Candidate of Economy, research associate of the Institute of Economic Prediction of the National Academy of Sciences of Ukraine

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Transition of the world economy from industrial to informational stage of development caused services assuming much greater importance in economic life. The applied scientific research, being a constituent of non-manufacturing trade, is determinant for the innovative evolution of material production. Effective tertiary industry as an important component of the goods production infrastructure is an essential prerequisite for latter's stable growth; it is of fundamental importance for adequate employment, contributing more than goods production to the increase of workplaces.

Services providing industry gradually becomes dominating both in the developed and developing economies. In the year 2000, 64 percent of the world GDP was made through the non-manufacturing business with contribution to that of 68 percent in the industrial countries and providing 54 percent in the developing nations. A strong impact on development of the service economy has the process of urbanization that is going on in the overwhelming majority of the world countries. Fully-grown service industry not only accompanies economic development but also makes for it. Today, full-of-life economic activity without modern transport, means of telecommunication, fully-fledged banking system is unimaginable. Due to the rapid development of computer facilities and software, provision of information services assumed special importance for economic growth.

Under the transition to information society, the advance of human potential and expansion of intellectual and physical capabilities of labor resources acquire special significance. Human factor becomes decisive in the process of manufacturing science intensive goods and services. The accelerated pace of life, increased physical loads and mental strain caused by bitter competition on the

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external and internal markets impose special conditions on labor resources. Training of a present-day employee requires adequate amount of educational, recreational, health, etc. services.

During the coming decade or two further intensification of the globalization of the external economic activities is expected that is to be accompanied with growing of external trade in goods and services and stepping up of workforce movement intensity on the world market. Under such conditions, transport industry gains importance overall and, in particular, in the part of it, this is to serve the transit flows of goods. In view of considerable transit potential of Ukraine, strategic weight assumes the task of using the communication lines of the country the most fully.

At present, the efficiency of the export component of the domestic service industry is inadequate, resulting in the decrease of the total volume of the exports (see Table). During 2001, Ukraine exported services for 4 billion U. S. dollars while importing them for 1 billion. Over the period from 1997 to 2001, the country's annual balance on services sold abroad was in the black and on average amounted to 3 billion U. S. dollars per year. The services export earnings were predominantly provided by the transport enterprises, which portion made up 84 percent, according to the State Statistics Committee. Pipeline transportation brought in 51 percent of the entire revenue with correspondingly 11, 9, 7, and 6 percent weighed in by sea, rail, air, and motor transports. Contribution of each of the other services, that is, communication, repairs and maintenance, research and development, and so on, in general rarely exceeded 3 percent.

Among the world countries, Russia turned out to be the principal customer, having consumed during 1997 to 2001 sixty five percent of all the services. Great Britain was second with only three percent, as well as the USA and Germany among the countries of the West that ordered services on par with the UK. Besides Russia, Belarus and Moldova were leaders among the former USSR members that applied for Ukrainian services.

Presently, approximately 67 percent of export services are provided through operation of transit goods traffic. The domestic transport complex is attractive to provide transit commodity traffic flows in Eastern Europe for several reasons. Firstly, due to favorable location, as well as cheapness of construction and operation, still at the time of the Soviet Union existence a powerful transport infrastructure was created in Ukraine, which advantages compared, for instance, with Krasnodar Territory of the RF, that also provide for the Russian transit traffic, remain obvious. Secondly, the domestic transportation complex is highly instrumental in the TRACEKA project, which is of considerable importance for cargo movement between the EU and countries of Caucasus and Central Asia. The policy of diversifying cargo traffic flows pursued by Russia and the EU is unable to remove the superior and favorable position of this country's transport complex but only serves another incentive to raise its competitiveness.

The demand for export services of this county's transport complex will be defined in the medium-term future by the economic development of the nations, which goods are intended to go through the Ukrainian territory. One could classify

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these countries into three large groups:

* EU and other industrially advanced nations;

* CIS members; and

* Central European countries that are joining the EU.

Although the roles these countries play in the world trade are not similar, stirring up of their foreign economic activity should be expected in the medium-term future.

