Shadow Economy in Ukraine Nearly 50% of GDP

12.08.2009

According to research conducted by the Ukrainian newspaper Delo (Russian only), the country’s shadow economy represents 45.4% of GDP, or 420 billion Hryvnia (approximately $52.5 billion).

Retail trade was found to have the greatest volume of shadow transactions among various sectors of the economy at 50% of total transactions, followed by construction and real estate, the financial sector and agriculture. Retail trade is estimated to make up about 16% of Ukraine’s economy, which would mean that 32 billion Hryvnia ($4 billion) of retail trade transactions take place in the shadow economy.

The report also points out that while Ukraine’s banking sector has had a strong influx of foreign capital in recent years, and is considered one of the more developed sectors of the country’s economy, strong regulation has not prevented banks from servicing clients who derive their profits from the shadow economy.

The report argues that bogus insurance companies are particularly favorite vehicles for laundering money and avoiding taxes, and that large companies have also manipulated the stock market to lower their taxable bases. The report also points out that for small enterprises in the agricultural sector, cumbersome licensing and registration procedures, and high rates of taxation are the main factors driving producers into the shadows.