News / Europe

Ukraine Faces Hard Road to Economic Recovery

A member of a Ukrainian self-defense unit attaches stickers during a rally outside an office of Alfa bank in Kyiv, March 26, 2014. Participants were demanding that people stop using the services of Alfa bank, which has Russian origin, according to organizers.
A member of a Ukrainian self-defense unit attaches stickers during a rally outside an office of Alfa bank in Kyiv, March 26, 2014. Participants were demanding that people stop using the services of Alfa bank, which has Russian origin, according to organizers.
Smarting from Ukraine's U-turn towards Europe, Russia is likely to employ every weapon in its economic arsenal to ensure its neighbor's road to financial recovery is as painful as possible, even when paved with billions of dollars in Western aid.
After months of anti-government protests and the overthrow of a government blighted by corruption and economic mismanagement, Ukraine is on the brink of bankruptcy, running wide external deficits and a current account shortfall of over 9 percent of gross domestic product.
On Thursday, the International Monetary Fund threw a financial lifeline, agreeing to stump up $14-18 billion as part of a two-year bailout package in exchange for tough economic reforms.
The deal, combined with Kyiv’s signing of a cooperation pact linked to closer trade ties with the European Union, represents a serious blow to Russian President Vladimir Putin's dream of Ukraine joining a Eurasian Union of former Soviet states.
Moscow will not make it easy.
Russia has “the right to use selective protective measures against Ukraine if it creates a free trade zone with a third government, or for example with the European Union,” a Russian economy ministry spokesman said in response to a question from Reuters.
Ukraine is already feeling some consequences from its break with Russia. Prime Minister Arseny Yatseniuk said on Wednesday the price the country would pay for Russian gas, which accounts for over half of Ukrainian gas imports, would soar by almost 80 percent from April 1 as the seizure of Crimea had rendered a cheaper gas deal obsolete.
Russia's Gazprom has suggested a new conflict over gas payments and supplies - like disputes in 2006 and 2009 that halted supplies to Ukraine and onward to Europe - could break out, though it added it had no interest in a resumption of such disputes.
“The better off Ukraine is under the new government, the more likely it will integrate into the West,” said Nicu Popescu, senior analyst at the EU Institute for Security Studies (EUISS).
“So disrupting the Ukrainian transition in political and economic terms is probably Russia's primary foreign policy goal in the foreseeable future.”
Putin's annexation of Crimea, which Kiev and the West say is illegitimate, is likely to push Ukraine's gross domestic product (GDP) down by 5 percent in 2014, according to Simon Mandel, Vice President for Emerging Europe at New York-based brokerage Auerbach Grayson.
While the tens of thousands of Russian troops thought to be massed on the border show no immediate sign of entering other parts of Ukraine, Russia has already flexed its trade muscles to upset the Western-backed Ukrainian recovery plan.
Blood and sweat
Last year Putin showed he was prepared to wield restrictions or bans on Ukrainian exports as punishment for attempts by the country of 46 million to move out of Moscow's orbit.
With exports to Russia accounting for nearly a quarter of Ukrainian external trade and contributing around 8 percent of GDP, further moves could significantly inhibit the country's bid for economic renaissance.
It would take a lot of “blood and sweat” for many Ukrainian companies to withstand any Russian trade ban, Vice President of the European Bank for Reconstruction and Development (EBRD) Andras Simor told Reuters.
“They will need to be flexible if circumstances create a need for adjustment,” he said. “We will be there to try and help them as much as possible.”
Cementing Kiev's historic shift away from Russia, a bilateral free-trade agreement between Ukraine and the European Union is due to come into force later this year, and Russian trade officials have expressed concerns over closer Ukrainian association with the European bloc.
Russia's milk union has asked for a ban on Ukrainian dairy products, and while no bans are in the works, imports from Ukraine are being monitored closely, according to the assistant to the head of Russia's veterinary oversight agency Rosselkhoznadzor.
“There are no plans to impose restrictions on trade, but we must be prepared for the fact that we will impose restrictions if ... Ukraine is not able to fulfill its obligations due to the political situation in the country,” Rosselkhoznadzor's Alex Alexeenko told Reuters.
Dairy products account for only a fraction of Ukraine's sales to Russia, but all Ukrainian exporters will be anxiously eyeing Russia's trade stance, particularly industrial producers in the east.
Russia accounts for 13 percent of Ukraine's iron and steel exports, and the political crisis has already hit shipments from Ukrainian steelmakers this year.
Sales of rebar - a steel bar or mesh of steel wires  used in reinforced concrete - to the Commonwealth of Independent States (CIS), a bloc of former Soviet states, fell 70 percent to 45,000 tons in January compared with the average monthly export figure in the first half of 2013.
Russian steelmakers have aggressively lobbied their government to implement measures to defend domestic producers from Ukrainian imports.
A spokesman for Ukraine's largest steelmaker, Metinvest , which controls about half of the country's steel industry, said expanding its sales markets was a priority.
However, the steel industry has been battling low prices and weaker demand for the past three years, complicating potential diversification efforts.
“Tough competition on the international steel market makes the chance of (steelmakers) expanding their export market presence very low,” Eavex Capital metals analyst Ivan Dzvinka said in Kiev.
Social tensions
The free-trade agreement (FTA) between Ukraine and the European Union, due to be signed after a presidential election on May 25, is unlikely to help many of Ukraine's industrial producers whose output is focused on the Russian market.
Manufacturers of train carts and turbo engines, which together account for 2.5 percent of Ukraine's total exports, will be hit particularly hard.
“Re-orienting  these industries to Europe would be nearly impossible without very heavy investment, which means production and exports could be lost in the short term,” Nomura analysts said in a note.
However, what Ukraine stands to gain from the EU trade agreement could become apparent in the longer term as it aims to help the country create new businesses and modern industries and become a destination for European manufacture.
“The point of the FTA is not to make it possible for Ukraine to export Soviet-era tractors to Europe. That's not going to happen. But it could eventually lead to Ukraine becoming a producer of Peugeots, Volkswagens, fridges or Nokia telephones,” the EUISS's Popescu said.
With most of the country's heavy industry located in eastern Ukraine, recently the focus of violent pro-Russian rallies, any trade restrictions could also have political implications.
“Social tensions could rise if businesses are forced to cut output, leaving people without salaries,” said Lydia Shynkaruk of Kiev's Institute of Economic Forecasting.
At the Red October factory in the eastern city of Kharkiv, marketing manager Dmitry Laptev said the facility, which sells 70 percent of the brick factory machinery it produces to Russia, was yet to experience any trouble with exports.
“The only issue would be if they completely shut the border to all Ukrainian products, then that would hit us, of course. It would hit everyone,” he said, standing among rusting machinery overshadowed by a Soviet mural with the slogan 'My factory is my honor'.

