Analysis of Macroeconomic and Microeconomic Developments in Ukraine's Hospitality Industry

The report analyzes the macroeconomic and microeconomic developments in Ukraine's hospitality industry, including GDP, consumption, employment, and prices. It also discusses the impact of these factors on the industry and the initiatives taken by the government to support it.

Business Economics

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Abstract
The report reflects the terms microeconomics and macroeconomics majorly. Microeconomics is
a division of the economics that studies the actions of individual or firms who are forming the
decisions related to the allocation of scare resources and the interactions among the individual
and firms. While on the other hand, the macroeconomics is a branch of the economics field that
studies how the cumulative economy behaves. It is essential for every investor to analyze these
factors before investing the amount in the market. Considering the same, the angel investor is
looking to invest the business in the market of Ukraine and in the hospitality industry. Therefore,
the analysis of the macroeconomic developments has been discussed which reflect how these
factors can affect the working of the country and the industry in which the investor is looking to
invest. Moreover, it reflects the initiative taken by the government for the hospitality industry.

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Contents
Introduction......................................................................................................................................3
Analysis of macroeconomic developments.....................................................................................4
GDP.............................................................................................................................................4
GDP growth rate......................................................................................................................5
Consumption................................................................................................................................6
Employment.................................................................................................................................8
Prices..........................................................................................................................................10
Analysis of the microeconomic effects..........................................................................................11
Hospitality industry...................................................................................................................11
Microeconomic development affects hospitality industry.........................................................12
GDP affect the hospitality industry.......................................................................................12
Consumption affect the hospitality industry..........................................................................13
Employment affect the hospitality industry...........................................................................14
Prices affect the hospitality industry......................................................................................15
Institutional and economic environment.......................................................................................16
Government policies/initiatives in Ukraine for hospitality industry.............................................16
Government policy affects investors’ decisions and entrepreneurial initiatives.......................17
Conclusion.....................................................................................................................................18
References......................................................................................................................................19

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Introduction
The report is based on the investment that the angel investor is willing to make in the South East
European economy. The angel investor is looking to expand the business in Ukraine and in the
Hospitality industry. The reason behind the selection of Ukraine is that it has everything to be
successful investment place. Moreover, the place is the going to be on new growth space in the
coming years for Europe as a whole. The country has best agricultural soils in the world with the
sophisticated industrial infrastructure. Along with this, the people of the country are well-
educated; hard-working that feels the culture and historically bound to Europe.
The hospitality industry has been selected by the investors because the place is the leading
players in the business as the premier hotels and resorts keep the track of the updated
international tourism sectors trends and seek to implement the latest innovations in the country.
The hotel business is one of the most promising and successful business areas in Ukraine. In the
year 2017, the company registers the website mobile traffic growth of 10% compared to the
figures of the year 2016 which reflects the technology development in Ukraine (Sidletska, 2017).
This technology development is essential for the company as technology use is increasing in this
industry. Therefore, the investors are willing to invest in the hospitality industry of Ukraine
(Raiffeisen Bank International, 2018). The reports include the evaluation of the macroeconomic
and microeconomic environment of Ukraine because the evaluation is essential for the investors
who are looking to expand their business in the market of Ukraine which is a part of the South
East European economy.

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Analysis of macroeconomic developments
The analysis of the macroeconomic developments reflects the economic trends and analysis of
the country in terms of the GDP, consumption, employment, prices and many others which
might have changed from past few years (Stiglitz, 2012).
GDP
The gross domestic product in Ukraine was worth 93.27 billion US dollars in the year 2016. The
GDP value of the country presents the 0.15% of the world economy. The below diagram reflects
that the GDP of the country is decreasing since the year 2013 (Trading economics, 2018).
(Source: Trading economics, 2018)
The GDP of Ukraine till the year 2016 has been presented in the graph. Considering the GDP
graph it is expected that the GDP will increase in the coming years because after 2008 there was
a downfall in the GDP for few Years which increased in 2012 and 2013 (Trading economics,
2018).

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The statistics graph given below reflects the GDP (Gross domestic product) of Ukraine from
2012 to 2016 in the billion U.S. dollars with the projection until 2022. The graph reflects that the
GDP of the country is going to increase until the year 2022 which is a positive sign for the
investors who are looking to expand their business in the market of Ukraine.
(Source: Statista, 2018)
GDP growth rate
The gross domestic product in Ukraine increased by 0.50% on the quarter in the last three
months of the year 2017, which is higher than an initial estimate of a 0.4% growth. GDP growth
rate in Ukraine averaged -0.04% from the year 2010 until 2017 (Trading economics, 2018).

