Page last updated at 22:51 GMT, Wednesday, 10 December 2008

Ukraine faces up to industrial crisis

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Inside a Ukrainian steel plant

By Gabriel Gatehouse
BBC News, Ukraine

It looks like a vision of hell.

As the giant furnace slowly tilts, a container of pig-iron is poured into the converter.

A fireball erupts briefly in the middle of the vast shed. The workers standing nearby shield their faces from the heat.

This is the Ilych steel factory in Mariupol - one of the largest in Ukraine and it employs more than 50,000 workers.

Steel accounts for 40% of all of Ukraine's exports, and so it is also a vital source of foreign currency reserves. Or at least it was.

Demand plummet

In November, this former Soviet nation with a population of 46 million people, secured a $16.4bn (11.1bn) loan from the International Monetary Fund (IMF) to stabilise the banking sector.

But given its economy is heavily dependent on industrial exports - and especially steel - Ukraine is suffering as the rest of the world feels the pinch.

In a dark corner of the factory, Roman, a plant foreman, points to one of the giant converters, standing idle.

Factory worker Yaroslav

If this factory closes down, life will be hard. Not just for me, and for the workers here, but for the whole country

Yaroslav, factory worker

In normal times, he says, this furnace would be hard at work.

But global demand for steel has plummeted, and so there is simply nothing for it to do.

Yaroslav, one of the workers, admits that he and his colleagues are getting nervous.

"We've all got loans to pay off", he says. "This factory is our main source of income. Everything depends on the factory. If this factory closes down, life will be hard. Not just for me, and for the workers here, but for the whole country."

Vladimir Boyko, the director of the Ilych factory, says that he has reduced production by about two thirds.

"We're cutting workers' pay by 30-35%", Mr Boyko adds. For the moment, he's not planning any lay-offs, but he won't rule them out.

And the wider implications of the plight of the Ilych plant are not lost on him.

"Of course it will mean colossal losses for the state," he says.

Eerie


We don't buy meat any more. Or sausage. Just potatoes, tea and coffee. We don't have the money for anything else

Tatiana, wife of a factory workler

The Ilych plant, in the east of the country, in is not an isolated case. Across Ukraine, steel production is grinding to a halt.

Makeyevka is another steel producing town in the Donbas, near the regional capital, Donetsk.

It is an eerie experience, standing on the rusty iron footbridge that runs across the middle of the factory, in the middle of the day.

Instead of the bustle of hundreds of workers coming and going onto their shifts, there is almost total silence. The plant has completely stopped working.

Roman the foreman
Workers at Ilych, such as foreman Roman face an uncertain future

And for the 7,000 people who worked there, there is nothing else to do.

"There simply isn't any work", says Aleksandr. Like his father and grandfather before him, he worked at the factory. So did his wife, Tatiana, and her eighteen-year-old son.

"People don't know where to find another job, and they're just sitting around at home. I've got two loans to pay off. In August I borrowed money to buy a car. Now I don't know what to do - maybe it will be repossessed. And we have to pay the rent."

Tatiana says she's having to economise on food for the household: "We don't buy meat any more. Or sausage. Just potatoes, tea and coffee. We don't have the money for anything else."

Knock-on effect

No one knows how long this crisis will last, or how deeply its effects will be felt in Ukraine.

But the figures are not encouraging: the metals industry employs half a million people, and accounts for nearly 30% of Ukraine's GDP, and 12% of the country's tax revenues.

About half the country's steel-making furnaces have closed already, and the Ukrainian government has declared the industry to be in crisis.

A convertor at the Ilych steel factory
Steel production at the Ilych in eastern Ukraine is slowing down

Tatiana Orekhova, an economist at the University of Donetsk, says the impact will be felt much more widely.

"Every day our region is losing about $40m or $50m. That includes losses from the metallurgical works and losses from all branches that have connections to this branch."

Certainly that seems to be the case at Mariupol port.

This harbour on the Azov sea is the hub from which steel from the Ilych plant is exported.

Now, its dozens of cranes are standing still, as the effects of the global financial crisis ripple through the Ukrainian economy.

Back at the plant itself, Roman the foreman points to a group of men with hoses putting out one of the furnaces that turns the steel into its final product - in this case long, flat slabs.

This part of the factory has finished its work for the day, and it's not even lunch time. And, as yet another fire is extinguished here, Ukraine's chances of weathering this crisis look slimmer and slimmer.

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