You May Like

US, China Have Dueling Definitions of Cybersecurity

Analysts say attribution or or proving that a particular individual or government is responsible for a hack, is a daunting task More

Snowden: I'd Go to Prison to Return to US

Former NSA contractor says he has not received a formal plea-deal offer from US officials, who consider him to be a traitor More

Goodbye Pocahontas: Photos Reveal Today's Real Native Americans

Weary of stereotypes, photographer Matika Wilbur is determined to reshape the public's perception of her people More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Russia’s Syria Involvement Raising Concerns in Europei
Luis Ramirez
October 02, 2015 4:45 PM
European nations are joining the United States in demanding that Russia stop targeting opposition groups other than the Islamic State militants as Russian warplanes continue to conduct raids in Syria. The demand came in a statement from Britain, France, Germany, Qatar, Saudi Arabia, Turkey and the United States Friday. VOA Europe correspondent Luis Ramirez reports.

Video Russia’s Syria Involvement Raising Concerns in Europe

European nations are joining the United States in demanding that Russia stop targeting opposition groups other than the Islamic State militants as Russian warplanes continue to conduct raids in Syria. The demand came in a statement from Britain, France, Germany, Qatar, Saudi Arabia, Turkey and the United States Friday. VOA Europe correspondent Luis Ramirez reports.

