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.
Reuters
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

Karzai's Legacy: Missed Opportunities?

Afghanistan's president leaves behind a much different nation than the one he inherited, yet his legacy from 13 years in power is getting mixed reviews More

Secret Service Chief Under Fire for White House Security Breach

Julia Pierson faces tough questions from lawmakers after recent intrusion at White House, says: 'It is clear that our security plan was not executed properly' More

Frustrated, Liberian Students Want Ebola Fight Role

Thousands have volunteered to go to counties, rural villages to talk to people in their language about deadly virus More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Malaysia Struggles to Stop People Joining Jihadi
X
Mahi Ramakrishnan
September 30, 2014 2:16 PM
Malaysian authorities say militant groups like the so-called "Islamic State" have used social media to entice at least three dozen Malaysian Muslims to fight in what they call "jihad" in Syria and Iraq. As Mahi Ramkrishnan reports from Kuala Lumpur, counterterrorism police are deeply worried about what could happen when these militants return home.
Video

Video Malaysia Struggles to Stop People Joining Jihad

Malaysian authorities say militant groups like the so-called "Islamic State" have used social media to entice at least three dozen Malaysian Muslims to fight in what they call "jihad" in Syria and Iraq. As Mahi Ramkrishnan reports from Kuala Lumpur, counterterrorism police are deeply worried about what could happen when these militants return home.
Video

Video Could US Have Done More to Stop Rise of Islamic State?

President Obama says airstrikes against Islamic State militants in Syria will likely continue for some time because, in his words, "there is a cancer that has grown for too long." So what if President Obama had acted sooner in Syria to arm more-moderate opponents of both the Islamic State and the Syrian government? VOA State Department Correspondent Scott Stearns reports from the United Nations.
Video

Video Treasure Hunters Seek 'Hidden Treasure' in Central Kenya

Could a cave in a small village in central Kenya be the site of buried treasure? A rumor of riches, left behind by colonialists, has some residents dreaming of wealth, while others see it as a dangerous hoax. VOA's Gabe Joselow has the story.
Video

Video Iran's Rouhani Skeptical on Syria Strikes

Iranian President Hassan Rouhani expressed skepticism Friday that U.S.-led airstrikes in Iraq and Syria could crush Islamic State militants. From New York, VOA’s Margaret Besheer reports the president was also hopeful that questions about Iran’s nuclear program could be resolved soon.
Video

Video US House Speaker: Congress Should Debate Authorization Against IS

As wave after wave of U.S. airstrikes target Islamic State militants, the speaker of the Republican-controlled House of Representatives says he would be willing to call Congress back into session to debate a formal, broad authorization for the use of military force. VOA’s Michael Bowman reports from Washington, where legislators left town 10 days ago for a seven-week recess.
Video

Video Ebola Patients Find No Treatment at Sierra Leone Holding Center

At a holding facility in Makeni, central Sierra Leone, dozens of sick people sit on the floor in an empty university building. They wait in filthy conditions. It's a 16-hour drive by ambulance to Kailahun Ebola treatment center. Adam Bailes was there and reports on what he says are some of the worst situations he has seen since the beginning of this Ebola outbreak. And he says it appears case numbers may already be far worse than authorities acknowledge.
Video

Video Identifying Bodies Found in Texas Border Region

Thousands of immigrants have died after crossing the border from Mexico into remote areas of the southwestern United States in recent years. Local officials in south Texas alone have found hundreds of unidentified bodies and buried them in mass graves in local cemeteries. Now an anthropologist and her students at Baylor University have been exhuming bodies and looking for clues to identify them. VOA’s Greg Flakus has more from Waco, Texas.
Video

Video Ebola Robs Liberians of Chance to Say Good-Bye to Loved Ones

In Liberia, where Ebola has killed more than 1,500 people, authorities have worked hard to convince people to allow specialized burial teams to take away dead bodies. But these safety measures, while necessary, make it hard for people to say good bye to their loved ones. VOA's Anne Look reports on the tragedy from Liberia.
Colonel Steve ‘Spiros’ Pisanos left Greece and came to the U.S. to learn to fly. He flew fighters for the Allies in World War II, narrowly escaping death multiple times.Colonel Steve ‘Spiros’ Pisanos left Greece and came to the U.S. to learn to fly. He flew fighters for the Allies in World War II, narrowly escaping death multiple times.

AppleAndroid