The Impact of Odessa Sea Port on Agglomeration Tendencies in the City

The Impact of Odessa Sea Port on Agglomeration Tendencies in the City 

by Valeriia Sehstak

“The port is itself an existence of Odessa” Lanzheron A. (1763-1831) - former governor of Odessa, made the port of Odessa a free port (selling and storing imported goods with no customs duties) in 1819


The port of Odessa is one of the largest sea ports on the Black Sea and the Sea of Azov. It is considered to be the biggest passenger port on the Black Sea and a leader in cargo handling volumes among all of the 17 Ukrainian sea ports. The capacities of the port are such, that it can handle more than 21 million tones of dry and 25 million tons of bulk cargos every year. The passenger terminal is being used by roughly 4 million tourists annually. 

The port, stevedoring companies, other state and private companies related to the sea port activities, employ around 110,000 people. Given the aforementioned data, it is not hard to come to the conclusion that regional economics and the city prosperity and development are closely connected to this piece of infrastructure. This transport hub serves as a cluster of crewing agencies, logistic companies, building and wholesale trading firms, etc. In this regard one can see how the first nature conditions (the presence of the Black Sea) and the so called “one and a half geography” (meaning sea port as an infrastructure) can explain not only the fact that Odessa is one of the most developed cities in the whole country, but even agglomeration processes occurring throughout the whole history of the city, leading to the fact that Odessa became the regional center with more than 1,4 million people population of various nationalities and backgrounds.

The presence of port contributed to relatively high wages in the city, even despite the fact that Odessa is not the capital city of Ukraine. According to the data released in the end of 2011, the city not only has the lowest level of unemployment along with Kiev, but also has the highest level of relative wages if to compare with the cities similar population wise. Those effects can be partially explained by the presence of the sea port and high local market potential. However, here not only the local market matters. The city itself and the port have a rather crucial strategic location, as via using the port infrastructure and capacities, the region and the country itself are able to trade with 100 countries worldwide because of the transport lines that are eventually connected to 600 ports. The port also services ferries directly connecting the region with Greece and Turkey, two countries that also have a large market potential and have a spillover effect on the development of Odessa region.

However, I would argue that despite all of the benefits that the region gets from this piece of infrastructure and the market potential effect, the pace of development that can be extracted from this is far from its limit. The port cannot handle the economies of scale that arises with the development of shipping industry and especially a very rapid and far going growth from the Turkish side. Thus, major changes are desperately needed in order to benefit from the opportunities that globalization along with the extensive trading can give to the region and eventually the country itself.

One of the possible ways out has been presented by the U.S. Agency on international development, when the Plan for potential development of industrial zones and logistics territories has been introduced in 2011 and is supposed to be fully implemented by 2025. According to this development plan not only the capacity of the port will be considerably increased, but also a lot of industries and logistics companies will be established due to the port territory enlargement. The project will also require building new highways and roads and will create a lot of transportation hubs. The conceptual scheme of the whole enlarged area being under development can be seen on the picture below.



*The area that is currently being used is marked with orange circles; the rest should be built according to the 2011 Plan for potential development of industrial zones and logistics territories by the year 2025.

Thus, the enlargement of Odessa Sea Port will not only create enhanced clustering of the logistics and industrial firms nearby the port facilities, but will also enhance international trading in the region and create a basis for growing number of intermediate industries that will arise immediately after the port will obtain a bigger scale (such as maritime agencies, financial firms, etc.). According to the plan described above, the area will also have some space for non-commercial real estate, hence, enlargement of the facility will lead to the concentration of both enterprises and people in the area.

The benefits of such a development plan are clear when one refers to the New Economic Geography model, where larger scale and lower in costs trading in the sea port zone under development will lead to agglomeration tendencies. The city itself will also benefit and attract more firms and labor force; however, one should also take into account whether the activities of local authorities will be beneficial in terms of favorable business environment in the region.

