Travel notes of an economist: Transcarpathia in men and money

Путевые заметки экономиста: Закарпатье в людях и деньгах

Investments in Transcarpathia

When a young but already well-known economist Grigory Corn went to the usual vacation trip around the region, it does not assume that the collected experience will turn into an article.

Those who live in large cities, it is very useful to look out the window and see the country from very close range, writes Gregory Corn, Ukraine Economic Outlook, especially for the Magazine Reporter.

According to our author’s rating of regions of Ukraine Economic Outlook, Transcarpathia, ahead of Rivne and Chernivtsi region, head of the group of least economically developed regions. Luhansk and Donetsk then we in rating is not included for obvious reasons. The average level of GDP per capita for the years 2015-2018 in Transcarpathia amounted to only $1.174, which is approximately twice lower than the national average. Even lower income per capita only in the Chernivtsi region — $1.062. And yet it is 7.4 times lower than in Kiev. According to official statistics, Transcarpathia has to look like a poor Asian or African country, but it is not so. By the way, the whole Ukraine situation, if you rely exclusively on official statistics, should look a lot worse real. What’s the matter? Here’s an example of Transcarpathia and view.

AND IN FACT,

The reality of the situation in Western Ukraine, particularly in Transcarpathia, much better than official statistics show. Let me remind you, 32% of the shadow economy calculated by the government is distributed very unevenly, and a significant advantage just from Western Ukraine. Take, for example, the ratio of total deposits of households and enterprises to the gross regional product for the year 2018. The national average population and the enterprises is stored in a banking system an amount equal to 26.4% of the regional gross income, whereas in the Carpathians, only 18.1%. There money is like a shadow more than the national average.

And all because the locomotive of the economy of Transcarpathia, he is one of the biggest blind spots of the Ukrainian economy, migrant workers and inflow of foreign currency from them. For clarity, we take the income structure of the population of Transcarpathia for 2016: from 42.2 billion UAH official income is only 57% is formed by wages and similar income, and the remaining 43% are approximately equally divided between transfers from the state (social assistance, etc.) — 19,2% and the transfers from migrants and 20.7%.

But as far as these figures are, with the exception of state welfare benefits are realistic? My grades are as follows: even if half of the wages and other income in Transcarpathia is in the shade (which is extremely exaggerated estimate), the real share of receipts from labor migrants in Transcarpathia is not less than 30% of income for the local population.

A good example of a mountain village Synevyr, where 80% of men aged 20 to 50 years left to work. At the same time, the demographic situation is not so bad as it might seem. In the village Synevyr per 1,300 population of about 120 families with many children and 35 mothers-heroines. State support for child birth plays a quite important role against the background of fairly low incomes.

GO THERE, BUT BACK

By the way, the scale of emigration of the inhabitants of Transcarpathia made significantly overstated, especially compared to other areas. Officially, relatively, the 2014 region left about 1 thousand people, according to our (UEO) calculation, 107 thousand of them But even that only 8.5% of the population of the region. On the average across Ukraine this indicator makes 10%, in Eastern Ukraine — 11-12%.

If you mingle with local businesses, it turns out that over the last couple of years in the labour market of Poland and Hungary observed a unique phenomenon: migrants from Eastern Ukraine to displace their Western compatriots. Accordingly, the residents of Zakarpattia, Lviv and Chernivtsi regions are beginning to return home and, starting from the skills acquired in foreign earnings, open their own business.

Путевые заметки экономиста: Закарпатье в людях и деньгах

Business in Transcarpathia

CONTRABAND — STOP LITTLE

Watching the range presented semi-Soviet on the shelves of local supermarkets and markets, it is very difficult to believe that we are still in Ukraine. Up to half of the range of food, clothing, household items and furniture Polish, Slovak or Hungarian origin. Even more blatant is the situation with consumer electronics, the legal import of which in the region almost died.

At first glance these products may appear more quality and affordable, and the factor of smuggling — a positive for local consumers. Because a complex mechanism of legal imports of goods, bonus from 30% to 40% of their input value during import so easily bypassed. Well the subsequent apparent population opaque distribution of revenues does not create motives to pay taxes and to despise the contraband. In the end, the residents of Transcarpathia became the leaders in the so-called people smuggling is when they’re taking gradually, in contrast to the system of smuggling is when you are traveling tens or hundreds of containers it is currently open, but without full payment of taxes and duties.

