Pro-Russian oligarchs have begun a serious push to
persuade Ukrainians that the only way to a better life is to renew “torn”
economic ties with Russia. This flies in the face of facts on the
ground
In a while, September 2016 could be recognized as the
time when a new front opened in Russia’s hybrid war. A huge campaign has just
unfolded to “renew economic ties with Russia,” as a supposed panacea for
Ukraine in its difficult socio-economic situation. Pubic opinion is
actively been bombarded with a myth about how the economic crisis and the
falling standard of living are the result of Ukraine’s economy turning more
towards the West.
But the claims being
disseminated in the press are completely contradicted by facts. For instance,
Ukraine lost the Russian market because of its association with the EU. Or
Ukrainian manufacturers have no chance of making it on European markets and the
reorientation towards EU markets is turning Ukraine’s economy into a producer
of raw materials. With the help of such statements, Ukrainian society, worn
down by social problems, is being seduced by the promise of a “simple”
solution: rejecting the policy of mutual sanctions and restoring trade ties
with Russia—supposedly broken at Ukraine’s initiative—could compensate the
economic losses of recent years and restore the standard of living that
Ukrainians had prior to the start of Russian aggression.
Initially, the press was
warmed up with a series of announcements whose contents were in the tradition
of Russian lobbyists among current and former Opposition Bloc members, such as
Yevhen Murayev, Vadym Novinskiy, Yuriy Boyko, Oleksandr Vilkul, and Mykola
Skoryk. Murayev’s NewsOne channel has been busy spreading manipulated surveys
among its viewers, promoting the opinion that “more than 75% of respondents
want to restore economic relations with Russia.”
Meanwhile, other members of the previous regime have
begun to join them, such as deputy leader of Vidrodzhennia [Rebirth] Vitaliy
Khomutynnik, who is linked to tycoon Ihor Kolomoyskiy; MP from the Volya Narodu
[The Will of the People] deputy group Volodymyr Lytvyn, and Yakiv Bezbakh, an
independent MP who represents another oligarch in the Rada, ex-president Leonid
Kuchma’s son-in-law Viktor Pinchuk. The ranks of those actively lobbying for a
reversal of the country’s direction towards Russia are regularly filled by
people who had been quiet on this issue since the Euromaidan.
Pinchuk himself, judging
by the activeness of Bezbakh and frequent reports on this issue on his
television channel, ICTV, also became one of the main organizers of the
so-called “International Economic Forum” at the Kyiv Hilton, right next to the
main sponsors from the OppBloc. Taking place on September 21, the event came
almost immediately after the Pinchuk-funded Yalta European Strategy or YES
Summit, and was clearly a manifesto rejecting European integration and
returning to the Kuchma era “multivectoral” policy, with a special accent on
restoring “vitally important” economic ties with Russia.
The IEF gained its
status as ‘international’ thanks to the fact that MEPs of clearly pro-Russian
orientations, representatives of the embassies of Russian satellites in the
Eurasian Union—Belarus, Kazakhstan and Kyrgyzstan—participated in it, alongside
Ukrainian MPs, the deputy Minister of Justice, and department heads from the
Ministry of Economic Development, the Finance Ministry, the State Fiscal
Service, and a number of ex ministers.
According to one attendee, Romanian MEP Laurenţiu
Rebega said, “Ukraine is not moving towards economic recovery today. The time
has come for the Government of Ukraine to restore ties with Russia. The old
Ukrainian-Russian partnership, which has suffered since 2014, could offer a new
way out of the crisis for the sake of a stable future and economic growth. This
is the only thing that will pull Ukraine out of the general crisis it is in.”
Some old Ukrainian faces
came out at the forum as well, such as Yevhen Chervonenko, once Viktor
Yushchenko’s closest confidant and a former minister of transport who owned a
major trucking and beverages company called Orlan. “If we acted normal, dialog
with Russia would be possible,” he said. “Europe doesn’t need us and it’s not
going to let us enter its markets.” Another former Cabinet member, ex-economy
minister Viktor Suslov claimed that Ukraine’s economy was on a downward slid
and was becoming a raw material economy, while Europe was putting pressure on
Ukraine to export raw materials rather than finished products.
At the conclusion of the
event, a resolution was passed stating that it was necessary to restore trade
and commercial ties with Russia and addressed to the President, PM and VR
Speaker. The basic message of the document was this: “Ukraine should espouse a
multivectoral foreign policy approach and restore economic relations with
traditional markets by setting up an inter-government group with Russia.” This
was the initiative of that same Yakiv Bezbakh, who declared adamantly, “From an
economic point-of-view, Ukraine cannot function normally without its
traditional markets. We need to revive cooperation because that’s our future.”
Myths and facts
In fact, statements
about Ukrainian deliveries to Russia being cut back because of a “break in
economic relations” after the Euromaidan or after the signing of the
Association Agreement with the EU are a complete myth. Trade between the two
countries has been falling apart for a long time as a result of objective
processes that are either completely unrelated to the Revolution of Dignity or
are only very indirectly related. In any case, there was never any “break”
initiated by Kyiv, with the exception of MIC production.