Video First Self-Driving Truck Debuts on European Highways

The first automated semi-trailer truck started its maiden voyage Friday, Oct. 2, on a European highway. The Daimler truck called 'Actros' is the first potentially mass-produced truck whose driver will be required only to monitor the situation, similar to the role of an airline captain while the plane is in autopilot mode. VOA’s George Putic reports.

Video Nano-tech Filter Cleans Dirty Water

Access to clean water is a problem for hundreds of millions of people around the world. Now, a scientist and chemical engineer in Tanzania (in East Africa) is working to change that by creating an innovative water filter that makes dirty water safe. VOA’s Deborah Block has the story.

Video Demand Rising for Organic Produce in Cambodia

In Cambodia, where rice has long been the main cash crop, farmers are being encouraged to turn to vegetables to satisfy the growing demand for locally produced organic farm products. Daniel de Carteret has more from Phnom Penh.

Video Migrant Influx Costs Europe, But Economy Could Benefit

The influx of hundreds of thousands of refugees and migrants is testing Europe’s ability to respond – especially in the poorer Balkan states. But some analysts argue that Europe will benefit by welcoming the huge numbers of young people – many of them well educated and willing to work. Henry Ridgwell reports from London.

Video Botanists Grow Furniture, with Pruning Shears

For something a bit out of the ordinary to furnish your home, why not consider wooden chairs, crafted by nature, with a little help from some British botanists with an eye for design. VOA’s Jessica Berman reports.

Video New Fabric Helps Fight Dust-Related Allergies

Many people around the world suffer from dust-related allergies, caused mainly by tiny mites that live in bed linen. Polish scientists report they have successfully tested a fabric that is impenetrable to the microscopic creatures. VOA’s George Putic has more.

Video Burkina Faso's Economy Deeply Affected by Political Turmoil

Political turmoil in Burkina Faso over the past year has taken a toll on the economy. The transitional government is reporting nearly $70 million in losses in the ten days that followed a short-lived coup by members of the presidential guard earlier this month. The crisis shut businesses and workers went on strike. With elections on the horizon, Emilie Iob reports on what a return to political stability can do for the country's economic recovery.

Video Fleeing Violence, Some Syrians Find Refuge in Irbil

As Syrians continue to flee their country’s unrest to seek new lives in safer places, VOA Persian Service reporter Shepol Abbassi visited Irbil, where a number Syrians have taken refuge. During the religious holidy of Eid al-Adha, the city largely shut down, as temperatures soared. Amy Katz narrates his report.

Video Nigeria’s Wecyclers Work for Reusable Future in Lagos

The streets and lagoons of Africa's largest city - Lagos, Nigeria - are often clogged with trash, almost none of which gets recycled. One company is trying to change that. Chris Stein reports for VOA from Lagos.

Video Sketch Artist Helps Catch Criminals, Gives a Face to Deceased

Police often face the problem of trying to find a crime suspect based on general descriptions that could fit hundreds of people in the vicinity of the crime. In these cases, an artist can use information from witnesses to sketch a likeness that police can show the public via newspapers and television. But, as VOA’s Greg Flakus reports from Houston, such sketches can also help bring back faces of the dead.

Video Thailand Set to Build China-like Internet Firewall

Thai authorities are planning to tighten control over the Internet, creating a single international access point so they can better monitor content. VOA Correspondent Steve Herman reports from Bangkok on what is being called Thailand’s own "Great Firewall."

Video Croatian Town’s War History Evokes Empathy for Migrants

As thousands of Afghanistan, Iraqi and Syrian migrants pass through Croatia, locals are reminded of their own experiences with war and refugees in the 1990s. VOA's Daniel Schearf reports from the town of Vukovar, where wartime scars still are visible today.

Video Long Drought Affecting California’s Sequoias

California is suffering under a historic four-year drought and scientists say even the state's famed sequoia trees are feeling the pain. The National Park Service has started detailed research to see how it can help the oldest living things on earth survive. VOA’s George Putic reports.

VOA Blogs