Russia and Ukraine have spent most of their post-Soviet history as
Siamese twins, but for the last two years they've been undergoing political and
economic separation surgery. It will probably be more or less complete in 2016,
and though both twins are in for a grim period, the weaker one,
Ukraine, has the better prospects in some ways.
Ever since Ukraine declared independence in August 1991, it sought to
establish an identity that would set it apart from Russia. Its second
president, Leonid Kuchma, even published a book called "Ukraine Is Not
Russia" in 2003. In practice, however, Ukraine kept following its bigger
neighbor even through its failed Westernization period of 2005 to 2010. It
inherited the same basis for its legal system and government -- the Soviet
bureaucracy -- and even attempted reforms often imitated Moscow's moves. When I
moved from Moscow to Kiev in 2011, I felt no discomfort: Everything, from
bureaucratic procedures to the pervasive corruption that made a mockery of
them, was largely the same in the two countries.
Economically, Ukraine remained Russia's colony. In 2013, its trade
turnover with Russia, at $31.8 billion according to the official Ukrainian
statistics agency, reached 28 percent of its total trade. For Moscow, Ukraine
wasn't as important, but it was still its fifth biggest trading partner with a
5 percent share of turnover. That last peaceful year, 6.1 million Ukrainians,
out of a total population of 45.5 million, visited Russia, about two-thirds of
them to work. Only Poland, Ukraine's entry point to the EU,
received slightly more visitors.
Russian rulers got used to this. Even this year, Russian President
Vladimir Putin contended that "Russians and Ukrainians are one nation." It's no
longer true: The last two years, since Ukraine's "Revolution of
Dignity," the Russian annexation of Crimea and the Russian-backed
insurgency in eastern Ukraine, have seen perhaps the biggest breakup between
neighboring, closely interconnected countries in post-World War II history. In
2014, only 4.6 million Ukrainians traveled to Russia -- less than two-thirds as
many as to Poland. This year's statistics are not in yet, but another drop in
travel to Russia is highly likely, because Moscow has been tightening
regulations to make it harder for Ukrainian migrant workers to stay
indefinitely and because, as of last summer, there are no more direct flights
between the two countries. Besides, starting in mid-2016, Ukrainians will
be able to travel visa-free to the European Union, which will likely make travel
to Europe vastly more popular.
As for bilateral trade, it has plummeted:
Though both Russia and Ukraine have suffered declines in international
trade because of sharply devalued currencies (the ruble has lost 20 percent of
its value against the U.S. dollar this year, and the hryvnia lost 34 percent),
the decline in exports and imports between the two countries has been more
pronounced than with the rest of the world. For example, Ukraine's exports to
Russia stood at 44 percent of the 2014 level in the first 10 months of this
year, while total exports were at 67 percent.
Ukrainian businesses have fought to maintain sales to Russia, using a
free economic zone in Crimea that the two countries quietly maintained as a
window for cheap Ukrainian food. In the fall of 2015, though, Crimean Tatar and
right-wing Ukrainian activists cut off the traffic, and Kiev decided against
interfering. On the import side, Russian natural gas supplies have shrunk
because much of Ukraine's energy-intensive industry is in the war-torn east,
the winter has been mild and the government has managed to secure alternative
supplies from Europe.
Next year, the last vestiges of mutual dependence between Ukraine and
Russia will probably be destroyed by Moscow's decision to scrap the free trade
area with Kiev in response to the removal of trade barriers between Ukraine and
the EU. The two countries will keep fighting about the annexed territory, the
status of the rebel-held regions, and the $3 billion debt to Russia that
Ukraine recently refused to honor, but these festering disputes are just the
anticlimactic aftermath of a process that has been more drastic than any
divorce.
Both have been painfully depleted by the surgery.
Economically, Russia suffered much more from a low oil price than from
the economic sanctions imposed for its treatment of Ukraine -- those have
mainly forced its mammoth state firms to deleverage and cut useless
projects. Yet in response to the sanctions, the Putin government shot itself in
the foot, imposing a food embargo on Western countries. The decision has been a
disaster: Import substitution has failed to materialize because of an
oppressive business climate, and the restrictions on imports have crushed the
retail sector. Retail sales were down 13 percent year-on-year in November.
Russia's GDP will go down by 3.8 percent this year, according to the
Bloomberg consensus forecast, and the Kremlin's ham-handed response to
Ukraine-related ostracism is probably as much to blame for this as cheap
oil. It has hastened the end of the consumption-driven growth model that sustained Russia
through the last decade.
Ukraine, for its part, has lost about 3 million residents compared
with 2013, despite one of the worst natural population growth rates in the world. The Crimea
annexation is mainly to blame. Ukraine also saw a 20 percent decline in industrial
production, largely because the factories in the east stopped working.
This, of course, is a disaster for a country that was poor to start with
and that is now the poorest in Europe. Yet there is one good reason to
believe the steep fall has bottomed out: Russia has no appetite for further
military adventures in Ukraine. Recent month-on-month indicators show a
cautious rebound is already under way. Though this year, the Bloomberg
consensus forecast is for a 10.7 percent economic decline, economists believe
Ukraine will grow 1.4 percent next year. For Russia, a 0.2 percent decline is
forecast.
For Russia, the economic bottom is still nowhere in sight, and the
government has no good ideas on how to fix the economy during a commodities
downturn. Isolation and repression will remain the key words of 2016, as
Russians' patience is further tested with the decline of the consumer economy
they've grown used to.
While Russia will remain a much wealthier, stronger country than Ukraine
in 2016, Ukraine will be on a relative upswing even if it fails to do anything
about its stifling corruption and incompetent governance. It still has support
from the International Monetary Fund, despite recent squabbles over the 2016
budget and new tax laws, and it has agreed debt reductions and delays with most
of its creditors. The abolition of European visas will also provide a
much-needed morale boost.
Russia, of course, is far from a lost cause: It has rebuilt itself after
worse crises. Neither is Ukraine a likely big winner: Its political and
economic fabric may be too rotten for redemption. In 2016, however, Ukrainians
have more to look forward to than Russians.
No comments:
Post a Comment