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Ukraine Will Be Able to Restore Its Economy Only by Cooperating With Russia

Ukraine is beginning to realise the scale of the damage that it caused to itself due to cutting economic ties with Russia. In only five years the country managed to lose about $80 billion and to stop many industrial enterprises. How much time will it need to return to the level of 2013? And under what conditions is this in general possible?

Over the last five years Ukraine lost $75-80 billion from the reduction of trade with Russia, said the deputy of the Verkhovna Rada Vadim Novinsky. “Our enterprises that were oriented towards the Russian market and the market of the CIS countries, are just idle,” he noted.

<figcaption>A Cossack plays the bandura </figcaption>
A Cossack plays the bandura
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Ukraine needs at least 35 years in order to return the economy to at least the level of 2013, and the main condition for this purpose is the restoration of ties with Russia, assured Novinsky. “It is our neighbour and there is no getting away from it. Throughout centuries it will be our neighbour. It is necessary to live with our neighbour in normal relations – only a bad proprietor lives with a neighbour in a state of constant fighting. A good proprietor is on friendly terms with the neighbour,” summarised the deputy.

After Vladimir Zelensky’s victory in the presidential election the Federation of Employers of Ukraine recognised huge losses from the severance of commercial ties with Russia. In 2018, in comparison with the figures for 2013, it was reduced by more than three times, considered the Director of the Department of Economic Policy of the Federation of Employers of Ukraine Sergey Salivon. “At the same time, our export fell more than four times, import from Russia fell slightly less than three times,” he added.

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These calculations do not take into account the Russian gas that is purchased by Ukraine in Slovakia, Poland, and Hungary with surcharges for mediation.

“If to consider that we, after all, buy gas from Russia, then our export to Russia and our import from Russia dropped approximately by $11.5 billion. But $11.5 billion for Russia is less than 0.8% of its GDP, and for Ukraine it is 10% of GDP. I.e., the difference in losses is 13-fold,” noted Salivon. In other words, because of the decline in trade with Russia, Kiev lost 13 times more than Moscow did.

The five-year period of 2014-2018 undoubtedly is a failure for the economy of Ukraine and the citizens of its country, said the economist of “Ukrainian Choice” Aleksandr Koltunovich. The new economic model of integration proposed in 2014 by the EU and the severance of ties with the Russian Federation has not paid off. Thus, as Koltunovich considers, the volume of GDP was reduced from $183.3 billion in 2013 to $112.1 billion in 2017. In terms of economy volume, Ukraine was overtaken even by 10-million [population – ed] Hungary (139 billion).

Even more clear is GDP per capita. In all global rankings Ukraine trudges at the end of the list. Even the countries of North Africa are richer than Ukraine.

“Ukraine is de facto the poorest country in Europe. In terms of GDP per capita we were overtaken by Moldova, and we in turn are above Papua New Guinea. Now Moldova claims 133rd place in the world with $2690 of GDP per capita, and Ukraine is in 134th place with $2660. The GDP per capita of Ukraine is 10.3 times less than the indicator for the countries of Europe ($27,000) and 4.5 times lower than the countries of East Asia ($12,000), and is also lower than North Africa ($3,000). This is what Ukraine really is in economic terms, and this is unacceptable with such a high intellectual and innovation potential,” noted Koltunovich.

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In the 1990s Ukraine was among the top-10 most industrialised countries in the world. In 1991 its economy was the 60th best in the world and, according to forecasts of the World Bank, towards the middle of the 2000’s the country was on course to enter the top-10 most developed states in the world. Now it is impossible even to dream of such things.

If after the collapse of the USSR Ukraine was a country with a high industrial and technological potential, then after 2017 its GDP was 61.5% of what it was in 1990, notes the Ukrainian expert. If in 1991 the role of industry accounted for 44% of the GDP of Ukraine, then today it is less than 20%. The specific weight of mechanical engineering in 1990 was 30.5% of the industrial production of the Ukrainian Soviet Socialist Republic, and now it fell to 14–15%.

After 2014 the legendary aviation company “Antonov”, the major plane-building company “Yuzhmash”, and many other industrial enterprises have passed through the worst of times.

A large-scale social crisis became the result of an economic fiasco, added Koltunovich. Ukraine claimed 7th place in the rating of Bloomberg for the top-10 most unfortunate states of the world. According to the UN, over 60% of its population are below the poverty line. The average monthly salary is only $313, i.e., one third less than it was in 2013 – $409. The minimum pension was reduced in half to $52 per month, whereas in 2013 it was $112.

At the same time, the cost of housing and communal services grew even seven times, domestic gas and heating prices rose even more. Many Ukrainians living in villages are forced to save on heating, in other words, to freeze in their own houses.

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It is always simpler to destroy than it is to build again. And without a multi-vector nature of the economic policy it will be impossible to return to the pre-crisis figures.

“Only the restoration of the destroyed cooperation ties with the CIS countries in the hi-tech sectors of industry will allow to increase Ukraine’s volume of export of goods to the CIS markets four times, or for $20 billion – up to $26 billion annually. The deepening of trade and economic ties with the countries of the EEU will allow to further increase Ukraine’s export of goods by $10 billion annually,” considers Koltunovich.

In addition, according to him, it is necessary to review the discriminatory conditions within the framework of the Free Trade Zone with the EU. Integration with the European Union is at an initial stage, it is necessary to move to a new level, to achieve the actual free movement of goods, services, and labour. So far the situation is such that Europeans can deliver to Ukraine any goods in an unlimited number and without duties, whereas for Ukraine there are restrictions in the form of a quota system for the most quick-selling export goods.

Lastly, Ukraine needs to develop its transit potential and trade with the countries of BRICS, SCO, and APEC, rather than focus on Europe alone.

Koltunovich considered that the implementation of these tasks will allow to increase export twofold from the current $43 billion to $80 billion and to increase the volume of GDP by 1.6 times – from the current $112 billion to $180-185 billion.

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