Opinion: The Uncertain Path to Ukrainian Economic Recovery
Source: Wikimedia Commons
[dropcap]It[/dropcap] has been just over a year and a half since Ukraine lost control of the Crimean Peninsula and in the time since, the economy has been in a state of emergency. The economic future of Ukraine is impossible to gauge given that it will be tied so closely to political developments in the years to come. This question might be best approached by evaluating the current state of Ukraine’s key industries, which unfortunately paints something far from a dynamic picture.
Ukraine has long been known within the Commonwealth of Independent States region as a center for technical innovation, heavy industry, and agriculture. Naturally, the economy has a heavy dependence on the export of goods and services, comprising 49.2% of GDP according to the World Bank. Given this reliance on exports, it is far from helpful that bilateral trade with Russia outweighs that of Ukraine’s next 6 largest trading partners combined.
The hardest hit industry in this case also happens to be the one with the greatest potential to spur national wage growth. This industry is composed of some of Ukraine’s largest firms, including technical juggernauts such as Motor Sich and Yuzhmash who produce helicopter and rocket engines, respectively. Motor Sich has seen much of its business in Russia disappear as politicking and legislation has led to lost contracts. One of its key clients, Mil, is phasing out Motor Sich’s product line in favor of a domestic supplier, Klimov. Yuzhmash is in a dire position as well, as sales have fallen to $28 million down from $1.7 billion in 2011.
Ukraine’s commodity-based industries are also in a tenuous position with global resource prices at historic lows.. Food prices have fallen to multi-year lows and steel and coal markets have been battered by oversupply, largely due to overproduction of steel in China and reduced demand in the power generation market for coal.
According to Khrystyna Levytska, a Ukrainian citizen currently studying at Georgetown University (MSB 2017), there is reason to be conditionally hopeful.
She cited agribusiness as a bright spot, given Ukraine’s history as Europe’s “breadbasket with its rich soils and favorable climate.” She also believes that in the long term, the creation of “free trade” agreements and “non-tariff barriers” with the European Union are possible, allowing Ukraine to wean itself from Russia.
She spoke of an absolute end to the conflict as a prerequisite for a real recovery, as it will help “bring back investors … who left due to high risks from the war” and allow the country to shift its focus from military matters to domestic economic competitiveness. While there is justification for cautious optimism, it is difficult to see Ukraine replacing Russia as its major trading partner in the longterm, given that it will likely be difficult to secure trade agreements with the EU.