And so no “miraculous
effect” can be anticipated from restoring these ties, contrary to the claims of
this fifth column and no panacea for the domestic economy, in fact. All that
this really is, is a convenient slogan propagandizing the stereotypical
thinking of certain elements in Ukraine’s population.
Ukraine’s suppliers were
squeezed out of the Russian market as part of a long-term strategy of import
substitution in the RF. In addition, because part of Ukraine’s manufacturers
are stuck on Russian and post-soviet markets instead of looking for
opportunities to compete on world markets for the last decades, they have
understandably lost their competitive edge even in the Russian market. All this
was compounded more recently by problems in Russia’s own economy and resulted
in overall cutbacks in imported goods.
The objective reasons were compounded by various
Russian-instigated trade wars that banned key Ukrainian products from its
markets and eliminated those suppliers, the purpose of which was to force
Ukraine to make concessions and eventually give up its sovereignty. All of this
began long before the Euromaidan or the signing of the Association Agreement
and were the result of Russia’s own hostile attitude to relations with
Ukraine—a stick-and-carrot approach intended to reach key Moscow goals that
relied on the stick more often than not.
And so the minimum that
would be needed to change the long-term negative trends in Ukrainian-Russian
bilateral relations would be complete capitulation by withdrawing from the
Association Agreement and integrating into the Eurasian Union—something Ukraine
would never agree to. Any other negotiations or concessions would do nothing to
stop Russia’s discriminatory practices against Ukrainian imports.
Facts are such stubborn creatures
If we compare the volume of exports from Ukraine to
Russia before and after the Euromaidan and the signing of the Association Agreement, we can see
The greatest decline in exports to the RF was, in
fact, from Donetsk and Luhansk Oblasts, Crimea and Sevastopol. In the first
seven months of 2013, they constituted US $2.44bn, while during the same period
of 2016 they were only US $0.32bn or about one eighth. However, these losses
have nothing to do with a “breaking of economic ties,” but with Russia’s
aggression against Ukraine. What’s more, the decline of US $2.12bn from these
oblasts to overall exports to the RF in this case was not as significant, as
the decline of US $8.2bn in all Ukrainian exports to all trading partners over
January-July 2016, compared to the same period of 2013.
If we compare exports to
Russia from Ukrainian territory outside of occupied Crimea and war-torn Donbas,
over January-July 2016, they were worth US $1.56bn versus US $6.5bn over the
same period of 2013. But most of that loss is not connected to “a break in
economic links” between Ukraine and Russia, and so they cannot be compensated
for even if ties are “restored,” the way the fifth column would have Ukrainians
believe.
According to figures from the Federal Customs Service
of Russia, all Russian imports in that time also declined by 50%, dropping from
US $179.3bn to US $94.8bn. As prices for fuels and other resources that Russia
relies on fell on world markets, consumer spending among Russians also went
down as their purchasing power shrank, although prices on many of goods also
went down during this period. Even among Customs Union members, where there was
ostensibly no “break in economic links,” imports to the RF over January-July
2016 were also down by around 50%, to US $6.94bn, compared to US $13.34bn in
the same period of 2013.
In short, no matter what
the circumstances, Ukrainian exports to Russia would have fell by nearly half
during this period—more, in fact, since heavy machinery historically
represented a larger share of exports. This is the item in imports to Russia
from CIS countries that saw the greatest declines starting in 2013, when it
plummeted from US $8.66bn over January-July 2013 to US $2.39bn.
If we exclude Ukraine
from the CIS figure, then heavy machinery deliveries to Russia still fell by
67%, while deliveries from Ukraine fell by nearly 80%. This suggests that at
least half of Ukraine’s losses over this period wee the result of the overall
situation with imports from post-soviet countries. The other half was largely
the result of military activity in Donbas and the RF’s long-term strategy of
rejecting certain categories of Ukrainian-made products, such as locomotives.
First of all, over
January-July 2013, nearly US $1.2bn of the US $3.2bn of Ukraine’s exports to
Russia was locomotives, more than half of them made in Luhansk and Donetsk
Oblasts. By the same period of 2016, this figure was down to US $45mn, and none
of it came from the Donbas. Secondly, a steep and steady reduction of sales of
Ukrainian locomotives to Russia was evident even before the AA with the European
Union was signed and while the economic situation in Russia was still quite
positive: over 2013, US $450mn-worth less was bought than in the same period of
2011.
And the rest of Ukraine’s export industries
A similar situation can be seen with deliveries of
Ukrainian metals and metal products to the RF. According to DerzhStat data, 75%
of all the cut exports of ferrous metals over January-July 2016 compared to
2013 was originally from Luhansk and Donetsk Oblasts and occupied Crimea. When
these two factors are taken into account, it becomes obvious that the reduction
of Ukrainian metal deliveries on the Russian market was not at all tied to a
“break in economic relations,” but completely proportional to objective
circumstances that also affected deliveries from other CIS countries whose ties
to the RF hadn’t been “broken.”