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Slavutych: the Future of the Chernobyl Survivors’ Shelter

Slavutych: the Future of the Chernobyl Survivors’ Shelter

by Anastasiia Polner

What associations do you have when you hear the name – Slavutych? Slavutych is a city in Kyiv oblast, Ukraine, the population of which is 24 500 people – this information pops up in the first lines of the Wikipedia article. Nevertheless, the important facts are different. Slavutych is situated only 50 kilometers away from the ill-fated Chernobyl Nuclear Power Station (CNPS), where the disastrous catastrophe happened in 1986 due to the nuclear fallout. It is the youngest city in Ukraine and was constructed to host the survivors of the accident who were evacuated from Prypiat. 26 years ago Pripiat used to be home for thousands of Chernobyl personnel and their families; nowadays it is a ghost city, totally abandoned.

Chernobyl nuclear disaster is considered to be the most horrible in the history of Nuclear Power. Before the accident Chernobyl was producing 10% of Ukraine’s electricity. Today Prypiat and Chernobyl factory are surrounded by 30 kilometers of Chernobyl Exclusion Zone. Even now there are some places on that territory that are dangerous for live beings due to high level of radiation.

Yet, some people still work on the factory to maintain, monitor it for safety reasons and work upon scientific researches. More than half of Chernobyl employees are actually construction workers, building the Shelter, known as ‘Sarcophagus’ that covers the 4^th reactor, where the explosion happened. All those people live in Slavutych. Today, out of its 24 500 citizens around 3 800 work in Chernobyl, even after the remaining processes in the nuclear units were finally stopped and the whole factory was officially shut down in 2000. Before the final shutdown half of the grown up population of Slavutych, or around 9 000 people, worked on the plant. Since the shutdown the city started to find itself in crisis; around 1 500 people already left it looking for better life in other regions of Ukraine.

Let’s look at the situation from the perspective of Spacial Equilibrium model. It analyzes the migration of working force by looking at the dependence between salaries, cost of living, comfort of living (so-called “amenities”) and personal preferences. For example, the model claims that shocks in demand or supply of the labour force and the corresponding changes in wages will be partially absorbed by changing housing prices. Accordingly, local demand for housing can be derived from other factors of the model.

As the counterparts of Slavutych we take two neighbouring regions – Kyiv and Chernihiv oblasts (without the capital city itself), because they are the main areas for people’s migration from Slavutych.

The numbers tell us an interesting story. The average salary in Slavutych is 475 Euro (and almost 700 Euro for those who work at Chernobyl Station) – much higher than the country average value of 300 Euro. The region average salary is also lower at 280 Euro. With such difference in levels of income we might expect higher housing prices in Slavutych compared to neighbouring regions. However this is not the case. With a price of some 500 Euro per square meter Slavutych lags behind its neighbours by some 200-300 Euro.

One reason for that is historical: Slavutych was built in emergency and all people who moved to it, naturally got their apartments for free.

Another explanation comes directly from the Spatial Equilibrium model. On the one hand, according to different researches, Slavutych has some good-quality amenities. For example, the city consistently holds its place among the top-20 wealthiest Ukrainian cities and the top-20 most comfortable Ukrainian cities according to Focus magazine. It scores high in terms of budget spending per capita, number of supermarkets, green areas and sport venues. On the other hand, however, the preferences for living in Slavutych are really weak - virtually non-existent. That is because of poor ecological situation and the constant health risk that the workers are exposed to. As a result and not contradicting the model, average salary in Slavutych is high, whereas housing prices are low relative to average wage and housing prices in the neighbouring regions. Stated differently, it means that workers are willing to move to Slavutych if, and only if, the salaries rise without the corresponding growth in the cost of living.

We can confirm our conclusions by looking at the situation in dynamics. After the shutdown of the plant in 2000 people started to flee from Slavutych, lowering demand for accommodation, putting additional downward pressure on housing prices and confirming our proposition about very weak location preferences.

The future of Slavutych looks obscure. The city has a weak level of business activity, it creates not enough of new jobs annually, and has a deteriorating infrastructure. Finally, the Chernobyl station inevitably will be closed, sooner or later. So, if the city survives in such circumstances, it will happen because of long-term forward-looking policy of reforms and diversification. Slavutych will cease to be a unique place on the region’s map; on the contrary, it should integrate into local business chains and processes. To conclude with, the factor of utmost importance that should be taken into account is the weak preference of people to live near the radiation zone.