Table 1. The dynamics and structure of the domestic services

Source: The State Statistics Committee of Ukraine

Also expected are output increase and foreign trade expansion during the same period in the Russian Federation, which is the principle customer for the Ukrainian transport services. Experts of the Ministry of Economic Development and Trade of the RF believe that the country has reached in general the stage of stable economic growth. They are looking forward for the rates of GDP and industrial output to be no lower than 4 percent for the near-term outlook. Primary energy resources production and export will grow, especially, of electricity, oil, and natural gas. As compared to 2000, export deliveries of electric power will increase by half in 2004 with 65 percent rise in natural gas supply.

Recognition in 2002 of the Russian Federation as a country with market economy by the USA and EU is to be seen as important step for Russia on its road to joining the World Trade organization. To facilitate the process, the United States had declared moratorium on antidumping probes against the RF in July 2002. The Russian Federation WTO membership should drum up still more the export of Russian energy carriers and raw materials, which consumers are countries of Western and Central Europe.

Experts believe that within two decades the perceptible economic growth is expected in the countries of Central Europe as a result of their EU membership. For instance, after joining the EU during the 80' of the last century, Greece, Spain, and Portugal experienced appreciable increase of direct foreign investments into their economies. Combined with donations from the central EU funds, all this positively affected their rates of growth. It is highly probable the EU joining by the Central European countries will proceed under similar scenario. Taking into account the desire of these countries to sell their goods in the CIS countries and buy raw materials there, the expansion of trade eastward is predictable.

In the middle-term future, one should expect trade to grow between the EU and countries of the Caucasus region and Central Asia. During 1996 to 2000, the trade turnover was on the increase from year to year, specifically due to the EU imports. Export, however, should grow as new Caspian deposits are developed. In favor of the outlook for the turnover increase between the EU and these countries speaks the fact that at present it amounts to mere fifteen percent of that between the

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EU and Turkey.

The density of transit goods traffic flow depends not only on the scale of regional trade, but also on competitiveness of the transport complex. Competitive activity is expected to become stiff for transit cargo between countries of the Black Sea and Baltic regions. Under accelerating globalization, the rise in the volume of the world trade makes transit business lucrative investment of funds. The expansion of carrying trade and construction industry gradually removes monopolistic control in international shipping operations. For this reason, competitiveness of the transport complex becomes the essential feature of the development of transport services.

Among the factors that would negatively affect the export of Ukrainian transport services one may reckon the diversification policy pursued by the government of the RF and active joining by this country the market of transport services. Within the frames of the said policy of diversification, the activity would continue for rerouting Russian export cargo processed at present at ports of neighboring countries to the Russian ports, with the Baltic Pipeline System, Caspian Pipeline Consortium and the "Blue Flow" Gas-pipe projects development being promoted further.

By the highest standard, construction of roundabout pipelines is not to the advantage of either Ukrainian or Russian side. Pipeline laying and their operation are relatively very costly; the commodity is being routed to the consumer not optimally with concentration of it in considerable volumes within narrow sections (e. g. Krasnodar Territory of the RF) threatening orderly pace of deliveries and posing hazard to the environment. For this reason, in our opinion, the best solution is joint operation of the domestic pipeline system. It remains in the property of government and serves as a budget source. The Ukrainian transporters have their Russian partners to serve as supplementary supervisor to secure cargo safety during transportation and control prices in accord to freedom of transit principle. The joint ownership of the pipeline system is, to a certain extent, a guarantee of its smooth operation and renovation at the expense of the Russian side.

In July 2000, the Russian Federation adopted the Federal Target Program for transport development. To carry out the basic provisions of it the Treaty was signed in September 2000 between the RF, India and Iran on creating transport corridor North- South running along the route: Finland-Saint Petersburg-Moscow-Astrakhan-Caspian Sea-Iran-Persian Gulf countries. The starting freight load base for the rail, motor, and water sections of the corridor should become 8 million tons of cargo of the RF's trade with India and Iran. In future, the corridor is to link countries of Europe with the nations of Central and Southeast Asia. The Government of the RF is considering creating additional branch route to follow the path: Caspian Sea-Volga-Sea of Azov- Black

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Sea-Danube. Hence, Russia has serious intentions to create an alternative to TRACEKA transport corridor passing through the territory of Ukraine, and to divert from it part of the cargo traffic flow.

As part of the middle - and long-term programs of the RF for social and economic development, the problem is set clearly to secure servicing of export cargo traffic by predominantly Russian means of transport. To achieve this, both administrative and more reliable economic means are being employed. Specifically, railroad rates were cut in Russia for export goods that are going overseas through the Russian seaports. Particular attention Russian transporters are paying to the promising transit of energy carriers from Kazakhstan, Azerbaijan, and Turkmenistan.