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(Source: Trading economics, 2018)
The image of the growth rate of the GDP shows that the company is able to achieve the rise in
the GDP since the year 2015. Though the rise in the GDP growth rate is quite less in few years
this growth rate is expected to increase in the coming few years.
Consumption
The consumption mainly includes the consumption of the resource by the people. Over here, the
consumption is explained on the basis of food and consumption of resources. The pattern in the
consumption is changing from past few years.

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(Source: Mearns, 2014)
The country energy consumption is declining sharply after the post-independence as the country
has lost the subsidized energy imports under the communist regime and faces the market
realities.
The energy consumption is one of the important consumption that the investors consider while
expanding the business in the market. The graph reflects that the consumption of the natural
resources is decreasing in the country as more and more people are becoming focused towards
the sustainable resource and effective use of the resources in their business (Market Insider,
2013). The oil consumption has been decreased in the past few years due to the development of
the country and awareness about the conversation of the same.
Apart from the energy consumption, another consumption on which the country needs to focus is
the food consumption in the country. The exports of food estimates that an average person in the
country consumes 1,049 kg (2,321lbs) of food in the year 2015, which is 5.6% less than in 2014.

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(Source: Finance.ua, 2016)
There is a slighter decline in the consumption of the food by the people as the people are
showing their interest towards the healthy diet. The people are consuming more of the fresh fruit
that contributes to make them fit.
Employment
Employment in Ukraine decline after the Maidan but now the employment growth is expected in
the country. Below given is the list of the commercial sector by the employment growth in
Ukraine. This reflects that the employment in the air transport has increased by 23.5% in the year
2017. This data reflects the change in the % from the year 2015 to 2017.

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(Source: Kramar, 2018)
Moreover, the below graph represents the unemployment rate in Ukraine. The decrease in the
unemployment shows a positive sign for the country. In the year 2017, there was a major
decrease in the unemployment rate of the country but in 2018, the rate of unemployment is rising
which is one of the negative sign for the employment of the country. The unemployed rate in the
country enlarged to 9.9 in the fourth quarter of 2017 from 8.9% in the same period. There was a
rise in the number of unemployed people by 150 thousand to 1,761.3 thousand and employment
weakened by 473.5 thousand to 15,955.1 thousand (Kramar, 2018).

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(Source: Trading economics, 2018)
Prices
The prices in the market can be explained with the help of the consumer price index (CPI). The
consumer price index is a degree that inspects the weighted average of prices of a basket of
consumer goods and services like foodstuff, medical care, and transportation. It is calculated by
taking the prices fluctuations for the particular item in prearranged basket of goods and
averaging them.
The image reflects the CPI in Ukraine which improved to 101.10 Index points in March from
100.90 Index points in the February of 2018 (Trading economics, 2018). This reflects that there
is slighter rise in the CPI of the country which means they are obliged to pay slighter more prices
for the goods of the products.

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(Source: Trading economics, 2018)
Analysis of the microeconomic effects
The analysis of the microeconomic effect reflects the macroeconomic factors that can affect the
industry and their working in the country.
Hospitality industry
The industry in which the angel investor is looking for the expansion is hospitality industry. The
hospitality industry of Ukraine is increasing from past years which are providing an advantage to
the investors who are investing their amount in the business. According to the statistics, the hotel
market of the country recovers from recession slowly and gradually. The number of hotels at the
project stage is approx. 18, at the construction stage- 164 and at the renovate stage-70 (Sidletska,
2017). According to the report, the performance of the hotels in Ukraine industry has been
enhanced for the subsequent consecutive year in 2017 which helps the stockholders to get the
high return in the country. Moreover, after 3 years hiatus, global hotel brands opened and started
with the construction of the new projects for the hotels in Ukraine in the year 2017.