Yes, after 2018 the functioning of the schemes with the use of the right of preferential import of goods by individuals has become much less comfortable. As this right are possible only if a citizen of Ukraine spent abroad a minimum of 24 hours and crosses it at most once every 72 hours.

In General, the incoming flow of contraband from Hungary for the 2017-2018 calculated based on the comparison of the data of the Ukrainian and Hungarian customs, was about $790 million (!) a year. This is absorbed, the volume of illegal imports (47% of gross regional product) in mainly Western and Central Ukraine, Transcarpathia is only a transit area. It is important to take into account counter flows of smuggling from forests in the EU are coming too. They consist mainly of tobacco products and counterfeit alcohol. In total, this makes smuggling in a full-fledged sector of the regional economy.

The irony is that this high level of incoming contraband, as well as the involvement of the population in this fishery and are ruining the economy of the region. Or rather, make a meaningless trade, though the trade feels pretty good.

What about legalization and the fight against smuggling? They just are not in the area of responsibility of local authorities. Abuse at customs and illegal border crossing is a competence of the Cabinet of Ministers and the security service. And purely administrative tools this phenomenon is not to win.

But you can win by economic measures: lower tax burden for customs clearance and an increase in average wages in Transcarpathia. Because in this case, to engage in petty smuggling becomes economically impractical. Although, frankly, this is still far away. Or not?

WITH REVENUES?

Transcarpathia is on the fifth place in the growth of turnover and further its role as a transit region will only increase. Many international investors continue to look to Western Ukraine as “new factory of Europe”. Yes, the influx of investment in related projects (Assembly production, for example) while not particularly impressive, but it’s there.

But, alas, there are obvious problems with quality of healthcare, secondary education and law enforcement — apparently because of the high share of shadow economy. For example, in Transcarpathia is the lowest in Ukraine the average score contrib (only 135 points), third in the country the level of crime (263 crimes per 10 thousand people) and, despite the mild climate, the relatively low life expectancy (only 70.9 years).

As for separatist sentiment/risk of disconnection of Transcarpathia to Hungary, they are, in my opinion, highly exaggerated. Indeed, the population mostly disliked the “Kiev government” and privatization of the mineral springs and tourist sites in the 90s is still perceived as the greatest outrage ever committed on the Carpathians. But is their opinion of what they think about the Central government in any other area? Especially if they think about their money and the distribution of collected taxes from them?

Another counterweight to the centrifugal sentiments of the income from tourism and related services. They tie the region to the country as a whole stronger than any, the most efficient actions of the security forces. The real weight of tourism, taking into account the shadow sector is not less than 20-25% of the regional product of the region. Even all kinds of seemingly independent from tourism, transport, financial sector, agriculture and other industries launch and supported it by spending tourists.

And since Parking lots of local hotels and restaurants scored cars with Kyiv, Dnipro, Lviv, and Kharkiv vinnitskii rooms, local people understand clearly what their market and revenues — it is Ukraine. The Hungarians, Romanians, Austrians and other European neighbors have their own mountain. Let’s be honest, certainly not worse, especially given the level of infrastructure: with the exception of several routes, the roads of Transcarpathia in very bad condition.

By the way, constrained by tourism and the overall service in the area. Due to the low level of competition, the ratio “price-quality” hotels, restaurants and other tourist facilities are clearly worse than similar facilities on the other side of the border. This can be partly explained by the low level of income of local residents. The same reason is the low personal income — is explained by the low involvement of the population in public life. For example, in Transcarpathia has not yet held a civil society, here the minimum population control over the distribution of funds from local budgets, are not visible to the anti-corruption movement, supported “from below”.

TOTAL FROM THE TRIP

Here build elegant mansions, even the representatives of those segments of the population in Kiev or Kharkov is able to apply except that the purchase “kopeck piece” somewhere far from the subway. Transcarpathia is your micro almost every second. And with equal degree of probability that a micro business may be the MICROTEL for a couple of rooms, ultrafine contraband trade, or construction and repair services.

Here people do not care about the Central power, but does care about her current subsidies. And separatism is not fond of, not so much from fear of law enforcement, but from laziness.

And Yes, investors are waiting for. Or, more precisely, waiting for investor money, and investors set order — no.

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