 36 formerly state-owned, and 144 formerly communal. The State Privatisation Fund received UAH 6.2 mln, and local budgets, UAH 3.5 mln.

Privatised businesses to date make 85% of the total number enterprises on the privatisation ‘waiting list’. In separate sectors of economy, the percentage of already privatised companies is still bigger: industry (99.5%), construction (98.5%), agri-food complex (97.9%), automobile transportation (94.6%).

Main methods of small-scale privatisation were the following:

• purchase of property by a group of partners or shareholders (67.3%);
• purchase of leased property (13.7%).

Privatisation of state-owned property was mainly implemented via placement of shares of newly formed open joint-stock companies, and auction sales of property.

Since privatisation started in Ukraine, there have been organised 562 open joint-stock companies (11 of them in 1999). Over 400 companies have finished placement of stock; 41 open JSC placement depth exceeds 70%. State-owned stock of 92 companies is in the state corporate management.

In January-June 1999, privately owned industry production added to 67.6% of total industrial output. Collectively owned companies increased production by 40%, ¾ of which related to joint-stock companies.

Sales of these companies increased twice compared to 1998. It was mostly for the sales increase in such sectors as: non-ferrous metallurgy (+2.7 times), construction materials production (+2 times), machine building and processing (+1.6 times), and fuel industry (+1.4 times).

Non-state-owned enterprises showed a 14.2% increase in labour productivity, mostly for the sectors like non-ferrous metallurgy (almost +2 times), construction materials production (+1.7 times), fuel industry (+1.5 times), food processing (+1.3 times).

Collective ownership grew rapidly in the automobile transportation sector: 91.4% of total transportation against 56.8% in January-June 1998. Cargo shipping turnover of privatised companies was 61.6 mln ton-km, or 92.7% of total. Passenger transportation figures of privatised companies reached 50.3 thousand people, or 99.1% of total.

Retail trade turnover of privatised companies increased by 13.9% in 1999. Their net income was 87.3% in the total net income of this sector.

Non-state-owned companies employed 325.8 thousand people, or 48.6% of total number of employees in all sectors of the regional economy.

It is expected that in 2000, the share of non-state-owned companies will reach 70% in industry, 87% in total turnover of production, and 61% of total volume of services.

In the development of business services, the following measures are seen to improve their level for local and international consumers:

• Increasing the autonomy of Odesa region with regard to provision of information, analytical and financial services to facilitate access to business opportunities and thus promote regional development;
• Promoting the development of international services;
• Establishing institutions and organisations that gather sources and use them locally.

Agriculture is the second largest branch of material production according to production volume, and the first branch of economic activity regarding the occupation of labour resources.

Soil fund is more than 3,3 mln ha, 77.6% of the total region territory is agricultural land of which 80.4% is arable land, 15.1% — hay-mowing and pasture land, and 4.4% — fruit and berry farms.

More than 36% of the population, half of the functioning production funds are engaged in it. 42% of the gross national product and 80% of the consumer's goods are produced in the AIC. This sector forms more than 50% of the regional budget.

Agricultural land is 0.98 ha per person in Odesa region, almost 25% more than the average figure for Ukraine. The arable land has increased and reached 0.78 ha per person (0.63 ha for Ukraine). The mark valuation of lands in the region is above the average country level.

Odesa region’s share in the total agricultural production of Ukraine exceeds 5%. Individual farms and collective agricultural enterprises (CAEs) are main producers of foods. The structure of agricultural production is mainly formed by cattle-breeding (48% of total agricultural output) and plant-growing (over 35%).

Individual farmers and those at agricultural enterprises show a lack of familiarity with the Western concepts of quality, marketing, cash-flow planning etc.

Plant-growing is dominated by wheat, sugar beet, potatoes and sunflower seed. Most relevant fruits cultivated are grapes, apples, peaches, and watermelons. In cattle-breeding, production of meat (beef and pork), milk and poultry is also substantial in the agriculture of Odesa region. Small private enterprises play an important role in processing agricultural output and producing wine, plant oil, flour, and milk products.

