Donetsk region belongs to industrialised regions of Ukraine. Its input into national industrial production remains high, despite the fact that in the last four years (2017 compared with 2013) the volume of industrial production in the region has declined 2.4 times. In 2016, the Donetsk region is ranked the second among 24 regions of Ukraine by the share of industrial goods sold in the total volume of sales in Ukraine (11.8% vs. 16.3% in 2013).
In respect to the sectorial structure, the region is one which has the predominant share of mining and metallurgical specialization: dominant industries are metallurgical (47.1%) and mining (15.2%) industry, which came as a result of the historical orientation of the country’s economy to extensive exploitation of natural resources.
In 2016, the gross regional product (GRP) of the region amounted to 137.5 billion UAH, or 4.8 billion Euro (5.7% of Ukraine’s GDP, in 2013 – 10.8%). The region has made the largest contribution to the creation of gross value added (GVA):
(1) manufacturing and extraction industry – 24.4% and 14.8%, respectively, (2) transport, warehousing, postal and courier activities – 12.0%,
(3) trade – 10.1%,
(4) agriculture – 7.7%,
(5) real estate transactions – 6.2,
(6) electricity, gas, steam and air conditioning supply – 5.8%,
(7) public administration – 5.8%;
(8) information and telecommunications – 2.9%,
(9) construction – 2.1%.
Other types of economic activity make less than 2.0% in regional gross product.
The contribution of the primary sector to the GDP of the region has increased (from 18.5% in 2012 to 22.5% in 2016), mainly due to agriculture, which contribution has increased from 4.2% to 7.7%. The fourth part of the gross product (26.5%) provided by the secondary sector of the economy (in 2012 – 23.4%).
According to the data of 2016, the tertiary sector’s share in the region has dropped significantly (to 40.0% versus 50.0% in 2016), primarily due to the reduction of the volumes of trade, spending for education and health services. The industry employs almost 45,0% of the region’s workable population, another 10.1% – in public administration, 18.4% – in the social sphere (10.1% – education, 8.3% – health care), 7.3 % makes employees engaged in the provision of transport services.
25.5% of the workable population are employed in the mining industry (23% in mining hard and brown coal). 56.0% of employees are working in the processing industry (26.0% – in metallurgical industry, 7.2% in mechanical engineering, 5.3% in the food industry)[Statistical collection “Labour of Ukraine 2016”. State Statistics Service of Ukraine. 2016.].
The main economic problems of the Donetsk region development are:
- high level of depreciation of fixed assets, which negatively affects the competitiveness of the region’s economy, poses a threat to the environment and health of the population;
excessive orientation of the main activity of the industry of the region to the world markets, which makes them dependent on the externalities;
- high material, energy and capital capacity of production;
- low innovation activity of enterprises;
- unsatisfactory state of the ecology in the region, as a consequence of de-industrialization, and a large number of brownfield objects.
2. Coal industry
The coal industry of Donetsk region had a peak in its development in 1976 when the mines of the Soviet Ukraine (Ukrainian SSR) extracted 218 million tons of coal. By that time, more than 340 coal mines were operating in the coal industry of the country. Currently, in the territory controlled by Ukraine, the Donetsk region has 20 mines, 15 of which are state- owned. In 2017, the total volume of commodity coal production in the region amounted to 11.4 million tons. Of this amount, 2.8 million tons were mined by the state-owned mines – No 1 and No 3, coal mines of the company “Pivdennodonbaskvuhillia”, 4 coal mines of “Myrnohradvuhillia”, 4 coal mines “Selydivuhillia”, 4 mines “Toretskvuhillia” and VC “Shakhta Krasnolymanska”.
Thus, almost according to the Pareto rule, 20/80, 25% of mines produced 75% of the regional coal production, but the mathematically predictable result, according to which the vast majority of elements of the system naturally give a much smaller output, is precisely the result of the activities of state mines.
Almost all state-owned coal-mining enterprises are profoundly unprofitable: from profitability 0.62 (which is expressed in terms of price to cost) in the Pivdennodonbassvuhillia mines, to 0.42 in the state enterprise “Toretskvuhillia”. But if to look at the “Toretskvuhillia” company, the “Dzerzhinsk-vuhillia” was unprofitable since 2001, which is typical for the steep slope mines, and it had a coefficient of profitability of 0.55, while the mines of the Pivdennodonbassvuhillia at that time were relatively profitable – with a factor of 1.1.
State policy regarding state-owned mines envisages active elimination (conservation) of such mines, but these measures require large amount of funds that are could not be elevated with the state budget and threaten to have severe social consequences. For reference, in 2014, when industrial enterprises suspended or even stopped the production process, as a result of hostilities in the region, the decline in 2015, in comparison with the previous year, was 31.5%, and reached 34.6%. In 2016, an increase of 6.4% was ensured against the low comparison base, but in 2017 the positive dynamics could not be sustained due to the consequences of the blockade of freight traffic on the delimitation line in the region of warfare.
Among the main types of industrial activity, in 2017, compared to 2016, production of food products, beverages and tobacco products decreased by 2.2%, rubber and plastic products, and other non-metallic mineral products – by 4.3%, production of chemical products – by 7.2%, metallurgical production and production of end metal products – by 7.4%, mining and quarrying – by 14.8% (including coal mining – by 24.5%), coke and petroleum products – by 20.8%, electricity, gas, steam and air conditioning – by 30.8%. The volume of manufactured products in mechanical engineering increased by 6.2% in 2017, as well as in textiles, clothing, leather, leather goods and other materials – by 23.8%.
Extraction of row coal in 2017 compared with 2016 decreased by 3.9 million tons, or by 27.1%, and amounted to 10.4 million tons. The annual volume of coal, which includes shipped rough coal and products of enrichment, amounted to 8.5 million tons, which is less than in 2016, by 27.6%. Reduction of coal mining negatively affected the end-points of technological chains of “coal-coke-metal” and “coal-electric power” [the Main Department of Statistics of Donetsk region. Press release: “Industrial production of Donetsk region in 2017 decreased by 12.6%, and in the last four years – by 2.4 times.