In the middle term perspective, the external situation overall favors expansion of export transport services. However, the sound strategy of the transport complex development directed at strengthening its competitiveness is of critical importance. Prediction may come wrong and the effect of negative factors may prevail over the positive actions, but with a highly competitive transport complex, maximum profit could be obtained even under unfavorable external conditions. The important constituent of the development strategy is the rational investment policy that is based on prediction of technological progress in the sphere of transportation.

The characteristic feature of the present-day stage of transport development is extensive introduction of electronic monitoring means, automated traffic control systems, and technologies involving planning and management of complex tasks. The rolling stock and infrastructure installations are becoming increasingly "saturated electronically" requiring adequate general and special training for the transport employees.

The stable tendency of recent decades is the increase of use of standard containers, including also the ones for liquid cargo. Container shipping is decisively superior: reloading is getting much faster and inventory is simplified; interaction between different transportation means is improved with the sealed cargo not polluting environment. In 1996, 154.6 million standard containers were transported in the world; their number will rise to 428.1 million before 2010. For this reason, special heed should be paid to replenishment of the rolling stock with specialized container carrying vehicles and expansion of container terminal construction.

One of the principal means to cut recurrent transportation expenses is the use of super big transport vehicles. It had become especially evident lately with the sea and motor transport. For instance, in 1985 container vessels more powerful that 2 thousand TEU made up only 15 percent of the ships of this type: their number in 1997 rose already to 60 percent. Super large transport vessels and vehicles require special infrastructure be available (that is, deep-water ports and specially adapted motor highways, etc.), which development and improvement is a component of integration into the worldwide transportation system.

Prediction of the ways the technical progress is to take in the transport sector is necessary to define the priorities for capital investments. Attracting sufficient investments for renewal of infrastructure and rolling stock, introduction of

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advanced technologies of transportation and control are the primary factors of enhancing competitiveness of the transport sector. Gradual reformation, which principle task is the enhancing efficiency of transport operation is to become important element of increasing investment in transport sphere. On the one hand, it expands opportunities for self-finance, and on the other hand makes the installations and units of transport more attractive for the investors.

In reforming the transport complex two strategic courses of action may be arbitrary emphasized:

* Enhancing efficiency of the natural monopolies, that is, state enterprises; and

* Expansion and strengthening of non-government sector in the sphere of transport.

Reformation of the government enterprises is to be affected through the following: strengthening of economic self-sufficiency through decentralization; improvement of the normative methods of planning (that is, estimation of optimal costs, wages-fund, and profitability level for natural monopoly enterprises); reinforcing control over observing the established norms, etc. Among the reorganization measures the primary emphasis should be made on management decentralization (in other words, delimitation of authority on tariff policy between the state and regional levels of control); managerial separation of goods transportation from conveyance of passengers, as well as long-distance conveyance from local passenger services; organizational detachment of air terminals as well as repair services in all types of transport sphere; structural separation of natural gas transportation from the sale of it and distribution operations.

Management decentralization should be supplemented by applying commercial principles. This stipulates transfer from administrative to contractual relationship with related branches, introduction of a balance sheet accounting of one's own, and passing on to management based on self-repayment and economic accounting. The idea of commercialization is incompatible with crisscross subsidizing and donations that destroy the incentive for efficient management. For this reason, the strategic task is the gradual rejection of the practice of crisscross subsidies, substituting donations to transporters with target assistance to socially unprotected strata of population.

Rail and pipeline transport industries are examples of classic type of large and technologically indivisible transportation complexes. The pattern by which the countries with transitional economies started reforming them are very similar. First, a stock company is set with 100 percent share in government hands that was sold later in stakes to private subjects of economic activity. Concurrently with privatization, decentralization is going on at the headquarters of the stock company with separate subdivisions acquiring the status of affiliated companies. In our view, the domestic rail and pipeline transports should be reformed under similar scheme, although defining previously the rate and sequence of the process.

In the case thar the privatization of the government property is impossible, efficiency of its utilization could be enhanced through leaseholds or concessions. This primarily concerns highways, and installations and units of sea, rail and pipeline transports. If the entities are to

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be transferred for use by foreign businesspeople, in addition to being a supplementary source of investment, this will create ponderable incentive to route transit cargo through Ukrainian territory. In particular, it is a common practice with the sea transport to rent berths and lands located on its territory to regular customers of the port.