The agricultural production in districts varies depending on the natural-geographical conditions:

• North forest-steppe (Ananievskiy, Baltskiy, Kodimskiy, Kotovskiy, Krasnooknyanskiy, Luybashovskiy, and Savranskiy Regions) — dairy products, cattle, pigs, grain, and sugar beet;
• Central steppe (Berezovskiy, Frunzovskiy, Ivanovskiy, Nikolaevskiy, Razdelnianskiy, Shiriaevskiy, and Velikomikhaylovskiy Regions) — dairy products, cattle, pigs, grain, and sunflower seed. In some districts and suburban zones (Beliaevskiy, Kominternovskiy, and Ovidiopolskiy) — vegetables and wine;
• South steppe (Artsizskiy, Bolgradskiy, Belgorod-Dnestrovskiy, Saratskiy, Tarutinskiy, Izmailskiy, Kiliyskiy, Tatarbunarskiy, and Reniyskiy Regions) — dairy products, cattle, pigs, sheep, poultry, grain, wine, vegetables, and in some districts, sunflower seed.

The agricultural production compared with 1996 increased nearly 1.4 times reaching Hrv 1247 mln in 1998. The overall yield was 32.8 centners per hectare. Wheat yield was 37 centners per hectare which is almost two times more than in 1996. 266,000 tons of sunflower seeds were thrashed, with the yield capacity 14 centners per hectare, which is 1.4 times more than in 1996. The yield for the sugar beet increased twice.

The gross yield of agricultural production of Odesa region measured against the total national production is: grain — 6% (2nd place in Ukraine); sugar beet — 2% (14th place); sunflower seeds — 9% (5th place); vegetables — 7% (3rd place); meat (including sub-products) — 6% (10th place).

The table below shows the trends in the development of agricultural production in Odesa region in the recent 15 years.

There are some 6,287 farming entities in Odesa region. Of these around 500 are former collective farms ("kolkhozes") transformed into Collective Agricultural Enterprises (CAE’s). These units account for almost 90% of grain, sun flower, grape and sugar beat production.

5,602 farms are privately owned. At present, the outputs from these units are small and insufficient to serve the processing sector with raw material. Although legislation permits farmers to operate on a maximum 50 ha and to rent more land if they wish, the major problems are: local red tape, difficulties in obtaining good quality land and credit, and in purchasing agricultural inputs.

Dacha-owners and gardeners play an important role in food production in Odesa region. Some 300,000 families living in the rural area have market gardens ranging from 0.25 to 1 ha in size. Small farmers, dacha owners and gardeners cultivate about 20% of the agricultural land but produce more than half of the regional Gross Agricultural Output. They produce large quantities of potatoes, other vegetables and fruit, milk, and meat. They are also involved in agricultural production to support the household budget. Although agricultural production is not the main business of this sector it accounts for the bulk of total potato production (99%) and almost two thirds (65%) of vegetable production. It is partly consumed at home, but many producers try to market most of their produce in big cities like Odesa, Izmail, Kotovsk etc. Until now, there are only few joint activities of gardeners. In order to market their produce, they have to present and sell it themselves on the food markets.

The sales of animal produce in January-July 1999 were the following:

The agri-food and drink industry is one of the most rapidly growing sectors of the regional (and Ukrainian) economy. Since 1993, many of the world's leading manufacturers of agricultural machinery and food processing equipment, foodstuff and variety of drinks have been successfully distributing their products into Ukraine. Some companies have now gone one step further and have invested in joint ventures, green-field projects, or have taken equity stakes in such ventures. Nonetheless, Ukraine still has a desperate need for foreign capital, raw materials, machinery and technology, in order to increase production and improve quality. There are therefore still enormous opportunities for Western participation and investment. However, before foreign companies make major commitments in this sector, they should evaluate the risks, whether legal, political, or financial.

The food processing industry

comprises sugar, oil-mill, fat, adipose, fruit and vegetable canning, hydrolysis and agar, wine-making, tea industries, also the production of food concentrates. Butcher's, dairy-canning, liqueur-vodka, confectionery, non-alcoholic beer, and tobacco industries play an essential role in the industrial complex of the central region of Odesa region and in export/import operations.