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In the year 2017, the important tourist sections place in Ukraine noted an increase of the traveller
flow and subsequent development of the operational performance of their lodging house. The
rise in the tourist leads to the occupancy of the places. The average occupancy throughout the
season extended to 92% in the main destinations places which include Odessa and ADR was by
8% higher as comparing it to the preceding year. Moreover, rendering to the local ministry of the
Tourism, in the 1st half of the year, the sum of travellers fallen to 1.3 million or by 30% over the
first half of 2016 (Sidletska, 2017). The average occupancy also collapsed to approx. 52% from
more than 80% recorded a year previous.
Macroeconomic development affects the hospitality industry
The microeconomic developments are GDP, employment, consumption and prices of the country
which are discussed above. These microeconomic developments affect the hospitality industry of
Ukraine.
GDP affect the hospitality industry
The GDP of the country is one of the economic factors that can create an impact on the
hospitality industry not only in Ukraine but across the world. The GDP of the country reflects the
purchasing power of the consumer in the country. The decrease in the GDP of the country results
in the decrease in the purchasing power of the people which can affect the hospitality industry as
people won’t be able to make the use of the five-star hotels and resorts (Riashchenko, Zivitere,
and Kutrieva, 2015). If in case they want to make use of the hotel and resorts then, in that case,
they make use of the cheap hotels so that they don't have to pay a high amount for the hospitality
services. Therefore, the company will not be able to generate the revenue which means that GDP
of the country create a major impact on the working of the company in the market.

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Apart from the revenue of the company, the GDP of the country results in the failure of the
business which leads to the shutdown of business in that market. Every business needs a
minimum amount of earning or profit for the survival in the market. The low GDP of the country
will not provide the maximum returns to the investors which results in the failure of the business.
The low GDP of the country results in the low economic development of the nation. In the
hospitality industry, the economic development of the country matters a lot as due to the
development the tourist likes to visit the place. If there will be no development of the country
then the tourist will not like to visits the place which can affect the working of the hotels and
resorts in the country. In the year 2017, the important traveller regions of the country noted that
there is an increase of the traveller flow and consequent development of the operational
performance of the guesthouses according to the analysis. Therefore, the GDP growth of the
country is very important for the hospitality industry in Ukraine.
Consumption affect the hospitality industry
The consumption of the goods and natural resources also create an impact on the hospitality
industry. The changes in the pattern of the consumption of the resources and goods by the
customers create an impact on the country.
In Ukraine, energy consumption is declining which reflects the two situations either the people
of the country are aware of the sustainable use of the resources or they have stopped visiting the
hotels where they make use of the resources in excess. The consumption of the resources affects
the industry as the more consumption leads to the trouble for the hotels and resorts as they won’t
be able to get the much resources for use. The less consumption of the resource is a positive sign

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for the industry as they are going to get enough resources which can be utilized by them for the
effect for the other business expansions and for the development of the country (Kirk, 2010).
The change in the consumption of the foods majorly affects the hospitality industry. The people
who are becoming diet conscious will not like to consume the food offered by hotels as their
menu reflects more or fewer dishes that can contribute to increasing the fat of the customers. The
hotel and resorts need to add some dishes that are made up of fruits which is mostly preferred by
the people in Ukraine.
Employment affect the hospitality industry
The employment in the country affect the working of the companies falls under the hospitality
industry. The high employment in the country reflects that the people of the country are involved
in the activities related to the development of the country which is a positive sign for the
hospitality industry. Though, the high employment is one of the issues for the industry because
in the hospitality industry the company need skilled and experiences employees who can help the
company in achieving the goals of an organization that is to provide the delight experience to the
customers (Shani, Uriely, Reichel and Ginsburg, 2014). If employment in Ukraine will be high
then the companies in the sector will not be able to find the skilled and qualified employees.
The employment of Ukraine is increasing which means the companies in the hospitality industry
will face the issues connected to the availability of the skilled and experienced employees.
Moreover, if the company will be able to find the appropriate employee according to their
requirement then they need to pay a huge amount as a salary along with the additional benefits
which include compensation for expenses, medical facility, travel facility and many others

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(Boella and Goss-Turner, 2013). The high expenses on the employees will reduce the profit of
the company.
Prices affect the hospitality industry
The prices affect the working of the hospitality industry in Ukraine. Considering the CPI of
Ukraine discussed above the prices of the products is continuously increasing due to which the
customers are supposed to pay high prices for the hotel services. According to the analyses for
the prices of the hotel room in Ukraine, the rooms are overrated if the consumer compares the
same with the average prices in Europe. Though, in the month of January, some hotel registered
the major decline in the process of the hotel rooms. Average room in Ukraine rate fell from $124
to $96 which is approximately 23% (Kulyk, 2011).
Moreover, the change in the currency of the Ukraine currency also affected the prices of the
hotels in Ukraine market. The consumers were obliged to pay more amounts when they found
the rise in the local currency or vice versa. For instance; In Kiev's ADR increased by 5.1% in the
local legal tender from the year 2016 to 2017 to $2,716.08 Ukrainian Hryvnias ($93.87)
(Vorotnikov, 2018). This rise in the currency value supported the Ukraine hotel industry as they
were able to generate more amount as revenue which is one of the positive effects of the
microeconomic development of the working of the companies that falls under the hospitality
industry. Thus, the analysis reflects that the prices of the hotels are high which high revenue to
the companies indulge in the business of the hotel and resorts (Öğüt and Onur Taş, 2012). Along
with this, angel investors who are willing to invest the amount in the sector will also get the
benefit in a return which is one of the positive aspects.