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Construction Cluster - First and Successful Clustering Experience of Ukraine

by Denis Nedin

One of the biggest achievements of Khmelnytskyi region is introduction of the first in Ukraine cluster model of regional policy of economy. Moreover, this case is especially interesting since it serves as a prominent example of effective cooperation of government, business and institutions concerning in revival of regional economy. This was activity of Khmelnitskyi Regional Civil Organization “The Podillya Pershyi Association” which united heads of regional state authorities, heads of Khmelnitskyi authorities, directors of private and state enterprises, professors, bankers, leaders of NGO. As a result, the Khmelnitsky Regional Public Association “Construction Cluster” was registered in August 14, 2000 and started implementing in full a managerial role in the cluster.

Distinctive feature of clusters, in spite of its scale and industrial accessory, is focus on creation and production of competitive products which can be exported abroad or at least to other regions. However, the cluster in Khmelnytskyi region is special form of the cluster model because construction industry is, first of all, oriented on domestic market and main product is building of modern comfortable housing.

Nevertheless, possibility of cluster creation in this industry area was feasible due to several reasons. First, Khmelnytskyi region is transitional territory for high financial flows: there are large wholesale markets, and significant amount of remittances are being transferred from abroad. Therefore, it was expected that activity of the Construction Cluster would assist redistribution of these transits in favor of local construction and production of construction materials.

Second, Khmelnytskyi region has large reserves of natural resources, most of them are used in construction, which stimulates active building in the region. Thus, utilization of own minerals for producing construction materials provides corresponding workload of associated companies, reduces transport costs and positively affects prime cost of final product .

Construction cluster differs from other types of clusters because of very diverse members and broader scope of goals. The cluster combines all components of production process ranging from minerals suppliers to consumers of final goods, including service sector and specialize infrastructure.

Nowadays, Construction Сluster consists of 32 companies specializing in implementation of construction works, production of construction materials, projecting, designing, enterprises and establishments of infrastructure which provide trade, juridical, audit, marketing, training and research development services. The most important players are: Khmelnitsky Design Institute "Tsyvilprombud", Khmelnitsky National University, PF "Prospektbud", LLC "Budklast", LLC "Budvest-tempo", LLC "Building Industry", PF "Dita", JSC "Khmelnitsky Plant Building Materials ", LLC" Trade House "Megapolis", HF JSC "State Export-Import Bank of Ukraine", Podolskiy Department of Capital Construction of Ukraine, Scientific-Production Enterprise "City", CJSC "Electro", JSC "Hmelnytskhaz", HF "Ukrsotsbank", HF JSC "Bank", JSC "Slavuta Ruberoid Plant", LLC "Kamenetz", Center for Scientific, Technical and Economic Information, State Center for Standardization, Metrology and Certification, and others .      

The main goal of the integration is achievement of concrete economic result – production of competitive product which enhances efficacy of activity of every individual enterprise and accelerates the development of regional economy.

In order to assess effectiveness of the cluster, I consider dynamics of the construction companies (table 1). As we can see, over the period from 2000 to 2009, the volume of realized products in construction increased 5 times. At the same time, the number of construction enterprises increased by 50 per cent, from 14 in 2000 to 21 in 2009.

The raise in number of economic agents indicates attractiveness for investments. It is worth to point out that decrease in number of people employed in construction and, at the same time, the growth of realized products during analyzed period is an evidence of boost in labor productivity which is certainly positive tendency. There is also observed an increase in average wages of constructors by more than 8 times from 2000 to 2009, which is the biggest rate in Khmelnytskyi region.

Table 1. Main indicatorsof construction cluster

The level of profitability increased three times – industry turned from unprofitable to profitable.

Economic effect of creation construction cluster is caused by production and building cooperation which allowed: to use effectively aggregate potential of network partners; to diminish costs on modernization of construction products by passing part of work to specialize partners; to enhance effectiveness of supplying construction production with building materials, details, constructions on the basis of establishing long-term partnerships; to increase efficiency of execution of certain managerial functions through division of labor, involvement of specialize organizations of building profile; to increase efficiency in marketing, servicing and purchasing of essential resources; to improve reliability of network partners in investment and production sphere .

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