In fact, foodstuffs were
the one category where the loss of deliveries to the Russian market compared to
other countries affected Ukrainian food processors the most and the least
proportionally in the last three years. Over the first seven months of 2016
they were delivering 3% of what they had delivered in 2013: US $51.8mn vs US
$1.75bn. On the other hand, Ukraine’s food producers have plenty of
opportunities to compensate these losses by moving to other markets.
Cuts in Ukrainian
deliveries of goods to the RF market in the vast majority of other branches
either matched overall reductions of similar imports to Russia or reflected the
cessation of trade from occupied Donbas and Crimea. The exceptions were
Ukraine’s chemicals and light industries, where the losses were more
significant.
If we exclude alumina,
which is produced near Mykolayiv by the Russian aluminum monopolist for its own
needs, deliveries of chemicals to the RF plunged from US $520mn over
January-July 2013 to US $140mn in the same period of 2016, down 73%, while
total imports of chemical products to Russia over this period went down by only
33%. Here, too, however, the high concentration of enterprises in the Donbas
and the lost of their competitive edge because of the growing cost of natural
gas had an impact. And some products were affected by a specific ban, in
addition to foodstuffs, from the RF coming into effect from January 1, 2016.
Deliveries of goods from
Ukraine’s light industry went down by 70% even though total imports of such
goods to Russia went down 43%. In short, the option of a widespread improvement
of Ukrainian deliveries to the Russian market is nothing more than wishful
thinking—or a fiction designed to fool people into believing that it will
somehow improve the Ukrainian economy.
The myths of Russian good will and EU exploitation
This is not the first
time The Ukrainian
Week has concluded that any attempt to come to an agreement
with Moscow in the framework of one “working group” or another will have no
positive impact on Ukraine whatsoever. An example of the futility of this was
the so-called “Brussels compromise” reached in September 2014, which postponed
the economic part of Ukraine’s Association Agreement with the EU by 15 months
in exchange for Russia curtailing restrictive measures against Ukrainian
imports.
In fact, deliveries continued to be steeply cut, falling from US
$733.1mn in September 2014 to US $464.0mn a year later. And once the economic
part of the AA came into force, the decline actually slowed down, declining
only to US $341.7mn one year later, in September 2016. Even this was largely
due to a ban on food imports to Russia after a Moscow embargo kicked in on
January 1, 2016.
In light of all this,
the attempts by the Kremlin’s fifth column in Ukraine today to lobby the
revival of economic ties could be a reflection of Moscow’s loss of its
traditional instruments for pressuring Ukraine through trade-based blackmail.
It has simply run out of the means of applying such pressure on its neighbor.
To a large extent, this is testimony of the fact that Russia has lost in its
permanent trade war against Ukraine: it failed to achieve its objectives and
its options for continuing the war have been exhausted.
This means that the way
to improve the socio-economic situation in Ukraine lies, not through pointless
efforts to turn back the clock, as the fifth column keeps proposing, but in
actively looking at opportunities to replace the permanently lost Russian
market with new niche markets in Europe and other promising domestic and
foreign markets. Whining about Ukrainian products not being needed on EU or
third country markets simply reflects the reluctance of pro-Russian business to
change and become more flexible and adaptable.
Those companies that want to and
are putting the necessary efforts are gradually finding opportunities and
niches in the European market. It may be happening more slowly than one would
wish, but Ukraine is also integrating into the production cycles of leading
translational corporations.
Certainly deliveries to
the EU are affected by quotas and caps, but this mainly affects agricultural
products, the “commodity-based” that the fifth column so likes to
complain about. In other words, the EU is actually making it harder for Ukraine
to export raw materials and is not setting up any obstacles to the delivery of
most finished goods from Ukraine.
Relations with the EU are the subject of a
separate article, but the key elements can be briefly set out: Ukrainian
exports to the EU shrank only 6.1% over 2013-2015, from €12.5bn to €11.73bn,
mostly as the export of raw materials was reduced. For instance, mineral exports
fell by 38.9%, oilseeds by 38.2%, and unfinished ferrous metals by 22.8%.
Meanwhile, deliveries of aircraft rose 160%, processed meat and fish increased
150%, glass products 140%, shipbuilding products 110%, transport vehicles 80%,
alcoholic and non-alcoholic beverages 70%, furniture 50%, instruments and tools
went up 36%, sugar and confectioneries 35%, cocoa products 30%, electronics
15%, and other machinery and equipment 8%.
The fact that Ukraine’s
exports to the EU really are currently dominated by raw materials is a
reflection of the reality on the ground long before the Association Agreement
went into effect. But the outcome is the exactly opposite trend: active growth
of deliveries of finished, mostly industrial, goods as deliveries of raw materials
shrink.
Clearly, a certain part
of Ukrainian “business” is hung up on “traditional markets” and the
exploitation of outmoded soviet industrial facilities it took over long ago and
is incapable of starting up or growing new businesses. None of this is related
to the EU or the Association Agreement. In fact, these businesses would not
even need to necessarily compete on European markets with European companies:
it would be more than enough if they simply looked to Asian markets and
competed in markets outside the European Union.
Translated by Lidia Wolanskyj
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