Poor roads are impeding Ukraine’s economic development

The poor condition of Ukraine's transport infrastructure is effectively impeding the economic development. The Ukrainian government has announced fundamental policy changes and an enormous injection of funds for infrastructure.

In the assessment of the Ukrainian government, the condition of the roads and bridges in the country does not allow for the quick or safe transportation of passengers and cargo, and for the development of transit traffic. Moreover, it creates tensions within the society, reduces the competitiveness of the domestic economy, and poses a threat to the country’s socio-economic development, as well as its integration with the European community.

According to official data, the total length of Ukraine’s road network is about 170,000 kilometers. Its density is 281 kilometers per 1,000 square kilometers.

The Ukrainian road infrastructure is completely dilapidated — according to government estimates, 97 per cent of the roads require general refurbishment or ongoing repairs, some 9,600 bridges do not meet the modern technical requirements, out of which 1,923 bridges are in need of immediate repair and 86 are at risk of collapsing.

The development of automobile tourism

Many sections of the main national roads in Ukraine don’t have a paved asphalt surface. According to the assessment of the World Economic Forum, Ukraine ranks 132nd in the world in terms of road network development. However, the experts from the Kiev-based think-tank Ukrainian Institute for the Future point out, that the data on the length of the road network presented in official documents are overstated. Many of the roads that have not been repaired for many years have simply crumbled. Following their destruction, many of the villages to which they led have also disappeared. Therefore their reconstruction would not make any sense.

The disastrous condition of Ukraine’s infrastructure is affecting the economy. “You can build factories, hospitals, schools. But if there are no roads, it’s not worth building them, because nobody will be able to reach them,” said the Minister of Infrastructure Volodymyr Omelian in an interview with the Liga.net business agency. According to government estimates, the poor condition of the infrastructure dramatically increases the operating costs of enterprises — companies spend 40 per cent of the value of finished products on transportation, which limits Ukraine’s competitiveness and exporting capabilities.

In order to change the situation for the better, the government has adopted a road development program for the years 2018-2022. Its implementation would result in the creation of a modern road network of 6,700 kilometers. Kiev wants to build 325 kilometers of roads with high importance for the state, and 431 kilometers of roads are to be reconstructed. Additionally, the plan provides for the complete refurbishment of 4,348 kilometers and ongoing repairs to 1,588 kilometers of roads with high importance for the state.

According to the government, the implementation of the program will improve the situation on the main routes. At first, this will mainly apply to roads forming the transport corridors of international and national importance. The new roads are to provide additional revenue from car transit and the development of automobile tourism. They should also reduce costs and increase profitability in the transport sector, and allow better utilization of Ukraine’s export and logistics potential. As a consequence, these investments will have a positive impact on the revenues of the central budget and local budgets.

According to government estimates, the overall benefits for the economy from the implementation of all the tasks included in the strategy amount to UAH984bn, about USD35bn.

The authorities in Kiev argue that the execution of the road projects will contribute to an increase in the level of employment — the implementation of the planned investments will require some 55,000 new jobs in the road engineering sector, in the construction industry, and in the road construction equipment industry. It is not exactly clear, however, where these workers would come from as Ukraine is already struggling with the negative effects of mass economic emigration, which are becoming increasingly acute. The number of people willing to work in the country is falling with each passing day.

A west-oriented road network

Regardless of the road repairs, it will also be necessary to reconstruct the entire existing road network. For the most part it was built when Ukraine was a part of the Soviet Union. As a result, the network is primarily designed to enable travel in the eastern direction. In light of the fact that countries of the European Union already account for about 40 per cent of Ukraine’s trade, the government wants to shift the country’s orientation towards the west, also with regard to the road network. Additionally, there are entire regions that still have almost no connections with the rest of the country, such as Bessarabia and Bukovina, which were detached from Romania as a result of the Ribbentrop-Molotov Pact, or Transcarpathia, which belonged to Czechoslovakia prior to the Second World War.

In order to implement the program it would be necessary to spend UAH298bn (USD10.5bn). Just over half of the necessary amount, UAH178bn (USD6.3bn), would come from the resources of the State Road Fund created in 2018. International financial institutions would provide UAH67.5bn (USD2.4bn), while UAH46.5bn (USD1.63bn) would come from foreign investors. The government is planning to finance the construction of some of the roads by granting concessions to private investors, who would build and operate the new infrastructure. This is not a new idea — the Ukrainian authorities were planning to build a network of motorways and expressways using concessionaires back in 2008, but the outbreak of the crisis derailed these plans.

According to the calculations of Yuri Romanenko from the Ukrainian Institute for the Future, without this impediment to growth, Ukraine would easily be able to finance the construction of key roads on its own using the state budget funds. In 2017, budget revenues from the excise tax on fuels amounted to UAH46.1bn (USD1.62bn). These funds should go to the road construction authorities. Considering that construction costs in Ukraine are much lower than in the EU, the rational allocation of these funds, together with moderate assistance from institutions such as the European Bank for Reconstruction and Development (EBRD), would be sufficient to rebuild the basic road network within five years.

Hyperloop as an alternative

In anticipation of safe roads without potholes, the Ministry of Infrastructure offers travelers an alternative — the Hyperloop. Ukraine is supposed to become the testing ground for the vacuum railway system. According to officials, the first line connecting Kiev and the port city of Odessa could be built in the next five years. In the future it could be used for cargo traffic between China and the European Union. The estimated construction cost is USD3.6bn. The technical and economic assessment of the project and a test route with a length of 300 to 1,000 meters could be completed in 2019.

“For us it is important to ensure that after this technology has been tested, Ukrainian companies will be able to produce the components or even the entire system and export it all over the world. We see a clear Baltic Sea-Black Sea transport corridor and we understand that this project will be pursued,” said the Minister of Infrastructure. However, according to Ukrainian experts there’s very little chance that these plans will ever be implemented.

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