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Institutional and economic environment
Both institutional and economic environment are two different terms. Over here the institutional
environment is regarded as by the explanation of the regulations and rules to which an individual
organization must conform in order to accept the legitimacy and support (Gómez-Haro, Aragón-
Correa, and Cordón-Pozo, 2011). It includes the national structure of regulations, policymaking,
and adjudication. On the other hand, the economic environment refers to the environment in
which the business or company operates has a great influence upon it. In other words, it can be
said that the environmental economics is a sub-field of the economics that is anxious with the
environmental issues (Christelis, Georgarakos, and Haliassos, 2013). It consists of the structure
of the national factors market and the terms to access the international factors of the production
and social-cultural institutions like informal norms.
Government policies/initiatives in Ukraine for the hospitality industry
Ukraine is facing the political crises from the past few years and the country is hoping for the
recovery. Considering the opinion of Ukraine’s Vice Prime Minister, there were 13.6 million
tourists who visited the country in the year 2016. Moreover, from the last few years, there is an
increase in the number of the tourist. Considering the same Ukraine government has recently
approved a strategy for the growth of the tourism in the country until 2026. The strategy defines
the approach of the state tourism policy in terms of the legal support, regulatory, safety,
infrastructure development and many others.
Considering the initiative, it is expected to increase the domestic tourists by 5 times and 2.5%
times increase in the foreign tourists in Ukraine. Moreover, the country is willing to attract the
tourist from China as the inflow of the tourist from China to Ukraine is very low, about 20

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thousand in the year 2016 (Luebke, 2017). Most of the people of China who are willing to visit
Ukraine are worried about the safety and security which is one of the issues. There is lack of the
safety guarantee in Ukraine which is becoming the hurdle for the hospitality sector in Ukraine.
Considering the same, the company is suggested to take some actions that help the country to
invite and attract more investors towards the country. In addition, the government of Ukraine
will be able to form the strong relationship with the other countries which will help them while
trading.
Government policy affects investors’ decisions and entrepreneurial initiatives
The effect of the government policy or imitative on the investors’ decisions and entrepreneurial
initiatives is positive because the government of Ukraine is willing to enhance their number of
tourist including both the international and domestic. The rise in the number of tourists will
enhance the possible opportunities for the more revenue and growth of the business for the
entrepreneurial that is willing to start their business in the sector of hospitality and in the market
of Ukraine.
The investor’s decision will also get affected because of the government initiative for attracting
the tourist in Ukraine. The government of Ukraine will attract more and more investors who are
willing to expand their business in the market of Ukraine in the sector of hospitality. The
investor will get the maximum returns if they will expand their business in the hospitality sectors
because in the coming years the number of tourists will increase which helps the company to
generate more revenue (Lerner, 2010). The highest revenue provides the maximum returns to the
investors who invest their amount in hospitality sectors. Therefore, the initiative of the
government is positive for the investors.

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Conclusion
In the end, it can be concluded that the angel investors will get the benefit if they expand their
business in the market of Ukraine and in the hospitality industry. This is the fact that this
industry is increasing rapidly from past years which is one of the positive aspects due to which
investors will get the benefit. Therefore, it is recommended to the angel investors to invest in the
market of Ukraine and in the hospitality industry because there is a vast opportunity in the
market of Ukraine which will help the investors to generate the huge amount of returns.
The market analysis of Ukraine has been from the investor’s point of view which will help them
in making the effective decision. The analysis of the macroeconomic development reflects the
broader term that helps the investors to foresee the overall growth and returns. The
macroeconomic developments can affect the hospitality industry which is one of the crucial
aspects that is essential to be analyzed because this leads to the decision of the investors. This is
the fact that the decision of the investors is totally based upon the analysis of the country and
industry in which they are looking to invest because this may lead to the success and failure of
the business.

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