The leadership of the European Union follows the policy to privatize, decentralize, and demonopolize the transport sector of economy. Hence, every country aimed at joining the EU must pursue the similar policy. In this way the course for integration into the EU serves as a powerful stimulus for reformation of the transport complex with successful completion of the reform being an important prerequisite for the entry.

Integrating into the transport complex of the EU members presses for special priorities of the investment policy to be set. In our opinion, such priorities in the mid- term outlook should become the so-called "Crete" transport corridors and crossings for transport vehicles on the western border. In due time such transport corridors were marked out as the optimal lines for intensive communication between countries of Western, Central and Eastern Europe. For this reason the elaboration of the Ukrainian sections of these corridors must be seen as the starting point of the process of putting the national transport complex in compliance with the European standards. At present, border crossings require immediate upgrading since it is the source of bottlenecks for communication between states.

Another priority for developing the transport complex within the context of European integration is improvement of railroad transport, which importance for regional intercourse follows from the present state of the EU's transport industry. One of the features causing alarm with the leadership of the EU is lopsided development of motor transport. Nowadays, its share in the freight service makes up 44 percent, with the same of the sea coastal carriage, railroad, and inland water transports correspondingly 41, 8, and 4 percent, while with passenger conveyance it is even greater amounting to 79 percent. Such a misbalance results in the increased emission of the 'greenhouse' gases, 84 percent produced by motor transport, and chronic traffic jams.

Experts of the EU believe that the way-out is in the increased role of the railroad and sea transport, as well as in perfecting interaction between different components of transport complex. In particular, they intend to use the railways of the countries joining the EU to remove disparity in the transport sector.

The Euro Commission requests urgently the governments of the said countries to preserve in the middle-term future their portion of railroad transport, which was treated preferentially at the time of centralized planning. Therefore, Ukraine may also contribute to the removal of the EU transport imbalance by developing its railroad transport.

By inference from what was said above, the following conclusions can be inferred. In the middle-term future, the best conditions exist for expanding transport services (including maintenance of transport facilities), as well as tourist and science intensive industries (e. g., satellites commercial launching). All the necessary requirements are met in Ukraine, which only need to be backed up

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by rational structural and investment policies. Other types of services (that is, ones connected with construction, insurance, computer use and licensing) failed to show tendency for rapid growth after the country gained independence, and, most likely, will play secondary role in future, too.

Among the transport services, operation of the transit cargo traffic from the CIS countries to the European Union is of the most importance. The special risks assumed that may prevent development of the domestic transport business are escalation of competition on the regional market of transport services; drive of the Russian government to assign its export cargo to it own transport complex; and expansion of the EU borders to the Black Sea, thus routing TRACEKA corridor in detour of Ukraine. The principle means to counteract the negative effect of the factors mentioned is substantial enhancement of competitiveness of the domestic transport complex, which is to be carried out by proper budgetary funding and gradual reformation.

One should see decentralization, demonopolization, and privatization as strategic courses for reforming the transport complex, with establishing relations of concessions and leaseholds. In the context of the European integration, bringing the transport infrastructure, rolling stock and machinery of management and control to comply with the EU standards is becoming strategically important. The priority targets of investments should become the Ukrainian sections of the "Crete" transport corridors.

Notes

1. Концепція розвитку транспортно-дорожного комплексу України на cередньостроковий період та до 2020 року. http:/www. mintrans. kiev. ua/ontp_u. htm

2. Постанова КМ України від 20 березня 1998 р. N346 "Про затвердження Програми створення та функціонування національної мережі міжнародних транс-портних коридорів в Україні".

3. Постанова КМ України від 9 листопада 2000 р. N1684 "Про затвердження Концепції реформування транспортного сектора економіки".

4. Постановление Правительства Роcсийской Федерации от 18 мая 2001 г. N384 "О программе структурной реформы на железнодорожном транспорте".

5. Закон України "Про Комплексну програму утвердження України як транзитної держави у 2002-2010 роках" від 7 лютого 2002 р. N 3022-III.

6. European transport policy for 2010: time to decide. White paper. Commission of the European Communities. Brussels, 12/09/2001, COM (2001) 370.